James Surowiecki says, quite rightly, that the US student-loan
system is one
enormous boondoggle for private lenders to students. And he sees the same
syndrome elsewhere, too:
In part, it’s ideology, and the dominance of what you might call the
privatization mystique—the idea that anything the government can do,
the private sector can do better. Often, this makes sense: the free market
is more likely to come up with efficient ways of creating and distributing
products and services than the government is. But the student-loan market
isn’t a free market in any meaningful sense of the term, because the
government effectively determines prices, insures against losses, and subsidizes
volume. In this environment, most of the competition among private companies
is really just squabbling over how to split up the spoils. Economists call
this behavior—when a company seeks to manipulate economic conditions
rather than actually create value—“rent-seeking.” It’s
common in areas where the fetish for privatization has taken hold, such as
the outsourcing of homeland security to private contractors and the boom in
private Medicare insurers. (The private insurers are less efficient than Medicare
and receive billions in subsidies from the government.) Outsourcing tasks
to private companies is supposed to let government reap the benefits of the
free market. But sometimes it just ends up uniting the worst of government
and the worst of the private sector into one expensive mess.
I think we can be more precise than waving our hands vaguely in the direction
of "areas where the fetish for privatization has taken hold". How’s
this for a theory: Privatization never works when it involves continued subsidies
from the government. That explains why rail privatization in the UK was a disaster,
while the rest of the UK’s privatization efforts were generally successful.
And it explains why privatizing Amtrak wouldn’t work, either, while the privatization
of Germany’s railroads just might succeed.
In general, the government should feel free to sell off, for some large sum,
the right to make lots of money in the future, by doing things such as operating
toll roads or lotteries. But there’s really no reason why it should outsource
the spending of Uncle Sam’s money: the private sector simply hasn’t demonstrated
it can ever do that efficiently.