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Government's Business Isn't Business

Written By: Becky Akers  |  Posted: Tuesday, June 8th, 2010

In October 2008, the City of Chicago tried to lease Midway Airport to a consortium. The lessee forked over $2.52 billion for the right to operate the airport per the City's dictates in exchange for collecting the revenues -- which promised to be substantial since government would continue granting both Midway and O'Hare International a monopoly on Chicago's commercial airspace. The consortium would recoup its billions from the rentals it charges airlines and other concessions, increasing the cost of everything from airfare to parking. Nor would taxpayers receive rebates in what the City swipes from them, though theoretically they would no longer foot Midway's bills. Indeed, they would have also covered Midway's property taxes since its contract exempted the consortium from such burdens.
All this would keep the lessee accountable to government, not customers. It would strive to please its landlord and the politicians who write regulations rather than passengers. Fortunately for the latter, the imploding economy killed the scheme when the consortium couldn't assemble financing.
This scam was many things, but "free market" isn't one of them. Yet the consortium was a "private" corporation comprised of Citi Infrastructure Investors, YVR Airport Services and John Hancock Life Insurance. So politicians, the media, and the plundered public dub deals like this "privatization."
Surprisingly, so do many lovers of liberty. Few seem to have noticed that their idea of privatization differs vastly from the reality.
When freedom's fans speak of privatizing, we mean -- or should -- prying from government some business it had no constitutional, moral, or practical right to subsume in the first place. But "privatization" (a.k.a. "public-private partnerships" and "outsourcing") rarely if ever accomplishes that in practice: ". . .private investors and local and state governments, through public-private partnerships (P3's), have the unique opportunity to satisfy each other's needs, " writes Jacob Frydman for The Huffington Post -- as if satisfying the State's "needs" is either good or possible. ". . .[T]he assets typically remain owned by the government, and are only leased to the private entity."
That isn't the only definition. "Privatization can mean everything from contracting out . . . to government getting out of the business entirely, " notes one blogger. And though the word occasionally designates the complete divestiture we seek ("[W]hy don't we just privatize the Post Office[?]" another blogger asks. ". . .It's high time it was done away with. . ."), it usually refers instead to that aforementioned "partnership" between politicians and their corporate cronies. Indeed, the Baker County [FL] Press quoted Pablo Paez, "corporate relations director for Boca Raton-based GEO Group, " with what is currently privatization's most accurate description: "The combination of effective state oversight with private sector service delivery. . ." Why would anyone who favors freedom favor that?
"Privatization" certainly sounds libertarian with its implication that government will cede to entrepreneurs some service or bit of infrastructure it has bungled. But "privatizing" governments don't admit their incompetence, nor do they sell their failures. Instead, they rent them to corporations while retaining control. The corporation assumes day-to-day management and maintenance. Politicians and bureaucrats are still in command, still subsidizing the privatized project with taxes, loans, or outright grants, still ensuring a monopoly that leaves "customers" little or no choice. In fact, the folks using whatever's been privatized resemble customers only because they often begin paying directly -- and more -- for each use, with no commensurate reduction in taxes. If you think that sounds suspiciously like double-billing, you're right.
It's easy to see why privatizing has joined pork as politicians' favorite dish. Midway was only one of Chicago's forays into this brave new world: the City also leased an elevated and tolled road known as the Skyway in 2004 to Cintra-Macquarie, a Spanish-Australian consortium, for $1.8 billion. That bought Cintra-Macquarie permission "to double the $2 toll to $4 over the next decade, and keep raising it thereafter, " according to the Associated Press. Privatizing some of its public garages fetched Chicago $563 million in 2006. And though it failed with Midway two years later, it succeeded in privatizing 36, 000 parking meters. Auctioning its army of mechanical bandits enriched the City with another $1.15 billion; the Chicago Sun-Times noted that the deal also "gave a private contractor carte blanche to raise [the rates] sky-high."
Chicago isn't alone. A frenzy of privatizing has seized American governments at all levels as politicians who refuse to slash spending scramble for cash. Not only have they clamored to privatize "services" from trash collection to Social Security, they're privatizing the infrastructure taxpayers built as well -- rather like a seneschal who installs tenants in his lord's manor, then pockets the rent. The city of Akron, Ohio, tried to privatize its provision of water and sewerage in November 2008; voters defeated the measure and rightly so since politicians promised no corresponding reduction in taxes. In Idaho, Boise State Radio reports that "all branches of the military have been in the process of privatizing base housing" for the last ten years; this "could mean big business for local construction companies."
The shattered economy has dampened some of this enthusiasm -- primarily and intriguingly because of "privatization's" free-market associations: "Back in the days when the market was a kind of secular god, " Thomas Frank opined in the Wall Street Journal last year, ". . .the idea of privatizing highways and airports and other bits of our transportation infrastructure made a certain kind of sense. Private businesses did everything better than the state, we were told. . . But . . . many brilliant schemes of the last few decades melt[ed] away in this harsh new day of failing banks and plummeting asset prices."
Yet politicians and libertarians still hype privatization -- even as taxpayers fear it. Why the alarm? First, like libertarians, they take the name at face-value. Thanks to the reflexive socialism that perverts modern thinking, too many Americans distrust anything with entrepreneurial overtones. The market is their habitual scapegoat, so something that pretends to transfer a public embarrassment to private enterprise is automatically suspect.
As if that weren't enough, privatization almost always raises the price citizens-cum-"customers" pay. After all, corporations aren't bidding billions on these contracts for the fun of it: they expect to recover their investment and then some. Actually, a considerable sum. Their victims realize whose pockets are being picked, and they despise privatization for legalizing such theft. They also loathe its libertarian support. "Beware!" one blogger ranted. "Our own and Europe's own Libertarians now run the IMF and the World Bank. . . . [Their] goal is to strip all government of ownership and to privatize and outsource all public property including all functions of government."
Privatization's partisans cheer their pet as though it's revolutionary. But only the term is new: Random House Dictionary traces its coinage to around 1945. Most governments around the world and throughout history have relied on entrepreneurs to furnish at least some of the State's firepower -- quite literally from the 17th century through the Napoleonic era, for example, when Western administrations augmented their navies with privateers. "Letters of marque" authorized these privately owned and crewed ships to attack any vessel flying the enemy's flag. For obvious reasons, privateers generally avoided men-o'-war and their 64 guns in favor of commercial prey. Captains sold the ships and cargo they captured at auction, dividing the proceeds with their men. Privatization and piracy share more than just a "p" and "r."
Governments hired private parties for other "services, " too. Contractors cleaned New York City's streets in the early nineteenth century and, in the early twentieth, the City annually handed "some four million dollars to religious and privately managed hospitals and asylums that receive the city's poor, " according to Rider's NEW YORK CITY: A Guide-Book for Travelers, published in 1916. Perhaps Philadelphia indulged in one of government's more transparent ploys. During the 1830's and '40's, riots regularly rocked many of America's mushrooming metropolises, including the City of Brotherly Love. Diarist Sidney George Fisher noted that "various organized gangs of ruffians" plagued the place -- and he wasn't referring to cops. Philadelphia eventually deputized a rival gang to restore order, forerunners to the modern force of uniformed ruffians.
Government contracts have always been synonymous with corruption. Soldiers writing home from any American war relate tale after tale of wormy biscuits, boots that disintegrate, uniforms unraveling at the seams. So it went with street-cleaning, too. New York's roads were still filthy, and much of the manure shoveled from them found its way to parks rather than the distant areas designated for disposal. But the cleaning companies' lavish contributions to political campaigns as well as their outright bribes kept the politicians who hired them from firing them.
Then or now, rulers happily "privatize" because they understand the vast benefits for the State. We should, too. That will motivate us to fight all forms of privatization short of an outright, final sale.
First and most noticeable are the fortunes with which corporations buy the privilege of forcing folks who already pay for maintaining the roads or collecting trash to cough up yet more money in "user fees." Chicago Midway's $2.5 billion and the Skyway's $1.83 billion are typical; the City's parking-meter deal reportedly showered another $1.2 billion on politicians' sticky fingers.
Of course, paying for those "services" -- and only those services -- we actually use is an improvement over the State's taxing of all to provide goodies for some. But that presumes a commensurate cut in taxes. Such a miracle has yet to accompany privatization.
The State profits a second time because its expenses diminish when the lessee pays the privatized project's operating costs -- but again, government doesn't reduce taxes. An op-ed in the Christian Science Monitor recognized this: "Privatization increases the financial resources available to governments. Revenue from the sale itself is a bonus, but the big payoff to the public purse comes from the elimination of subsidies to cover the losses of state-run firms, and the increased taxes paid by now-profitable private companies." Why would anyone who loves liberty want the State to prosper? Meanwhile, governments don't return those subsidies to their rightful owners but instead prove how "good" they are by shifting it to worthier recipients, according to the Monitor: "These increased resources provide an opportunity for good governments to help the poor. In Chile and Mexico, for example, privatizing governments have increased spending on social services." In Akron, the money raked from privatized sewers would have "fund[ed] a . . . scholarship program reserved for local public high school graduates attending a local university, college, or trade or vocational school."
Privatization also hides government's incompetence. Privatized services or property may run a bit better under corporations than they did under bureaucrats, though not by much since regulations still hamstring these companies. But you can bet politicians claim the credit for even the tiniest drop in traffic on the Skyway; after all, they're supervising it and keeping an eye on those greedy lessees, aren't they? And when traffic jams, the State shakes its head and asks what else we can expect from private enterprise.
Privatization unites government with business, exponentially empowering both at everyone else's expense. Alexander Hamilton argued for a central bank and public debt precisely because they would keep the country's most influential, powerful men loyal to the new government. Human nature hasn't changed since then. Corporations that contract with Leviathan are unlikely to protest the beast's actions, however unconstitutional or inhumane. In fact, they often assist the State in its predations. Now that Chicago has privatized its meters, the Sun-Times reports that "parking enforcement will also get tougher" because "the partnership that includes Morgan Stanley Infrastructure Partners and LAZ Parking [will] issue parking tickets to 'supplement' the city's efforts."
Instead of "privatizing" assets and services, let's work to divorce them completely from government. Not only does that benefit taxpayers by transforming them into genuine customers, it also cripples Leviathan. And let's coin a term other than "privatization" since the State has bastardized that as surely as it does everything it touches.
We should always oppose rulers' vile collusion with industry, even when advocates call it "privatization" and claim to honor the free market. Government has no business being in business.
Copyright © 2010 Campaign for Liberty

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