MYTH: Privatization reduces bureaucratic/administrative costs.

REALITY: The private sector often has higher administrative costs.

The administrative costs for our government-run Medicare system runs around 4% of total
expenses compared to 25% for the private sector. If the Bush administration had succeeded
in its efforts to partially privatize social security, administrative costs would have doubled due
to the cost of managing more than 150 million private accounts.

MYTH: If the government steps back, the private sector will deliver.
REALITY: The private sector is interested in making profits, not satisfying needs.
• Some examples of goods and services that are
desperately needed, but not profitable enough for
the market to deliver:

• There is an almost total lack of R&D for drugs to

treat unprofitable diseases. Of the 1,393 new
drugs approved between 1975 and 1999, just 13
or 1% were for tropical diseases that kill millions
of poor people.
• The lack of affordable housing is partially due to
the fact that luxury homes are more profitable for
developers to build. Anti-privatization mural, El Salvador

• Despite the fact that mass transportation is more efficient and environmentally friendly than
cars, it is simple not profitable enough for the private sector and therefore requires
government support.

MYTH: Corporations contribute to public expenditures through their share of taxes.

REALITY: Corporate welfare, tax cuts, and price gouging
• Government subsidies and tax breaks for corporations add up to around $100 billion every
year.
• The corporate share of the federal tax burden has steadily declined from 23 to 11 percent
between 1960 and 2005.
• Examples of corporate price gouging abound. In the early 1980s, media publicized the
Defense Department’s gross overpayments that included $9,606 for an Allen wrench
available for 12 cents at hardware stores and the famous $600 toilet seat. Recently,
Halliburton, the energy giant, has agreed to pay $27.4million to the US government for

Public Good Mythbusters 2006, produced by

The Center for Popular Economics * PO Box 785m Amherst, MA 01004 * 413-545-0743
website: www.populareconomics.org * e-mail: programs@populareconomics.org
 overcharging for meals supplied to US troops in Iraq and the Pentagon is investigating
Halliburton for millions of dollars of fuel overcharges in Iraq and Kuwait.

MYTH: The private sector imposes discipline and prevents corruption.

REALITY: In recent years there have been a series of corporate scandals, starting with
Enron, that have cost the public many times more than
Cost to public, 2001
ordinary street crime.
• Corporate corruption and fraud costs the public billions of 60

dollars. In 2001, the FBI estimated that the nation's total

loss from robbery, burglary, larceny-theft and motor vehicle 50

theft was $17.2 billion -- less than a third of what Enron 40

alone cost investors, pensioners and employees that year.

billion $
30
• Corporations have increasingly resorted to “cooking the
books” to mislead consumers, shareholders and the 20

government. In 1981 there were a total of three cases in

which US corporation were forced to admit to reporting 10

fraudulent earnings - by 2002 there were over 1,000, 0

including big corporations like Enron, WorldCom, Tyco, Enron Property

Halliburton, and Arthur Andersen. crime

MYTH: Market competition leads private sector to deliver goods and services at lower
prices, higher quality and more choice.
REALITY: Despite anti-trust laws, private companies have often adopted strategies like
price-fixing, price-gouging and bid-rigging—robbing consumers of billions of dollars.
• In August 2006, the Department of Education released a report
that dealt proponents of school privatization a blow. It showed 4th
graders in public schools did significantly better on reading and
math tests than comparable students in private charter schools.

• Mylan Laboratories, the second largest manufacturer of generic

drugs in the country, was found guilty of artificially raising prices
of two widely used anti-anxiety drugs – in one case, from $7.30
to $190 and in another, from $11.36 to $377 for a bottle of 500
tablets.
• The private healthcare industry has been found guilty of billions
of dollars of fraud. For example: Columbia/HCA - $750 million
fraud; Bayer - $257 million in Medicaid fraud, Smithkline,
Corning, LabCorp - more than $800 million in billing fraud.
• In 1949 several US companies, including General Motors, Standard Oil, and Firestone,
were convicted of purposely destroying eco-friendly inner-city rail transit systems in more
than 100 US cities. The companies were each fined $5,000 and one executive was fined
a dollar.

Public Good Mythbusters 2006, produced by

The Center for Popular Economics * PO Box 785m Amherst, MA 01004 * 413-545-0743
website: www.populareconomics.org * e-mail: programs@populareconomics.org
Sources
Healthcare for All website, www.healthcareforall.org/healthcare_crisis.html

“The Hidden Cost of Private Accounts,” Ellen Frank, Dollars & Sense,
www.dollarsandsense.org/archives/2001/1101hidden.html

“No new R&D on drugs for diseases affecting poor,” Kanaga Raja, SUNS, Oct. 2001,
www.twnside.org.sg/title/affecting.htm

“Shifting the Burden, 5.9,” Field Guide to the U.S. Economy, Teller-Elsberg, Folbre, Heintz,
Center for Popular Economics, NY: The New Press2006

Trusted Criminals, David O. Friedrichs, Thomson Learning, 1996

“Profit Without Honor,” Rosoff, Pontell, and Tillman, NJ: Prentice Hall, 2001

“Corporate Crime and Abuse,” Center for Corporate Policy,

www.corporatepolicy.org/issues/crimedata.htm

“Corporate Crime Wave,” New Internationalist, July 2003, www.newint.org/issue358/facts.htm

“Comparing Public Schools and Private Schools,” US Dept. of Education, NAEP,

www.nytimes.com/packages/pdf/national/20060715report.pdf

“The Street Car Conspiracy,” New Electric Railway Journal, Autumn 1995.

Public Good Mythbusters 2006, produced by

The Center for Popular Economics * PO Box 785m Amherst, MA 01004 * 413-545-0743
website: www.populareconomics.org * e-mail: programs@populareconomics.org