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Don’t Privatize Water

The case for keeping public goods under democratic control

It was 2015, and the city of Missoula, Montana, was fighting to take control of its water supply. Missoula’s privately owned waterworks had recently been sold to Mountain Water, a company owned by the private equity behemoth Carlyle Group. The mayor, John Engen, approved the sale after being wined and dined in Washington and led to believe that Missoula’s water was but a drop in Carlyle’s bucket, and the firm would voluntarily sell the system to the city. But after Missoula made its bid for the waterworks for about $50 million, and the company came back asking for $120 million, talks stalled.

The city decided to use eminent domain to seize the waterworks, and the two parties went to court. Missoula’s water was a tiny piece of the private equity giant’s portfolio: Carlyle had around $194 billion in assets under management, and the waterworks were about 0.03 percent of that total. Yet Carlyle’s decision to drag this tiny fight into a long, expensive court battle reflected how important the company found water privatization, and how much it needed to stress that the public should not own their own water. Carlyle even hired Arthur Laffer—the conservative economist who cooked up the Reagan-era argument that lowering taxes increased government revenue (by the way, it doesn’t). For a rate of $15,000 a day, Laffer lectured the court on why a private company should own, and profit from, a town’s water. “Water is a product,” Laffer said, implying that people of a town are not citizens, but customers. Because of the profit motive, he went on, “private companies are far more concerned about water quality than municipalities.” But the truth was that private management wasn’t upgrading the system. Nor was the system efficient. Not even close: Missoula’s water mains leaked half of all the water that had been treated and pumped.

The Privatization of Everything
by Donald Cohen and Allen Mikaelian
The New Press, 368 pp., $28.99

Laffer, in that courtroom, was the voice of the privatization movement, one that lately has its eyes on buying the right to own the world’s water, among many, if not all, other public goods. “Water is the new oil,” one mayor declared in 2014. It should be noted that, when it comes to water, public institution–built water systems and public ownership are the norms. By the 1960s, the United States had an astonishing 20,000 water systems, 83 percent of which were publicly owned. Today, cash-strapped cities and states are deluged with bids from wealthy financial firms to buy their public assets. Municipalities are often eager to sell, in order to fill their budgetary shortfalls elsewhere. Water systems themselves are short on funding. In the recessionary period after 2008, federal spending on water infrastructure didn’t budge, while, from 2009 to 2014, state and local spending dropped 22 percent. Experts estimate that a trillion dollars in upgrades will be needed to meet oncoming demand, and that aging pipes, some a century old, leak upward of six billion gallons of water a day.

Privatization has become disturbingly widespread, as Donald Cohen and Allen Mikaelian show in their new book, The Privatization of Everything, seeping into every aspect of our society, from our schools, to our food inspection, to weather forecasting, to even the administration of our public welfare systems. They argue that this is an assault on democracy. “Privatization,” they write, “is a transfer of power over our own destiny, as individuals and as a nation, to unelected, unaccountable, and inscrutable corporations and their executives.” But to argue against privatization is to go against nearly 40 years of political consensus and financial concerns. To complicate matters, some of the most common arguments against privatization are easy to refute, and one of the strongest and simplest is overlooked.

What is privatization? The answer is harder to nail down than you’d think. We might think of privatization as the transfer of governmental tasks to private enterprise, or the sale of public goods to private businesses, like the maintenance and ownership of a public waterworks or road. But, for Cohen and Mikaelian, it can be any number of things, including, but not limited to, hiring firms to engage in the procurement process for the government. Or contracting public work to outsiders. Or even when a government cuts budgets for services, enacting austerity, and creating a vacuum that businesses can rush to fill. Or deregulation or the failure to enforce laws that restrict private action. It’s almost anything that increases the power and scope of private actors, but can be so multifarious that it becomes something you only know when you see.

The recent history of privatization begins in the waning days of the Reagan administration. Emanuel Savas, Reagan’s assistant secretary of housing and urban development, led the charge. In the 1970s, Savas was the co-author with Milton Friedman of a paper that argued privatization opens up “competition to reduce the monopolistic control many governments have over their customers.” Their argument basically asserted that governments weren’t protectors of right or arbiters of justice, but rather that citizenship was like going to the food court, and governments should be little more than another Cinnabon franchisee duking it out with every other Orange Julius and Auntie Anne’s in the promenade. Toward the end of his second term, Reagan established a commission to study which government functions could be privatized.

Since this time, Cohen and Mikaelian write, the idea of citizens as mere consumers and of governments as mere service providers became “remarkably bipartisan,” and “Democratic president Bill Clinton arguably did more for the privatization project than did his Republican predecessor.” The Clinton administration sold off federal assets, including the Elk Hills Naval Petroleum Reserve for $3.65 billion and the U.S. Enrichment Corporation for $3.1 billion, as well as attempting to open up operation of air traffic control towers to private bidders. Clinton also eliminated the family welfare system (Aid to Families With Dependent Children), which directly provided families with money, in favor of a much more complicated, state-administered system (Temporary Assistance for Needy Families) that relied heavily on contracting. The federal government itself became reliant on contractors. In the federal government today, there are 2.6 times as many contractors or grant workers as there are government employees.

The privatization of facets of public life that would have once been unthinkable—like highway maintenance and food safety inspection—has become popular and, as Cohen and Mikaelian show, disastrous. In 2006, Indiana sold a 157-mile stretch of I-90 to a Spanish and Australian consortium for $3.8 billion. The foreign firms then proceeded to raise fares from $4.65 to $8.00, which, among other things, caused truckers to take side roads to avoid tolls. These narrow side roads quickly got chewed up, but noncompete clauses in the sale meant the state couldn’t improve them. Drivers noticed conditions on I-90 deteriorating, rest stops becoming nose-pluggingly filthy, and then, in 2014, the consortium declared bankruptcy.

Cohen and Mikaelian also write about how an underfunded usda now has companies hire their own meat inspectors, raising massive conflicts of interest that have led at least one inspector to say, “It’s no longer meaningful for consumers to see that mark indicating that their product has been usda-inspected.” Food inspection was once seen as a crucial governmental task that would protect workers and the consumers from lard that contained workers who fell into rendering vats and spoiled meat being ground into sausage, as Upton Sinclair laid out in his novel The Jungle. But this is no longer the case. Today, egg farms, which have gotten outstanding seals of approval from their private inspectors, end up being the cause of nationwide salmonella outbreaks, due to eight-foot–high piles of manure at facilities and “live and dead maggots too numerous to count.”

The framing of the privatization debate presents difficulties, however, for critics of privatization. A common account posits that one side (pro-privatization) wants an anarchic free-market hell world, while the other side (anti-privatization) wants centrally planned totalitarianism. The right screams “socialism!” at public schools, while the left complains about failures of the libertarian free market. Yet both couldn’t be further from the truth.

The so-called free-market privatizers don’t really want a free market. In addition to all the protections of America’s vast legal system that ensure privatizers don’t get constantly robbed, in many privatization plans the government offers to backstop the private buyer against losses. In the case of privatized trash collection, some municipalities agree to pay incinerators a base amount, just in case there isn’t enough trash to collect. It’s a real heads-I-win-tails-you-lose situation.

Nor do the anti-privatizers want socialism. Early in the book, the authors suggest that the public should not relinquish control over government, while saying that contracting government services could still be acceptable. They are not interested in “socialism,” or “social democracy.” (Even though many services that anti-privatizers want to have run by the public are the same services run by the public in s-word countries in Europe.) And while the United States often ensures the public administration of many goods—like highways, electrical grids, and dams—even during the New Deal, full nationalization of industry was not in the cards. As the historian Louis Hyman has written, the New Deal was full of public-private partnerships, among other private-sector solutions. And so while conservatives insist that Democrats want to nationalize everything down to the last snickerdoodle sale, fully Stalinesque America has always been far, far way.

The free market versus totalitarianism debate is largely a false dichotomy furthered by right-wing thinkers like Savas who wanted to sell the idea of privatization to a public who they knew loved government services like Medicare and Social Security. What is happening in our society is not a contest between the free market and central control, but a struggle between private business and public society. At the end of their book, the authors quote political science professor Corey Robin in saying that we need to shift the focus away from “abstractions of the free market” and toward “the very real power of the businessman.” And while Cohen and Mikaelian often talk about public control, they frequently fall into the trap of leaning on the “free market” as the bogeyman of privatization.

A final difficulty for anti-privatizers is that some of their most commonly used arguments are easy to poke holes in. ­Anti-privatizers frequently talk about the brutality of private prisons, suggesting that the profit motive is largely responsible for the horrific conditions in private facilities. Yet, as any reader of Ruth Wilson Gilmore will know, private prisons are but a tenth of the total prison system in the United States. Prisons are overcrowded and thinly staffed, and violence, including homicide and rape, is shockingly ubiquitous. In 2020, the Department of Justice found Alabama’s Department of Corrections systemically failed to protect incarcerated people from incredible amounts of physical and sexual violence. In fact, the problem of mass incarceration, its rise, its perpetuation, its human rights abuses, is a public disaster. As Gil­more notes, this has nothing to do with profit, and everything to do with power. This, just to play privatization’s advocate here, is the type of public dysfunction that might open a person to the argument that pub-lic decision-making is bad.

So while The Privatization of Everything is primarily composed of examples and stories about how privatization fails—how charter schools perpetuate racial disparities in education, how private broadband won’t bring service to poor communities, how private medical insurance leaves us sick and in debt—it makes you wonder: Would privatization be acceptable if it did work? If it could clean up the messes and blunders of our government, would it be legitimate? This even suggests why privatization nets such a bipartisan appeal: Any criticism of public action, whether it is public wars or public schools, can be turned into a privatization sales pitch. This, of course, is an ugly question for opponents of privatization to consider—and one that desperately needs a clear, full-throated answer.

In her 2020 book, The Privatized State, Chiara Cordelli, a professor of political science at the University of Chicago, addresses this question with a line of thinking that is both simple and illuminating. “Benefiting others,” she writes, “is an insufficient ground for the right to rule over them.” The question of whether privatization is wrong is not a question of efficacy or economics. It’s one of political philosophy. Privatization is a process, she argues, that results in some people being subject to the unilateral will of others. But democracy, as a recent political project, arose out of the distinct desire to curb the power of private actors that defined monarchic Europe. Privatization is, categorically, anti-democratic and little else.

It’s not even an attempt to reduce the size of government, as is so often claimed. Cordelli notes that, since the privatization project began in the 1980s, government has exploded in size and scope. Instead, she calls privatization a “refeudalization of the state.” The political vision of thinkers like Savas and Friedman, as well as modern-day privatization zealots like Donald Trump and Rahm Emanuel, is a feudal order where power is exercised in the shadows, in privately negotiated contracts, in dynastic private corporations, and beyond the reach of law. Private government, from the vantage point of a society that hopes for democracy, is an illegitimate government. In fact, one could argue that the entire point of democracy is to prevent privatization.

These are dire claims, but they help to reframe the actions our government has taken over the last four decades as a purposeful abandonment of democracy. Allowing private companies to unilaterally dictate the price of essential goods like water places people under the thumb of private power. Democracy is impossible without shared ownership of large parts of society.

So what is to be done? Cordelli suggests we think big about our fight against privatization, envisioning something on the order of a constitutional amendment that permanently constrains the private sector. More than that, we need to “demand a tighter integration between the democratic and the bureaucratic, by including participatory elements in the daily administration of public affairs.” Citizens, that is, should have a direct say in daily government. One example would be New York City’s participatory budgeting, in which community members directly decide how part of their community’s budget is spent. “Only through a democratized bureaucracy,” Cordelli wrote in Boston Review, “can we inoculate against the wrongs of the privatized state.” As the saying goes, the cure for the ills of democracy is more democracy.

Campaign finance reform would also limit the power of businesses to influence the political process and get sweet deals from desperate governments. Which raises another dilemma: Is there any way to top up these ailing state and local budgets so their governments aren’t eager to sell? The fiscal austerity of the recent past has left large portions of the United States broke. Combating austerity through ambitious public financing programs, possibly even direct lending from the Federal Reserve to promote community autonomy, could be a good solution. Not to mention a promotion of democracy.

As Cohen and Mikaelian note in The Privatization of Everything, citizens have successfully challenged and defeated privatization plans everywhere. “Between 2003 and 2019,” they note, “seventy-one U.S. communities took back their water, following a global trend that saw 2,400 cities in fifty-eight countries bringing water and other essential services under public control.” On a practical level, people can fight to share resources and succeed.

In Missoula, the judge presiding over the town’s water system didn’t see Laffer’s wisdom and ruled against the private owners. Missoula regained control of its water. In an interview after the case was resolved, Mayor Engen reflected, “We still had folks saying—you know—what kind of socialists are you?” To most people, the system appeared to be working fine. “But as the case wore on,” he said, “and evidence was presented in court and other arenas, it became more clear to folks that they were, in effect, getting robbed by the private investors and that trend wasn’t going to change without public ownership.” “Water is essential to life,” he said. “And a city that does not control its destiny through water is likely to suffer in the long term.”