"Privatizing" Our Infrastructure

Wednesday, August 08, 2007

Steven Malanga of City Journal has written a fascinating piece on a nascent trend among state and local governments: the quasi-privatization of infrastructure such as airports and tollways.

One thing I found very interesting was the following description of how government intervention stopped private highways in the first place just as the automobile was becoming popular:

Private investment in infrastructure, especially bridges and roads, was common in early United States history. Immediately after the Revolutionary War, for instance, investors put up $465,000 to build the Philadelphia-Lancaster Turnpike, a 66-mile toll road that proved so popular that it led to further waves of private investing in highways. During the first half of the nineteenth century, private funds provided the young republic with some 600 toll roads. And as the country spread westward during the second half of the century, infrastructure investors helped ease the way, with 100 toll roads in California alone. In fact, the private sector kept building roads until the automobile's arrival prompted more extensive -- and costly -- government safety regulations, which at the time made toll roads a largely unprofitable venture. Government turned to new methods -- especially municipal bonds, which investors like because they aren't taxed -- to finance infrastructure. [bold added]
Over-regulation of existing businesses coupled with the removal of some of the more onerous restrictions on their subsidized competition is a great way to set up for failure the remnants of free enterprise in an industry.

So have state and local governments in America seen the errors of their controlling ways and begun to turn back the statist clock at last? Not quite....

As with so many other "free market" proposals put forth mainly by conservatives these days, these "privatizations" -- although having some economic effects similar to actual privatizations -- are not, in fact, privatizations. Furthermore, they are not being conducted with the proper purpose of government (i.e., the protection of individual rights) in mind, but usually for some other purpose, like increased revenue for the state or greater "efficiency".

And so, it should come as little surprise that the new "owners" often find themselves very heavily regulated -- because (surprise!) those in charge of such "sales" do not understand the the first thing about the great incentives actual freedom provides for doing a good job. How, after all, can someone who does not understand capitalism have any confidence in it?

Note how regulations are used to "defend" "capitalism" here:
Privatization foes also claim that profit-hungry private operators will squeeze taxpayers dry by raising tolls or fees precipitously and skimping on maintenance. This charge ignores the detailed operating requirements written into privatization contracts, which limit how much new operators can hike tolls over time and punish owners who fail to meet standards. "The agreement for the Indiana tollway lease is far more detailed than anything InDOT [the Indiana Department of Transportation] had to live up to when it was operating the road," says Matt Will of the University of Indianapolis. "I don't know if InDOT could have lived up to these standards." [bold added]
This same paragraph ends with the following piece of evidence that the hysteria over "squeezing" is misplaced: "The owners of the Dulles Greenway in Virginia initially didn't meet their traffic projections, so they lowered tolls to lure more traffic."

Although this massive wave of "privatization" looks and feels like capitalism in some ways, it is not. In fact, it is merely a shifting from socialism (i.e., government ownership of the means of production) to fascism (i.e., government control of the privately-owned means of production) being done in the name of capitalism -- and with, I suspect, just as much potential to unjustly tarnish the reputation of capitalism as the mess created by the so-called deregulation of electric utilities in several states some time ago.

This alone should give pause to anyone calling deals like the Indiana tollway lease "privatization" -- or touting them as substantive retreats from a mixed economy to a free one.

-- CAV


Galileo Blogs said...

Privatization is a fraud in the same way that "deregulation" was a fraud in the electric utility industry. Because essential parts of the industry remained regulated, and other parts were actually re-regulated, the deregulation of a small portion of the industry had negative consequences.

When the blackouts and trading scandals occurred, it was capitalism that got blamed, instead of the huge welter of regulations, old and new, that made "deregulation" a sham from the beginning.

In the same manner that privatization in many cases really is an implementation of fascism (actual state control under nominal private ownership), electric utility deregulation is also fascist. Utilities today are arguably the most regulated industry in America that is still nominally in private hands. Until true deregulation occurs, we will have more blackouts, price spikes and other problems. And each time this happens, capitalism is most likely to be blamed. That is the legacy of the fascist, ersatz deregulation that was attempted.

Gus Van Horn said...

My personal pick for the most likely future example of "failed privatization" is Midway Airport, given that air travel is so heavily regulated.

But watch out if they ever "privatize" Amtrak in this way!