All Commentary
Tuesday, November 1, 1988

Privatization at the State and Local Level

Dr. Grunewald is Professor of Management at lona College in New Rochelle, New York.

Recently, I had the occasion to visit a domestic airline terminal in the United Kingdom. I was struck by the many improvements since my last visit to the same terminal four years earlier. It was cleaner and there were more amenities—several places to eat, an efficient luggage area, and even comfortable seating in the waiting area including seats one could lie down on if a plane were late.

When I inquired what had caused the change, I was told that the airports had been privatized by the Thatcher government—they are now in the private sector. Under private ownership, there is an incentive to provide better services to travelers. The profit motive works, especially when freed from the burden of a large bureaucratic public airport authority where no one seems to care about the traveler.

Since privatization of airports works in the United Kingdom, why not try it here? Imagine New York’s La Guardia Airport, for example, with travelers permitted to pay for parking via credit cards or with people-movers that actually were in operation to ease carrying baggage from the parking garage to the terminal. Privatization of our airport terminals through a sale of common stock would have the added benefit of permitting repayment of some bond issues, resulting in lower effective taxation to the general public which now pays for such facilities.

Privatization could well be extended to other areas of state and local authority. Privatization of public housing projects (this is being done now in the United Kingdom) through sale to tenants via cooperative or condominium ownership would lead to improved housing. Tenant owners would take more care of their apartments and common areas than do tenants in public housing.

Privatization also could be extended to public higher education. Many of our public colleges of higher education are agglomerated into large systems with an extensive bureaucracy which spends much of its time and energy coordinating tuff issues and handing out political patronage at the direction of local poli ticians.

For example, the City University of New York system has twenty presidents as well as many central officials such as a chancellor and a plethora of vice chancellors, assistant vice chancellors, and so on. If the City University were privatized into one or two independent institutions for each borough of New York, the entire central bureaucracy could be eliminated and much of the bureaucracy caused by the excess number of units could be done away with. The funds saved could be used to improve the quality of education, thus reducing the number of dropouts and enabling more graduates to read and write the English language. Hiring presidents on the Tammany system of dividing the jobs up by ethnic, religious, and other influences could be replaced by hiring presidents on the basis of merit.

Privatization of public systems of higher education could take two forms. Public colleges could be converted into institutions like independent private colleges which tend to be more cost effective and less subject to improper political influences. Alternatively, some of the public colleges could be privatized as proprietary institutions—with proceeds of sales of stock being used to help pay off the debt obligations of the public system. Proprietary higher education can be of high quality, as has been proven by such institutions as the School of Visual Arts in New York or the Arthur D. Little Management Institute in Massachusetts.

Privatization of some other institutions, such as hospitals, is already taking place in some areas of the country. Such privatization at thestate and local levels will benefit the public by improving the quality of the services. Owners will take better care of the properties involved and have more incentive to provide good service to users. Privatization also can improve the economic efficiency of such institutions as airports, housing, colleges, and hospitals because of the profit motive and through a reduction of politicization (such as hiring administrators for political masons) and a reduction in bloated and overpaid bureaucracies.

Privatization of such institutions has worked in the United Kingdom and elsewhere. It should be tried here. []

Ideas On Liberty

Free Needles

New York City officials have decided to distribute clean needles to intravenous drug users to combat the spread of AIDS. Will the program work.? Dean Herbert London of New York University, writing in the March 1988 issue of The London Letter, expresses a healthy skepticism:

“When it comes to the government’s AIDS initiatives, it is useful to recall what happens when the government gives anything away. We know, or should know that the blankets given to the so-called homeless are now sold at open bazaars in many city locations, and that city distributed methadone is sold by addicts to other addicts. Might not there be an underground market for the sale of government distributed needles too?

“Give-away programs can be counted on to spawn problems both practical and ethical. Drug companies are about to be forced into the unethical practice of distributing hypodermic needles. With needles distributed freely, under government supervision, it can be safely predicted there will soon be complaints of below par quality and supply shortages. But this will be only the beginning. It is almost inescapable that a suit will be brought against the state for promoting drug use or, if an addict dies of an overdose after using drugs in a hypodermic needle, charges of manslaughter. It can also be anticipated that if this program becomes part of the landscape of government assistance activities, at some time in the future the public will be entertained by a procurement kickback scandal in which one or more politicians will be indicted for taking bribes. There will be much talk of declining moral standards from editorial writers, even though the outcome should have been foreseeable by anyone familiar with the history of government give-away programs.

“Even if one rejects the moral argument against needle distribution, there is still the irrationality of yet another government give-away program that is inherently inefficient. The additional cost of several pennies for clean needles to drug users who spend several dollars getting high, is not unreasonable. If drug users wish to survive—a highly dubious proposition in the first place—the investment of several pennies for clean needles shouldn’t be an exorbitant price to pay, nor should it be the responsibility of government to provide them.”