More Reasons to Be Leery of Infrastructure Sales: Abuses of Rights for Fun and Profit

Yesterday, we discussed a mundane reason to be leery of the sale of assets owned by the public to private parties: the outcome, almost without exception, is a ripoff. Even if the owners manage to orchestrate the bidding well enough to assure that the entity fetches a decent price, the cost of doing the deal and the investors’ return requirements assure that charges to the public will rise faster than if the property was left in government hands (and this does not preclude the owner scrimping on maintenance and service levels). Macquarie Bank has been the world leader in this business, and reader Crocodile Chuck gave some useful examples:

Ah, the Macquarie model! Clipping the ticket, at each step, and all the way through the route map from public good to ‘privatised entity’.

The Sydney Airport (a Macquarie Airports asset), boasts the second highest parking rates on Earth (not inherited with the operation; they levied this themselves). About $100 for eight hours (I’ve never used it, since it was sold down the river)

Highest: Budapest Ferihegy in Hungary. Owner: Macquarie Airports.

I happen to have flown out of Budapest last summer. The lavish fees most assuredly have not been reinvested in the physical plant; the airport looks dated and worn.

But there are even bigger reasons to worry about public infrastructure sales. It’s one thing when deals on mere income producing services like parking meters go awry. But when the services impinge on public safety or civil rights, far worse abuses can and have taken place.

Reader Deus-DJ pointed to an update on a case that has not gotten the attention in the national media that it warrants. A Pennsylvania judge, Mark Ciavarella, was convicted today for sending children to for-profit juvenile detention centers run by PA Child Care and an affiliate, Western Pennsylvania Child Care, in return for kickbacks. Judge Ciavarella and another judge, Michael Conahan, were reported to have been paid $2.6 million for their role in this scheme. Ciavarella has yet to be sentenced; the maximum prison sentence would be 157 years.

This Democracy Now report describes the flimsy grounds for some of these incarcerations and some of the horrific consequences.

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  1. macstibs

    1. Yet another example of Ferguson forgetting he’s an historian – not a fiscal policy guru.

    2. You mean like when prisons are privatized and then the prison owners lobby for stricter laws against non-violent criminals?

    1. DownSouth

      Nial Ferguson is nothing but a Milton Friedman wannabe. Anybody who doesn’t see Ferguson for the neo-imperialist, neo-liberal true believer that he is has blinders on.

      1. Siggy

        Would it also be fair to simply say that Ferguson is an imperialist and a liberal? Or, just what are neo – liberals and imperialists? Just how does one differentiate them?

        1. DownSouth


          It’s not easy to reconcile the position that Adam Smith took in The Theory of Moral Sentiments with the one he took in The Wealth of Nations. However, the ambiguity was there.

          In neo-liberal, neo-imperial and neo-classical literature the ambiguity has disappeared. And it’s disappeared because moral sentiments, as well as their power to influence human behavior, have been erased from the depth and breadth of human existence.

          1. Siggy

            I still don’t know what the neo-difference is. How does one ascertain that moral sentiments have been erased? Do you not have moral sentiments and often express outrage at what you deem to be reprehensible acts on the part of individuals and governments.

            It’s been a long time but I don’t recall having any difficulty as to the congruence of Moral Sentiments with Wealth of Nations. To my mind, Wealth of Nations seems to flow out of Moral Sentiments.

          2. Yves Smith Post author

            “Invisible hand” was mentioned all of three times in The Wealth of Nations. And that expression in his day was pejorative (look at how “invisible hand” in Macbeth, for instance). So he was signaling ambivalence about the operation that his successors have depicted as virtuous.

  2. Brian Sierk

    Macquarie sunk its teeth into the public utility up here in Seattle a couple years ago. THey now own PSE, through a couple holding companies. We only use them for gas (we have a public electrical utility) but those rates are rising higher than other utilities

    1. psychohistorian

      If and when we take back America I think it would be fun to nationalize all public infrastructure and maybe even sectors like insurance, health care and banking (including the Fed).

      It amazes me to see people believe that the solution to government is less of it rather than insuring that it runs well, evolves as needed and is responsive to the general public rather than one or more subsets of it.

      What ever happened to by the people and for the people part of America?
      Unfortunately, I know the answer from my childhood. In the mid 50’s America sold out to fear and gave corporations the rights of we the people and changed from a staunchly secular republic into a cabal of corporatism and fundianity (the all hat and no cattle christians). The fob to the fundianists was to change the American motto to “In God We Trust”.

      It is good to see that there are some people in the world who have not been cowed by fear and are willing, and in some cases eager, to say no more to despotism and Shock Doctrine tactics like those being used in big 10 US states.

      Here is to hoping the movements grow.

      1. Dennis

        My question is, how do you ensure that public services are relatively efficient? I dont mean to be glib, but whenever I interact with the government I find myself frequently frustrated by inefficiencies and general laziness of the employees.

        I guess the underlying question I have is this: it seems like some countries have well run bureaucracies that are staffed by intelligent, hard working people through all levels. And in those countries “public service” is not a dirty word.

        Yet in many others, including Canada, the public service employees come in two varieties: sort of the mediocre, day to day office drones and the vicious ladder climbers.

        1. attempter

          whenever I interact with the government I find myself frequently frustrated by inefficiencies and general laziness of the employees

          And how is that worse than the inefficiencies and general laziness of the employees at corporations? And at corporations we add the far greater malevolence of rent-seeking.

          I write that not to stick up for government, which I, unlike lying “conservatives”, do in fact want to greatly shrink.

          I write it to point out that by any measure private corporations are far worse than government. And since they’re artificial creations of government, they’re also extensions of government.

          I wish just once somebody would give an honest answer – why is it worse to pay $1 in taxes to government to maintain a public amenity than to alienate that amenity to the quasi-government pseudo-“private” sector and then pay $10 in quasi-taxes to a corporation?

          The only possible answers are support for organized crime and/or totalitarian ideology.

          That goes to the fundamental pathology and/or malevolence of “libertarians” and conservatives (and also corporate liberals).

          1. liberal

            And at corporations we add the far greater malevolence of rent-seeking.

            Precisely. This is all about rent-seeking.

          2. MrDan242

            I guess my problem with government is that it’s truly a monopoly unless you’re willing to uproot everything and move to another one (and with the massive Federal expansion, it seems both parties want to make it so it doesn’t matter where you choose to live you have the same laws, they just differ over what these universal laws should be).
            I know you’ve talked about trouble finding doctors in NYC etc, but nobody is forcing you to use that specialist that seems to make it intentionally difficult to contact. When I have an error on my tax bill or sanitation dept bill, there is no other option. I’m glad you’ve had good experiences with your government interaction and I’ve had some good interactions, but when the interactions are not so smooth, there is little or no credible threat of “taking your business elsewhere” when dealing with government.

            I understand many of the big evil companies will have customers that will continue to patronize them because they haven’t seen the bad or don’t care, but in general there are other options for the informed or conscientious consumers. I generally don’t see this with government.

            Additionally, I guess the big problem with companies is rent seeking stealing from the taxpayer and giving to companies, via processes like farm subsidies or restricted competition via licenses etc. Almost everything the mortgage industrial complex has done was with the wink of a government overseer which could have stopped or limited their actions, but they know who to take to lunch or when to make the required “donation”. I think we’ve seen that both parties are more than happy to comply with their rent seeking donors, so short of reducing size/scope/power of government, how do you propose to eliminate the rent seeking? Granted, you could say the reducing size/scope/power of government is a pipe dream, but I think it’s more realistic than hoping that we get some honest politicians on the national stage.

          3. DownSouth

            MrDan242 asks: “…so short of reducing size/scope/power of government, how do you propose to eliminate the rent seeking?”

            Market players have two ways to pervert markets. One is by manipulating intra-market structures. Perhaps the best examples of this are the numerous instances where market players have wielded a preponderance of economic power to create monopolies. The second way markets are perverted is through government intervention. Here the market players use their disproportionate political power to get lawmakers and regulators to award monopolies, market share, or subsidies.

            There are two solutions that have been tried in an effort to ameliorate these problems. One is the solution you propose, which is less government. As the results of the last 30 years, as well as the Gilded Age and the Roaring Twenties, have shown, this “solution” invariably results in economic and political meltdown.

            The other solution, and one that has achieved much better results, is to reduce economic concentration and/or interventionist power. This includes trust busting and laws and regulation that prevent monopolies. It also includes reducing the ability of economic actors to generate political power. For example, public financing of election campaigns (which prohibit the use of private funds) reduces the obligations of elected officials to economic private powers. A similar effect is achieved when the amount of money one can spend legally on election campaigns is strictly limited.

            The less obvious connection is that both antitrust policies (to curb concentration of economic power), and various reforms to reduce the interventionist power of powerful economic actors, are themselves political acts. Hence, to the extent that the concentration of interventionist power is high, it tends to prevent both kinds of reforms from being carried out.

            The only corrective to this is therefore the rise of a new political power. This can manifest itself in, for instance, the political forces that coalesced to bring about the New Deal, or in more drastic measures, such as what we just saw happen in Egypt.

          4. william

            @MrDan242 February 23, 2011 at 8:48 am
            “I guess my problem with government is that it’s truly a monopoly unless you’re willing to uproot everything and move to another one”

            Have you ever tried voting – like in an election? That seems to be a very good and dependable way to change the government, and the legislature.

            Wait you’re not confusing the government with the state are you?

            And by the way, is driving across the Canada or Mexico boarder really such a chore? There isn’t an iron curtain you know, you wont be shot for trying to leave the country. Millions leave every year and start lives elsewhere. I mean if you’re not even willing to put that much effort in, I kinda doubt that you’re really feeling that terribly oppressed.

            I mean the number of people I hear saying things like: “this country is a tyranny! I’m a slave! But I cant leave because I just made a down payment on a jacuzzi, and Mexican food gives me heart burn … and you can’t get my favourite cable show in Canada.” It’s hardly a touching cry for freedom is it?

        2. Yves Smith Post author

          I find New York State and city employees to be on the whole more efficient than private sector employees. The drivers license bureau is decent, the 311 service is really good, the cops are pleasant and expeditious when I’ve had to file police reports. When I thought I had though I had left something VERY valuable in a cab (and had my taxi receipt with the cab hack number), one police officer broke the rules and gave me the driver’s home number. I got his wife, she called him, the next passenger had given my lost article to the driver. I had it back in a half hour and gave him a big tip for the trouble. The NYS insurance department turned around a query of mine in 24 hours. It also has an efficient process for external appeal on NYS health plans, that’s very well run as well.

          When I’ve gotten tax notices I thought were wrong, I could call a number, get a live person, and get a quick and clear answer on how to get it fixed. I’ve had staff at the NYS tax office take faxes with info and call me back to confirm receipt and tell me they’d corrected the database (which is above and beyond sending out the written notice which is standard operating procedure). I don’t get that level of service from my bank (except when I used to bank at a bona fide private bank). The NYS housing hot line is also great.

          Tell me how many prompts you have to go through when dealing with any large company, say an airline, your bank, a software company? You forget how much time you waste that works solely to the benefit of their bottom line. There’s little to none of that in the government offices I’ve dealt with in New York. And how about doctors and dentists offices? They are often badly managed, with long waits and poor service standards (in NYC, it’s common for doctors not to allow routine messages, like an cancellation of an appointment or a request for a copy of test results, to be left on their voicemail; I have one specialist whose busy office has only one line, forcing patients to call again and again merely to get through to her staff, and she also has no after hours voicemail). I suspect you don’t include them as an example of private sector inefficiency (let alone the health care complex cost!) but they are businesses too. And what about all the time one has to spend getting some health claims paid?

          You are clearly looking to find fault. Do you get annoyed with slow checkout lines or stores where the service staff are nowhere to be found or not very good? You pay for them too, in the price of your goods. But it seems you give them a free pass because that cost is hidden.

          Some government offices are admittedly horrid, like immigration services (but guess what, their clientele does not vote!). And the NYC building department was (and maybe still is) a tad corrupt, you needed to pay an expediter to get a building permit in a reasonable time frame. But what about mortgage servicers, or more accurately, what I call the mortgage industrial complex? They’ve done FAR more damage to the US than any governmental body I can think of.

          And in Australia, the bureaucracies are efficient, so to the extent you are right, it is not inherent to government but due to America having spent 30 years breeding government to be less capable. Per John Hempton by e-mail:

          In America the Republican approach is to promise you less government – not to deliver it though – just to promise it.

          In Australia both sides compete by promising better government… they do not compete on size – but on quality.

          State governments are distinctly less competent than the feds – and locals even more so. But let’s be blunt – the State Governments are pretty good by world standards.

          The Federal Government is also surprisingly competent by world standards. The amount that they have extracted from health care costs is astounding. Result – the US System spends twice Australia as a proportion of GDP for unambiguously worse results.

          1. Anonymous Jones

            This is so obvious a point that the only people who do not accept it are predisposed to ignore all the facts in favor of some libertarian fairy tale they were told as children.

            In my businesses, there is little doubt in my mind that the private sector employees I deal with are more incompetent and more indifferent than the public sector employees I encounter. I mean, the incompetence I have experienced with private software consultants and private telephone system consultants is absolutely staggering. I don’t use that word lightly. Truly staggering.

            And beyond that, as much as it has cost me a lot of money this month, I am glad the extremely diligent and competent city electrical inspector is looking over the vast incompetence of my electrician. Yes, it’s a pain to get it right, but it’s better than having 50 people die in a fire caused by the restaurant’s faulty wiring.

          2. Cedric Regula

            I can add that even tho the DMV has somehow become standard fair for comedians, at ours here the counter people move at the same speed as the checkout people at Walmart. There is a line of course, but they do have a website where you can request an appointment. If you are on time there is no line. They also allow electronic bill pay for annual registration same way I make a Visa card payment from my internet bank, so I can skip going there altogether.

            So my DMV compares favorably to Wal-Mart, an internet bank and Visa.

            Now my library is really cool and I hope no one ever messes with that.

            As far as doctors and dentists, I just hope I don’t need the doctor and I drive to Mexico for the dentist.

        3. Toby

          Our car was stolen in October last year, but the insurance company (Allianz) didn’t pay out until the end of January, having taken out the yearly insurance payment from our account for the stolen car that same month, 10 weeks after we had reported it stolen, and then tried to blame that error on us. We had to call multiple times just to find out who was dealing with our case, and had to wait 7 weeks to get the forms to fill out (not available on the internet). In short, they went out of their way to delay payment for as long as possible.

          On the other hand the government body repaid us our road tax within a fortnight, and the police were far more efficient, at least in terms of processing our case — they did not find the car of course. Miles apart in terms of efficiency and service. Right here in socialist Germany.

        4. Kelly

          Im a healthcare provider and I will say the private insurance companies are far worse than any government agency, although I have never dealt with Medicare. Since I am not a preferred provider (I refuse to take 20% less just to get my money a week earlier) once I submit a claim, the insurance company sends it to another company which will try to negotiate a reduce rate for my services. (Usually they’ll ‘offer’ a 30% cut in my rate.) After I say no, they send it back to the insurance company who then cuts the check. Now this is what happens if everything goes correctly. If a claim is not processed right it usually takes 30 minutes on the phone with a low paid CSA who has been trained to Just Say No. (Thanks Nancy)

          I would take a reduce rate if I knew that money was going back to the patient in lower premiums or that it wasn’t going to a shareholder or CEO.

    2. nonclassical

      I called Derek Kilmer personally (old friend-State Senator)
      when the PSE sell-out went through after 1.3 year phoney public dialogue..Derek told me all state legislators were frozen out of process by Bushitters-who sent 5 man consortium from D.C. to do “study” about privatization. Derek said legislators were warned not to get involved in any way-vote was always going to be 3-2…

      Bushitters repealed Public Utility Holding Company Act of 1930’s..more of their cronyism=deregulatory fundamentalism..

      Privatize ALL government functions…which creates Italian corporate fascism.

  3. MyLessThanPrimeBeef

    Perhaps it’s OK to sell naming rights to public properties, like stadiums.

    I really think it’s a good idea and a gold mine.

    Mabye they can sell the naming rights to the White House to Goldman Sacks for 1 trillion dollars or some appropriate amount. That would solve a lot of problems…for a while.

  4. Max424

    By rooting out — and convicting! — two mid-level apparatchiks in the Organized Privatization Syndicate, it seems to me we have managed to nick off a tiny blemish at the very tip of the evil “America Last” iceberg.*

    I say, good for us! And; well done, USA! Keep chipping away! Only several hundred thousand more nicks to go!

    * Or the: “America Can Go F+ck Itself, I’m Gonna Get Mine” iceberg — whichever you prefer.

  5. DownSouth

    Criminal justice has morphed into one big racket to pick the taxpayer’s pocket. The police, the prosecutors, the judges, the prison system, it’s all one big for-profit industry.

    Serving and protecting? Forget it. At best it’s about furthering the institutional interests of the various governmental entities involved. At worst it’s about funneling taxpayer dollars to private, for-profit prisons. The neoliberals figured out how to make criminal justice a profitable enterprise, and as a result there has been a six-fold increase in incarceration over the past 3 decades, and the crime rates can’t explain even a miniscule part of this. It’s all about money and power. And the victims of this elaborate scam come in two colors: those who are unjustly incarcerated (mostly poor, racial and ethnic minorities), and the taxpayers (mostly middle-class whites) who foot the bill.

    So what have we gotten for all the human and economic carnage? As it turns out, damned little. This report from Defending Justice explains:

    The United States recently became the country with the most people incarcerated and the highest incarceration rate of any nation in the world. This high level of incarceration does not stem from abnormally high crime rates, but is instead linked more strongly to our nation’s sentencing practices and drug policies, both of which have been developed to be “tough on crime.” This “tougher” and harsher stance is not as effective as approaches other nations use, which focus more on crime prevention and rehabilitation.

    Crime rates in the U.S. are about the same as in other Western countries, as revealed in this report. So the “tough on crime” policies, and the massive costs involved, pay few dividends.

    There was a time when Americans had a modicum of common sense. They could see through scams like this. Take the con man Harold’s lyrics from the 1962 musical comedy The Music Man for instance:

    Well, either you’re closing your eyes
    To a situation you do now wish to acknowledge
    Or you are not aware of the caliber of disaster indicated
    By the presence of a pool table in your community.
    Ya got trouble, my friend, right here,
    I say, trouble right here in River City.
    The first big step on the road
    To the depths of deg-ra-Day–
    I say, first, medicinal wine from a teaspoon,
    Then beer from a bottle.
    An’ the next thing ya know,
    Your son is playin’ for money
    In a pinch-back suit.
    And list’nin to some big out-a-town Jasper
    Hearin’ him tell about horse-race gamblin’.
    Not a wholesome trottin’ race, no!
    But a race where they set down right on the horse!
    Like to see some stuck-up jockey’boy
    Sittin’ on Dan Patch? Make your blood boil?
    Well, I should say.

    But then in 1980 the people of the United States decided to go on an extended mental holiday. And it’s been downhill ever since.

    Privitization and “tough on crime.” What a toxic mix Reagan ushered in. Of course if it weren’t for the privitization of the prisons, the blitz of “tough on crime” propaganda would have never happened.

  6. Richard

    It is interesting that ‘not-for profits’ are left out of the discussion. Technically, they too are something that could be sold.

    If the US is going to go down this path, it should start with Harvard. Clearly, it is not a well run organization as witnessed by the breathtaking meltdown of its endowment in the recent financial crisis, its need to keep increasing tuition at more than the rate of inflation, its hiring professors who do not think through the consequences of what they are advocating, …

    Can you imagine how much Harvard would fetch?

    Just joking, but….

  7. Mickey Marzick in Akron, Ohio

    The fundamental assumption underlying “privatization” is that the private sector is inherently more efficient than the public sector. This belief is so ingrained in Americans that it is rarely challenged or subjected to intense scrutiny.

    What is meant by “efficiency” is also rarely examined. Least amount of input for maximum amount of output is deficient when “externalities” are factored into the equation. Is the ability of a company to raise prices because it has a virtual monopoly on a given good/commodity – parking [limited space at an airport], for example – EFFICIENT if there is no other competitor against which to measure/evaluate this service? There may be “competitive bidding” at the outset but as time wears on the winning bidder tends to lock out all other competitors and erect barriers to entry that deter new entrants/competitors. Is this the result/fault of government or simply the result of more efficient business practices?

    The size of an organization – small versus large – also has to be considered. To assume that the large global bureaucracies required to run a transnational corporation are inherently more efficient than that of a comparable government bureaucracy requires examination. BP’s approach to safety, subcontracting, etc, as opposed to the practices of STATOIL and/or PETROBRAS might suggest a completely different story.

    Merely because an “order” comes down from the top doesn’t mean that its ultimate implementation is what was intended at the outset. This dilution of authority is inherent to any organization and increases with size. One might be able to “manage” an organization with a spreadsheet, but running it on a day-to-day basis with that spreadsheet and for how long remains to be seen. The tendency for a department to be created and then exist long after its original purpose/goal has been achieved or superseded is not confined to government bureaucracies. Sunset laws and zero-based budgeting could be introduced into many a large corporation becasue of goal displacement and the “resistance” would be fierce!

    Likewise, the tasks of government and those of business are different in spite of what adherents of privatization – running government as a business – would suggest. Are crucial safety services like police and fire to be allocated on the basis of ability to pay? “911 is a joke” implies that this is the case in poorer neighborhoods more than it is elsewhere. Much like funding schools with property taxes. Is it any wonder why students in wealthier districts tend to go on to university more than their peers in poorer districts.… Quelle surprise! It’s a self-fulfilling prophecy and has become institutionalized in this country and not necessarily because these students in the former are inherently more intelligent. But it’s automatically assumed that a “private education” is better than one received at a public institution. For what is the question?

    “Privatization” has been sold to the American public as a panacea without any serious consideration of the fundamental premises underlying it. Of course, less government and deregulation were sold as well and the results have been “mixed” depending on where one sits in the audience. But we clamor for more of the same… WHY?

    1. DownSouth


      I’m not sure the efficiency argument is the one that resonates most with the public. Perhaps the more salient argument is the one articulated by Milton Friedman in his book Capitalism and Freedom. As Greg Grandin explains in The Road from Serfdom:

      More than his monetarist theorems, this equation of “capitalism and freedom” was his greatest contribution to the rehabilitation of conservatism in the 1970s. Where pre-New Deal conservatives positioned themselves in defense of social hierarchy, privilege, and order, post-WWII conservatives instead celebrated the free market as a venue of creativity and liberty. Such a formulation today stands at the heart of the conservative movement, having been accepted as commonsense by mainline politicians and opinion makers. It is likewise enshrined in Bush’s National Security Strategy, which mentions “economic freedom” more than twice as many times as it does “political freedom.”

      Friedman was a master purveyor of impartial truths and gross simplifications. In The Moral Dimension Amitai Etzioni describes the analysis that is necessary to get past Friedman’s half-truths and distortions:

      To develop a workable conception of competition, one must move beyond the conceptual opposition between “free competition” and “government intervention,” which implies that all interventions are by a government, that all interventions are injurious, and that unshackled competition can be sustainable. Dichotomies are the curse of intellectual and scholarly discourse. Typical is the notion that competition is “voluntary” and hence “good” (disregarding that most exchanges occur among non-equals in economic and social, and political power, hence are partially coerced), and that government is “coercive” and hence “bad” (disregarding that the government is often persuasive or uses economic incentives rather than force and that the capsule is only partially governmental). Competition, like rationality, ought to be treated as a differentiating concept; the question is what levels of competition (especially as measured by the scope of activities it encompasses) are efficient, and in line with one’s values.

      Friedman’s defactualized world is part and parcel of neoclassical economic dogma. Here’s Etzioni again:

      [T]he neoclassical literature on the subject focuses almost exclusively on intra-economic, and not on political, means for gaining monopolistic profits. In short, to understand the transactions within the economy one must understand its inner political structure—-the power that various economic actors have over one another because they are able, more effectively than other actors, to mobilize the government to help them in their intramarket relations with others.


      In the neoclassical paradigm there is no room for the concept of power. Says Stigler (1968, p. 181): “The essence of perfect competition is…the utter dispersion of power.” He adds that power is “annihilated…just as a gallon of water is effectively annihilated if it is spread over a thousand acres.”

      I think Hannah Arendt hits upon another gaping hole in classical economic theory, and that is that it does not recognize the power of necessity—-the necessity for food, shelter and clothing—-as a motivating force of human behavior. Here’s how she put it in On Revolution:

      Poverty is more than deprivation, it is a state of constant want and acute misery whose ignominy consists in its dehumanizing force; poverty is abject because it puts men under the absolute dictate of their bodies, that is, under the absolute dictate of necessity as all men know it from their most intimate experience…


      For the liberation of the labourers in the initial stages of the Industrial Revolution was indeed to some extent contradictory: it had liberated them from their masters only to put them under a stronger taskmaster, their daily needs and wants, the force, in other words with which necessity drives and compels men and which is more compelling than violence.

      The U.S. criminal justice system and Friedman and Hayek’s trek down to Chile to throw their unbridled support behind the murdering dictatorship of Augusto Pinochet serve as showcases for just how morally and intellectually the “capitalism and freedom” formulation is. Unbridled capitalism a la Hayek and Friedman is a formula for authoritarian police states, not for freedom.

      1. Mickey Marzick in Akron, Ohio


        I don’t necessarily disagree with you but how one views “capitalism and freedom” may be dependent on one’s age, generation, region, and education. As a child growing up in NE Ohio during the 1950s, capitalism tempered by strong industrial unions was part and parcel of freedom – from fear and want! And government was viewed much more positively. But this was after the sit down strikes and goon violence had largely ceased. I suspect that when the government was seen as in bed allied with capital that “Capitalism and freedom” had a much different meaning to factory workers in Akron or Detroit or Pittsburgh or coal miners in West Virginia and Pennsylvania. Their everyday experience would have found Friedman’s fairy tale a bit of a hoot…

        My grandfather, who started working in the coal mines of PA at age 13, never saw “capitalism and freedom” as identical twins. He would tell us of how during strikes, miners would be evicted, etc – if not worse. That life in a coal company town did not mean freedom to him… It was brute force against brute force.

        My father and his peers may have subscribed to the “capitalism and freedom” picture you describe because they had begun to enjoy some of the fruits of their labor. But government intervention was not a dirty word to either my grandfather or father. The former used to rant about strip mining way before government did anything about it. Allowing the coal companies to despoil the land was capitalism but had little to do with freedom.

        When seen from my grandfather’s hirotical perspective, this “capitalism and freedom” view is more postwar and has to be seen within the context of the Cold War. For Communism/Socialism were juxtaposed as the antithesis of both capitalism and freedom. It was either or – a bipolar world. And this perhaps is what gave rise to the view that government intervention is “creeping socialism” and by extension, an infringement on freedom – political and economic. And there was simply no debate that capitalism was more efficient than communism. But the rationale for capitalism was predicated on the assumption that the efficient allocation of scarce resources is maximized and the resultant material abundance/production results in freedom from want – the ultimate proof of the pudding, right? But in return for the latter, other more “esoteric” freedoms might have to be sacrificed. [Maslow’s hierarchy of needs comes to mind…]

        If one asked persons who worked on the construction of Hoover Dam or the TVA, I suspect their perceptions of government would differ from Milton Friedman’s simplistic “capitalism and freedom” formulation as well. Most Americans have been brainwashed into believing that “capitalism” is good and guvmint’ is bad. And the dumbing down and antigovernment/deregulatory drift of the past 40 years has made this view sacrosanct as the 11th Commandment! The financial crisis/meltdown is the guvmint’s fault and more of the latter threatens both “capitalism and freedom” because it so inefficient…

        1. DownSouth

          Mickey Marzick in Akron, Ohio said: “But the rationale for capitalism was predicated on the assumption that the efficient allocation of scarce resources is maximized and the resultant material abundance/production results in freedom from want – the ultimate proof of the pudding, right?”

          I think that capitalism takes a lot of credit where credit isn’t due.

          The theologian Reinhold Niebuhr, in The Irony of American History makes this observation:

          We have forgotten to what degree the wealth of our natural resources and the fortuitous circumstances that we conquered a continent just when the advancement of technics made it possible to organize that continent into a single political and economic unit, lay at the foundation of our prosperity.

          Hannah Arendt comes to a similar conclusion in On Revoluton:

          Wealth and economic well-being, we have asserted, are the fruits of freedom, while we should have been the first to know that this kind of ‘happiness’ was the blessing of America prior to the Revolution, and that its cause was natural abundance under ‘mild government’, and neither political freedom nor the unchained, unbridled ‘private initiative’ of capitalism, which in the absence of natural wealth has led everywhere to unhappiness and mass poverty.

          I think the only explanation as to why the “capitalism and freedom” fiction has persisted is that it serves the constellation of neo-liberal, neo-conservative, and neo-imperialist interests.

    2. Tao Jonesing


      We need to distinguish between the sale of public assets and the outsourcing of public services to private firms.

      The sale of public assets has nothing to do with efficiency, it has to do with raising cash. The problem is that many public assets (e.g., utilities, airports and public transportation) are natural monopolies that are actually more efficient economically in the hands of the public sector, which is not motivated by profit. When you privatize natural monopolies, you get rent-seeking, and prices rise as the new owner lards on new fees because it can and the public has nowhere else to go.

      The outsourcing of public services to private firms can be problematic, but not always and usually not in the same way. This goes back to your question of what is efficiency? When a state or local government outsources its public services to a nominally more efficient private firm located in another state, you have greatly diminished the economic efficiency of those state and local tax dollars spent because they no longer circulate in the state and local economy, which means they’re not subject to state and local taxes. The most economically efficient use of state and local tax dollars is in employing (directly or indirectly) state and local residents, who tend to spend most of their money locally.

      1. nonclassical

        The PROBLEM with sale of public utiities, etc, is that it was bought and paid for by the same “public” taxpayers who will now be reaped..

        South American history + read “C.A.F.T.A.” fyi..

  8. charlie

    I’m all for efficiency. And yes, as an American I do default to a “private” is better than “public” model.

    However, let’s not focus on workers for a second but management. Most public sector management types are beyond incompetent. They couldn’t make it in a private MBA program (which isn’t much of a bar) and probably couldn’t manage your local McDonalds. I’m talking transit, hospitals, airports, etc.

    I’d posit that is it management that is more of a problem with provision of pubic goods than the workers. Private management? Well, GM wasn’t too hot either.

    Another default position is monopoly. Far too often it is better to look at this from anti-trust than frame it as public/private.

    What I which Yves would talk about more is the finance deals for these infrastructure sales. Why is it a good idea for MS to issue 100 years bonds to chicago parking, or 40 year bonds, while it isn’t a good idea for a public entity to do the same?

    Transurban, another Oz company, has found a new US speciality: getting infrastructure deals with public money. Look at the 495 beltway. Guess who joined their board: Rodney Slater. And look at where Mary Peters goes.

    Two final points:

    1. Woud it make sense to fund a cadre of top-notch civil servants in the US that run public institutions? I’m not saying federal — I’m saying these folks could run local, state and federal institutions and even be assigned out to non-profits.

    2. Much of the financing is directly related to LEVELS of government. Take Chicago, where you probably have 200+ government entities issuing debt on a regular basis.

    1. liberal

      Far too often it is better to look at this from anti-trust than frame it as public/private.

      Many of the things provided are more or less natural monopolies. Like airports and major roads.

      Thus, they generate economic rent. It’s fine if a private sector company manages the asset, only if government retains the rent.

      Re public sector employees, my experience dealing with them at work is that the best solution would be to drastically increase both their pay, and what’s expected of them. There are support staff where I work where one person paid twice as much could replace five of them. The support staff where my wife works (both Federal installations) are equally bad, also at low salaries.

    2. attempter

      as an American I do default to a “private” is better than “public” model.

      That’s a non-sequitur.

      What’s your historical rationale for that default?

      The American Revolution was among other things anti-corporate and anti-monopoly, while it’s clear that the Constitution itself intended for the model to be public or private, depending on what best contributed to the general welfare. The Constitution obviously also intended for corporations to remain severely constrained.

      So it’s historically false to say Americanism necessarily prefers private over public models, and one shouldn’t repeat that later-conceived ideological lie.

    3. DownSouth

      charlie asks: “Would it make sense to fund a cadre of top-notch civil servants in the US that run public institutions?”

      The short answer: No!

      This is the sort of utopian, elitist solution put forth first by W.E.B. Du Bois and later by Paul Samuelson. As Cornel West wrote in Race Matters:

      The Enlightenment worldview held by Du Bois is ultimately inadequate, and, in many ways, antiquated, for our time. The tragic plight and absurd predicament of Africans here and abroad requires a more profound interpretation of the human condition — one that goes beyond the false dichotomies of expert knowledge vs. mass ignorance, individual autonomy vs. dogmatic authority, and self-mastery vs. intolerant tradition.

      West goes on to conclude that without what he called “the correction from below,” there is no hope for the underclasses.

      1. Tao Jonesing

        “The short answer: No!”

        My sentiments exactly.

        The technocracy has proven to be a failure. Experts are just as prone to human frailty as anybody else, and vesting more discretion in non-elected experts makes it that much more likely that we’ll have no say in what they do, even if what they do is absurd on its face.

  9. Kate Sweat

    Funny you should mention infrastructure giveaways… buried in the Wisconsin buget bill, Section 16.896 allows No-Bid sale or operation contracts for state-owned heating, cooling and power plants

    Koch Industries is interested.

    Koch was a major contributor to Walker’s campaign, most notably by buying tv ads (thanks, Citizens United!). They opened a branch office in Madison 2 weeks before the election.

    PS thank you bery much for the post comparing public/private sector compensation.

  10. steelhead23

    I cannot overemphasize my concern about this issue. This privatization craze brings to mind Naomi Klein’s Shock Doctrine in which she details a neoliberal enslavement of the world, primarily the second and third worlds, through debt peonage. Now, it has come to the major economies of the globe. Deficit projections are not to be solved with new revenues, but by cutting services and selling infrastructure. I suppose Enron is not a big enough bugaboo to clearly demonstrate that profit maximization and public good are not subsets of one another. From where I sit, there is no overlap whatsoever.

    There is a related question I have asked on other blogs. What public assets are secure from creditors? That is, we all know that a number of states and municipalities are in danger of default on their debts. Are the public assets held by those states and municipalities accessible to creditors? Does anyone out there know? I much prefer getting my water from my local special district than from some foreign firm wishing to maximize its profits. (pardon my repeat of this query from yesterday – I really wish someone would answer).

    1. nonclassical

      “Steelhead 23 is accurate-Naomi Kleind=disaster capitalism=
      South American exploitation + political assassination..

    1. nonclassical

      “What could be wrong with burning the furniture for heat”=”Too bourgeoisie”=”MAX”, with John Cusack as “MAX”..

  11. KnotRP

    Infrastructure Sales aka Burning the Furniture.
    What could possibly be wrong with burning the
    furniture for heat?

  12. Sherparick

    I belive that one of the most undereported stories of the last ten years is how Corporate America has seen “privatization” of Government functions as huge moneymaker.

    This is Rick Scott’s whole raison d’etre for his run for office in Florida, to make himself and his friends even richer by privatizing almost all state functions.

    Meanwhile, apparently Governor Walker made some very revealing statements to someone he thought was David Koch, but who was not said Koch.

  13. sherparick

    I think the first thing to say about Niall Ferguson’s little article is that it contains the remarkable lie that the U.S. Government is “…Now, in the midst of the biggest crisis of American public finance since the Civil War, they simply collapse.” This statement simply does not make sense when people are practically giving the money to the Treasury interest free short term, and the long term rates are still near their lows, interest rates not seen since the Great Depression.

    Meanwhile, Ferguson’s heroes, the Cameron/Osborne Government is sending the U.K. into a double dip recession. So despite Ferguson’s snide comments, Krugman and the Keysians have been proven right. See also Dean Baker’s columan in today’s Guardian.

  14. Dave of Maryland

    I’m surprised there hasn’t been more historical analysis.

    Maggie Thatcher sold vast swathes of UK in the 1980’s.

    One of the underlying reasons behind Fidel Castro’s revolt was that in 1959 Cuban electric prices were the highest in the world.

    Over in Iceland, the final gasp of the ancien regime was to sell off their geo-thermal power plants. This not three years ago.

    And we all remember how false propaganda caused many states to sell off their state-owned electric power generation plants (in hopes of cheaper electricity!) not a dozen years ago. Enron, anyone?

    Here in Maryland, two or three years ago the day came when electric rates virtually doubled. They had been stable for ten years, dating back to when the state gave away its power plants. Yet still the lines blow down with every passing windstorm. There are no plans to bury cable, which has been blowing in the breeze, one way or another, for more than a century.

  15. eyesoars

    ISTR water riots in Bolivia in 2000 after the country’s water supplies were privatized. Didn’t make the news much up here in the U.S.

    Then there was Enron’s rent-seeking in California and elsewhere after Bush I deregulated the utilities as his last act in office.

    And weren’t there were some shenanigans in Ohio a while back, where the governor resisted pressure to privatize utilities and found himself put on the street by the monied interests?

    1. Cedric Regula

      There seems to be some misunderstanding here what Enron was about. Someone basically had a good idea and handed it to a bunch of crooks to implement, and voila, the crooks figured out how to do something bad with it.

      The basic idea was to create a traded electricity market so private sector utilities (or public, if we still got any) that had excess supply, short term or otherwise, could sell it to the utilities that may need it.

      This is efficient use of existing capacity, but at least as important it makes planning new capacity much easier. Since takes 6 years or so to go from planning to being on line, utilities had to forecast demand that far out. Difficult and inaccurate. Then the new power comes in big chunks, a typical plant is 550MW and usually at least two are built on a new site. And they cost billions. So if power can be sold outside the local grid, the transition of bringing new power on line is eased from a financial standpoint.

      And the efficiencies may be realized by the consumer, because maybe the rate regulators won’t passed thru the cost of a brand new 1GW chunk of power being billed at half output.

  16. steelhead23

    It is my fervent hope that Judge Mark Ciavarella and Judge Michael Conahan receive an appropriate sentence and appropriate treatment while incarcerated. It is my understanding that child abusers receive “special attention” from inmates in the slam. May the inmates show them every courtesy, many, many times.

  17. Moopheus

    One of the main concerns I have about privatization is about access and protection of rights. A public road is available to all, but a private road might not be. I think that some people just hate the idea that there is public anything–roads, schools, records–not because of cost or efficiency but because at a deeper level it threatens their privilege. A public record means accountability (see MERS). A public school means opportunity for the proles. A public space means a place where you can say what you want, where your constitutional rights will be most strongly enforced. It’s part and parcel with the efforts to weaken labor and regulation, the stagnation of wages and reduction of social mobility, to eliminate the inheritance tax, and all of that–restore a permanent aristocracy where the oligarchs are above the law, and the res of us get squat.

  18. hanrahan

    Thirty years ago there were plenty of ordinary Australians who would tell you how much better government services would be if they were sold off to the “efficient” private sector. The classic example given was Americans don’t even pay for local calls (failing to mention that a local area in Australia was an entire city or half a state, while a local area for American telcoms was often a few square miles)

    You’d be hard pressed today to find anyone, without a vested interest, extolling the virtues of privatization. We’ve had thirty years of ripoffs and crumbling infrastructure. But governments still use it as a quick fix. Firstly to plug budget holes and secondly to shut up the whingers.

    Nowadays privatization is used as a subtle threat. Don’t like the service you’re getting from Government? No worries mate, we’ll sell it off to the private sector, I’m sure you’ll appreciate how much more efficient they are at extracting profits. If you don’t like it you can always buy up 10% of the shares to get a vote on the matter.

  19. Dennis

    Just FYI good posters; Hani75 is a spam bot. One of the more sophisticated variety that creates a relatively on message but ambiguous post and then a link to a malware site.

  20. Yves Smith Post author

    Yes, I’m on the case. I’ve actually seen a LOT of this type and delete them. This one put the link in the text but others use the same type of message and use the URL part to link whore. I’d love to find a way to eliminate that feature in WordPress, it is of no use to me and of value to the spammers.

  21. Guy2k

    Yves, keep an eye on wisconsin. The governor is trying to get the law changed to allow him to sell state-owned power plants without competitive bidding and to prevenent any legal challenges by defining any such sale as in the public interest.

Comments are closed.