Public Policy and Governance – Page 336

When Privatizing Met Public Infrastructure

As readers of this blog know, I’m not a “believer” in contracting-out–what we Americans quaintly call “privatization.” I’m not necessarily opposed to contracting, either–it’s a tool that can be appropriate in many circumstances. Call me an agnostic.

It’s important to examine claims about privatizing, because contracting is too often a form of patronage–a way of rewarding campaign contributors–or, as we’ve seen in Indiana, a way that canny politicians can borrow from the future to provide services that should be paid for from current tax revenues.

When we start privatizing public infrastructure–toll roads and parking meters, for example–it is even more important to ask what the research shows. We know what the politicians who are pushing these deals say; what does the evidence say?

Ellen Dannin is a law professor who is a national expert on contracting, and she has just published an important (and sobering) analysis of what happens when public infrastructure is privatized. In “Crumbling Infrastructure, Crumbling Democracy: Infrastructure Privatization Contracts and Their Effects on State and Local Governance,”
Dannin finds that these agreements typically make the public the guarantor of private contractors’ profits, and ” give private contractors quasi-governmental status, with power over new laws, judicial decisions, propositions voted on by the public, and other governmental actions.”

Well worth a read!

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Who Moved Wisconsin’s Cheese?

In 1998, Dr. Spencer Johnson wrote a best-selling book about dealing with change; he titled it “Who Moved My Cheese?”

I can’t help thinking how ironic it is that Wisconsin—home of the Cheese-heads—is the most prominent example of what happens when political leadership stubbornly refuses to deal with an economic landscape that has changed.

Upon assuming office, Governor Scott Walker immediately made two incredibly poor policy decisions: he rejected federal dollars for high-speed rail, and (as anyone who hasn’t been in a coma this past month knows) he has offered legislation that would revoke the bargaining rights of public sector unions. He has attempted to justify both decisions by pleading state poverty.

It’s tempting to point out that Wisconsin’s fiscal straits didn’t keep the governor and legislature from first enacting generous tax breaks for business, but that bit of political hypocrisy isn’t nearly as troubling as the Governor’s evident inability to understand a simple fact of contemporary budgetary life: it is impossible to balance public budgets by cuts alone. As Robert Russell, a Wisconsin state economic analyst has pointed out, state workers are also taxpayers and consumers.

According to Russell, if Wisconsin public employee salaries are cut through increased withholdings (as Walker is insisting) by an amount large enough to fill the $137 million budget gap, the resulting drop in consumer spending will lead to: 1) a loss of over 1,200 nongovernment jobs; 2) a loss of about $100 million in business sales statewide; 3) a loss of nearly $35 million in personal incomes of nongovernment employee households; and 4) a loss of nearly $10 million in state tax revenues.

In other words, lower wages and fewer workers translate to less tax revenue and consumer spending. Since even the most modest tax increases appear to be politically untenable these days, the only option likely to generate sufficient revenue is economic development and job creation.

Which brings us to high-speed rail.

The policy arguments for high-speed rail are familiar to most of us: our highways are increasingly congested and enormously expensive to expand; we can’t abate environmental pollution or reduce dependence on foreign oil without offering viable alternatives to the automobile; long commutes translate into lost productivity, costing businesses billions each year. Urban planners argue that rail is essential if we are to address the problems caused by urban sprawl and make our cities more livable. Groups trying to save America’s small towns argue that those towns will disappear without fast, convenient inter-urban transportation.

All true, and all reasons to support mass transit within–and high-speed rail between–cities.

What is less noted and equally important, however, is the job-creating potential of high-speed rail. Last fall, California voters approved $10 billion dollars for a rail project linking San Francisco and Los Angeles; more recently, the San Francisco Business Times ran an article highlighting the California High-Speed Rail Authority’s projection that 450,000 permanent jobs would be created by the project in addition to the 160,000 new jobs needed to plan, design and build the system.

The Christian Science Monitor estimated that the Obama Administration’s $8 billion initial investment in high-speed rail will produce 320,000 jobs and generate roughly $13 billion in economic development benefits, “including construction and operations jobs, as well as manufacturing and supply chain opportunities. By increasing mobility while decreasing congestion and sprawl, high-speed rail makes our country more competitive while simultaneously spurring economic development.”

Waging a war on public unions—however ideologically satisfying—will not help Wisconsin’s economy. The cheese is on the high-speed train, and thanks to the Governor, that train has left Wisconsin’s station.

What Drives Me Crazy

A couple of days ago, I got my ever-thinner print version of Newsweek, and began leafing through it. I came to an article by one Niall Ferguson (“Niall Ferguson Solves the Debt Crisis”) I don’t know who Ferguson is, although I’ve seen his name here and there, but obviously, if he has a solution to the “debt crisis,” (the precise nature of which was conveniently undefined), I wanted to know what it was.

And what was it? Privatization, which–he blandly assured readers–“has been a huge success nearly everywhere it’s been tried.”

When I came to that sentence, my husband called from another room to ask me why I was making that strange noise.

Let me explain why Mr. Ferguson’s article made my head explode. I have spent a reasonable percent of my time in academia studying privatization, and have written a number of (peer reviewed) articles on the subject, and it is clear that Ferguson is, shall we say, confused. The first clue is his reference to Margaret Thatcher’s successes. I agree that much of Thatcher’s privatization effort was successful and sound, but what Thatcher called privatization was very different from what Americans mean when we use the term. Thatcher sold off assets (steel mills, for example) that most economists would agree should never have been owned by government in the first place. And she sold them, to private owners who were left to own and operate them, pay taxes on any profits, and go under if they failed. These assets were no longer on the British government’s balance sheets, for good or ill.

This is significantly different from the situation in the United States, for two reasons. First of all, we were never socialized to the extent that England and many European countries were, so our governmental units–with very few exceptions–do not own property that is extraneous to the mission of government. We don’t have publicly owned steel mills or coal mines or other assets more appropriate to private ownership to sell off. Ferguson cites Mitch Daniels’ “lease” of Indiana’s public highways with approval; I think many of us would argue that public roads are hardly in the same category as steel mills.

That allusion to Indiana’s Toll Road brings us to the second difference between British and American practices: what we call privatization in the U.S. isn’t really privatization. We use the term to mean “contracting out.” If we have potholes to fill (and right now, boy do we!) we ask private asphalt companies to bid on filling them–we don’t expect government to manufacture its own asphalt and use its own employees to do the job–but we don’t expect government to sell the streets and allow the market to determine which ones get paved, either.

I didn’t intend to turn this post into an academic lecture/rant, but I get so tired of pompous pundits who don’t bother to do any homework, who don’t bother to define their terms, blandly prescribing simple fixes for complicated issues they clearly do not understand. If Ferguson is advocating that we sell off government assets, he needs to distinguish such outright sales from the “leases” and “contracts” that Americans are familiar with, and he needs to identify the assets that he believes should be privately rather than publicly owned. (I’d be quite willing to sell off sports stadiums, but I’d fight a proposed sale of libraries.) If we ever have that discussion, I think it is highly unlikely that we’d find enough stuff to sell to retire the national debt.

And just for Mr. Ferguson’s information, privatization (defined as contracting out) has not been a “success nearly everywhere.” I’d be happy to supply him with citations to multiple studies demonstrating quite the contrary–but somehow I doubt he’d be interested.

Who said “It ain’t what you don’t know that hurts you, it’s what you know that just ain’t so”?

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If You Can’t Say Something Nice…….

I’ve got to say, events of these last few months have really put a strain on my mother’s admonition that “If you can’t say something nice, then don’t say anything at all.”

Okay–let me try. The Indiana legislature did take a (hesitant) step toward rational policy-making by setting up a committee to study marijuana prohibition. It’s only a study committee, but it is implicit recognition of the fact that our drug war policies are costly and counterproductive. That’s a good thing.

Problem is, so far as I can tell, it’s the only good thing that has happened during this legislative session.

At a time when poll after poll finds job creation at the top of the list of voter concerns, the GOP majority has been fixated on restricting abortion, prohibiting same-sex marriage, union-busting and immigrant bashing.

Despite all the verbal hand-wringing about the state’s fiscal problems, the legislature refused once again to eliminate Indiana’s 1008 wasteful, unnecessary and expensive Townships.

The war on public education may be well-intentioned (to give lawmakers the benefit of the doubt), but it is anything but informed. One small example: the effort to link teacher pay to student achievement. Sounds reasonable–if you don’t understand the situation. The likely result would be to discourage good teachers from teaching in schools with lots of poor kids, since available research links student performance to parental income. (There are ways of measuring achievement that control for socio-economic status, but somehow I don’t think that’s what our genius legislators intend.)

I have a student who is interning at the State Senate. His account of the “discourse” (note quotes) in that august chamber are dispiriting, to say the least. To date, my favorite is the statement made by Senator Ron Alting during discussion of Delph’s anti-immigration bill. Alting began by saying that the legislation would damage Indiana’s reputation; he also recognized that it would hurt economic development and our convention business, saying “we will be impacted like Arizona.” His conclusion? “So be it. I’ll vote for it.”

Just kill me now.

State Workers Pay Taxes Too

During a discussion the other day, a SPEA staff member made a point that seems to be lost in the contending, highly ideological arguments about the standoff in Wisconsin. She noted that public employees are also taxpayers, and that the Governor’s insistence that he is acting in the “interests of the taxpayers” didn’t seem to include the interests of that particular subset of taxpayers.

Her observation has just been quantified and amplified by Robert Russell, a Wisconsin state economic analyst, who pointed out that state workers are not only taxpayers, but consumers.

According to Russell, if public employee salaries are cut through increased withholdings as Walker is proposing, by an amount large enough to fill the $137 million budget gap, the resulting drop in consumer spending will lead to: 1) a loss of over 1,200 nongovernment jobs; 2) a loss of about $100 million in business sales statewide; 3) a loss of nearly $35 million in personal incomes of nongovernment employee households; and 4) a loss of nearly $10 million in state tax revenues.

This is not about economics. (Indeed, Governor Walker seems blissfully ignorant of basic economics.) It’s about ideology, hubris, and political payback.

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