# How is privatization supposed to save money?
**URL:** https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648
**Category:** Factual Questions
**Created:** [July 11, 2009, 4:37am UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648 "2009-07-11T04:37:14Z")
**Posts on this page:** 20
**Page:** 2
### Author:  [@Crafter\_Man](https://boards.straightdope.com/u/Crafter_Man)
#### Post date: [July 11, 2009, 2:29pm UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648/21 "2009-07-11T14:29:57Z")
Go to a government facility where there’s a roughly even mix of government workers and contractors. The differences between the government and contractor workers are like night and day.
---
### Author:  [@Crafter\_Man](https://boards.straightdope.com/u/Crafter_Man)
#### Post date: [July 11, 2009, 2:45pm UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648/22 "2009-07-11T14:45:44Z")
> [@DanBlather](#):
>
> 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 value of something is the price someone is willing to pay for it. If you buy something for $1000, then it is worth (at least) $1000 to you regardless of what someone else paid for it last week. Hence $1000 was a valid price. If you then turn around and sell it, and all you can get is $50, then it is worth $50 regardless of what you paid for it. Assuming you did a good job of advertising, of course.
“Worth” and “value” are not intrinsic qualities. The monetary value of something is solely determined by the highest bidder.
Here’s a better example. Let’s say ten years ago you bought your home for $200K. Now you want to sell it. You have documented that your home is worth $300K based on research (comps, appraisals, etc.). You \*intensely \*market your home for six months using a variety of means, yet the highest offer you receive is $150K.
So what is your house worth? Answer: $150K. It does not matter that comps and appraisals approximated the value at $300K. The value of your house is only what someone is willing to pay for it. Assuming you did a good job of advertising, of course.
---
### Author:  [@Rayne\_Man](https://boards.straightdope.com/u/Rayne_Man)
#### Post date: [July 11, 2009, 3:02pm UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648/23 "2009-07-11T15:02:16Z")
> [@SanDiegoTim](#):
>
> Governmental agencies do not have the discipline and/or incentive to manage efficiently.
So how come the privatised rail network in the UK now receives three times the government subsidy that the old nationalised British Rail ever did? Even then at least one company is struggling to make a profit and is handing the franchise back to the government and walking away from the deal.
It don’t sound very efficient to me.
---
### Author:  [@DanBlather](https://boards.straightdope.com/u/DanBlather)
#### Post date: [July 11, 2009, 3:03pm UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648/24 "2009-07-11T15:03:58Z")
> [@Crafter\_Man](#):
>
> The monetary value of something is solely determined by the highest bidder.
In the micro sense but not in the macro. The average of a number of tranasctions over time, when the buyer and seller have equal access to all the information, is the value.
---
### Author:  [@Crafter\_Man](https://boards.straightdope.com/u/Crafter_Man)
#### Post date: [July 11, 2009, 3:14pm UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648/25 "2009-07-11T15:14:30Z")
> [@DanBlather](#):
>
> In the micro sense but not in the macro. The average of a number of tranasctions over time, when the buyer and seller have equal access to all the information, is the value.
Information is definintely key. But the problem with averaging is that the value of something can (and will) change over time.
---
### Author:  [@HMS\_Irruncible](https://boards.straightdope.com/u/HMS_Irruncible)
#### Post date: [July 11, 2009, 3:21pm UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648/26 "2009-07-11T15:21:48Z")
Deleted - wrong thread
---
### Author:  [@Johnny\_L.A](https://boards.straightdope.com/u/Johnny_L.A)
#### Post date: [July 11, 2009, 3:23pm UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648/27 "2009-07-11T15:23:54Z")
> [@Crafter\_Man](#):
>
> 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.
[PATCO](http://en.wikipedia.org/wiki/Professional_Air_Traffic_Controllers_Organization_(1968)#August_1981_strike).
11,345 government workers fired two days after declaring a strike.
---
### Author:  [@Ruken](https://boards.straightdope.com/u/Ruken)
#### Post date: [July 11, 2009, 3:39pm UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648/28 "2009-07-11T15:39:01Z")
> [@Johnny\_L.A](#):
>
> [PATCO](http://en.wikipedia.org/wiki/Professional_Air_Traffic_Controllers_Organization_(1968)#August_1981_strike).
>
> 11,345 government workers fired two days after declaring a strike.
Well yes, breaking a law and imperiling national security makes it easier to get fired. This wasn’t simply a matter of poor performance.
---
### Author:  [@Johnny\_L.A](https://boards.straightdope.com/u/Johnny_L.A)
#### Post date: [July 11, 2009, 3:40pm UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648/29 "2009-07-11T15:40:46Z")
> [@Ruken](#):
>
> This wasn’t simply a matter of poor performance.
No, but the statement responded to was that it is ‘very difficult to fire a government worker. And it’s even more difficult to fire or eliminate a group of government workers.’
---
### Author:  [@Crafter\_Man](https://boards.straightdope.com/u/Crafter_Man)
#### Post date: [July 11, 2009, 3:40pm UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648/30 "2009-07-11T15:40:57Z")
> [@Johnny\_L.A](#):
>
> [PATCO](http://en.wikipedia.org/wiki/Professional_Air_Traffic_Controllers_Organization_(1968)#August_1981_strike).
>
> 11,345 government workers fired two days after declaring a strike.
Trust me on this, it almost takes an act of congress to fire a professional government worker (e.g. a government engineer working at a Navy base). I have seen the frustration of this first-hand.
By contrast, _ **not** _ awarding a follow-on contract to a contractor is a piece of cake. You simply… award it to someone else.
---
### Author:  [@Ruken](https://boards.straightdope.com/u/Ruken)
#### Post date: [July 11, 2009, 3:43pm UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648/31 "2009-07-11T15:43:35Z")
> [@Rayne\_Man](#):
>
> So how come the privatised rail network in the UK now receives three times the government subsidy that the old nationalised British Rail ever did? Even then at least one company is struggling to make a profit and is handing the franchise back to the government and walking away from the deal.
>
> It don’t sound very efficient to me.
I know little about this situation, but some ventures simply cannot be profitable no matter who runs them, either because they simply can’t be or because there are too many government-stipulated restrictions (e.g. being required to service routes that are infrequently used.) Also, I haven’t a clue how labor is regulated in GB, but it’s possible that a private company there doesn’t enjoy the same freedom and benefits as a private company in the US.
---
### Author:  [@DrDeth](https://boards.straightdope.com/u/DrDeth)
#### Post date: [July 11, 2009, 4:48pm UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648/32 "2009-07-11T16:48:44Z")
> [@Crafter\_Man](#):
>
> If someone is willing to do the same job at 60-70% of what you’re earning, then you are overpaid.
No, they have to now only be _willing_, but capable. I get paid more as I have been doing this job for almost 20 years. My replacement can’t possibly have any significant experience. In other words, you’re saying that management should constantly fire more experienced employees and replace them with new dudes, just because the new dudes are willing to work for less.:dubious:
---
### Author:  [@aldiboronti](https://boards.straightdope.com/u/aldiboronti)
#### Post date: [July 11, 2009, 4:58pm UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648/33 "2009-07-11T16:58:42Z")
> [@Rayne\_Man](#):
>
> So how come the privatised rail network in the UK now receives three times the government subsidy that the old nationalised British Rail ever did? Even then at least one company is struggling to make a profit and is handing the franchise back to the government and walking away from the deal.
>
> It don’t sound very efficient to me.
I was going to mention that myself. It’s an object lesson in how privatisation may actually end up costing the taxpayer far more. The taxpayer was also doubly screwed as he ended up paying far more as a customer too. (No competition between the rail companies as they all run separate regions.)
It is true though that the private companies which took over the cleaning of our hospitals from the public service do try their hardest to make a profit. The fact that those hospital are now the dirtiest in Western Europe could possibly be considered a drawback, but luckily that doesn’t figure in their profit/efficiency equation
---
### Author:  [@SmashTheState](https://boards.straightdope.com/u/SmashTheState)
#### Post date: [July 11, 2009, 5:05pm UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648/34 "2009-07-11T17:05:34Z")
1. Spend billions in public funds to build something.
2. Sell this to developers for $1.
3. …
4. Profit!
---
### Author:  [@Crafter\_Man](https://boards.straightdope.com/u/Crafter_Man)
#### Post date: [July 11, 2009, 5:12pm UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648/35 "2009-07-11T17:12:06Z")
> [@DrDeth](#):
>
> No, they have to now only be _willing_, but capable. I get paid more as I have been doing this job for almost 20 years. My replacement can’t possibly have any significant experience. In other words, you’re saying that management should constantly fire more experienced employees and replace them with new dudes, just because the new dudes are willing to work for less.:dubious:
Well, we’re getting into GD territory at this point.
As to your comments…
If management wants to pay less money for less output, lower efficiency, and/or less quality (due to the inexperience of new workers), then it is certainly free to do so. If it wants to maintain the current level of experience – and thus maintain the current level of quality and output – then it would be wise to keep you. Sadly, there are a lot of managers who don’t understand this, which I think is your point.
Some jobs, though, don’t depend a whole lot on experience. Take for example a guy on an assembly line that makes $30/hour installing lug nuts on wheels. He makes $30/hour because he’s worked there for 15 years. Should management hire a new guy to do the same job for $8/hour? Absolutely. It would only make sense to do so.
---
### Author:  [@DrDeth](https://boards.straightdope.com/u/DrDeth)
#### Post date: [July 11, 2009, 5:20pm UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648/36 "2009-07-11T17:20:23Z")
> [@Crafter\_Man](#):
>
> Some jobs, though, don’t depend a whole lot on experience. Take for example a guy on an assembly line that makes $30/hour installing lug nuts on wheels. He makes $30/hour because he’s worked there for 15 years. Should management hire a new guy to do the same job for $8/hour? Absolutely. It would only make sense to do so.
Then the wheels fall off…:rolleyes:
---
### Author:  [@Rayne\_Man](https://boards.straightdope.com/u/Rayne_Man)
#### Post date: [July 11, 2009, 6:01pm UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648/37 "2009-07-11T18:01:11Z")
> [@aldiboronti](#):
>
> It is true though that the private companies which took over the cleaning of our hospitals from the public service do try their hardest to make a profit. The fact that those hospital are now the dirtiest in Western Europe could possibly be considered a drawback, but luckily that doesn’t figure in their profit/efficiency equation
The same thing happened in the railway industry, especially to Railtrack - the private company set up to run the railway infrastructure. Surprisingly for an engineering-focused company there wasn’t one engineer on the board of directors, just accountants and so-called “experts” from outside the rail industry who thought they knew how to run a railway.
As the bottom line was their main concern, they set about cutting costs by deferring essential maintenance to the infrastructure. After a very short time the system was literally falling apart, cumulating in the Hatfield rail derailment which killed four people and injured dozens more. This particular accident was caused by a broken rail which “in the old days” would have been detected. Under the new regime it wasn’t, because planned maintenance on that section of line had been delayed to save money. And this wasn’t some tiny little branch-line with just a few trains, but the mail line between London and Edinburgh.
---
### Author:  [@The\_Tao\_s\_Revenge](https://boards.straightdope.com/u/The_Tao_s_Revenge)
#### Post date: [July 11, 2009, 6:07pm UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648/38 "2009-07-11T18:07:28Z")
> [@Crafter\_Man](#):
>
> [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]
Would your cite be the bargain known as the executives of AIG?
Less regulation sure worked good there. Didn’t it? Those crooks were worth every penny of their hundred million dollar salary.
Also, before unions and labor regulations industrialized America was a dangerous place full of 80 hour work weeks of dangerous work for low pay.
Do you feel someone from the era is more free then a modern worker?
If so what freedom is being infringed, and why is it meaningful?
---
### Author:  [@Crafter\_Man](https://boards.straightdope.com/u/Crafter_Man)
#### Post date: [July 11, 2009, 6:20pm UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648/39 "2009-07-11T18:20:43Z")
> [@The\_Tao\_s\_Revenge](#):
>
> Those crooks were worth every penny of their hundred million dollar salary.
The problem was government rules, pressure from the government, and government involvement. If AIG could operate in the free, competitive market, and be free from government rules and regulations, then an AIG manager making $20M/year is worth $20M/year.
> [@The\_Tao\_s\_Revenge](#):
>
> what freedom is being infringed, and why is it meaningful?
The freedom of a company to pay its workers whatever it wants.
This is a GD, BTW. It should not be continued in GQ.
---
### Author:  [@SmashTheState](https://boards.straightdope.com/u/SmashTheState)
#### Post date: [July 11, 2009, 6:24pm UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648/40 "2009-07-11T18:24:59Z")
> [@Crafter\_Man](#):
>
> The freedom of a company to pay its workers whatever it wants.
I smell the stench of Ayn Rand’s mouldering corpse wafting about this thread.
If a company is “free” to exploit the labour of people who have no access to the means of production as a result of the capitalists monopolizing it, then the workers are also free to organize and force the capitalists to relinquish some of their stolen wealth.
_“Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.”_ – **John Maynard Keynes**
[Previous page](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648.md?page=1)
[Next page](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648.md?page=3)