Privatizing Government II

Yale Open Course <Power and Politics in Today's World>

Lecture 5: The Resurgent Right in the West

Notes

Privatizing gov functions in the US

• Bill Clinton Dec 1994 - “stop making govts do what they are not good at”

• Starts in the 1980s and continues throughout the 1990s (Reagan, Bush I, Clinton, Bush II)

• 1993 National Performance Review - “aggressive outsourcing of govt work” → 426K federal jobs eliminated

• By 2001, more contract workforce than civilian employees in the Pentagon

Privatizing the military

• Private contractors have always participated in wars in the past

• Iraq war - almost the same number of contractors & military troops

• Afghanistan war = contractors > troops

• Private contractors do all functions except for front-line/offensive fighting

  • G4S: 625K employees; routine security, heavily-armed security, etc

  • Erinys: mostly in Africa & Iraq; protect energy assets

  • Asia Security Group: Kabul HQ protecting officials

  • DynCorp: policing missions

  • Academi: notoriously aggressive tactics; incidents of uncontrollable contractors

    • Montreaux document: agreement on good military practices for countries employing private contractors

  • Afghanistan - heavy reliance on local populations for employees

• Host Nation Trucking in Afghanistan

  • US in 2001 in Afghanistan to support Northern Alliance (the losing side) in the civil war

    • But the losing side had no good prospect for governing

      • seen as an American puppet government; no real control over the country

  • How to move around the personnel & supplies in an unsecure regions?

    • Used increasingly more contractors than troops → didn't want a lot of American casualties (political costs)

      • For guarding convoys, the locals know the terrain better but also know how to take advantage of their situation

      • Paid the people (the Taliban) who would’ve attacked the convoys

        • Funding the guerilla movement that the US was fighting

Consequences of increased reliance on PMCs (private military contractors)?

• Assuming efficiency gains, it saves money

• Can fight otherwise unpopular wars → good or bad?

  • Undemocratic; gives incentives to fight more wars

• Republican Theory of the US founders

  • should have standing/professional armies (they encourage wars)? wars only if really necessary

    • if you can’t mobilize citizenry, maybe the war shouldn’t be fought

• Democratic peace theory

  • Democratic countries tend not to fight each other

    • and only fight wars they are going to win

    • difficult to get people to fight without a winning prospect

• If it’s easier to start a war with PMCs and pay the war with debt → democratic peace theory might no longer apply

The US prison industry

• the US a huge outlier: highest incarceration rate; accelerated rate starting in the 1980s especially for non-white males

• 60s, 70s - advances in treatment of psychiatric disorders

  • patients released from mental hospitals

    • Also coincides with govt fiscal crises

    • states saved money by de-institutionalizing mental health patients

      • Many of the released patients ended up in the criminal population

• what drove the increase in incarceration?

  • war on drugs

  • 1980s mandatory sentencing shifting power from judges to prosecutors (3 strikes law)

    • more punitive sentencing

• minorities disproportionally incarcerated

• political implication - felon disenfranchisement laws

  • ex. KY, VA - permanently disenfranchised if had felony conviction

  • Disenfranchisement of the black voting population

• Paradox: violent crime has been falling

• why lock up more people when violent crimes are coming down?

  • Locking up people for non-violent crimes

  • Demography?

    • As the baby boom bulge ages, fewer people to commit crimes

  • Roe vs. Wade?

    • Those likely to commit crime are not being born → controversial hypothesis

  • Education of women?

    • Education/labor force participation of women increase → decrease in violent crime

  • no consensus on the cause

• People are not aware that violent crime is actually decreasing

  • being tough on crime - cheap talk for politicians

• Decline of incarceration

  • due to cost

  • BUT private sector prison imprisonment increasing

Weber’s definition of state: monopoly on the legitimate use of force in a given territory

• Military / prison - contracting out government monopoly

• Creates ‘principle-agent problem’

  • Principle contracts out to the agent, the agent has more information that the principal needs

  • nested principle agent problem

    • solution: increase competition; prison industry low competition, currently huge cost to entry

      • military somewhat more competitive; but govts not going to switch contractors

    • Better alignment of interests of the agents with the state?

      • Difficult to do that; industries have very different incentives

        • Ex. need inmates to run prisons

        • increasing prison lobbying for:

        • lockup quotas

        • stiffer penalties

        • immigration enforcement

        • Ex. better for military industry to have long wars

    • monitoring?

      • difficult to do with no visibility and control over the doings of the contractors/subcontractors

Privatizing Government I

Yale Open Course <Power and Politics in Today's World>

Lecture 8: Privatizing Government I: Utilities, Eminent Domain, and Local Government

Notes

Neoliberalism (domestic) & Washington Consensus (abroad)

• components: deregulation, privatization, free trade

• hegemonic through 2008; then starts fracturing

  • backlash after 2008

    • Dodd-Frank Act to regulate

Hegemony is never complete

• Michael Walzer <Interpretation and Social Criticism>

  • internal resources within any hegemony that enables criticism of it & possibility of changing it into something different

    • “imminent criticism”

Water privatization ↑ 1991-2007 around the world

• in developing countries (imposed by the IMF/World Bank and developed countries)

Eminent Domain

• right of the government to take private property for a public good

• “Privatizing” eminent domain in India

  • 1984, 2007 → expansion of the definition of “public purpose” in the Land Acquisition Act

    • 70% rule: companies need to acquire 70% of the land; the rest is bought by the govt and sold to the company

      • prevents hold outs

    • Special economic zone with regulatory/tax breaks → magnet for capital

  • Ex. the Tata Nano in Singar, West Bengal

    • Bengal governed by the Communist Party operating a capitalist economy

    • the govt started firing farmers off their lands, some without given any compensation

    • People + opposition party began attacking the car plant

    • “just compensation” → flash point

    • informal transfer & tax evasion

      • land sold at “official price” not “unofficial” price which was higher

    • increased land value after the project was launched

    • moral hazard of the 70% rule

      • people can still hold out for higher prices

    • many farmers unlikely to reap Tata employment benefits

  • Case of eminent domain backfiring

    • lands bought for the purposes of “economic development” but resistance and mobilization of the affected population

Privatizing eminent domain in the US

• Takings clause of the 5th amendment + due process clause of the 14th amendment

  • private property can’t be taken for public use without just compensation

• what makes a use “public”?

  • public good:

    • non-excludable (creating benefits for me also gives them to you)

    • non-rivalrous (my having it doesn’t stop you from having it)

    • inevitably politically charged question

      • bc of alternative courses actions that could’ve been taken

        • there are always winners and losers

      • externalities: costs that some people will have to bear

      • valuation

• Case: Kelo v. City of London 2005

  • Supreme court in favor of the city deploying ED to build a shopping mall for economic growth even when there is no blight

    • Back lash:

      • widespread diverse coalition opposition

      • 2019, 45 states against private use of ED

• conclusion:

  • neither efficiency or “just” compensation enough for people to greenlight privatization

  • loss aversion might be important

  • unexpected externalities can trigger opposition

Privatizing local government

• downstream effects of Proposition 13

• CA with less revenue, needed to make up with other taxes

  • but revenue still growing slowly

  • local governments response: privatize government

    • Common Interest Developments (similar to condo associations)

      • condo owners pay a fee to receive utility services that local govts typically provide

      • 2009, ~20% of US population living in CIDs

        • some states (ex. CA) don’t allow any other kinds of residential developments

        • saves money for governments

      • consequences for democratic politics?

        • private government (board) chosen by developers → undemocratic boards

        • accountability problems

        • entry barrier → what about the homeless?

        • “Segmented democracy” (Douglas Rae)

        • people spending time with people like themselves

        • which can lead to political polarization (Kahneman & Cass Scutean

        • Privatizing of policing; CIDs essentially gated communities

The Anti-Tax Movement

Yale Open Course <Power and Politics in Today's World>

Lecture 7: Shifting Goalposts: The Anti-Tax Movement

Notes

Origin of the anti-tax movement

• Post-Watergate soul-searching and the rise of activist think tanks on the right

  • think tanks to change the ideological terrain that had allowed for the New Deal and Great Society

• California Proposition 13 (June 1978)

  • referendum vote on limiting property tax

  • “government is the problem”

  • starting point of the anti-tax movement

The logic of referendum politics

• The Brexit Paradox

  • 2015 the majority of the Parliament pro-remain

  • 2016 Brexit referendum - 52:48 pro-leave

  • 2017 Parliament more pro-remain than 2015

  • Referendum votes focus only on single issues

    • masks the downstream effect and their relations to other issues

    • Kahneman & Twersky

      • Framing effect: how you frame an issue has a lot to do with what people will say about it

• Anti-tax movement

  • tax cuts as single issue politics

  • became non-negotiable for republicans to support tax cuts

    • GWHB - “no tax increases” → 1991 Gulf War + fiscal crisis: raised taxes → Newt Gingrich: “GWHB = traitor” → GWHB loses to Clinton

  • 1994 Gingrich “Contract with America”

    • manifesto of anti-new deal coalition on taxes

      • every republican to pledge anti-tax

  • 1932 - 1994: Senate mostly under the democrats; afterwards Republican congress

    • 1994 pivot point

Repeal of the Estate Tax (the “death tax”)

• estate tax = most progressive tax that almost no one paid but repealed with bipartisan support

• June 2001 Bush’s <Economic Growth & Tax Relief Reconciliation Act>

  • phasing out estate & gift taxes over a 10 year period

  • income and capital gains tax cuts

  • increased tax credit for children

  • *Reconciliation → didn’t have the senate’s 60 votes → go through budge reconciliation (only need majority in the senate); the changes to be introduced must balance budget over a 10 year period without increasing deficit → CBO refused to do dynamic scoring (scoring assuming economic growth) → bill phased over 10 years

  • banked on the idea that the tax cuts will likely be extended in 2011

  • where did the bipartisan support come from?

    • diverse coalition possible with single issue politics

      • black caucus, gay activists, etc.

    • what was the opposition doing? didn’t take the movement seriously

      • organized labor? too weak to do anything

      • non-profits? not an easy argument to make given they receive donations from the rich

      • insurance industry? republican-dominated industry

      • liberal democrats? split

  • the campaign

    • well organized & resourced

    • smart strategy & leadership

    • good at managing conflicts within the coalition

      • rates vs. threshold?

        • rates affect billionaires, thresholds affect small businesses

      • farmers vs. small businesses

        • farmers could influence the senate

        • small businesses could influence the house

    • How was the coalition held together?

      • ‘total repeal’ the rallying cry

      • moral narrative (ideology)

        • “morally repugnant tax,” “a moral cause”

        • moral argument headed off the splintering

Tax cuts and the Republican coalition

• “the one issue that unites the entire Republican party”

• Tax cuts & race (2nd dimension)

  • tax agenda & racial agenda linked

    • underlying idea: tax money spent on undeserving poor who are probably not white

• tax cuts for all

  • heads off the divide-a-dollar game

How much has the goalpost shifted?

• 2010 Obama administration

  • in recession → tax increase not a good idea, so extended the tax cuts for 2 years till 2012

  • 2012 → Republican Congress, 82% of Bush’s bill kept

    • estate tax:

      • 2010 - repealed

      • 2011 - $5 mil threshold

      • 2019 - $11.4 mil threshold at 40% rate (lower than the starting 55% 2001 rate)

How effective was the anti-tax movement in shrinking the size of the govt?

• not very:

  • ↑ # of govt workers + privatized/contracted out govt sectors

  • per capita spending ↑, deficit ↑

• funding govt with taxes → funding govt with debt