In his second term, President Donald Trump has launched a vigorous initiative to downsize the federal machinery. A key part of this aggressive strategy is his decision to halt federal grants, enact executive orders consistent with the Heritage Foundation’s Project 2025, and most notably, establish a department Mr. Trump has named the Department of Government Efficiency (DOGE). DOGE is marketed as a fiscal trimming endeavor, though the exact savings remain murky. The helm of the DOGE has been handed to Elon Musk, a generous party donor and owner of corporations that possess billions in federal contracts. Mr. Musk has already pushed through significant cost cuts, which include massive job cuts, trimming of governmental functions, and removal of entire departments, leading to unprecedented terminations of federal employees.
Such impactful decisions, while certainly stirring, are part of a broader pattern of governmentoutsource. My sociological investigations denote a consistent withdrawal of the government from economic production over many years, with increased reliance on the private players. To understand the path and pace of privatization, one needs to look closer than the surface level stability of overall government expenses.
At a superficial level, total governmental expenditure seems consistent over the years. Data from 2024 shows that federal, state, and local spending amounted to 35% of the U.S. economy, without any variation since 1982. A deeper investigation, however, using Bureau of Economic Analysis figures, sheds light on the phenomenon of privatization from a macroeconomic angle. The insights garnered state that there’s an increasing tilt towards private activities in U.S. economic spheres over the preceding half-century, happening predominantly in three significant ways.
Initially, the government’s participation in economic generation has reduced. Public entities were once major players in areas including but not limited to electric power, water supply, waste management, space equipment, naval construction, construction, and infrastructure investments. The assessment reveals that governmental spending on production stood at 23% of the economy in 1970, diminishing to 17% by 2024, leading to the private sector fulfilling the emerging void. This indicates that a rising segment of the total government allocation has been channeled towards boosting private businesses.
Secondly, the government’s overall capability to generate goods and services, what economists define as ‘productive capacity’, has dwindled compared to the private sector, in terms of both labor and capital. As I note, public employment has not kept pace with private sector job creation, and government-owned capital assets have fallen behind those of the private sector since 1970. There was a brief uptick in public sector capital investments in the 2000s, but employment remained stagnant, signaling a shift towards contracting work to external entities instead of direct hiring. This trend has profound implications for wages, working conditions, and union activities.
Thirdly, and consequently, government has increasingly been handing over work to private firms, choosing to purchase goods and services rather than manufacturing them. Data shows that private contractors comprised one-third of government production expenses in 1977. This number had ballooned to over half by 2023. Some of the primary gainers in 2023 were professional service providers racking up $317 billion, petroleum and coal industries netting $194 billion, and the construction sector earning $130 billion.
Privatization can be envisioned as two interlinked processes: the government’s recession from economic production and the spurt of contracting. While the government remains a potent economic operator in the U.S., it’s more of a purchaser of products and services rather than acting as a provider or employer. The government’s pivot away from production originates mostly from mainstream austerity politics—a mechanism to minimize government expenditure—and resistance against the New Deal’s expansion of federal economic involvement.
While the share of governmental production reduced, the scope of government contracting expanded with promises of enhanced savings and efficiency. However, studies illustrate that contracting often fails to decrease expenses, while endangering monopolies and deteriorating accountability and public engagement. In many circumstances, inefficient outsourcing has necessitated returning to public employment.
The recent moves by the Trump regime can be interpreted as a speedy ascension of a trend that has been underway for the past five decades rather than a suo moto change. The gradual shift from robust public sector employment over the past half-century has already led to the privatization of much of U.S. employment.
This blueprint of reducing federal jobs, which is being followed by Mr. Trump and Mr. Musk, might lead to key ramifications. Foremost, drastic job terminations suggest a likely rise in privatization and a reduction in government positions. The workforce cuts resonate with President Ronald Reagan’s mass dismissal of over 11,000 air traffic controllers in 1981—a move that resulted in long-term financial hardship and domestic instability for many affected employees. The layoffs under the Trump administration have already outstripped Reagan’s.
Moreover, considering federal expenditure directly adds to the Gross Domestic Product (GDP), such large-scale deductions could decelerate economic growth rates. Surprisingly, the Trump administration has suggested altering GDP computation methods, possibly obscuring any signs of economic downturn.
Additionally, rapidly intensifying privatization could lead to severe economic disturbances, particularly in sectors reliant on federal backing. Finally, the ongoing trend of privatization could deteriorate democratic accountability and exacerbate racial and gender inequities.
This assertion is based on my earlier research that concludes public sector unions uniquely shape American society—they equalize wages, encourage transparency and foster civic participation. Given the high degree of unionization in the public sector and the sector’s importance in providing employment opportunities for women and Black workers, the privatization wave may undermine these strides.
The aggressive restructuring of federal departments under Trump’s administration will likely proceed without public scrutiny, advancing the supremacy of the private sector further. This could potentially jeopardize government functioning and democratic accountability.
While such changes are often deemed unavoidable, it is imperative for the American populace to realize that privatization is essentially a policy decision, and therefore, can be reversed. Hence, even though economic policies and financial jargon might seem complex and inaccessible, the general public must make an effort to understand and question them because they can greatly influence the course of our society.