Ryan and the other Democratic House members sent the U.S. Transportation Department a letter on Tuesday that questioned whether it was appropriate for the Ohio Department of Transportation to use $1.5 million from the federal State Planning and Research program to study privatizing a public asset. The federal money was revoked in response to that letter.
The argument from the Dems is that they think it’s wrong for the Feds to promote the study of a policy they don’t agree with. Well, yippee, now I get to whining from both sides of the aisle about How Dare People Study Things I Don’t Like, a whine most common in my experience among American conservatives, but now, apparently, is gaining traction with lefties like Dennis Kucinich. Awesome.
Anyhoodily, the Reason Foundation blog featured this contribution from Sam Staley:
The “privatization” being discussed is hardly radical. In fact, it’s standard policy in other parts of the world, including Europe, China, and India. In fact, the U.S. is a laggard in the use of this tool to finance and manage public assets. The state of Ohio is not considering a “sale” of a public asset, either; it’s considering a long-term lease to a private company in what’s called a concession with strict performance criteria that usually shifts risk off taxpayers. The allusion to 1,000 jobs being lost (err, “threatened”) is a red herring. Even if jobs are reduced–and substantial evidence suggests the turnpike’s payroll is bloated–hundreds of jobs will still be held by Ohioans. Moreover, Ohio Gov. Kasich has been clear in that he wants to use the revenues from the lease to fund infrastructure investments in other parts of the state (following the successful lead of Indiana’s lease of the its tollroad by Gov. Mitch Daniels). So, these funds would in fact generate the jobs the Congressmen and women claim will be threatened or lost through other infrastructure projects.
Let’s ignore the repeated use of “in fact” (Hey, blogging is hard!) and put aside the silly notion that anti-privatization is “being political” but being pro-privatization is somehow “not political” (hint: it’s all politics, folks). Nonetheless, Staley is right about the jobs issue: if the Turnpike stays open, the jobs will be fine. And there’s a chance the Turnpike might be run better under a lease, and that might mean some gains. There’s also no guarantee it’s going to be run better. But it’s not as though jobs will simply vanish into thin air regardless of what they do.
Here’s what outrages me: either that “study” is actually a first-step implementation (in which it shouldn’t be called a “study”; it should be called a pilot) or OMG WHO IS GETTING $1.6 MILLION TO STUDY PRIVATIZATION? I’m currently studying privatization on a grant 1/3 that size. And this study is on ONE TURNPIKE. ONE!! We’re studying the ENTIRE FREAKING WORLD. I tried to find the details of the study but couldn’t, but I’m so totally holding out for more money next time if people in Ohio get $1.6 mil for studying it.
In all seriousness, the size of the grant does make one wonder: if privatization is such a swell idea, and businesses are going to make heaps and gobs of money by doing things so much better than government does, why can’t the franchisee fund their own Ohio Turnpike study? Why do federal taxpayers have to be on the hook for that? And why doesn’t the Reason Foundation balk at that part of the issue rather than balking at canceling the study? No government doesn’t mean “government for studies I like but not for studies I don’t like.” Shouldn’t there be a market for privatization studies?
I tried to find the details of the study, but I couldn’t find them online. If anybody has them, could you post a link or some details in the comments?
I had a flood of emails after the privatization piece appeared in the Times, and I don’t have time to respond to everybody, I’m sorry to say. However, to the guy who spent roughly a page and a half telling me that of course I would support higher taxes because I am a blood-sucking professor growing fat off the taxpayer, I just want to say one thing: USC is a private university, m’kay?
Now that I have that out of my system, we can talk about some of the other, more interesting questions that came in.
Are you saying we should or shouldn’t privatize?
I’m not saying either one. I am saying that privatization is inevitable if Americans don’t want to pay taxes for infrastructure.
We can cut back on supposedly “wasteful” projects (and we should), but those are about a millionth of a fraction as important to the total, overall maintenance needs budget than Tea Partiers make them out to be. We’ve had years and years of shrinkage in value from the gas tax because we don’t index it for inflation; in the interim, demand has risen. The fund shrinks, on and on. With the recession, demand has scaled back a little, but when you are using facilities and your funds are shrinking, the money for maintenance and repairs has to come from somewhere. And in a no-tax situation, that means privatization, or letting your maintenance go.
In general, there is very little evidence that suggests private infrastructure costs anybody less than projects simply owned and operated by governments. There are many reasons for this finding: privatization deals are often hamstrung politically–e.g., concessionaires limited in what they can charge no matter what the demand or unforeseen operating issues they can’t recover, etc etc etc, forced operation in faraway, unprofitable areas, etc. Many argue we haven’t seen terribly fair experiments with privatization, and they may be right. But they also may be wrong.
Is the US really in as much trouble as Greece?
No. The US economy, even with our recession, is massive; our debt is a portion of our total productive capacity. Greece, on the other hand, is underwater for lack of a better term. There’s a big difference there.
Forced privatization, however, can come from multiple sources. In Greece’s case, they have to sell, period. In our case, we could decide tomorrow to tax ourselves to get the revenues we need to maintain our existing system.
But if you simply defund infrastructure maintenance, the assets go to pot or you force governments to go looking for private investors. And that’s where the US is. We’re making bad decisions to defer maintenance and to seek public-private partnerships on new projects (which everybody still loves, all the chattering about “cutting the fat” notwithstanding).
The basic point of the op-ed is that yes, we can try to force gummint to privatize its services. But cutting off the funding and not maintaining the assets is a terrible way to do that, and forcing down government bond ratings is a Stupid McStupid way to do that.
But I think government is just too big and out of control. I want more privatization.
The better way to go forward with privatization, if you really, really, really ideologically hate government and would rather live in a world of tolls and fees for quasi-public goods, is to let government negotiate privatization deals when the assets are in good condition (desirable), and they can bring to the table something other than the concession rights—the ability to absorb some of the capital risks associated with large-scale infrastructure. That ability to deal with the risks associated with building and maintaining large-scale facilities, with bond financing, is really what governments can bring into public-private partnerships. If you constrain that ability with tax aversion and letting bond ratings go to pot, you hamstring the ability for institutions, both public and private, to draw on the sort of deeper, longer-term revenue-smoothing commitments that you need to build something like a train line between San Diego and Sacramento rather than a hotel.
Not keeping our infrastructure maintained is a bad strategy, even if we DO want to get parts of it out of gummint hands: private companies do not necessarily want to run concessions on poorly maintained facilities, and they do not want to inherit a maintenance risk. Used cars that have a certified maintenance record with them usually have a price premium over those that don’t–just so.
My taxes are already too high. I can’t stand anymore.
That may be true, but one final word of caution. There’s a reason why every single commentary on infrastructure privatization always includes the words “there’s no such thing as a free lunch.” Because there is no such thing as a free lunch in infrastructure. If you privatize infrastructure, you may (or may not) have lower taxes over time as those facilities move into private hands.
But Santa Claus doesn’t run private infrastructure projects: profit-making companies do. They need to charge tolls and fees for you to use their stuff so they can stay in business. So on the one hand, I’m told that Americans HATE tolls and fees, too. Well, best get over that if you want privatization because that’s how road/parking/park/school/etc concessionaires make their money.
Maybe the sum total of what you pay when you select out of some services and select in to only those you patronize, but there is little evidence to suggest that actually works out. There are always cross-subsidies, even in privately produced goods (the beer pays for a lot of the food in restaurants, etc).
Gummint workers are lazy and incompetent. We’d get better service if our roads were in private hands.
Ok, but if we weren’t all working in the same place, Dilbert wouldn’t be as funny as it is, now would it?
One thing that private companies do tend to be able to do better than governments: they differentiate levels of service to let people buy into the service level they want. It’s very hard for governments to charge a “first class” and “third class” fee on tax-supported goods. Service differentiation can really make a big difference in how well services are fit to market demand.
However, service quality on privately owned concessions tends to vary, too, for a whole bunch of reasons. Remember when United Airlines was putting the hammer down on its employees in the mid2000s? Worst. Service. Ever. Heaven Help You if your flight got cancelled.
Of course you want us to spend money on infrastructure! That’s how you make your living! You’re writing out of self-interest.
I hear this charge a lot. Truth be told, it doesn’t matter to me professionally whether we privatize or not. I have private companies asking me to consult, I have governments that ask me to consult. My skills are portable between sectors.
Ultimately, I think it’s an open question about whether we need to spend more money overall on infrastructure. Is it more important than education or health care? I can’t presume to answer that question. But it’s really hard to maintain markets and everything Americans say they believe in if nobody can get decent water service, our energy grid is outdated, and we have potholes big enough to swallow 1980s Buicks. Infrastructure is one of those things where you have to spend money to make money: casinos, for example, have routinely built their own little transit and road projects to make it easier for their customers to come gamble.
So whether we strategically disinvest or not, whether we decide never to build HSR or anything new ever again, we do have to maintain our system if we want to function as an economy. It’s like this: you either pay for repaving, or you pay for new shocks and struts on your car more often than if the roads were in good repair.
Keep the questions coming if you like, and thanks for reading.
There’s some important stuff here, notably the “gun to the head” comment. That’s never a time to be making deals, as you have no choice.
Brilliant MPP student Teddy Minch sent me this link for what boils down to, in Teddy’s words, a Greek fire sale. On the auction block:
For the taking: four wide-body Airbus jets, a state lottery, a state horse-racing concession and sports book, stakes in a casino, several ports, a national post office, two water companies, a nickel miner and smelter, a munitions maker, electricity and gas monopolies, a telecommunications operator, shares in a half dozen banks, hundreds of miles of roads, a defunct airport, old Olympic venues and thousands of acres of land, including magnificent stretches of Greece’s famed coast.
Now it will be enlightening to see what happens here. I’m assuming the coastal areas are going to get bought up really fast–there are mega-bazillionaires who will want the coastal property for private playgrounds, and since the universe appears to have lost any sense that such natural blessings ought to be public goods, they’ll get them here.
Does anybody want to operate Greek telecommunications? Their electric company? Banks? Not me.
Anybody want to pool our money to buy some coastal property? Oh, and lets buy the airport near it and the roads serving it so we can completely control the space, and then we could swank around like John Forsythe as Blake Carrington, Capitalist.
I am in Toronto talking about policy design, road design, and equity, and I opened the Toronto Globe and Mail yesterday to this story: Bus Service Cutbacks.
I asked a table of transit experts why we always seem to hear about transit operating subsidies but we seldom hear about water subsidies or garbage collection subsidies. Those all operate with subsidies for the most part. An interesting conversation ensued.
AWESOME!!! Go check it out.
via Jennifer Dill:
And what about the economy’s future? Everything we know about economic growth says that a well-educated population and high-quality infrastructure are crucial. Emerging nations are making huge efforts to upgrade their roads, their ports and their schools. Yet in America we’re going backward.
How did we get to this point? It’s the logical consequence of three decades of antigovernment rhetoric, rhetoric that has convinced many voters that a dollar collected in taxes is always a dollar wasted, that the public sector can’t do anything right.
Krugman followed up on Maxine Udall!!
A few years ago, the chief lobbyist for Triple A told me that Los Angeles was headed in this direction, but unlike Krugman, he blamed:
a) overspending locally on unproductive new transit at the expense of roads, when roads were still carrying the same and/or greater traffic loads they always had in southern California; and
b) a failure to tap into local taxes–this was prior to Measure R–and tied hands among local governments in California regarding their property tax bases.
Now, a) is a complicated question, as we’ve discussed here before. It is possible that transit investments in general are productive, but the planning and politics around them erode their productivity–that is, we invest badly instead of wisely in a sector that could be more productive. There is also the second part of the statement: it’s possible to underinvest in streets even if transit investments have been prudential.
As my colleague Richard Green has said: “I don’t see anybody being an adult about this right now.” So what would being an adult entail? Taxing the rich?
Krugman is a bit too ready to assume that when the rich save money, the money just sits idle, as he suggests. That’s a populist ploy for his column–he has to know better. If we go back to our first year formulation of economic growth, we have the principle ingredients of land, labor, and capital. Things get a lot more complicated, but using those basics, we can think about the government investment in infrastructure as being capital investment, education being about labor productivity, and land being something that becomes more productive once there is capital investment or labor investment in it.
The argument in favor of tax cuts for the rich has always hinged on the idea that if investors are allowed to keep their money, that savings then provides the wherewithal for investment in capital.
The key problem is that nobody really agrees on the marginal productivities of these factors. So politically, it’s possible to stress capital over labor, but it is less clear that a dollar saved by a rich person has a better multiplier effect on the economy than a dollar spent on labor productivity.
So we are in a situation now in the US where investments in the labor factor have gone down for decades because education has become–as Tocqueville predicted–almost entirely devalued. The less we value it, the less we want to invest in it, and the less good it becomes. For example, I have students who say to me “What do you know? You just have a piece of paper that says you’re a doctor.” School is all just so much worthless time they have to waste; teachers like me are merely leeches on that system that has trapped them. And the most we degrade education and fail to invest in it, the more that’s true. Employers hire new workers who know little and wonder what the point of hiring people with degrees is.
I’m less sure, as Krugman seems to be, that we are in a death spiral. I have a sense that there must be regions and cities that are doing better at “being an adult” than others are. And may be what we are seeing here. Jennifer Dill suggested there is a shrinking cities component to this phenomenon, and that means the disinvestment in different roads may not be a bad thing. Some places in the US are simply not all that competitive in the global marketplace for labor and economic activity, and it’s probably ok to let investment in those places lag. However, that’s not true in cities like Los Angeles and San Francisco, and it may be that these regions have to become self-financing.
I suspect that those regions who do understand how to act like an adult will emerge looking pretty good in another 10 years.
But those regions may be in China, where they have aggressively invested in education and infrastructure.
What passes for discussion about social choice and taxation in this country has become the sound of one hand clapping. The divisions in discourse have been strategically engineered by interests whose objectives I do not understand, but that I am sure are not the commonweal. The divisions are fueled by oblique appeals to base sentiments about race, class, and sexual preference that all of us harbor to a greater or lesser extent. They drive wedges on issues on which most would otherwise agree and from which most would benefit near equally from the same solution. While sentiments are used to divide us, a nation founded on the idea of a government of, by and for the people lists dangerously toward income inequality and its bedfellow, concentrated economic and political power, while we bequeath to our grandchildren a world in which they travel a network of gravel roads with barely a high school education, they live in cities and towns with failing sewers and water systems, and risk their and our great grandchildren’s lives crossing crumbling bridges and overpasses. But their taxes will be low. I wonder if they’ll thank us?
As you can imagine, I like this bit of writing very very much.
I have two critical reactions to this essay, and that the first is likely to get me into trouble with my readers from Michigan. I may have this attitude because I am from a part of the country which already basically died and became a landscape of corporate farms, meat slaughter, and meth labs–family farm country–and nobody cried over it.
So listening the death throes of rural and small-town Michigan is both painful and fascinating to me. It hurts to watch, and yet I am unsure of why it gets the press time it does when other parts of the country, which have been shrinking in population right along with them, don’t. It’s been interesting to watch Dan Kildee, Treasurer of Genessee County, Michigan, become a media darling planner-type as the “shrinking cities” guru for pointing out what everybody’s known about Flint since 1983: you might as well bulldoze large parts of it.
Which brings me to the critique I guess as a sustainable transport person I am supposed to make of Maxine Udall’s premise about letting roads crumble: that instead of roads, we’re building rail. Now, a more ardent believer in this line of thinking would merrily go on to declare that roads and cars are bad for us and the planet and our cities and they should be allowed to crumble.
Except that roads haven’t been bad to us. Even though we are obese and warming up the planet and whining about the recession, we’re living longer and much better than we did prior to the Interstate system. The system has done its job remarkably well for decades, far past the military justification for it, in terms of fostering real economic growth. Undoubtedly somebody will say “But but but rail investment causes EVEN MORE economic growth.” Well, it’d better at this stage, and it’s not like there is rail investment in cities occurring without the highway and freight support between cities we’ve always had–additional investment, like those made in rail, should yield additional productivity gains (if not, why invest?), and these rail investments would have less of impact if the complementary road infrastructure is allowed to decay.**
Which is why we shouldn’t let the road system crumble, anxious though many are to have brand-new systems like HSR.
And which is why China built both highways and HSR and intracity rail systems in places where it made sense, like Bejing.
**People who do these types of analyses never do them right. They’re always trying to convince me that rail has productivity gains or gains in growth, and my attitude is, well, great, thanks for that, but it’s not the question. The question is whether those gains are worth what we pay for them, and whether that money would been better invested in things like education which can also increase productivity and spur economic growth.
From the American Planning Association website: :
This report, edited by Marlon G. Boarnet, was compiled with an eye to the urgency and severity of the challenges that we now face. Some of the leading researchers, scholars, and practitioners in transportation planning put forth fresh best practices and visionary ideas. Contributors include Robert Cervero, Ellen Greenberg, Robert Puentes, Daniel Sperling, and Petra Todorovich. Also here is the discussion among three big-city planning directors—William Anderson (San Diego), Barbara Sporlein (Minneapolis), and Harriet Tregoning (Washington, D.C.)—that took place at APA’s 2009 National Planning Conference in Minneapolis.