An activist in Berlin in 2016 is clutching a suitcase stuffed with fake money, demanding greater trasparency in new legislation following the Panama Papers affair. The Panama Papers exposed large-scale offshore tax avoidance for thousands of clients of the firm law firm Mossack Fonseca. Photo by Sean Gallup/Getty Images.
If you are someone who generally roots for public policy to succeed, then you might have noticed that Minnesota is having a rough couple of months.
In June, the state’s celebrated eBike rebate applications were postponed due to a website crash; last week, Attorney General Keith Ellison announced he would be charging five people with over $7 million in fraudulent Medicaid billings; and all of this occurred amidst the ongoing Feeding Our Future trial, which has revealed startling inadequacy in the oversight of more $250 million of nutrition assistance grants distributed by the Minnesota Department of Education during the COVID-19 pandemic.
On their face, the incidents paint a discouraging picture of the state’s competence and integrity. Unsuccessful programs and improper payments are violations of the public trust. They are also a political liability for Democrats and progressives who generally seek to create a more just and equitable society through government intervention.
Conservatives are eager to use these incidents to inspire doubts about the efficacy of public programs, but recent fraud and dysfunction do not illustrate an inherent problem with government action. To the contrary, the unifying factor in all of these incidents is that policymakers delegated public services, like feeding kids and delivering health care, to nonprofits and private sector businesses rather than having government agencies complete these tasks directly.
Privatization, as this is called, has played a key role both in Minnesota’s recent public policy failures, and in national policy challenges for decades. It is a broad and complex topic that I will introduce in this edition of Tax and Spend and hope to explore in depth over the course of the series.
Since the Reagan administration, policymakers have increasingly sought to enact programs and achieve desired outcomes through contracts or subsidies with business. This strategy is emblematic of the neoliberal economic philosophy — ascendant in the U.S. for nearly half a century now — that private markets are the most effective means of improving social welfare, even when it comes to sectors like health care and education that require government funding and oversight.
Despite rhetoric touting the alleged supremacy of private actors, the common result of these programs has not been public savings or enhanced efficiency, but the loss of democratic control over taxpayer dollars and the introduction of a profit motive that is toxic to the creation of broad social benefits.
In their 2021 book, “The Privatization of Everything,” Donald Cohen and Alan Mikaelian discuss a wide range of infuriating instances of privatization. They range from a disastrous parking meter contract that cost Chicago billions in lost revenue and effectively surrendered the city’s right to design its own streets and policies, to military contracts that have weakened our armed forces and left vital national security decisions to the whims of defense industry executives.
Troubling as some of these high-profile examples may be, perhaps no privatization boondoggle matches the scale and scope of our one-of-its-kind system of public-private health care. The United States has the highest health care spending of any developed nation on earth, along with worse health outcomes — including shorter life expectancy and higher infant mortality — than the vast majority of comparable countries.
It is no coincidence we also lead in the delegation of health care management to for-profit corporations.
This incursion of private entities into public services creates opportunities for waste and fraud that are inherently absent in a government-run system. Consider Minnesota’s universal school meal program: Unlike Feeding Our Future or Medicaid payments to providers, school lunch money doesn’t pass into private bank accounts, but goes directly to school districts, where it is subject to multiple levels of public scrutiny. There is simply no avenue for money to disappear.
Privatization, on the other hand, not only requires spending additional tax dollars to ensure public funds reach their intended destination, but results in leakage to unnecessary middlemen and private profits. Feeding Our Future, for instance, was not simply a meal provider, but acted as a passthrough agent, funding over 100 community-based “sites” that prepared and served — often nonexistent, it turns out — meals. This is the kind of complex structure you would expect in a multi-level marketing scheme, not a straightforward public program.
In addition to waste and potential fraud, consistent reliance on private providers hurts the public in a third way: By eroding public sector infrastructure and capacity that we need to achieve important social outcomes.
Here is a quote from the Star Tribune editorial board commenting on Feeding Our Future: “It continues to be important for state agencies to work with community partners to disperse federal and state dollars because the state doesn’t have the capacity to be the providers for numerous social-services funds.”
This quote is worth reflecting on. The editorial board takes it for granted that the state does not have the ability to distribute food to people in desperate need. This is both not true — Minnesota is home to tens of thousands of schools, libraries, parks and community centers that can function as hubs for distribution — and hugely problematic. To the extent that the state might struggle to get food to residents in need, it is a tremendous liability, just as the lack of a public health infrastructure greatly complicated the delivery of health care and vaccines during a global pandemic.
But it gets worse. The ed board continues: “Commissioner Willie Jett, who has led MDE since 2023, told lawmakers that the department will implement [legislative] recommendations and that it has already strengthened its oversight, started fraud training for employees, contracted with a firm to conduct financial reviews of food programs and added an inspector general to investigate fraud allegations.” [emphasis added].
Not only have we privatized the distribution of public funds, but we are now privatizing the oversight of privatization.
Comical as this is, it is not anomalous. In their book, Cohen and Mikaelian discuss the growing Medicaid auditing industry that has popped up as a result of fraud that is created by the privatization of Medicaid services to begin with. This is simply no way to run a country.
The first step to untangling this mess must be a proactive, publicly-run campaign to ensure our tax dollars are going to their intended purposes. This will increase public trust and, by saving wasted money, open new opportunities for increased investment in legitimate services and providers.
But oversight on its own won’t be enough. Our systems will remain porous so long as they are built around a motive for private profit. The longer-term project needs to be an agenda of good government grounded in transparent public institutions and a strong public sector workforce.
Undoing decades of privatization is a generational task, but it is necessary if we want to address the pressing needs of Minnesotans, like accessible health care, quality public education, and affordable child care. If Minnesota wants to stand out as the state that works, then we need to step away from a failing status quo.
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