Thursday, March 1, 2012

The colour of privatization is ORNGE

Watch the above video here.

Disturbing facts and allegations are coming to light about Ontario’s air ambulance service ORNGE, including excessive salaries, nepotism, taxpayer-funded profit-making schemes, and failure to provide expected medical services. The suspected $6.7 million helicopter kickback dwarfs the alleged Airbus cash collected by former Conservative Prime Minister Brian Mulroney. So what is the overall lesson in this story?
Many people, especially through social media, are using this to heap scorn on the McGuinty Liberal government. For them, corruption or incompetence in any publicly-funded endeavor is further ammunition to tar the minority premier. Yet in their eagerness to attack, they undermine their own ideology.
More than anything else, ORNGE is the saga of privatization of public service. Before ORNGE, air ambulance service was managed directly by public health officials. But over the past decade, in the push for privatization, it was thought wise to hand it off to a private corporation.
The aim of privatization is to get the same level of service at a lower cost. Less public administration is a path to save money or control rising expenses. A service “run like a business” will theoretically be better at finding savings or innovation in a competitive market. Government sets the standard and the price, then the winning bidder is paid the set price to meet that level of service. What could be simpler?
Well, ORNGE demonstrates the resulting complexity. Many complain that top executives of government-owned agencies or corporations are overpaid. Yet their compensation pales in comparison to the millions of dollars in salaries, bonuses, or stock options top executives or owners of private corporations collect, all while staying off the “sunshine list”. Meanwhile, at the bottom, it’s expected that salaries of non-unionized front line employees will be lower, creating the “savings”. The better executives can restrain general payroll through layoffs or salary cuts, the more profit they or their investors can pocket – all bankrolled by taxpayers.
Meanwhile, public authorities have less oversight or control of the day-to-day operations of the service, or the major capital decisions, such as fleet purchases or facility construction. When the owners create lucrative spin-off companies, lie to investors about their qualifications, or find other ways to profit from publicly-funded infrastructure, government can at best play catch-up. One of the purported benefits of privatization is reduced need for oversight, so it would be silly for government to heavily monitor a service it has already sold off. So they don’t, and this is what happens.
Those opportunistically using the ORNGE fiasco to attack the governing party need to realize their underlying message: privatization is a failure, we need bigger government to directly manage more aspects of society. Is that really what they want to say?

UPDATE: The Green Party of Ontario has just released a position that follows the ideas of this column, and calls for a review of all P3s (public-private partnerships, the term politicians and business use for privatization of public activity) in Ontario to prevent similar waste or abuse of taxpayer funds in other areas.

2013 UPDATE: I was sent a link to this video, which makes a some very good points about why government should NOT be run like a business.

Written for my Root Issues column in the Barrie Examiner as "Attacks on government over ORNGE misdirected".
Erich Jacoby-Hawkins is a director of the Ontario School of Economic Science and Earthsharing Canada.


  1. Thanks Erich, would you say that the main problem here was that govt simply wasn't paying any attention to how the money was spent? Public or private people will squeeze the govt for as much as they can get. has anybody been fired for this? I certainly would hope so. On the other hand if the govt is paying less overall than before despite the abuse - then all these shenanigans should just cause the contract to be terminated and retendered.

  2. I think the problem is that, under privatization, by definition the government pays less attention. So it's a risk you take when you privatize major services. This doesn't mean that nothing should be privatized, but it does mean that we lose some of our right to complain if we do.

    Under the principles of privatization, all that really should matter is whether or not the government is getting a level of service (for the price) comparable to or better than under public administration. In not, then it's a problem. But if we're actually getting the required service for a reasonable price, then really it's none of our business how much the owner or top executives get paid, is it? The concept of privatization is that we worry about the size of the whole envelope, not how it's divided at the other end.

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