Consider the U.S. Postal Service. This is, right now, a government agency. Something we could do with it is privatization. Repeal the law establishing the Universal Service Obligation and also repeal the law giving the USPS a monopoly on delivery of daily mail. Then put the USPS—its facilities, its cars, its real estate, its brand, the whole thing—on the auction block. That's privatization. Where once you had a state-owned firm, you now have privately owned assets.In short, halfway house privatization retains some of the key features of the public sector--public funding, enforced monopolies, and universal provision of services--while attempting to streamline government "waste" by inserting a competitive element. Of course, it often doesn't work very well, because competition between a handful of megafirms is a very different beast than the efficiency-maximizing competition between theoretically infinite producers envisioned by microeconomic models.
A very different idea would be to shut the USPS down entirely while remaining committed to the idea that the United States ought to have a monopoly provider of daily mail delivery services who operates under a universal service obligation. With the USPS out of business, the federal government would then accept bids from Federal Express, UPS, and DHL to be the government's daily mail contractor. That's halfway house privatization. And it looks very different. In theory, our three parcel firms compete to offer the best service at the lowest price with all the ingenuity of the private sector applied to the problem.
But I want to focus on Yglesias's second point:
In practice, our three parcel firms compete to obtain maximum political clout. They lobby members of Congress and disperse their operations into key congressional districts. They buy ads in Roll Call and in D.C. Metro stations. You basically keep all the problems of politicized service provision that you have with a public agency, but you remove rules about transparency and lobbying and executive compensation that apply in the public sector.This is true. Frankly, it's a lot cheaper for a firm to claw its way to the top of the political discussion than to claw its way to the top of the market. But it's also worth pointing out that the problem Matt has identified is hardly restricted to his "halfway house" firms. Congresspeople aren't the only people susceptible to informational market failures. It happens in truly private markets too. I mean, think closely: do you actually know which of the major private postal services is the best? Can you personally identify their relative strengths and weaknesses? Next time you have to choose between FedEx and UPS, will you judge them on the quality of their service or the quality of their advertisements? Even in the private sector, it's a lot cheaper and easier to convince people with words than with actions.