Is Privatization Bad? It Depends

Given the inflexible nature of the civil service, privatizing social services is sometimes the government's only option.

Isaac Herzog is contending for the Labor Party chairmanship on the social ticket. His liberal positions, along with his long term as social affairs minister, have made him an outstanding social advocate and one of the politicians who have fared well amid the middle-class protest.

However, Herzog is also one of Israel's fathers of privatization. Moreover, he is also the standard-bearer for the most sensitive, problematic privatizations - social services. As social affairs minister, he led the ministry's policy of moving as many operations as possible from ministry hands into the hands of non-profits. Now, a large part of Israel's welfare activity is being carried out by non-profits, supervised and budgeted by the Social Affairs Ministry.

Isaac Herzog - Michal Fattal  - August 8 2011
Michal Fattal

So is Herzog a social champion or a capitalist pig? Does privatization mean the welfare state is being dismantled, or is privatization an inalienable part of that state?

The reality is more complicated than a yes or no. Like most thing in life, the answer is that it depends. It depends what is being privatized, and it depends how it is done. For a privatization to succeed, it needs meticulous government management - strict standards, budget frameworks and supervision to ensure standards are met.

The problem is that over the years, Isreal's government has been pushed to privatize services because of its own dysfunction, but this dysfunction is so deep that it is difficult for the government even to supervise privatization. For one thing, it never established an orderly privatization policy (aims and goals ). Thus, there is no cumulative data about privatizations - of government companies in the past and government services in the present - and there is no orderly oversight or follow-up to determine whether privatization is good or bad.

What is clear is that contrary to what people believe, there are quite a number of successful privatizations. The Israeli public, for example, does not even notice how many of its most sensitive social activities have long been privatized. Early childhood education, without a doubt a very sensitive service, has been controlled by non-profit organizations like WIZO and Na'amat since well before the establishment of the state. Care for the elderly, another very sensitive service, is also controlled by non-profit organizations like Mishan as well as by private for-profit organizations. Care for dependents with autism has long been the province of Alut, The Israeli Society for Autistic Children; care for the disabled has been led by Ilan, The Israel Foundation for Handicapped Children; and care for the mentally retarded has been led by Akim, the National Association for the Habilitation of the Mentally Handicapped Persons in Israel.

All these organizations are extra-governmental organizations. They use government money, but the government does not control or run them. Thus, this is privatization in every respect - of particularly sensitive government services to boot - but we are at peace with it.

The Bermuda Triangle

Again, contrary to the prevailing image, these veteran organizations provide excellent social services not necessarily because they are non-profits. There are also excellent for-profit organizations in welfare and education. When it comes to nursing care, there are many private institutions, some better than others. Herzog mentions a private organization called Beit Ekstein, which he calls "a jewel in the crown of care for the mentally retarded."

What is also clear is that the choice to privatize government services, including welfare services, is mainly the result of the relationship between the Finance Ministry and the Histadrut labor federation - and not a conscious, orderly policy. Over the years, the Histadrut has refused agreements that would make the civil service workforce more flexible. As a result, the civil service has become atrophied and inefficient due to flawed management and salary system.

Herzog refers to a "Bermuda triangle" - the Finance Ministry wages director, the Finance Ministry budget department and the Civil Service Commission - which has unchecked control over government manpower, from the number of positions to pay. "I wanted to add positions but I couldn't because the treasury didn't let me," says the former social affairs minister. "The only way to hire hundreds of new welfare workers was to look outside the government."

Why could external workers be hired but not civil servants? The answer of course is that the Finance Ministry objects to expanding the civil service because of the perception that this is a limp, inefficient and alarmingly wasteful service.

Herzog, too, acknowledges that the ministries' lack of management flexibility is causing atrophy. Stories about workers suspected of harming wards but who cannot be fired because they have tenure are common among the Social Affairs Ministry's administrators. School principals tell similar stories of teachers who are burnt out or who affront students but who cannot be fired.

"There is stasis in the collective agreements. I even said this to Histadrut chairman Ofer Eini when the occasion arose," says Herzog. "Therefore, the fastest way to circumvent the collective agreements is to sign contracts with NGOs."

Side effects

But the collective agreements are being circumvented in more than one way. Thus, one of the social workers' most serious allegations against the Social Affairs Ministry was that by letting non-profits handle social services, the ministry was divesting itself not only of its responsibility for providing services, but also of its responsibility to the workers. In other words, by employing workers through non-profits, the ministry saves on wage costs.

Thus privatization, originally intended to enable management flexibility and efficient services, became synonymous with exploiting workers. The workers are not being compensated with higher pay for the loss of job security - instead, the state employs them through non-profits without tenure and for less money.

Some of this injustice was rectified by the social workers' strike, which led to minimum wages for welfare non-profit employees. But the state is not expected to stop employing private contractors to run its social services. The government's inefficiency, and the lack of a social contract on government wage agreements and management, do not make anything else an option. Anyone who really wants to see less privatization must call for a real reform in how the government operates, including more flexible labor agreements.