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Ian Welsh

Ian Welsh

Posted: April 30, 2007 04:21 PM

Push to Privatize Public Roads, Airports, Bridges


Business Week writes about how private companies such as Goldman Sachs, Morgan Stanley and the Carlysle Group are buying up private infrastructure such as key roads, airports and bridges (Golden Gate for $3.4 billion and Brooklyn Bridge for $3.5 billion, for example). Cities supposedly think this is a great idea because they get money they can spend on other things.

I don't understand why this is even considered. You don't put basic infrastructure like this in private hands, because it allows monopoly pricing. They will squeeze the most money out of it they can, and that will be the majority of the surplus value produced by the roads. Since they will set the cost to maximize profits, it will be above what some people and some businesses can afford (this is just basic supply/demand graphing -- raise the price, and less people will use a service). What this will mean is that a lot of businesses will make less profit, go under or never be created, a lot of people won't travel even short distances (which will strangle businesses that need those travelers and price certain people out of certain jobs) and will in general reduce economic activity. However much money any government gets in the short term, it will lose more from reduced taxes due to reduced economic activity and reduced economic growth in the long term. (i.e. It isn't just people who use the roads/airports/bridges who lose.)

And odds are, you'll eventually have to either regulate these things to keep prices reasonable (at which point the companies will start shorting on maintenance in order to maintain profit margins) or you'll have to buy them back at a huge markup.

Infrastructure is one of the two very basic jobs of government, and any government that is getting out of it is refusing to do its job.

Finally, I'll add that these deals often smack, to me, of inside dealing -- of selling patrimony for cents on the dollar. Privatizing almost never works out as worth it in the long run for governments, because the short term money they get for it is gone almost immediately (a few billion isn't that much these days) while the costs are around forever. Private enterprise doesn't run monopolies cheaper than public enterprise; because it requires profit, it runs them more expensively. Privatizing works when it introduces competition to a market -- real competition with enough competitors that an oligopoly doesn't form. If you need to cross a bridge, you need to cross a bridge -- you can't swim. The prime rule of privatizing is that you never, ever, give away a monopoly.

These deals are all bad deals for the public and for government, though they may be good deals for those buying the infrastructure in question, or for the politicians who will find some nice donations in their accounts; and good jobs when they decide to cash in and leave public service.