The Diminishing Power of the Public, Part 1: Nonprofits as Privatization

This is the first in a series of posts on privatization, the decline of public power, and its implications for democracy and the provision of public and social goods.

A common argument among globalization’s flattening earth theorists is the assertion that state power is being eclipsed by capital mobility, international governmental organizations, immigration, and innovations in transportation and communication.  Here, I want to walk through a counter-argument I’m thinking about.  Historically speaking, state autonomy was actually diminished by democratization.  The more proper question is whether or not public power, engendered by democratic processes and public accountability, is diminishing.  I argue that public power is significantly diminishing, at least in the U.S., and being replaced by a multitude of private powers.  The major forms of this privatization are the outsourcing of responsibility for the provision of public and social goods, the encroachment of private organizations on these goods’ provision, and the privatization of public funds.  In this first part, I want to introduce the question of the declining power of the public and elaborate my first argument: that the provision of public and social goods are being outsourced to private corporations, particularly nonprofits.

First, there’s an ambiguity in the idea of state power.  For globalization researchers, the decline in state power is the declining ability of the state to determine its own policies.  The primary driver for many is global capital flight in which, if states choose anti-capitalist policies, multinational corporations will pick up and move.  Hence, states are forced to dismantle welfare, minimize taxation, and deregulate.  While I would agree that state policy is being influenced by global capital markets, I believe that this conception of state power as policy autonomy obscures what state autonomy actually is.  I argue that states generally are less and less autonomous the more democratic they become.  Democratic states are significantly less autonomous because they are fundamentally beholden to the voters, interest groups, and other public groups that shape elections, policy making, and program implementation.  In essence, the decline of state autonomy has already happened for democracies.

The more pertinent change in state power over the past four decades, best exemplified by the U.S., is the increasingly private control of state money and programmatic responsibility.  This is a broader definition of privatization, which typically refers to governments contracting public enterprises like waste management and parking meters out to for-profit companies.  I define privatization as the private control and responsibility for public resources and programs.  Of course, privatization comes with political overtones and I do not mean to take sides as to whether these trends are better or worse for providing public and social goods.  I only mean to hypothesize about its relationship to public power.

Nonprofits as Privatization:  Prime examples of private responsibility for public programs are nonprofits and traditional privatization initiatives.  Some may be surprised to consider nonprofits as a form of privatization, but they are, in fact, privately-operated corporations (that’s what the “c” in 501(c)(3) stands for).  What is categorically significant about this form of privatization is that the implementation of publicly determined programs is not democratically accountable in the same ways as public programs.  Charter schools are a perfect example of the nonprofit form of privatization.  We elect the school boards who oversee our public school systems.  We do not elect the CEO’s who run charter school management corporations.  Some may think this is a specious distinction since charters are overseen by school boards or other state offices (hence they are still “public”).  But, two important differences should be noted.  First, charter schools are granted exemptions from some of the (democratically chosen) rules and regulations governing public schools.  Secondly, the oversight process is at arms length compared with traditional public schools.

The potential implications of nonprofit privatization are surely more numerous than I’ve come up with, but here are some key points.  First, this privatization likely leads to more innovation, at minimum because of sheer organizational diversity and competition for funding.  This diversity cuts both ways, in that some organizations will be much less effective and potentially harmful while others wildly successful.  The key is the competitive mechanisms which ensure that the ineffective fail and the effective survive.  This gets me to my second implication.  The arms-length relationship between democratic oversight and program implementation problematizes the oversight process because inspection and grant reporting, rather than direct management and public reporting, ensure compliance.  While direct management is no panacea for good governance (think state-run institutions for people with mental illness), an annual inspection has little hope of doing better.  This, I believe is the source for the accountability movement in the third sector.

Third, it allows public programs to tap into a broader range of private resources, particularly foundations (this is more apparent in social services like homeless shelters and services for people with developmental disabilities, than education).  The access to private wealth for public and social programs is a double-edged sword.  On the one hand, the depth of private, philanthropic pocketbooks is enormous.  While there are some policy areas that have long thrived on public and private funding (health, education, research, the arts), other areas like mental illness, job re-training, and homelessness have much more fragmented funding histories that have been positively transformed through the development of the third sector.  On the other hand, it has enabled the retrenchment of the state and the decline in public funding for publicly initiated programs.  Access to private resources did not necessarily cause state budgets to continue to be scaled back, but the ability of social and public services to access private wealth has certainly prevented widespread failure in the nonprofit marketplace in the face of declining public funding.

Finally, this privatization may have shifted the onus of civic engagement into professionalized volunteerism and under-informed philanthropy, rather than political action or democratic civic organizing.  This point goes back to the shift in public provision of services from benevolent associations (like the Elks) to nonprofits.  Before the post-WWII era, public and civic resources circulated through communities via politically active civic groups with regular meetings and democratically elected leadership.  There was a marriage of long-term civic engagement, political activism, and community self-help.  Those days are long gone, replaced by short-term, hyper-circumscribed volunteerism in the professional machinery of an albeit virtuously intending corporation.  Individual philanthropy, rather than being donations to your civic group’s democratically-controlled community pot, are determined by friendship networks (“the ask”), entertainment (galas, concerts, and the like), and emotional appeals.  This represents an information poor market driven by social convenience and an appealing narrative, rather than long-term social relationships, systematic knowledge, and democratic control over the use of donor funds.  It should come as no surprise that nonprofit leaders like Sean Stannard-Stockton and nouveau-riche philanthropists like Bill Gates and Pierre Omidyar are so interested in treating philanthropy as a form of investment.  There is wide-spread concern that the philanthropic marketplace is driven by emotions and convenience (and institutionalized traditions among old-school foundations) rather than impact.  As for volunteers and donors, they’ll have to get their democratic community elsewhere.

In conclusion, the increasing amount of private control over public resources and responsibilities, which I’ve broadened to include nonprofits, has significant, if morally ambiguous, consequences.  This shift, broadly speaking, represents a significant decline in the power of the public to control the provision of public and social services.  This nonprofit form of privatization is not, as some may argue, a capitalist take-over of the public sector because the nonprofit sector is categorically not capitalistic (though it is a marketplace).  Other forms of the declining power of the public, however, are capitalistic as I explain in the next post on the encroachment of private enterprises on public services.

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