Freeman

ARTICLE

Michigan: Where Privatization Is Working

Shrinking Government Strengthens Our Liberties

MARCH 01, 1998 by LAWRENCE W. REED

Twenty years after Margaret Thatcher became the first major national leader to make “privatization” a policy of government, I still hear opponents claiming “there’s no proof yet that it works.” They should pay a visit to my state, Michigan, for an eye-opening, paradigm-shifting experience.

Privatization is a term with which readers of The Freeman are quite familiar. It is simply the transfer of a service or an asset from the public sector to the private sector, and it can be accomplished wholly or partially by employing any number of proven methods. The idea is to curtail or replace the ponderous and expensive apparatus of government monopoly with the time-honored features of free markets: competition, choice, accountability, and consumer sovereignty.

The reasons to privatize are numerous, though saving money and improving quality are among the most commonly cited. In my belief, the best reason is not that privatization results in better government, or even better services. If done properly and fully, privatization transfers the control of scarce resources from collective action (i.e., government) to individual action. By shrinking the sphere of coercive monopoly in our lives and enlarging the realm of voluntary relationships, privatization is a crucial strategy in the enhancement and preservation of individual liberty. That’s far more important to me than saving a couple of bucks a month on my garbage pickup bill, and I hope it is to you as well.

For those diehard skeptics, Michigan provides a cornucopia of privatization achievements—at both the state and local levels of government. It’s a remarkable track record, made all the more so because Michigan was once considered one of the toughest union-dominated nuts to crack. Public-employee unions are usually staunch opponents of opening their “business” up to competition and customer choice.

Michigan is home to one of the biggest and most successful sales of a state-owned enterprise in the history of the country. In 1995, the state sold its “Accident Fund”—the largest provider of workers’ compensation insurance in Michigan—to the highest bidder, yielding proceeds of $291 million. Prior to the sale, the Fund was a civil service bureaucracy whose budget had to be approved by legislators, with predictable results: political manipulation of rates and staffing, reduced competition in the industry, and a growing exodus of private providers from the state.

Today, not one insurance policy for workers’ compensation is sold by the state of Michigan. A flourishing, competitive market involving many private companies and institutions takes care of it all.

Through privatization, Michigan state government has shed numerous other functions and activities in recent years, including a natural resources magazine, health care and food service within its prisons, liquor distribution, and many aspects of the annual state fair. But it is at the local level of government—county, city, and school—where a genuine privatization revolution is underway. All across Michigan, city council people, county commissioners, township supervisors, and school board members are putting the concept to work at a pace that’s hard to keep up with.

Traverse City doesn’t pick up garbage any more; private firms under contract with individual citizens and businesses get the job done. At least three-quarters of the state’s municipalities have now privatized garbage pickup by one method or another.

Ann Arbor turned over its parking structures to a private firm, which made them cleaner, brighter, and safer than they ever were in the past.

By contracting with a private company, Alpena transformed its problem-ridden wastewater-treatment plant into a model facility, saving the city a quarter million dollars a year. Wexford County privatized its emergency medical service in 1994. Not only did this result in an improvement in the quality of care and a reduction in costly administrative burdens, it cut the cost of the service by about 50 percent—saving the taxpayers over $300,000 in the first year alone.

A for-profit education company is now providing new opportunities for students in the public schools it manages in Flint and Mount Clemens. In Kalamazoo and Battle Creek, a California-based firm is making downtown parking more customer-friendly by managing meters, ramps, and lots. Gypsy moths are now suppressed in Midland County not by the county itself, but by a private firm owned by a former county employee. The tiny town of McBain is earning widespread acclaim for success in privatizing its economic development efforts.

After residents complained that the city’s police officers didn’t show up for their shifts and rarely stepped out of their cars, the security of several public-housing neighborhoods in Flint was contracted to a private company. It was the first time in the state’s history that a city refunded a portion of its citizens’ taxes so that a private firm could replace local law-enforcement personnel.

Michigan’s justice system increasingly is relying on the private sector for solutions to youth crime. The state’s first privately owned, maximum-security juvenile facility, the Wolverine Center, opened its doors in Saginaw County last September. Saginaw County Chief Probate Judge Faye M. Harrison says, “Dealing with the private sector can provide some flexibility. If a child has a particular special need, we can seek a program that fits it rather than trying to plug someone into the one program the county or state finances.”

For 20 years, Coleman Young was mayor of Detroit and a defender of its unionized bureaucracy. As a private citizen, he saw efficiencies through privatization that he never sought to implement when he was in office. Last July, he proposed that the city contract with a company he co-owns to change the oil in Detroit’s 500 police cars. The city, with its own oil-changing garages, has spent $1 million annually for this simple task; Young said he could do it for a mere $300,000, a whopping 70 percent savings. (Mr. Young died on November 29, 1997.)

The examples cited above represent a cross-section of hundreds of successful privatizations in Michigan. There have been failures along the way too, but they’ve taught important lessons about how to do it right without slowing the overall statewide trend.

To strengthen our liberties, government must shrink and more of the services people desire must come through private, voluntary, and competitive provision. Privatization is a key strategy toward that end, and in Michigan we’re proving to the rest of the country that it can indeed be made to work.

ASSOCIATED ISSUE

March 1998

ABOUT

LAWRENCE W. REED

Lawrence W. (“Larry”) Reed became president of FEE in 2008 after serving as chairman of its board of trustees in the 1990s and both writing and speaking for FEE since the late 1970s. Prior to becoming FEE’s president, he served for 20 years as president of the Mackinac Center for Public Policy in Midland, Michigan. He also taught economics full-time from 1977 to 1984 at Northwood University in Michigan and chaired its department of economics from 1982 to 1984.

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