This article discusses the rise of private companies to the status of nations and the inability of governments to respond to the needs of their citizens. This has slowly transitioned into the willful abdication of State authority over essential public services. This vacuum of power has allowed the private sector to step in, create monopolistic dependencies and shape policy on a national and transnational level without the appropriate checks and balances.
The involvement of non-state actors in the decisions of governments is not new. Throughout the history of the modern world, the private sector has been entangled in the work of governments. Partnerships, common ventures, R&D and funding have been at the forefront of innovative projects which have benefited private entities, governments and consequently the public.
Private sector partnerships with governments are not necessarily problematic, and in many instances have helped governments modernize. Public-Private-Partnerships (PPPs) were pivotal in reinvigorating the National Health Service in the UK in the 1990s, provided support in identifying the reasons behind increased female high school dropout rates in India, and contributed to major infrastructure projects across Europe. Since the formation of the WTO in 1995, which ratified the already existing rules of the 1948 GATT agreement, there has been a constant effort to strike a balance in the overlap of public and private.
However, an increasingly deregulatory approach towards policy-making and the lack of essential funding in public infrastructure have reduced the quality of public services. This created a vacuum of power even in sectors like national security and fiscal policy that private corporations have understandably rushed to fill and governments around the world gladly handed away. If we were to take a strictly legalistic approach, one could argue that whatever does not lie within the strict confines of State constitutional authority for the delivery of public services is open for play, but that is a slippery slope. The more power a state abdicates, the bigger the vacuum it creates for private companies to fill.
By deregulating, governments are creating financial incentives for the private sector to take over services meant to be provided by the State. Private provision of these services to the public then could create state dependence on private institutions, which may have corrosive effects on democratic institutions in the long run. In turn, governments increasingly opt to allow industries to continue their work so long as people’s needs are being served.
In the past decades, we have seen business conglomerates evolve to rival nation-states. With an annual revenue of $514 Billion, Amazon surpasses the GDP of Portugal ($447 Billion), Greece ($220 Billion) and Qatar ($237 Billion) in 2022. Apple and Amazon are wealthier than 90% of the world’s countries.
Efforts to cut public spending and, correspondingly, push for privatization gained traction in the 1980s during the Reagan administration’s free market approach. Unsuccessful efforts to privatize public housing in Washington D.C, and the failure of private healthcare in low- and middle-income countries to mitigate the effects of the COVID-19 pandemic are just some examples of how governments around the world willingly abdicated responsibility to the private sector to provide these services on their behalf.
Allocating funding for government programs is difficult, especially with bureaucracy and a risk-averse approach to new technologies. For example, the U.S. government is reluctant to use Large Language Models (trained deep-learning models that understand and generate text in a human-like fashion) in delivering public services. The ever-present needs of citizens are in tension with the slow decaying of government-provided public services.
But how much are we willing to give away?
Much more, I am afraid. In October 2022, the U.S. Under Secretary of Defense, Colin Kohl, pleaded his case via phone with CEO Elon Musk, trying to convince him not to halt the deployment of Starlink, a proprietary satellite system providing internet access to Ukrainian soldiers on the ground. Musk had voluntarily offered the system to the Ukrainian government in 2022, after the invasion and a series of cyber attacks to the country’s digital infrastructure, but considered pulling the service due to the high cost, he alleged. In the meantime, Musk did not hesitate to post his own theory on how foreign policy should be conducted on the issue, encouraging Ukraine and Russia to reach an agreement in which Crimea would remain a part of Russia.
Governments around the world stood in shock, realizing the impact that their willful abdication of power has brought. Education and healthcare are one thing, but foreign policy and national security lie at the core of the state’s authority.
The Starlink incident indicates that we are reaching a point of no return. Corporate-nations use the pretense of flexible and frictionless services to amass more power and wipe out competition, thus reducing choices for both consumers and government agencies during public contract procurements. The only thing worse than a government monopoly is a private monopoly that the government is dependent on. There is a need for strong institutions that can effectively keep conglomerates in check.
A case in point would be the effective response to Meta’s effort to circulate a cryptocurrency to its 2.9 billion users, thus quasi-entering the territory of minting and circulation of state-specific currency, a responsibility solely held by states and central banks. The ability to circulate a currency to more than 2 billion digital “citizens” could render weaker countries’ currencies obsolete and create further dependencies between conglomerates and governments. Regulators across the globe understood the perils of such a development and quickly took action. Despite Meta’s efforts to rebrand the project, it was shut down.
Modern policy making demands a delicate balance between leveraging innovation from the private sector and investing heavily in public alternatives, while reinforcing regulation of monopolies.
It is also a moral imperative. The role of government has changed substantially over time. It falls on us to ensure its continuity and define its premise in the decades to come.
Vassilis is a lawyer and MPP candidate at the McCourt School of Public Policy.
Vassilis Koutsoumpas
Vassilis Koutsoumpas is a Lawyer and MPP candidate at the McCourt School of Public Policy.