Wall Street's Next Target: Roads and Bridges
Stay up to date with the latest headlines via email.
In a purported news article at the end of August the New York Times business section gave a big wet kiss to the idea of privatizing the nation's bridges, roads and civil infrastructure. In a nearly 40 column inches, reporter Jenny Anderson casts investors as thwarted social workers ready to do their part in helping to fix America's crumbling infrastructure. Nearly everyone quoted in the story is an investment banker or investor. Politicians are quoted only to bemoan the sad state of roads and bridges, cry about their budget deficits, and wring their hands over the lack of viable solutions.
The obvious solution is private investment. Or at least, that's the only solution that the Times explores (notwithstanding a misleading headline on the online version of the story, "Cities Debate Privatizing Public Infrastructure").
Anderson supplies no critical analysis of why governments and politicians are failing to make needed infrastructure investments, or how government might pursue public-spirited alternatives to private equity. Instead, we hear Norman Mineta, a former U.S. transportation secretary and now an adviser to Credit Suisse, blandly explain, "Budget gaps are starting to increase the viability of public-private partnerships."
The Times story amounts to a hot tip to the investor class: "Vulnerable public assets await your predatory attention. Big ROI is assured!"
Republicans and investors have long railed against "big government" while enjoying government's "liquidity backstopping" (Bear Stearns, Fannie Mae, Freddie Mac) and government borrowing to finance reckless foreign wars. Now that such bleeding of government has led to crumbling infrastructure, Wall Street, in a fine thank you to its benefactor, wants to go in for the kill. Groups like Goldman Sachs, Morgan Stanley and the Carlyle Group have amassed some $250 billion to take public infrastructure private.
Standing ready to help them are politicians who have abandoned their commitment to government except as a tool for military aggression and a way station to lucrative private employment. Such politicians are only too ready to enter into "partnerships" that traduce the public interest. The Anderson article gives such politicians plenty of reason to feel complacent. It offers sales pitches from the executives of investment banks and ideological pap from the libertarian-minded Reason Foundation. The privatization of public roads and bridges is cast as a brilliant, natural innovation. Anderson ignores the compelling economic and public-interest reasons for managing and financing public infrastructure through government.
As it happens, Phineas Baxandall, a senior tax and budget analyst at U.S. PIRG, offered an extensive analysis of these very issues in an essay here on OntheCommons.org a few months ago. His piece was based on a report on the subject that he had previously written for U.S. PIRG. Baxandall makes a number of points that Anderson ignores entirely:
Governments can borrow upfront sums at substantially lower cost than can private companies. A private entity will have higher capital borrowing costs and must divert some revenues to shareholder profits. So even at its most basic financial level, privatization is not advantageous to the public.
Perhaps even more than these fiscal problems, long-term road contracts pose a variety of serious threats to the public interest. These include fragmentation and a loss of public control over transportation policy, and an inability to prescribe future needs in contracts signed decades earlier For example, some privatization contracts explicitly limit the state's ability to improve or expand nearby roads. Private investors fearing that improved free roads would compete with their paying traffic, have obtained non-compete clauses in California and Colorado, and to a lesser extent, in Indiana.
Instead of examining such issues, Anderson merely notes the political backlash that some politicians have suffered. After Indiana Governor Mitch Daniels granted a 75-year lease on a state road for $3.8 billion, drivers began to sport bumper stickers that read, "Keep the toll road, lease Mitch." Without further facts, the article makes it seem as if Indiana drivers are a bunch of ignorant yahoos who stupidly oppose taking Wall Street's money.
Indeed, Anderson makes it seem slightly insane not to privatize infrastructure. She writes: "And then there is the odd romance between Americans and their roads: they do not want anyone other than the government owning them."
This is followed by a self-serving quote from the head of infrastructure investment banking at Credit Suisse, who breathlessly warns, "There's a huge opportunity that the U.S. public sector is in danger of losing. It thinks there is a boatload of capital and when it is politically convenient it will be able to take advantage of it. But the capital is going into infrastructure assets available today around the world and not waiting for projects the U.S. the public sector [sic] may sponsor in the future."
Behind all the genteel business-speak, allow me to offer a plain-speak translation of what the New York Times business section declared today:
"Hurry, hurry, hurry! Step right up and sell off your public infrastructure treasures financed by generations of previous taxpayers! Give them to Wall Street - whom you just bailed out at discount prices - and let them earn fantastic, guaranteed rates of return for decades to come while cutting amenities and ignoring evolving public needs. You poor schlumpy taxpayers can continue to shoulder the high-risk, long-term investments. And if any of those public assets begin to look attractive - say, the Internet, wifi spectrum or federally financed drug research -- why, we'll be sure to swoop down and be the first take them away from you. After all, we have more money and better access to your elected leaders than you do!"
The New York Times is a great institution, but can we please shed the "liberal" moniker that is so often attached to it? A precious commons is threatened by enclosure, and all we hear is cheering.