The public spectacle of privatization

The private ownership and control of public entities, programs and services is costing American taxpayers hundreds of billions of dollars a year as a result of waste, corruption and the insertion of the “profit” motive into the provision of public responsibilities.

Privatization, its advocates claimed, would save scarce public money since it promoted more efficient and effective delivery of programs, services and goods.  The claim, proven wrong over and over again, was that through privatization of public activities, taxpayers would be able to get more and pay less.

The clarion call from conservatives and neo-liberals alike was that by allowing private entities to own and operate public activities, government would finally be able to run like a business and the once bloated bureaucracies would be transformed into streamlined business units that would ensure faster, better and cheaper delivery of services.

The fruits of greater productively, they pontificated, would be so significant that the business taking over the once public activity would even be able to make a healthy profit.

While the concept worked great in theory, the reality has been quite different.

The track record of modern privatization is littered with numerous examples where taxpayers didn’t get more for less, but ended up with a system in which they paid more and got less.

Today, more than $1.5 trillion a year of public activity has been privatized and a prime example of the pitfalls of privatization can be found in Chicago;

For example, writing for Talking Points Memo (TMP), Erika Eichelberger reports;

Over the past decade, the city of Chicago has sold off more of its public infrastructure and services than any other city in the U.S. It is the poster child for privatization—for privatization gone wrong.

In 2006, the city leased four major parking garages to a Morgan Stanley-led firm for $563 million. In 2009, Morgan Stanley sued the city for threatening its profits by allowing a nearby building to open a public garage. Chicago had to pay $62 million to settle.

[…]

In 2008, Mayor Daley sold off 36,000 city parking meters to another Morgan Stanley-backed company, with little public input. It was later revealed that the deal was undervalued by $1 billion. Meter rates skyrocketed from $3 an hour to $6.50 an hour. And the firm charged the city millions for violating the contract by putting certain meters out of use for street repairs, parades, and festivals, and for giving free parking permits to people with disabilities.

The situation in Chicago is not uncommon.

Like many politicians over the past twenty years, Richard Daley was an ardent supporter of privatization.  While privatization had traditionally being backed by Republicans, Daley, like President Bill Clinton, used his tenure in office to push a bi-partisan agenda for privatizing public program and assets.

However, while the privatization of public activities has earned government at the federal, state and local level some fast cash, the long term costs to taxpayers has be astronomical.

Writing in the New York Times, Donald Cohen, the executive director of In the Public Interest, set the record straight on the Chicago parking meter case study;

An after-the-fact investigation by the city’s inspector general concluded that the decision to enter the lease contract lacked “meaningful public review” and neglected the city’s long-term interests to solve a short-term budget crisis.  Specifically, it found that, ‘the city was paid, conservatively, $974 million less for the 75-year lease than the city would have received from 75 years of parking-meter revenue.’

Furthermore, the new contract included provisions that guaranteed the private company, whose primary financial partner is based in Qatar, revenue regardless of what developed during those seven and a half decades.

And what actually occurred after Chicago’s parking meters were privatized?  Cohen explains;

Parking rates increased as much as $8 for two hours.  The initial contract required seven-day-a-week paid parking.  The city was able to negotiate out of that requirement but in exchange had to extend paid parking until 10 p.m. Downtown business owners have blamed the increase in rates for a decrease in economic activity.

Taxpayers are further harmed by the contracts fine print, which says the must reimburse Morgan Stanly and its Qatar-based business partner for any time that spaces used for anything other than parking – including parades and festivals.

[…]

Perhaps most egregious, Chicago cannot build parking lots for the entire duration of the contract because they might complete with the outsourced parking meters.

With just one contract, Chicago taxpayers lost $1 billion in future revenue and managed to dramatically constrain their ability to manage development in their city for next seventy-five years.

As the Executive Director of In the Public Interest puts it,

“The false promises of privatization are triggering a race to the bottom.”

The promise of efficiency leading to getting more for less evaporates as private companies guarantee their profit margin by paying workers less and cutting back on the availability and quality of the services that people need and taxpayers had been funding.

In the end, as the extent or quality of services goes down, demand for other services go up or, at the very least, taxpayers are left subsidizing private businesses while needs go unmet.

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