The London Olympics: When the Private Sector fails to carry out Government Policy

“Games organizers have been scrambling for days to sort out a security mess caused when British security firm G4S Plc said it could provide only about 7,000 of the 10,400 guards it was supposed to train. The government has called in the military to make up the difference.

‘Yes this has been an issue,’ Rogge added. ‘It has been identified. Corrective measures were taken. The company [G4S] will compensate the extra costs of the soldiers to the government. And I humbly believe that it is time to move on now.’”

  • Rogge says appropriate measures have been taken to correct security issues, By The Globe and Mail.com, Published Last updated Saturday, Jul. 21 2012, 8:41 PM EDT

If one listened to various Market Proponents, one could believe that there is no risk in using the Private Sector to carry out Public Policy. Much of these ideas can be linked back to the modern guru of the Conservative Right: Ayn Rand. She had a simple belief: that the proper moral purpose of one’s life is the pursuit of one’s own happiness (or rational self-interest).  In her writings, the only social system, or moral code, which was acceptable, was one that allowed individuals to pursue their own self-interest through the protection of both individual rights and laissez faire capitalism.

Ms. Rand has inspired many to take up her cause. This would include Rona Ambrose and Ronald Reagan. In fact, in many ways, the American and Canadian Right have taken up Ms. Rands’ belief that the market, and not government, should be the primary directive force within a society.  Just think of recent attacks by Republicans or Conservatives – in the US and Canada respectively – on either Environmental Regulation. In both cases, the public is told that society cannot afford to protect the environment. As if the only reason for us to protect the air we breathe or the water we drink is because it has an economic value.

However, that has been the view of many who have called for a system which values laissez faire capitalism. If you watch the documentary, “The Corporation”, you will find several critics and supports who note this very truth. Therefore, it is easy to see that proponents of a laissez faire economic model have argued that bodies of water or the atmosphere that we all breathe would be better managed by through an economic rights model. Everything would have a price and everything would have a cost. No public commons would exist, only individuals, groups and/or collective interests would have sway.

I have always had a problem with this concept. For, it neglects two facts. Firstly, the private sector is not dependable in times of crisis. Think about the problems after Hurricane Katrina in New Orleans. Local, State and Federal Governments were the main players. Most major corporations could not sustain themselves in the chaos. While, some smaller players came into the mix (i.e. Roadside Sellers), investors for the most part stayed away. That was until their supporters created opportunities for them.

New Orleans is a perfect example of this trend. The New Orleans school market is now an “overwhelmingly publicly funded, predominantly privately run school system.” (Necessity Is the Mother of Invention, thedailybeast.com, Sarah Laskow, Aug 26, 2010 1:00 AM) Or put differently, the private sector was more than willing to come in after Katrina to displace the government. Now more than 70 percent of New Orleans public schools students will attend charter schools. (New Orleans charter schools redefine education reform, by Todd Johnson, August 26, 2010 8 AM) That was a tremendous increase in charter school rate because New Orleans was not a leader in Charter Schools before the disaster. Yet, after it, they lead the nation. New Orleans has almost two times more Charter Schools than the next highest city – Washington, DC. For, only thirty – six percent of Washington DC’s students attend a charter school.

Now with that being said, Charter Schools have not been all bad. (Charting a better course, Economist, Jul 7th 2012) For, performance among Charter Schools has led to some improvements in both education and performance. With that being said, the improvements have not boosted Louisiana to the top of the heap, in terms of American Educational Standards. Furthermore, new Charter schools have been allowed to do something that public schools cannot: generate additional revenue. Or put differently, Charter Schools can charge fees to supplement money provided by the State Government. (Student fees vary widely throughout Orleans public school system, Lens study shows, By Jessica Williams, The Lens – http://thelensnola.org -March 29th, 2011). On the other hand, Louisiana public school boards have not been allowed to collect higher taxes due to the actions of Local or State Governments. So maybe the Charter schools success is just a reflection of more revenue and not the failure of underfunded Local School Districts. Or put differently, the market is not always superior to Government based solutions.

But it does not end there. For, Markets often have another problem: market failure. That is to say, when market solutions fail, only governments can solve the problems created. Just look at our recent Financial Crisis. During the early 80’s, calls came for around the world for less government regulation in the financial arena. In various countries, the calls were heeded.  New looser regulation came to the fore. Financial Institutions loved these new regulations because in many cases they were allowed to take short cuts. Sometimes, that meant self-regulation and other times it meant no regulations. Eventually, these actions led to new financial products that led to more risk and more chances of failures.

Since most regulators had less money, they were not able to regulate these new products; while Investors and Institutions took more risk. This all, eventually, led to the Financial Crisis that started in 2008. This crisis, created by poor risk calculations and high amounts of leverage in both the US and Western Europe, had to be cleaned up by Governments. For, after Lehman Brothers declared bankruptcy, banks around the world stopped leading to each other. This got so bad that two of five major Investment Banks, Bear Stearns and Merrill Lynch, were sold at fire-sale prices; while Goldman Sachs and Morgan Stanley had to convert to commercial banks to survive. The financial landscape that existed for over fifty years was changed in few moments. Institutions that had been around for generations fell by the wayside.

Those who went looking for answer found a simple truth. To paraphrase Ayn Rand’s words, markets don’t always work when individuals pursue their own self-interest. For often, the pursuit of an individual’s happiness does not lead to the satisfaction of the whole or the stability of a society. It turns out that creating happiness for one does not always lead to the betterment of society. So, in these cases, the market can fail.

What we have learned is that when the Market falls apart, someone has to be there to clear up the pieces. This someone or something has to be trusted by society. Furthermore, this something that has to have the best interest of society in mind. Or in short, we have experimented and we have found the need for government.

This is what leads me to my obvious point: the failure of security at the London Olympics. When the London Olympics Security Partner failed the British Government called up 3,500 troops to do what a private contractor should have done. Those troops will not have had the chance to discuss their pay or whether they were interested in serving. Furthermore, the Security Contractor G4S will not be paying market rates to get their “new employees”. For, G4S will not be paying the hourly cost of the British Militaries’ training regiment – what a private contractor would charge. So G4S will be getting the “best of the best” at a price discount. However, the best interests of society will be taken care of.

Accordingly, over these few words, I hope one can see a trend. While the Private Sector can be cheaper, they are less reliable than Government Services. Subsequently, when society is in a situation where failure is not a possibility, Governments should be in charge. Or put differently, the privatization of mission critical government institutions is both irrational and illogical. For at some point, when dealing with mission critical infrastructure or institutions the Private Sector will fail and the consequences will be dire. The London Olympics is a small example. The Financial Crisis is a bigger example.

And those failures can happen at any time. I survived through one of them. In 2003, the Eastern Seaboard lost all of its electrical power. It hit over 55 million people. I was just one of them. In such a situation, one would think that large amount of deaths resulted. However, that was not the case. In fact, very few deaths could be directly attributed to this event. This was even though for up to five days, different sub-federal regions did not have energy. I would argue that this was because Governments throughout North America moved to stop chaos. Local, Provincial and Federal Police Officers were well trained. This is because Governments had plans and expect the worst case scenarios. For Governments need to survive to help the rest of us.

Therefore, it is easy to say that Governments allow us to deal with the chaos and anarchy that sometimes wash across the shores of society. In many ways, stable Governments allow us to have Rights to protect; just as we use Rights to protect us against our Governments. Which again leads me to my inescapable conclusion: the core services of government should never be contracted out.

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