Texas, Inc.

Taking privatization to extremes, a new law
ends the public sector as we knew it

by Kim Phillips-Fein

The Nation magazine, January 5, 2004

In cowboy myth and frontier legend, Texas is a land of rebel outsiders, eternally defiant of the East's gray-suited Establishment. Yet the official symbols of the adoptive home of George W. Bush are traditional ones of authority and power. The Capitol building's garish pink dome, larger than that of the Capitol building in Washington, hovers over the city of Austin, a sprawling college town of seedy frat bars and New Age commerce. On the Capitol flagpole, the Lone Star flies below the American flag, emblem of the few brief years when slave-holding Texas was its own republic. A giant bronze statue honors the Confederacy, whose people, we are told, seceded for the mighty principles of 1776 and fought the North, outnumbered, until exhausted. To the side is a mammoth stone tablet, emblazoned with the Ten Commandments. And down the center of the Capitol plaza runs a recently refurbished stone walk, each brand-new brick bearing the name of a different corporate citizen: Enron, Wal-Mart, Philip Morris.

Yet just a few blocks away from the Capitol building there is evidence of another native Texas politics. In a small, one-story storefront, on a scraggly, tree-lined stretch of road, across the street from a temp agency, there hangs a purple-and-yellow sign, calling out to passersby: ORGANIZING FOR JUSTTCE: SIGN HERE! This is the central office of the Texas State Employees Union, a statewide local of the Communications Workers of America. Opening the screen door to the office, one sees few posters on the whitewashed walls: Instead, they are covered with lists bearing the names of thousands of members across the state. High on one wall, almost in the corner, is a poem, stitched in needlepoint: "You can break my union heart, you may lock up my union body, you might dampen my union spirit, but you'll never control my union mind."

TSEU has been organizing public workers in Texas since 1980. It is a true industrial union, organizing most state workers without respect to department or occupation. For the past quarter-century it has been one of the few organizations in Texas to try to imagine, let alone to build, an alternative to the corporate frontier. There is no state income tax in Texas, and in fact, the legislature is constitutionally prohibited from passing one. As a result, hundreds of thousands of children were thrown off health insurance (Texas already led the country in the number of uninsured children) this past year to balance a $10 billion budget deficit, while millions of dollars were cut from school funding. State Representative Debbie Riddle of Houston summarized the political logic of such decisions in the El Paso Times this past spring: "Where did this idea come from that everybody deserves free education, free medical care, free whatever? It comes from Moscow, from Russia. It comes straight out of the pit of hell." In that spirit, the state legislature passed a bill this past May that will result in the privatization of eligibility determination for TANF (the program that replaced welfare), food stamps and Medicaid-fundamentally transforming the way social services are delivered in Texas. Mike Gross, who once worked for the Texas Youth Commission and is now organizing coordinator of TSEU, says, "We are on the frontlines of the battle to protect the social safety net."

In some ways, the conservative attack on the union and the public sector in Texas today is a microcosm of the assault in the country as a whole. While business organizations and the corporations that stand to benefit lobby successfully for privatization and budget cuts, tens of thousands of state workers lose health insurance, and the social programs that make life bearable for the desperately poor are downsized.

But more is at stake than particular programs and specific benefits. The very existence of the public sector-controlled by people who are democratically accountable, run by workers who aren't in thrall to the Dow Jones-hangs in the balance. The real question in Texas, and in the country as a whole, is whether we want to fight social inequality through the collective power of the state, using its capacities for redistribution to help remedy the sharp inequities of the workplace, or whether we should let corporations, churches and the Salvation Army deal with the problems of the poor. The choice is between charity, with its baseline assumption of unequal power and resources, and the expansive vision of social democracy. Against great political odds, TSEU is fighting not only for its members but also, implicitly, for us all.

In a cool April morning last spring, TSEU held its Lobby Day at the state Capitol, in the middle of the biennial legislative session (the legislature meets for five months every two years). More than 2,000 workers from across the state converged in ~ Austin. They boarded buses from Houston, Dallas, San Antonio, Lubbock and other cities; one bus came all the way from El Paso, leaving at 6 PM the night before the rally from the opposite side of the state. Parole officers, admissions attendants in the state's mental hospitals, workers in state laboratories, people who help workers whose jobs have moved to Mexico find new employment, graduate teaching assistants-all came to the Capitol. Some had never been to a demonstration before; one shy Mexican-American man said, "This is my first adventure." Workers carried homemade signs up the hill to the Capitol complex: TAX KEN LAY; DON T DUMP WALL STREET'S MESS {N TEXAS; HOUSTON: WE HAVE A (BIGGER) PROBLEM; THE TEXAS LEGISLATURE MASSACRE. At the end of the rally and march, before going in to meet with their representatives, a union organizer led the crowd in a chorus of "Solidarity Forever," in English and then in Spanish-a sight George W. Bush probably never expected to see.

Historically, the Texas elite has been bitterly anti-union. With its oil industry and old manufacturing base, Texas is one of the more heavily industrialized Southern states, and union membership grew rapidly during World War II. The expansion of the labor movement was greeted with a harsh reaction. The state passed numerous restrictions on labor rights during and after the war, banning the closed shop, secondary boycotts, mass picketing-even before the Taft-Hartley Act of 1947, which limited such tactics nationally. Employers and state politicians accused unions organizing in oil ports of being the tools of a Communist plot.

For public workers, organizing is especially difficult. State workers in Texas are legally barred from collective bargaining, and TSEU-like many unions a hundred years ago-has no formal recognition. It depends for its existence on building major demonstrations of its members and lobbying state representatives. But through old-fashioned one-on-one organizing, the union has built a dense activist network with 12,500 members statewide (out of a pool of about 90,000 state employees). Dues are on a sliding scale, according to income, and they range from $14 to $19 a month. Although it cannot bargain contracts, the union is credited with winning pay raises and improvements in benefits in the past and stopping privatization in the mid- 1 990s, as well as countless smaller victories on the local level.

People like Judy Lugo, TSEU's president, built the union. Lugo is an earnest and unpretentious woman in her 40s. Twenty-three years ago, as a single mother with two children, she applied for welfare. She managed to get a job with the agency that helped her out, and today she is a supervisor in the Texas Department of Human Services, working in E1 Paso, the Rust Belt of Texas. Many of the people she sees applying for benefits in E1 Paso have college degrees, or used to work in factories that have vanished across the border. The high unemployment rate in the city keeps wages low. "In Dallas, you get a job in a Burger King and it will pay you $9 or $10. In El Paso, you get $5.15."

Over her twenty-three years in the system, Lugo has seen the welfare system go through many changes. Staffing has gone down, and "staff are working more hours just trying to get the work done." Clients can't get through on the phone and aren't applying for benefits. She herself has been hurt by the cutbacks in the state workers' healthcare plan. "I've stopped taking one medication because I can't afford it," she says. Most of the time, in mainstream Texas politics, Lugo's work is sneered at as a spectacle of government bloat. The union is one of the few groups in the state to recognize the daily agony of poverty, to take seriously and lend dignity to the difficult lives of poor people. Meanwhile, the Republican legislature obsessively and repetitively attacks government bureaucracy with the enthusiasm of an anorexic staring in the mirror. Representative Garnet Coleman of Houston, a union supporter, says, "They keep talking about cutting the fat, but we're way under the muscle and we're hitting the bone."

The privatization bill that passed the legislature early this past summer will dramatically change the way that social services are delivered in Texas. It collapses the twelve agencies that serve the neediest Texans-people such as nursing-home residents, abused children, the physically disabled and mentally impaired, the blind and the deaf-into five. It will reduce the work force for these agencies by about 3,500 people over the next two years. While the legislation includes items such as incentive payments for women on welfare who agree to take seminars on marriage, the core of the bill is to privatize the frontline offices of the welfare state. Hundreds of local welfare offices across the state that sign people up to receive food stamps, Medicaid, TANF, children's health insurance, disability and other public benefits will close. There will be no more face-to-face interviews (except in special situations). Instead, workers in four statewide call centers will enroll people from all over the state in programs over the phone. These call centers will be privatized. In addition, state mental hospitals and schools for the mentally disabled may now be sold to low bidders. The result is a huge step toward a welfare state run for profit and traded on the stock exchange-Texas, Inc.-in which the government places the lives and well-being of its poorest citizens in the hands of shareholders and CEOs. The changes start in January, and are supposed to be completed by the end of next summer (though this speedy timetable seems unrealistic to many).

The main corporate player pushing welfare privatization in Texas is ACS State and Local Solutions (the company was once a division of Lockheed Martin, the weapons manufacturer, which sold it to communications giant ACS a few years back). ACS handles contracts for welfare and work-force services, as well as other government functions, across the country. Texas and Florida its largest markets. In Texas, in addition to holding contracts to run many of the state's work-force programs (helping people get jobs and training), ACS manages eligibility and re-enrollment for CHIP, the state-federal children's healthcare program, and it recently won a contract to process claims from Medicaid clients and pay doctors. The company has been eager to expand its reach over the Texas welfare system ever since the mid- 1 990s, when t helped push legislation that would have privatized eligibility determination in Texas for all human services-welfare, food tamps and Medicaid. The plan failed when Clinton refused to sign a waiver permitting the privatization (current federal law mandates that civil servants determine who can receive Medicaid and food stamps). Bush, on the other hand, is likely to approve such a waiver-opening the door not only for privatization of welfare eligibility in Texas but across the country (Florida already as a pilot project up and running). And ACS will be poised to win the call-center contracts when they go out next year.

Upper management at ACS State and Local Solutions lives in a different world from the client base of the programs it controls. Almost all of the executives are white, and only three out of nineteen are women. Glossy brochures in the ACS office suite depict smiling children and describe the company's success in helping "customers" build a "career that they are in charge of, every step of the way." The company's five-point credo announces that employees are proud to contribute to "shareholder value," and on one office door hangs a sign: WE WILL MAKE OUR NUMBERS!

ACS maintains a staff of twenty-one lobbyists in Texas alone- at a cost of $910,000 a year, according to the Austin American Statesman-a roster that includes a former state senator, a former aide to the Speaker of the House and an erstwhile aide to Governor Bush. The company lavishly donates to political campaigns, giving $25,000 to the Texas GOP, $50,000 to Governor Rick Perry's inauguration, $2,500 to the Comptroller and $18,850 to other state and local candidates (also according to the American-Statesman). This legislative session, ACS got what it paid for.

CS is only one member of a highly politicized and aggressive business community in Texas. The Texas Association of Business, which claims to represent 140,000 large and small employers in the state, regularly meets with members of the state legislature and Congressional delegation, and gets very involved in their political campaigns. In 2002 Texas elected a Republican majority to the state legislature for the first time since Reconstruction, and TAB took credit-it had run a $1.9 million advertising campaign during the elections. The leaders of TAB are strong advocates of privatization. Bill Harnmond, the president of TAB, was appointed by Governor Bush to oversee the privatization of work-force development during the 1990s. From his swank office a few blocks away from the Capitol, Hammond rehearses the arguments in favor of privatization as a way to reduce costs. Competition among private companies for contracts will drive state spending-and hence taxes-down. Private companies will be able to make innovations, invest in new technology and improve service efficiency in ways that are impossible for lumbering state bureaucracies. In fact, to Hammond, the budget crisis in Texas this past year seems a golden opportunity for the state to evaluate its programs in terms of maximum efficiency. Finally, Hammond believes that corporations will lower costs because private workers won't be as liberal with benefits as public employees are. "If you are a single mom, the last thing you want is welfare," he says. "If you can get a minimum-wage job, you should. It is not a matter of denying someone welfare, but a balanced perspective and presentation needs to be made in terms of going on welfare." Says Hammond, "The public sector just hands out benefits."

In fact, the welfare system in Texas is one of the stingiest in the country, but even beyond this, Hammond's assumptions about privatization are problematic. For one thing, there is little proof that privatization really does lower costs or taxpayer expense. Frequently, overseeing the private contract incurs new costs that offset whatever savings the vendor promises. Elliott Sclar, a Columbia University urban planning professor who has researched privatization, says, "When you hold everything else constant, the differences are at best minuscule and often favor public provision of services."

But since the way that a private company makes money with a state contract is by running the operation for less than the state pays, companies face tremendous incentives to cut wages and benefits. Under privatization, unions would be the first thing to go. States like Florida, in which public-sector workers do have collective bargaining rights, would lose tens of thousands of union jobs. In Texas, while workers in private call centers might gain the legal right to bargain collectively, the call centers are almost certain to fight unionization tooth and nail. Like so many other low-wage employers, they would probably not hesitate to discipline workers for union activity (even though it's illegal).

Because the public sector is at least in theory accountable to citizens, not shareholders, it is different from the private sector in other important ways. Public employers have historically been more ethnically and racially diverse than most private companies, and they have played a critical role in the creation of a black middle class. They do not usually fight unionization with the same bitter intensity, and thanks to civil service rules, they provide more rights and greater protections for employees. By contrast, private employees are accountable to no one except their bosses. Indeed, the leaders of ACS see their power over workers as their main comparative advantage. When asked why private companies would be able to outperform the public sector, Gerald Miller, director of work-force and community solutions for ACS, tells an anecdote. "If Kristin needs a computer today, I can go out and buy it," he says, referring to a new public relations employee whom I had interviewed moments before. "You know what happens if Kristin does a bad job? I fire her."

What's more, increasing the power of management and introducing profit-making considerations into the welfare state has a negative impact on social policy. Public review processes, reporting requirements, adequate staffing-these can seem like "inefficiencies" to private corporations legally bound to deliver the highest return to investors. Prison privatization in Texas, for example, has been a well-documented disaster. In the 1980s Texas sold contracts to manage its overcrowded, violent prisons. In just a few years, the scandals were legion. One privately run jail in northwest Texas that housed inmates shipped in from Hawaii and Montana was not giving prisoners enough food or proper medical care. At a prison run by Capital Correctional Resources corrections officers were videotaped beating up prisoners and setting attack dogs on them. And Wackenhut Corporation lost a $12 million contract when twelve former guards were indicted on charges of having sex with female inmates, some of whom said they had been raped. In practice, "flexibility" can mean cutting back on prison staff and programs, not giving welfare clients due process or making it far more difficult to obtain review of decisions made by the private company.

Are today's developments in Texas a forecast for the nation tomorrow? The Bush Administration has already won massive tax cuts at the national level, while at the same time cutting services, pursuing devolution and dismantling what remains of the New Deal. Currently, Bush plans to subcontract hundreds of thousands of federal jobs that are now performed by civil servants. The effect, as in Texas, will be to dole out the public sector to politically connected corporate donors, while attacking one of the few remaining economic sectors where unions still wield substantial power. The ideology of the free market justifies the choice to grant huge contracts governing the lives of the poorest citizens to men and women more accountable to shareholders than to the public good. Yet the image of nimble, agile corporations zipping through an abstract marketplace hides deeper assumptions of a sharply hierarchical social order, for the justification of privatization is ultimately that CEOs are the only people who can be trusted with social power-never women like Judy Lugo.

In Texas, TSEU is determined to keep on fighting privatization. The union has defeated the privatization of welfare delivery in Texas before, and organizers hope that enough people can be educated and organized to stop it this time around too. After all, privatization looks even worse on the ground than on paper. Already corporations are asking that their bids for government contracts be kept secret, beyond public scrutiny. It's not hard to see why: The Texas Observer has reported that Gregg Phillips, the man appointed to oversee the reorganization of the agencies, previously oversaw a failed privatization effort in Mississippi; one of his first actions in office in Texas has been to grant a large contract to his previous employer, Deloitte Consulting. Meanwhile, county governments are starting to realize that local Department of Human Services offices are slated for closure, and many are unhappy about it-especially since they are picking up the healthcare costs of the children who have been kicked off Medicaid. Two county governments have passed resolutions condemning the privatization law, and the mayor of Raymondville, a town in south Texas, has publicly protested the planned closure of the local DHS office. The union held a large training session for activists across the state in September, attended by about a hundred people who are determined not to let their jobs go into the private sector so easily. Despite rhetoric about improving services, organizers say, almost no one who uses the welfare system or works in it believes privatization is going to make things better. Reality may be the potent solvent to dissolve the ideology of the free market. In a state of rebels and mavericks, perhaps someday joining the union will be seen as the most powerful rebellion of all.

Kim Phillips-Fein is a writer in New York City. She is working on a book about the business backlash against the New Deal. Research support was provided by the Investigative Fund of the Nation Institute.

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