The Privatization Scam: 5 Horror Stories of Gov't Outsourcing to Greedy Private Companies
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For decades we’ve been subjected to constant propaganda that government is inefficient, bureaucratic and expensive. We’re told that the answer is to “privatize,” or “outsource” government functions to private businesses and they will do things more efficiently and everyone comes out ahead. As a result we have experienced decades of privatization of government functions.
So how has this wave of privatization worked out? Has privatization saved taxpayers money and improved services to citizens? Simple answer: of course not. If a company can make a profit doing something the government had been doing, it means that we're losing out one way or another. It’s simple math. And the result of falling for the privatization scam is that taxpayers have been fleeced, services to citizens have been cut way back and communities have been made poorer. But the companies that convinced governments to hand over public functions have gotten rich off of the deal. How is this a surprise?
Here are 5 privatization horror stories, where government outsourcing has gone terribly wrong. (Or maybe you’d say it has gone terribly right if you are one of the companies getting the taxpayer dollars.)
1. Chicago Parking Meters
The mother of all privatization horror stories is what happened with Chicago’s parking meters. In 2008 the city “financialized” its parking meter revenue stream. It leased the rights to collect from parking meters to a consortium led by Wall Street bank Morgan Stanley. The lease is for 75 years.
Right away parking-meter rates went up fourfold and meters stopped working. The city’s residents were unhappy, but there was nothing they could do about it.
But wait, it gets worse. Unsurprisingly, it turns out that the big Wall Street bank was more interested in making money than in giving Chicago the best deal it could. An inspector general looked into the deal and found that the city was shortchanged by at least $974 million. But a 2010 Forbes story says the Morgan Stanley consortium may realize a profit of $9.58 billion after paying Chicago only $1.15 billion.
To top it off, the city not only gave up 75 years of revenue for not nearly enough up-front cash, it had signed a contract prohibiting the city from interfering with Morgan Stanley’s ability to profit from the deal. This means the city can’t build parking structures where they are needed and can’t even give out disabled parking permits. The city can’t even close streets to have street fairs or festivals without paying Morgan Stanley for lost meter profits.
2. Toll Roads
Some states are considering privatizing their roads with “public-private partnerships.” The deal is that private companies maintain the roads and in exchange can charge a toll and make a profit. How is this working out?
In 2006 Indiana privatized I-80, the Indiana Toll Road. For $3.8 billion the state gave a 75-year lease to the Australian company Macquarie Group and Spain’s Cintra. (Goldman Sachs is said to have earned $20 million for brokering the deal.) At the time Washington Post business columnist Jerry Knight wrote that the deal sounded like “tossing the family furniture in the fireplace to keep the house warm.”
Since then tolls have just about doubled. And it’s going to get worse. Dave Jamieson at the Huffington Post explained, “The road's leaseholders can now raise the toll annually at one of three rates -- at a flat two percent, at the percentage increase in the consumer price index or at the percentage increase in gross domestic product -- whichever is highest. Over the course of the coming decades, Hoosiers can expect to learn a hard lesson in compound interest, long after Gov. Daniels is gone.”