This conversation originally appeared on the Current Affairs podcast. It has been lightly edited for grammar and clarity.
NATHAN J. ROBINSON
DONALD COHEN
And there was plenty left on the cutting room floor. Currently, that’s the big issue about Medicare, Medicare Advantage, and direct contracting Medicare—we didn’t cover that at all. There are definitely things that we didn’t get to.
ROBINSON
Did you cover war and the military?
COHEN
Not really, no. That’s another big one we have to add.
Not really, no. That’s another big one we have to add.
ROBINSON
But this is not to say that this book is skimping. You do go through many case studies.
But this is not to say that this book is skimping. You do go through many case studies.
COHEN
There’s a book out now by Mariana Mazzucato about the consulting industry, which we don’t talk about as well, which is basically the brain outsourcing—government brains—to huge consulting firms. So, there are other things to explore.
There’s a book out now by Mariana Mazzucato about the consulting industry, which we don’t talk about as well, which is basically the brain outsourcing—government brains—to huge consulting firms. So, there are other things to explore.
ROBINSON
What are some of the cases of efforts to privatize, successful or not, that people might not know or realize?
What are some of the cases of efforts to privatize, successful or not, that people might not know or realize?
COHEN
I would venture to say most, but I will give a few cases. Let me say how we define privatization. My definition is it’s about private control over public goods. Public goods, in my definition, are the things that we all need to survive, the things that we need everyone to have: health, clean air, transportation, education, all the above.
I’ll give a couple of examples because that’s the best way to get into the real issues, which our book intends to draw a through line into some larger issues that connect all the public sectors. So, parking meters in Chicago—I’ve told this story many, many times, and most people who don’t live in Chicago don’t know about it. Everyone who lives in Chicago does. In 2008, the worst of the recession, cities were bleeding red ink. The mayor at the time announced a proposal from a private consortium of Morgan Stanley from Wall Street, a sovereign wealth fund from the Middle East, and a national parking company, LAZ parking, which is basically all over the country. That consortium offered the city $1.1 billion upfront in cash in exchange for control of the city’s 36,000 parking meters for 75 years. It was announced on a Friday and the vote was on Tuesday. Now, just to put in context, 2083 is when that contract ends. So after the fact, it was analyzed and scrutinized and all that. It was a terrible deal, an unbelievably stupid way to borrow on future revenue. Everybody borrows on future revenue, that’s how we buy houses and things, but for 75 years, incredibly stupid. Prices went way up to park.
But here’s the most important thing: that for the life of the contract, if the city wants to do any one of its important jobs—transportation, land use, housing, environment, parks—and they would like to eliminate parking spots, they have to buy them back. So, if you have to buy the spots back at the future value of the spot, fundamentally, you don’t do it in many cases. In fact, there was a professor at one of the universities there that interviewed transit planners within a year or two after the deal, and found that they were unable to complete a plan to create bus rapid transit or dedicated bus lanes. If you want to create bike lanes or pedestrian laws, your hands are tied to deal with the fundamentals. So for me, what that says is that privatization is really an assault on democracy because it gives them legal contractual control over the stuff that should be ours to control. (...)
ROBINSON
Yes, and have a few more decades to go. One of the points that you make in the book is the Indiana toll road case as well, which has parallels. I think people might not think of it this way, but when you sell a public asset and take the check upfront for much less than what the thing is worth over the period of time that you are giving this company or consortium the right to collect revenue, you are essentially transferring wealth, just handing it over from the public sector to the private sector.
I would venture to say most, but I will give a few cases. Let me say how we define privatization. My definition is it’s about private control over public goods. Public goods, in my definition, are the things that we all need to survive, the things that we need everyone to have: health, clean air, transportation, education, all the above.
I’ll give a couple of examples because that’s the best way to get into the real issues, which our book intends to draw a through line into some larger issues that connect all the public sectors. So, parking meters in Chicago—I’ve told this story many, many times, and most people who don’t live in Chicago don’t know about it. Everyone who lives in Chicago does. In 2008, the worst of the recession, cities were bleeding red ink. The mayor at the time announced a proposal from a private consortium of Morgan Stanley from Wall Street, a sovereign wealth fund from the Middle East, and a national parking company, LAZ parking, which is basically all over the country. That consortium offered the city $1.1 billion upfront in cash in exchange for control of the city’s 36,000 parking meters for 75 years. It was announced on a Friday and the vote was on Tuesday. Now, just to put in context, 2083 is when that contract ends. So after the fact, it was analyzed and scrutinized and all that. It was a terrible deal, an unbelievably stupid way to borrow on future revenue. Everybody borrows on future revenue, that’s how we buy houses and things, but for 75 years, incredibly stupid. Prices went way up to park.
But here’s the most important thing: that for the life of the contract, if the city wants to do any one of its important jobs—transportation, land use, housing, environment, parks—and they would like to eliminate parking spots, they have to buy them back. So, if you have to buy the spots back at the future value of the spot, fundamentally, you don’t do it in many cases. In fact, there was a professor at one of the universities there that interviewed transit planners within a year or two after the deal, and found that they were unable to complete a plan to create bus rapid transit or dedicated bus lanes. If you want to create bike lanes or pedestrian laws, your hands are tied to deal with the fundamentals. So for me, what that says is that privatization is really an assault on democracy because it gives them legal contractual control over the stuff that should be ours to control. (...)
ROBINSON
Yes, and have a few more decades to go. One of the points that you make in the book is the Indiana toll road case as well, which has parallels. I think people might not think of it this way, but when you sell a public asset and take the check upfront for much less than what the thing is worth over the period of time that you are giving this company or consortium the right to collect revenue, you are essentially transferring wealth, just handing it over from the public sector to the private sector.
COHEN
Enormous amounts. So, the parking in Chicago needs to be modernized for credit cards and all that, like most cities are doing right now. That may cost some money, so they needed some cash, and they could have borrowed it. The rates to park went way up, I think eight bucks an hour or something like that. So my question would have been to them is: if the private entities think they can make money doing this, why can’t the city? Because the city has great needs—housing needs, climate needs; it has all sorts of municipal needs that would benefit the city. You’re exactly right. It’s pure extraction. (...)
COHEN
Some of them went bankrupt because they made bad choices, but then they’ve just changed the way they do the deals. But here’s what’s interesting about that. There’s going to be a lot of infrastructure money flowing, given the Inflation Reduction Act. There’s a lot of money that we need to build infrastructure. There are two things that are really important to remember: things cost money, and there’s only one place to get that money—us. Taxes, tolls, and fees. That’s it. The reason this is important is that the people who want to privatize, or do these public private partnerships, will often say, “no new taxes, more efficient.” It’s all motherhood and apple pie, but you have to take it back to that basic fact. It costs money, and there’s only one place to get it, and that’s us. So if rates are going to go up more than they need to, then someone else will get that money.
Enormous amounts. So, the parking in Chicago needs to be modernized for credit cards and all that, like most cities are doing right now. That may cost some money, so they needed some cash, and they could have borrowed it. The rates to park went way up, I think eight bucks an hour or something like that. So my question would have been to them is: if the private entities think they can make money doing this, why can’t the city? Because the city has great needs—housing needs, climate needs; it has all sorts of municipal needs that would benefit the city. You’re exactly right. It’s pure extraction. (...)
COHEN
Some of them went bankrupt because they made bad choices, but then they’ve just changed the way they do the deals. But here’s what’s interesting about that. There’s going to be a lot of infrastructure money flowing, given the Inflation Reduction Act. There’s a lot of money that we need to build infrastructure. There are two things that are really important to remember: things cost money, and there’s only one place to get that money—us. Taxes, tolls, and fees. That’s it. The reason this is important is that the people who want to privatize, or do these public private partnerships, will often say, “no new taxes, more efficient.” It’s all motherhood and apple pie, but you have to take it back to that basic fact. It costs money, and there’s only one place to get it, and that’s us. So if rates are going to go up more than they need to, then someone else will get that money.
ROBINSON
Yes, there’s a wonderful story that is told. Perhaps you should give a version of what the pitch for privatization is, because it’s the same in almost every case. It’s this wonderful fantasy about how everyone is going to benefit, and we will get something for nothing.
COHEN
That’s a great question. There are a few pitches, and one is: cheaper, better, faster. The private sector is more efficient, so we can provide public services more cheaply. But let me stop on that one because we deal with this argument all the time. So they say they’re more efficient. Let’s just think about what efficiency is. Efficiency is spending or doing less and getting more—less effort for more. Well, there are two ways to be efficient. One is to do things smarter. We’ve all figured that out in our homes. But the other is to do them cheaper. So when the private sector says, “we’ll do it more efficiently,” they’re going to spend less money on something because, remember, they will take a bunch of money out.
That’s a great question. There are a few pitches, and one is: cheaper, better, faster. The private sector is more efficient, so we can provide public services more cheaply. But let me stop on that one because we deal with this argument all the time. So they say they’re more efficient. Let’s just think about what efficiency is. Efficiency is spending or doing less and getting more—less effort for more. Well, there are two ways to be efficient. One is to do things smarter. We’ve all figured that out in our homes. But the other is to do them cheaper. So when the private sector says, “we’ll do it more efficiently,” they’re going to spend less money on something because, remember, they will take a bunch of money out.
ROBINSON
Yes, they have to make a profit.
Yes, they have to make a profit.
COHEN
They’ll get profit. That goes out, and executive compensation. So, tell us exactly what you’re going to spend less money on because it’s very concrete and very real things: fewer workers, lower pay for workers, poor quality equipment, or less maintenance. It’s very concrete, and that’s absolutely what happens. So, that’s efficiency. Better? If someone’s got a better idea, we could buy that from them. But we don’t have to give it. There may be some private company that has some clever idea about how to do something. Well, let’s just buy it and we all do that. Faster? Not really. They say it all the time, but not really. So, that’s one thing: cheaper, better, faster, and more efficient. The other argument we hear a lot is that the public sector doesn’t have the money. So, they don’t have the money to build the new road. Again, we take that back to what I was saying earlier, but I’ll say it a little differently now. We have to borrow money to build a road, and you borrow money to build to buy a house. Borrowing is actually the easy part because, it turns out, you have to pay it back. And there’s only one place to get that—taxes, tolls, and fees: us. Let’s just break it down to the actual nuts and bolts truth of it. It’s all math. (...)
They’ll get profit. That goes out, and executive compensation. So, tell us exactly what you’re going to spend less money on because it’s very concrete and very real things: fewer workers, lower pay for workers, poor quality equipment, or less maintenance. It’s very concrete, and that’s absolutely what happens. So, that’s efficiency. Better? If someone’s got a better idea, we could buy that from them. But we don’t have to give it. There may be some private company that has some clever idea about how to do something. Well, let’s just buy it and we all do that. Faster? Not really. They say it all the time, but not really. So, that’s one thing: cheaper, better, faster, and more efficient. The other argument we hear a lot is that the public sector doesn’t have the money. So, they don’t have the money to build the new road. Again, we take that back to what I was saying earlier, but I’ll say it a little differently now. We have to borrow money to build a road, and you borrow money to build to buy a house. Borrowing is actually the easy part because, it turns out, you have to pay it back. And there’s only one place to get that—taxes, tolls, and fees: us. Let’s just break it down to the actual nuts and bolts truth of it. It’s all math. (...)
ROBINSON
The private sector may have some good incentives to satisfy consumer demand, but they also have a boatload of bad incentives. The profit motive creates all sorts of reasons why it would be good for you to do things that are socially toxic and harmful.
The private sector may have some good incentives to satisfy consumer demand, but they also have a boatload of bad incentives. The profit motive creates all sorts of reasons why it would be good for you to do things that are socially toxic and harmful.
by Nathan J. Robinson and Donald Cohen, Current Affairs | Read more:
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