Noam Chomsky said once in lecture:

Social Security is actually in pretty good shape despite what everybody screams about. But if you can defund it, it won't be in good shape. And there is a standard technique of privatization, namely defund what you want to privatize. Like when Thatcher wanted to defund the railroads, first thing to do is defund them, then they don't work and people get angry and they want a change. You say okay, privatize them and then they get worse.

Among various government programs (American and British, since Chomsky implies both) that are less public and more private than they were, was the road to their privatization started with defunding measures? If not, what motivated their privatization? In either case, are those programs less functional than before?

Note: I don't think this question is too broad. I think showing some examples and counter-examples and expert opinion (from not Chomsky and non-politicians) would be sufficient. Though social security is mentioned specifically by Chomsky, I'd like if answers focus on other programs.

  • 6
    Is anything said by Chomsky accurate? Certainly in the case of American passenger rail, it would seem (from casual reading - I am no expert) that it did quite well as private companies without subsidies (other than for initial construction) up until post WWII, then declined due to competition from automobiles and airlines. and outside of areas like the Northeast Corridor, only survives due to subsidies (Amtrak). Freight rail seems to be doing well, although AFAIK it's always been private.
    – jamesqf
    Jan 26 '19 at 18:31
  • 2
    @user4012 I think that definition of defund is a bit obtuse. It's quite enough to assume he means that it has adequate funding until measures are taken to reduce that funding.
    – frеdsbend
    Jan 26 '19 at 21:03
  • 2
    @fredsbend - "adequate" is fully in the eyes of the beer holder. You can make anything work well with unlimited funding.
    – user4012
    Jan 26 '19 at 21:12
  • 5
    @user4012 Utterly false. Some things are just badly designed or bad ideas, regardless of funding. Money doesn't fix everything.
    – frеdsbend
    Jan 27 '19 at 1:08
  • 3
    Possibly a hint to understanding this is to compare the pre- and post- privatisation subsidy rates; the UK rail system continues to be subsidised, it's just that some of this subsidy is now paid out in dividends.
    – pjc50
    Jan 28 '19 at 10:56

For a railroad example, we can look at the privatization of the Canadian National Railway in 1995.

Operating as a for-profit Crown corporation, CN reported a profit in 11 of the 15 years from 1978 to 1992, paying $371 million in cash dividends (profit) to the federal government in this time.

The 'standard technique' says:

  • first thing to do is defund them: this doesn't appear to have happened

  • then they don't work : this doesn't appear to have happened either

  • people get angry and they want a change: some people were angry, and they wanted a change -- not because the public system didn't work, but because it worked too well: " Some of the most scathing criticism came from the railway industry itself—namely the commercially successful Canadian Pacific Railway (CPR), which argued its taxes should not be used to fund a competitor."

  • okay, privatize them and then they get worse: it doesn't seem like CN got worse in any significant way, or as a result from privatization -- it's good enough that today the largest single shareholder is Bill Gates, for what that's worth.

On the whole, then, I think this would constitute a counter-example.

  • "which argued its taxes should not be used to fund a competitor" Interesting argument. FedEx and UPS don't complain too much about the USPS, and the USPS is running a terrible deficit.
    – frеdsbend
    Aug 16 '19 at 17:02
  • 2
    @fredsbend: But there's little direct competition (or was, until they made deals with Amazon) between UPS, FedEx (& others such as DHL) and the USPS. The USPS's real competitor is email, on-line bill paying, and such.
    – jamesqf
    Aug 16 '19 at 17:17
  • @fredsbend If you'd like to examine whether USPS seems to be in the midst of the standard technique in an answer of your own, I think it'd be a worthwhile contribution here.
    – Roger
    Aug 16 '19 at 17:25
  • @Roger Maybe, but I don't think USPS is "defunded" as much as "it's not profitable". Either way, it successfully completes its mission, in keeping with standards I think.
    – frеdsbend
    Aug 16 '19 at 19:22
  • @fredsbend Nobody complains about USPS being a competitor because it is given a monopoly on delivering letters by the government. It is illegal for UPS and FedEx to compete with them directly in that particular arena.
    – Joe
    Aug 16 '19 at 20:19

Let us take the claim made:

Like when Thatcher wanted to defund the railroads, first thing to do is defund them, then they don't work and people get angry and they want a change. You say okay, privatize them and then they get worse.

Besides the obvious mistake of 'wanted to defund... first thing to do is defund', note that Thatcher was not the one to privatise the railways. She was 'anti-railway' in terms of not believing in government subsides, but that was an ideology in itself.

It is also worth noting customer levels were steadily decreasing long before Thatcher came to power; to suggest any cuts was causing customer dissatisfaction where there had been none is somewhat misleading https://en.m.wikipedia.org/wiki/British_Rail

  • 5
    Well, there had been cuts, but due to a different political generation: en.wikipedia.org/wiki/Beeching_cuts
    – origimbo
    Jan 28 '19 at 2:05
  • 1
    Also after Beeching and before Thatcher: legislation.gov.uk/ukpga/1974/48/contents
    – Evargalo
    Jan 28 '19 at 9:44
  • 8
    The fact that State subsidies for the UK railroads were much lower when it was nationalized than after the privatization can be interpreted as an insufficient funding (hence "defunding" ?) that encouraged the privatization. en.m.wikipedia.org/wiki/British_Rail#/media/…
    – Evargalo
    Jan 28 '19 at 9:52
  • 2
    @Evargalo the claim is the defunding was to allow for privatisation - the fact is that to try and see that you have to stretch as far as possible. The main problem we have is that any government that doesn't believe in subsidising a loss-making government owned facility will have to privatise eventually, for obvious reasons - but the reason isn't 'I want to privatise' but 'I don;'t want to subsidise'. I doubt Thatcher would have agreed to subsidising them well privately franchised.
    – user19831
    Jan 28 '19 at 9:57
  • 1
    "Besides the obvious mistake of 'wanted to defund... first thing to do is defund'" That struck me as weird. But it can work if the meaning is "If you want to defund 100%, the first step is to get away with defunding it 10%. Then its quality will go downhill and then you can privatize it and defund it the other 90%."
    – John
    Aug 16 '19 at 17:19

What's historically speaking the "standard technique of privatisation"?

Assuming that there was indeed some standard technique, then I'd look what was the biggest privatisation program in history - economic transformation of the Eastern Block around year 1989.

Were the enterprises in awful state as described Chomsky? Maybe not technically speaking defunded, but still close enough.

Were the enterprises sold in haste, often in questionable manner (especially Russia or Ukraine)? Yes, in a way that would make Chomsky blush.

Nevertheless, assuming that there was some sinister conspiracy behind, then such activities were done by communist parties... OK, by well placed capitalists agents spread all around such parties who launched a coordinated attack in late '80s. Hmm... we reached even beyond an Alex Jones conspiracy level to justify Chomsky claim, so let's think about a bit an alternative explanation.

Let's think for a few seconds which issues government owned enterprises may have:

  • political appointees to run them
  • often are ordered by politicians to do activities that are questionable from business perspective but are good from perspective of politicians reelection prospect
  • tend to operate in markets with limited competition or are too big to fail (private owned enterprises in such situation start to behave in pathological way...)
  • instead of being supervised by potentially furious and nearby shareholders, they tend be supervised by much more distant and less informed voters.

Let's think in which situation politicians (except some free market fundamentalists) start openly talking about giving up a turf, where they could reward their loyal men with a nice job:

  • the situation in company is really bad
  • maybe the situation is not so bad, but there is mismatch between what voters expect and what they receive. By privatising the business, the gov is no longer to be blamed for its perceived failures.
  • people are really unhappy about taxes and selling the business seems like a good idea to get some quick cash before next election. (anyway, when you need to resort to such moves, then presumably you have been defunding it anyway for a while, exactly as Chomsky suggested)

Conclusion: Chomsky is presenting symptoms of a naturally occurring process of selling some problematic or mismanaged government enterprises as some conspiracy theory. He really needs that, otherwise he would have to admit that government owned business in general are not destroyed by some malicious conspirators, but just run ineffectively for years.

  • 1
    Calling selling of state assets a "naturally occurring process" is a bit disingenuous. At all times, there comes a decision to sell which is made by people. It's not some sort of self-organising principle that occurs over the lifecycle of business.
    – Jontia
    Jul 9 '20 at 12:13
  • A "capitalist agent" is not required to defund a given government program -- all that's needed is a number of legislators, (sufficient to surpass some tipping point), who are at least temporarily amenable to, or coercible by way of, lobbying, bribes, or blackmail.
    – agc
    Jul 15 '20 at 8:56

Historians defy the accuracy of broad descriptive claims made by non-specialists who lack adequate reading. They do so doubly when the impulse to make the claim is to advance a contemporary politics rather than adequately characterise the documentary record of the past.

As Chomsky is no economic historian of public institutions, or comparative equivalent, his claim cannot be historically accurate.

Moreover there are problems with the concept of defunding including changes in the administration of existing funding that result in reduced perceived volume or quality; increased funding at a rate lower than the rate of increase of serviceable population / need; increased funding at a rate lower than inflation (rate of increasing costs); transfer of capital works funding to line service provision with the consequent increase in functional debt; failure to increase partial cost recovery charges in line with inflation or real costs; etc.

An appropriate historical approach for this scope of claim would certainly include New Zealand’s Rogernomics and the Australian Wages and Prices Accord process (Humphreys (2018) How Labour Built Neoliberalism: Australia’s Accord, the Labour Movement and the Neoliberal Project); and would need to include the Soviet and Soviet-style society denationalisation, and the Chinese proportional privatisation through deliberate forced growth in the private sector and destruction of state industries.

  • 6
    Is this a comment or an answer? I don't think begging the question with a genetic fallacy counts as an answer pretty much ever.
    – frеdsbend
    Jan 27 '19 at 1:19
  • 22
    Your words: "As Chomsky is no economic historian [therefore] his claim cannot be historically accurate." You're saying, quite literally, the claim is wrong because of who said it.
    – frеdsbend
    Jan 27 '19 at 1:30
  • 4
    Ok, if I agree with you, which I don't, then you're just claiming burden of proof is on him. In a classical logic course, I'd agree, but on SE and right now it's not very helpful. In the least, you should include a summary of what "Rogernomics and the Accord process" are and show that Chomsky doesn't account for them.
    – frеdsbend
    Jan 27 '19 at 2:11
  • 10
    "As Chomsky is no economic historian of public institutions, or comparative equivalent, his claim cannot be historically accurate." Wow, you mean no layperson can occasionally be correct about a specialized topic, not even by chance?
    – Zebrafish
    Jan 28 '19 at 8:23
  • 9
    "Chomsky lacks the methodological training to possess an informed opinion." You actually went a step further than that. First you said he lacks the training, and then said his claim cannot be historically accurate. That's wrong. I don't mean to be nitpicky, but precision of words matter, especially when you're making a consequential claim.
    – Zebrafish
    Jan 28 '19 at 9:13

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .