Privatization in America: Why It's Everywhere

Privatization in America is not an accident. It's the product of deep-rooted political choices, cultural values, and a tax system that punishes government growth. If you've ever wondered why the US has private prisons, private healthcare, and even private roads, the answer lies in the country's DNA.

The Historical Roots of Privatization

The story starts with the American Revolution. The colonists didn't just fight 'taxation without representation'—they fought against a central authority that seemed too powerful. That suspicion never left the American psyche. When the Constitution was drafted, private property became sacred, and government powers were strictly enumerated.

In the early 19th century, many public services were actually private. Fire departments were run by insurance companies. Roads were built by private turnpike companies. Even water was often supplied by private firms. The government only stepped in when these private providers failed spectacularly—but the default was always private.

During the Gilded Age, fortunes were made when the government gave away public land to railroads and mining companies. This pattern repeated itself. Whenever there was a crisis, the response was not to expand the state but to hand the problem over to the market.

My own travels across the Midwest repeatedly showed me this: a failing sewage system or an underfunded school district is almost never answered with 'let's raise taxes.' Instead, residents call for outsourcing or charter schools. It's a reflex.

Why Does the US Government Lag Behind in Public Services?

Look at the numbers: the US collects far less tax revenue as a share of GDP than most OECD countries. In a recent year, the US public spending was around 36% of GDP, while the OECD average is over 40%. This means Washington and state governments simply have less money to fund public services. But why are taxes so low?

One reason is the federal structure. In America, states compete for businesses and wealthy residents. If a state raises taxes to fund good public services, it fears that companies and millionaires will flee to a low-tax state. This 'race to the bottom' keeps taxes and services low across the board.

The following table shows the contrast with other advanced economies:

Notice the US has the highest private share in healthcare. That's not because Americans are all anti-government—it's because the system was designed that way. In World War II, wage controls led employers to offer health insurance as a fringe benefit. After the war, the tax code made employer-provided insurance tax-exempt, creating a massive private health insurance industry. No politician since has been able to dismantle it.

The Political Machinery Behind Privatization

The privatization juggernaut isn't just about ideology. There's big money at stake. Private prisons, military contractors, health insurance companies, and for-profit schools all spend heavily on lobbying. In fact, the private prison industry alone has spent millions to keep mandatory minimums and tough sentencing laws in place.

Think about the acronym 'MILF'—no, not that MILF. I mean 'Military-Industrial-Legislative-Federal' complex. During the Cold War, defense spending built giant contractors now deeply embedded in government. This is just one example of the 'revolving door' where politicians become lobbyists after leaving office.

The Reagan era was a turning point. Reagan's mantra—'government is not the solution to our problem; government is the problem'—reshaped federal policy. He deregulated airlines, telecommunications, and more. State governments began contracting out prisons, mental health clinics, and even drunk-driving tests. This wave never fully reversed.

A Brookings Institution report found that contracting out public services often leads to higher costs and lower quality, especially in complex areas like public health and IT.

Culture, Individualism, and the American Dream

Now we get to something deeper: American culture. The US was founded by people who felt persecuted by the state. That origin story shaped a national obsession with individual liberty and self-reliance. The American Dream says 'success comes from hard work, not from government help.' Any policy that expands the state is often branded as 'socialist.'

The result is a low level of 'social trust' in government. While Europeans often see government as a helpful referee, many Americans see it as a bloated, wasteful bureaucracy. That's why you hear calls to 'run government like a business.' People believe the private sector is inherently more efficient.

I've had countless conversations with conservative friends who genuinely think private schools are better because they're market-driven. But visiting a public library in rural Montana, I see the paradox—a public good that everyone relies on, yet no one wants to expand the government that provides it.

Real-World Examples: From Prisons to Schools

Let's make this concrete. Here are the areas where privatization in America has gone farthest:

• Prisons: Around 8% of federal inmates and 7% of state inmates are in private prisons. These facilities often cut costs by paying guards less and charging prisoners sky-high phone rates. In some states, private prison companies have contracts requiring a minimum occupancy—meaning they need to keep people locked up to stay profitable.
• Education: Charter schools are now a major player, enrolling over 3.7 million students. They are publicly funded but independently run. Supporters say they foster innovation; critics say they drain money from regular public schools while offering uneven results. School vouchers are another controversial example.
• Healthcare: Except for Medicare/Medicaid, American healthcare is overwhelmingly private. Even the public programs rely heavily on private insurers to administer benefits. The result: the U.S. spends nearly 18% of GDP on healthcare—but ranks last in health outcomes among developed nations.
• Infrastructure: Some cities have leased toll roads to private companies, which then raise tolls aggressively. Recently, the city of Gary, Indiana was so desperate for cash that it leased its own fire stations to a private investment firm for scrap.

For example, consider a city with a budget crisis. Instead of raising property taxes, it privatizes its trash collection. The private company starts billing residents individually. The service might be fine, but now the city lacks the revenue to repair roads. That's the trade-off you rarely hear about.

Is Privatization in America Working? The Hidden Costs

So, does privatization deliver the promised efficiency? In many cases, no. A study by the Economic Policy Institute found that when states contract out budget services, the primary savings come from cutting wages and benefits of workers—not from better management.

Take the disastrous implementation of Obamacare's healthcare.gov website. That was a mess overseen by a private contractor. Or look at California's decade-long effort to build a high-speed rail—a public-private partnership that keeps ballooning in cost.

There are also serious equity concerns. When services are privatized, the quality you get often depends on your income. Rich neighborhoods can afford better schools, better roads, better security. Poor neighborhoods are left with whatever cheap services private contractors bother to provide. This exacerbates inequality.

I remember reading about a city in Texas that privatized its city ambulance service. The company's response times were good—but only in the affluent areas. In poor zip codes, ambulances were routed from distant stations to save money. That's not a hypothetical; it was documented by a local news investigation.

Even prisons show this. Private prisons face higher costs of violence and suicide, and they often keep costs down by inflating their contracts through 'management fees.' A Reuters investigation found that private prison companies were overcharging the government by millions.

FAQ: Everything You Wondered About US Privatization