Tuesday, January 8, 2013

What Is and What Isn’t Privatized Garbage Collection

[This post appeared originally on the blog of mises.ca, on December 4, 2012]

With crony capitalists as its supposed champions, capitalism needs no enemies. They are plenty and easy to find in the political sphere, particularly among what these days passes as the Right. Thus, the job of true capitalists is to out the false friends of laissez-faire by refuting their fallacies. One representative of the false champions of the market economy is now-ousted Toronto Mayor Rob Ford. This fellow ran a campaign on the promise to cut government waste in Canada’s largest city—and won. Yet, this seems to be a promise too easy to make, and break, for two reasons. First, politicians usually buckle under the pressure of an impending election. They fear a loss of popularity which could mean a loss of their comfortable job. Second, a politician may not buckle, yet, he may simply not understand the mechanics of the market economy, or chooses not to.

While irrelevant to our purpose, in Ford’s case, in the opinion of this writer, it seems that the latter reason was the key to his ultimate failure to make a real impact in what is business as usual in Canadian politics. A defining moment in Ford’s early tenure was his battle against the garbage collector’s union. It was a fight that Ford ultimately won—but free market capitalism lost—by managing to outsource a part of the city’s collection services to private companies. It was a move described by both supporters and opponent of Ford’s as the “privatization” of garbage collection. But it wasn’t privatization; the handing over of garbage collection to private contractors was the cartelization of Toronto’s garbage collection. For, the City awarded a turn-key business to a company that had gone through the rigmarole of obtaining countless government licenses to operate in what is generally considered the lowest level of the economic pyramid, i.e. an entry level industry where very little capital investment is necessary if not for legal barriers. This was not an open tender to anyone who wished to put their services on offer; this was a contest with a pre-determined winner, picked out of a small group of entities which have satisfied the expensive demands of the laws they lobbied for. On top of that, the customers were not given a choice as to who they would personally deal with; they were forced into accepting the service provider that the City chose. That is to say, the customers had no choice as to who they pay for the service, regardless of who executes it.
In a piece defending Ford’s approach, the National Post would conclude that:
Critics of privatization have pointed to initial problems with the new collection service as evidence that the trade-off for the potential cost savings will be lower quality service. But by doing so, they have demonstrated precisely why they are wrong.
It is far easier to hold private contractors accountable for their service deficiencies than government departments. Furthermore, private contractors have to perform to the standard spelled out in their contract.
While correct in saying that it is easier to hold private contractors accountable for their services than government departments, this does not apply the same way to cartelized businesses as it does to businesses engaged in laissez-faire competition. Likewise, it does not mean that taxpayers are getting a free market level quality of service (relative to what they are paying). When private contractors which have been awarded government contracts (that is, government monopoly) fail to meet taxpayers’ expectations there is still the bureaucratic process that needs to follow in order for their complaints to be heard, and improvements in the service to be implemented. More so, the individual household has no recourse; it cannot take its business elsewhere. Thus, while it may be easier to hold these private contractors accountable relative to City employees, it is still infinitely harder to hold them as accountable as service providers in a perfectly free market.

The earnest privatization of garbage collection would happen when it is private entities that decide how to dispose of their garbage. If Toronto’s garbage collection was truly privatized, then the City of Toronto would have nothing to do with it. Each individual, household or business would make their own arrangements to dispose of their garbage. Here we anticipate the question, “But if the local government doesn’t take care of it, then who will collect the garbage?” To which the obvious answer is: the homeless, the unemployed or simply anyone who sees an entrepreneurial opportunity for profit. Say’s law holds true: At the present time there are numerous entities that provide garbage disposal services to businesses across Canada; similarly, there are countless persons who routinely go through people’s trash before the garbage collectors make their rounds. There are pallet, cardboard and plastic recycling companies, to name a few—often comprising of single operators, that seek out every single discard they can get their hands on. These companies provide customized services to each of their customers: in some cases receptacles (bins, compactors or trailers) are spotted at customers’ locations; in other instances pick-ups are provided on an as-needed basis (which can range from monthly collection, to several times per week)—and there are no limits as to how much garbage the customer can dispose of per collection. Similarly, there are grease and cooking oil companies that collect what is a nuisance for restaurants. There are tire recyclers, electronics recyclers and there are aluminum recyclers. And with the constant progress of technologies, every day brings new ways to reuse something that was garbage the day before, thereby commodifying yesterday’s trash.

There is no mystery as to why owners of local landfills and commercial garbage companies are often if not the wealthiest in their communities, then certainly among the richest and most powerful. There is proverbial gold in them hills of trash—and local monopolies are granted by authorities over them. This allows the Ministry of Environment licensed “landfills” to obtain a higher-than-market return on investment, since competition is limited or outlawed.  Exact numbers of how much of the garbage that gets generated annually ends up in the landfills, and how much of it gets recycled, are irrelevant to the current discussion. The point is that a great deal of what citizens pay a tax to dispose of, ends up being reused by landfill owners.  However, while in, say, the cardboard recycling industry the collector either performs the service for free or pays the entity disposing of their refuse; in the household garbage collection industry the collector gets paid to receive a commodity which he re-sells. Thus, garbage collectors get paid twice—something that would be impossible under an earnest regime of privatized garbage collection. Unlike landfills which already turn a profit from collection, independent recyclers (privatized garbage collectors) have a greater incentive to make every piece of trash re-sellable. Indeed, most of what ends up in the garbage is reusable, as long as it gets sorted properly: at the very least anything that is organic gets turned into decorative mulch or fertilizer. If the garbage collection market was allowed to function freely, then the likelihood is that as a result of competition among collectors, disposers would be able to make some money out of their garbage. It is the pattern that developed in all the above mentioned recycling industries.

As we can see, the outsourcing some or all of the City’s garbage collection to private cartels is a far cry from the true privatization of this service—something that should be kept in mind every time a politician makes a claim that they will “privatize” one thing or another.

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