How is privatization supposed to save money?

There was a discussion about the State of Florida leasing out Alligator Alley to a private firm to save money. Now, unless the state is wasting gobs of money on excess maintenance, or the private firm ups the tolls, how can simply changing the ownership of a toll road save money? The private company has to pay the state each month. I guess the state must know how much they can expect to collect each month and would not just leave a big pile of money on the table in negotiations. But I’ve been wrong before…

I do not know the particulars but you need to look at the whole picture.

As an example (again, I do not know the details) the state may be obliged to pay health benefits and retirement benefits and higher wages and find it very difficult to fire anyone regardless of cause and save money on administration (HR, payroll, etc.) and so on.

A private firm can skimp on health benefits, fire people for whatever reason, ignore retirement benefits and so on.

On balance they, presumably, could run the toll road for less money and pocket the difference.

That or could be plain old graft. Governor’s brother-in-law runs a company that wants this contract or something. :wink:

For example, the price per worker at GM was significantly higher than at Japanese factories on American soil. Same job, different price.

If a group is essentially bound to unprofitable rules, they’ll end up unprofitable. Getting them to where they can throw off those shackles, frees them up to spend less.

Whether that means union-busting, privatizing, subsidizing, or nationalizing, really just depends on the circumstances. And of course in any case of any of those, the economics of the situation might not be the real issue and rather it’s just someone doing something sort of sleazy.

Privatizing is just another way of paying your employees less. You make them second-hand employees, and thus can’t be blamed for not paying them a living wage, no benefits, etc.:rolleyes:

Since obviously everyone in the world is making less money than they are worth.

Huh? :confused:

I am not. (Well, a little, but that’s because I work for the gov’t and basically take a pay cut in return for job security)

But let us say you outsourced my job to ACME corp. Now, they got to make a profit, and overhead,right? Thus my replacement can only be paid like 60-70% of what I am earning.

In some few cases, privatisation can pay workers more than state employees.

State organisations are gernerally tied to pay spines, no matter how well or how poorly they work, they still get paid the same. You also have to remember that state workers are something of a political football - lots of politicians make capital out of slamming the very people who provide the support and services that make the reputation of the politician(but that’s another issue)

Point is, that when freed of these restrictions, it is possible for privatised workers to be paid for the amount of work they do, could be in production bonuses, or performance bonuses. Usually the private company will make do with less staff so there is more money to go around.

Some state organisations have real problems with staff retention because they are tied to certain wage agreements covering the whole of their organisation, in expensive cities especially. Private companies often pay more in such circumstances as they recognise that in high demand and high skill occupations, staff retention is more cost effective than the chaos of constant recruitment, training with the consequent chronic lack of experience as the talent takes up posts, gets that experience, and then moves on.

There is not one single job market out there, it depends on the skill, scarcity, mobility and demand.

This tends to be in the minority of privatisations, in theory it should be cheaper to direct employ staff, rather than contract out and pay for the service from a comp, which usually has higher paid managers, and directors, plus shareholders along with overheads such as loans and premises - things that state employers do not have. The only way to make up the differance ends up being fewer workers (usually a lot fewer managers - not a bad thing), lower wages, lower benefits.

Commercial pressures should also make the management structure and general overheads more streamlined for a private company compared to a government agency. Theoretically commercial pressure should make a private company leaner across the board, not just in terms of employee salaries. In reality it will depend on lots of things. The big one is whether there is actually a competing private company to apply commercial pressure. If it’s a privately run monopoly then you won’t see the expected savings.

One big reason that the privatisation of service contracts goes wrong is that the management that is inherited is not up to it, the other is the contract specification, which is often a long way out, with myriad small tasks not being recognised within the contract terms.

When these small tasks are not done, it can lead to a loss of confidence in the company plus someone still has to be paid to do these things.

Of course, the flip side of this is that you are able to accept or decline the amount they want to pay.

I don’t know about toll roads, but around here some local governments are selling and then leasing back some things, e.g., buildings and bridges. A big tax break for companies is depreciation but obviously a government can’t take depreciation. So the city of Riverdale sells the property to a company and then leases it back. They pay for the lease out of income generated from the payment. The company now gets to take depreciation (sometimes a clearly fraudulent amount) on the property. Riverdale wins, the company wins, the federal and state taxpayer loses.

At some point in the future of course the property is no longer economically maintainable by the company but that’s a problem for another generation of Riverdale officials.

If someone is willing to do the same job at 60-70% of what you’re earning, then you are overpaid.

I’m willing to drive companies into the ground for 60-70% of what they pay executives.

The problem with government is that it is inefficient. And the government knows it is inefficient. This is one of the primary reasons the government likes to “contract out” work instead of having government employees do it.

The reason for the inefficiency? It is very difficult to fire a government worker. And it’s even more difficult to fire or eliminate a group of government workers. The worst that will happen to a lazy and/or inefficient government worker is they’ll be transferred to another department.

A contractor, by contrast, can easily be fired by not renewing the contract. The contractor knows this, and therefore it has a strong incentive to be efficient and perform well.

Governmental agencies do not have the discipline and/or incentive to manage efficiently.

[GD]
In the free market (i.e. non-government and non-union jobs), everybody is paid what they’re worth for the most part. A CEO making $10M/year is worth… $10M/year. A supermarket bagger making $6/hour is worth… $6/hour. Wages are prices, and are (and should be) determined by supply and demand. In the interest of preserving our freedoms, it is very important that we do not disturb or alter this system.
[/GD]

? According to which right-wing talk show host?

Since you’re in GQ, please back that statement up with facts.

My guess is that it was an opinion. I also share the same opinion.

I have a, um… friend, who has worked for a government contractor throughout his professional life. He’s an engineer. He said that, when a government manager asks one of his government engineers to do something, there is a good chance it won’t get done. If it does get done, it will be extremely late, and there will likely be major cost overruns. There is no incentive for the government engineer to be responsive or efficient. When the same government manager asks my, um, friend to do something, he is right on it. Because he knows that, if he does a bad job, there’s a strong chance his company will not win the contract during the next RFP.

That’s an incredible facile way of looking at things. In essence you are saying that by definition any transaction that occurs in the free market is always at the right price. So if I buy something on EBay for $1,000 that sold last time for $50, and will sell next time for $50, then $1,000 is really what it was worth at that instant.

The free market will get things right in the long term, but not every thing that happens in a free market is correct in the short time. If the short term is my lifetime, then I want the govt to step in and try and mitigate damage.

Ironically, we are using computers to communicate over the internet. Computer Science had a huge shot in the arm from the British govt during WW II, transistors were developed by a US govt regulated monopoly (ATT), the internet was developed by ARPA, and IBM’s near monopoly was broken up by the govt and forced to unbundle HW and SW which led to Microsoft being able to sell DOS/Windows separate from the PC.

A public/private partnership has led to the amazing economic development of the US. I hope to god we can survive those who want to dismantle this entirely rather than have incremental improvment. My view is that govt intervention should be as little as necessary, but no less than that.

I abjectly apologize. A second hand anecdote sure told me off. I guess my decade+ experience of actually working in government was a fever dream since it taught me a very different lesson.

Let the anecdotal information soar!