Selling The State

In a recent post, we discussed the explosive growth in privatization of public services, including one town that recently privatized everything and everybody. Along similar lines, this week, the Wall Street Journal published a story about desperate state and local governments, squeezed by declining revenues, selling or leasing public property to private interests. The reporter notes:

Cities and states across the nation are selling and leasing everything from airports to zoos—a fire sale that could help plug budget holes now but worsen their financial woes over the long run.

The notion that we should cede public services to the private sector has assumed the status of quasi-religious dogma in recent years. There was a brief time during the earlier, more dire days of the current recession during which many began to question this market fundamentalism. Such dissent continues in some circles today. But you wouldn’t know it looking at actual policy.

Things may even be getting worse. Cash-strapped governments have stepped up efforts in a new area: privatization of public assets.

The phenomenon is nationwide. In California, state officials are thinking of selling state office buildings. In Milwaukee, the water supply may be privatized. In Chicago, following its long term lease of the city’s Skyway, may now cut loose parking meters to private business. And in Louisiana and Georgia, airports are on the auction block, as they have been in other cities for years.

Nothing appears to be sacred, as revenue-starved municipalities seek to balance budgets. Dallas has privatized the operation of its zoo and now is considering placing city landmarks such as the Farmers’ Market and Fair Park on the market. The Journal article notes:

About 35 deals now are in the pipeline in the U.S., according to research by Royal Bank of Scotland's RBS Global Banking & Markets. Those assets have a market value of about $45 billion - more than ten times the $4 billion or so two years ago, estimates Dana Levenson, head of infrastructure banking at RBS. Hundreds more deals are being considered, analysts say.

As with privatization of public services, selling off public property is not a new idea. What’s new is the extent of it and the speed with which it is happening. In Chicago, which is traditionally a spearhead for privatization, the debate between skeptics and true-believers has long been vibrant. Advocates argue that for-profit operations boost revenues (city officials avoid higher taxes and cuts to vital city services), while improving the quality of service. Critics call the strategy short-sighted and prone to cronyism and graft. The profit motive undermines the service ethic, and leads firms to cut corners and underpay workers (see here).

And therein lies perhaps the biggest debate in public policy today: Can private markets serve the public interest better, more efficiently, and with more accountability than government? Can the profit motive serve the public good?

In the case of privatizing public assets, the profit motive is certainly solid. Purchasing public assets can be a "golden gate" for business. As a BusinessWeek article summing up the pros and cons of privatization put it:

For any corporation looking for a guaranteed cash stream, buying U.S. public infrastructure—highways, bridges, airports, shipping ports, and parking garages - is a sure thing.

But these profits, we are told, provide mutual benefits, as the services will not only be better, but cheaper. The actual record, in fact, is mixed. Private ownership and operation of public assets bring their own set of problems and issues, both political and financial.

Selling public assets that were built with taxpayer dollars ought to make taxpayers uneasy. It is a major transfer of wealth from the larger society to the few, and, in a sense, a vote of no-confidence in the democratic process. A society’s infrastructure is a critical part of its economic sinews as well as an expression of common purpose and a shared, promising future. As has been made quite clear in the last two years, the notion that the private sector, pursuing private interests, will always and everywhere create results in the public interest is just hogwash.

Politicians and those of us who elect them should keep that in mind, and find innovative solutions that keep public resources in the public domain.

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