Privatizing Indiana

A dedicated group of Hoosiers is fighting the outsourcing of the campus's printing services, motor pool, and bookstore.

By Patrick Brantlinger

Recently on CNN, commentator Lou Dobbs railed against privatizing the Pennsylvania Turnpike: “Where is the logic behind turning over a public highway, paid for by public money, to a corporation?” The public owns it and should profit from it. In passing, he mentioned that Indiana governor Mitch Daniels had foolishly privatized the Indiana Toll Road.

Daniels also signed a $1.16-billion deal with IBM to run Medicaid, food stamps, and other poverty-relief programs. In fact, he would like to privatize the entire state welfare system, which he calls “the worst” in the nation. ( Just how he knows that it is the worst is unclear, but he obviously dislikes welfare.) To balance the state’s budget, Daniels is dead-set against raising taxes, so he wants to outsource many more public services. As a result, taxpayers will pay corporations—not the state—to run them, and less money will go to the state. Daniels is also seeking to privatize Indiana’s lottery. It will supposedly continue to provide funds for the state while making profits for its corporate operator. IU’s administrators cheered Daniels on as he announced this privatizing gamble; they hope it will generate new funds for scholarships, among other items. (A proud first-year student tells her parents, “I’m a Lottery Scholar!”)

Long-term Costs

Climbing on Daniels’s privatizing bandwagon, IU’s board of trustees outsourced the motor pool at the Bloomington campus and all of the bookstores in the university system. The motor pool is self-contained and has little impact on students; its workforce is small. The contract to outsource it preserved eight out of twelve jobs; many more jobs are at stake in the bookstore deal with Barnes and Noble. Inevitably, outsourcing will  mean a decrease in control and oversight by IU’s administration. We hope, however, that the trustees will protect the jobs, wages, and benefits of IU’s current employees. No further contracts should be signed without seeking the agreement of IU’s unions.

Bloomington mayor Mark Kruzan and seven city council members recently wrote to the trustees about some of the potential costs to IU and Bloomington of privatization: loss of jobs, an added burden to local social services, and a decline in community goodwill. The council of Monroe County, where Bloomington is located, and Indiana state legislators Vi Simpson, Matt Pierce, and Peggy Welch have written similar letters. “There is a high probability that privatization will generate near-term benefits [rather] than long-term value,” the legislators wrote. “Outsourcing will have the effect of suppressing wage and benefit growth in our region.”

IU professor Jim Capshew began a guest column in the October 31, 2006, issue of Bloomington’s Herald Times by quoting Herman Wells, the late, revered president of IU: “The effectiveness of Indiana University depends upon its people, particularly those who make the university’s work a career. Such persons render a public service of the highest order. It is appropriate, therefore, that special recognition be given to members of the staff.” Wells understood, Capshew wrote, that money cannot buy loyalty; it can be encouraged only by “fair treatment and humane support” of staff, faculty, and students alike. The trustees may dismiss the cost of outsourcing to Bloomington or “the region” as mere “externalities”—items IU doesn’t include in its budget. This would be unfortunate. What about the price in terms of workers’ loyalty to IU?

Jobs in the Balance

Two hundred demonstrators, including many students and faculty members, protested outside an IU basketball game on January 27, 2007. They carried signs reading “Don’t Outsource IU Jobs” and “What Would Herman Do?” (in reference to the late president Wells). Senator Vi Simpson spoke to the demonstrators about her opposition to the outsourcing of IU jobs.

The following day, Steve Ferguson, president of the board of trustees, told the local newspaper about the different privatization studies IU is conducting:

Until these studies are completed, we cannot predict what effect they might have on our loyal and hard-working employees, whom we value highly. We intend to give them every consideration. In the end, some jobs will not be affected, some will emerge as better opportunities, some will change responsibilities, and, yes, some will be eliminated.

This was the first public acknowledgment by the trustees of IU’s “loyal and hard-working employees.” If the trustees value them so highly, why weren’t the workers and their unions consulted as part of these studies? Why, moreover, is the administration outsourcing the studies? For example, instead of inviting faculty in the School of Business to conduct the study of privatizing the motor pool, perhaps as a class project, the administration outsourced it. That study alone cost the university $162,000.

Before the trustees met last February, the IU unions and Jobs with Justice presented them with an anti-outsourcing petition signed by 3,500 people. The trustees nevertheless voted to sell the motor-pool cars and shift four out of twelve jobs elsewhere (whether these jobs will ultimately be lost or how they will change is unclear). The unions saw this outcome as a partial victory.

In May, however, after the administration received another 2,500 signatures opposing the outsourcing of all the bookstores on IU’s eight campuses, it proceeded to outsource them to Barnes and Noble. Although the ninety-three full-time employees in the bookstores can keep their jobs, their current wages, and their benefits for the ten years of the contract with Barnes and Noble, what happens after that is uncertain. Speaking to the faculty last January, IU vice president Terry Clapacs acknowledged that after its current employees were outsourced, IU couldn’t guarantee that they would stay employed: “We can’t control, once we privatize a business, what happens with all those positions.” As to cuts in benefits, Clapacs added, “Frankly, that’s where some of the savings are.”

Peter Kaczmarczyk, president of the Communication Workers of America Local 4730, declared in a press statement, “Outsourcing has been shown in most cases to lead to a decrease in wages and benefits for workers. This decrease . . . affects not just the workers and their families but also our community as a whole.” A secretary in the English department commented, “I lost an earlier job due to outsourcing, and my husband’s job with IU could now be at risk. Outsourcing is a dangerous trend that has a way of starting small and snowballing, and we should all be concerned.” A craftsman with seventeen years of experience at IU told me, “Workers like me, who aren’t professors or administrators or coaches, don’t seem to count in the eyes of the trustees. Have they bothered to ask AFSCME or CWA about outsourcing? Not to my knowledge.”

Doubtful Track Record

Whatever savings IU may achieve through outsourcing of services, the corporations that take them over will profit. Why shouldn’t IU reap those profits? There are six possible sources of savings on the cost of current operations: (1) reducing local inefficiencies (unlikely, unless IU has been guilty of poor management); (2) benefiting from economies of scale; (3) charging all users for services that are now free or close to it; (4) shifting costs to students through new fees or increased tuition; (5) downsizing the workforce; and (6) reducing wages and benefits. Items three through six have all occurred at other schools; perhaps items one and two have also occurred, but the research does not show these results.

So what has been the experience of outsourcing at other schools? When Aramark Corporation took over the University of Delaware’s dining services, it kept the same workers and paid the same wages but eliminated benefits. Workers in other units still receive benefits, so now Delaware has a two-tiered workforce—the have-nots and the haves. Faculty and students at the University of Minnesota complain that Aramark provides poor service and food. Graham Spanier, president of Penn State, chose not to outsource food services; PSU maintains its own very profitable ice creamery, serving, among other flavors, Peachy Paterno.

After privatizing its custodial services, Butler University in Indianapolis decided to return to “in-house” budgeting. It then gave its custodians a 50 percent raise! Florida International University has done the same, raising wages from $6.40 to $9.58 an hour; an administrator from a school in Buffalo, New York, notes the impossibility of retaining a permanent workforce on poverty wages.

Brown and Duke universities chose to make their bookstores more profitable rather than outsource them. “Numerous problems are reported with outsourced bookstores,” says a colleague at Tulane University. Students on one Florida campus are suing Follett Corporation for jacking up prices on used books. After the first year of a contract, Barnes and Noble often replaces full-time staff with part-timers, thus cutting wages and benefits.

All for Nothing?

Even if such problems were exceptional, studies of outsourcing do not indicate any assured gains. In a September 2005 report titled Is Outsourcing Part of the Solution to the Higher Education Cost Dilemma? the Institute for Higher Education Policy identifies several negative aspects of outsourcing, such as “loss of control [over] and ability to manage” contractors, “inconsistency” of “service quality,” and low morale among employees. The report is much less specific about gains, concluding that “not nearly enough is known to be able to make a reasonable judgment about the potential of outsourcing to significantly reduce…costs.”

What does the history of privatization beyond higher education tell us? Since the “Reagan revolution” of the 1980s, the notion that government can’t do anything as well as private enterprise has been hegemonic. This was the mantra of the late Milton Friedman, Reagan’s favorite economist. Yet Friedman also declared, “The corporation cannot be ethical; its only responsibility is to make a profit.” In any event, Reagan was willing to spend billions on a “starwars” defense system but unwilling to spend anything to fix health insurance or address homelessness. Reagan’s first budget director, David Stockman, commented that the Reagan revolution required a frontal assault on the American welfare state. Eliminating public-sector jobs was part of that assault, which continued in, for example, President Bush’s effort to privatize Social Security. Underfund any government agency and it will not perform well; that is part of the strategy underlying the push for privatization.

For a more specific look at privatization, take water. The deal that Indianapolis made in 2002 with USFilter to run its water system included keeping the employees of the old Indianapolis Water Company and allowing them to remain unionized— for a while. According to the Web site of the Center for Public Integrity, the city’s contract with USFilter specifies that the firm will not raise water rates for five years and will not lay off workers for two years. Needless to say, two years provides little job security; moreover, the five-year limit will expire soon, so Indianapolis residents can look forward to seeing their water rates go up (it’s a safe bet they won’t go down).

The Center for Public Integrity says that the Indianapolis water contract is unusual because it protects workers for two years and caps the rates for five years. Many other water-privatizing deals have been worse. Three years ago, after its water turned foul, Atlanta reclaimed management of it from United Water Resources. In France, “the birthplace of water privatization,” Grenoble and other cities have also taken back control of their water systems. Other water privatization deals in South America were canceled after citizens in Cochabomba, Bolivia, ran Bechtel Corporation out of town (see Greg Palast’s The Best Democracy Money Can Buy).

Privatizing water systems has been a poor bargain. Ditto for privatizing prisons. And privatizing the entire welfare system in Indiana, as Governor Daniels wishes to do, would be just as foolish as signing over the Indiana Toll Road for seventy-five years to foreign operators. The end of the privatizing era may be in sight, however. In Iraq, American corporations such as Halliburton have striven to outdo one another in terms of waste, corruption, and war profiteering. When the new Democratic majority in Congress begins hearings on just how wasteful and criminal the “reconstruction” has been, the American public may relearn what we once knew, that corporations require strict government regulation and that public utilities often make much better sense than private management. And when Governor Daniels leaves office, IU’s trustees may also relearn those Lessons.

Patrick Brantlinger is James Rudy Professor (emeritus) at Indiana University. His e-mail address is brantli@indiana.edu. A version of this article appeared in February 2007 in the Ryder Magazine (Bloomington, Ind.).

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