Matt Stoller, the former senior policy aide to Alan Grayson, wrote an op ed for Politico, “Public pays price for privatization,” on infrastructure transactions. We’ve depicted this troubling trend as “tantamount to selling the family china only to have to rent it back in order to eat dinner.”
Stoller looks at the political consensus that in an earlier era was gung ho to build major public assets and now would rather rip fees from them by hocking them to investors:
America used to be a country that built things — using public and private resources. Great works of infrastructure provided jobs and returned an incredible social investment. It is inconceivable to imagine the modern economy without the vast investments in infrastructure made by preceding generations — everything from rural electrification to developing the Internet.
So why aren’t we building more of it? One way to think about the question is: Why did we build infrastructure in the first place?…
After all, building infrastructure implies the ability to build things here and being able to use the power of taxation to finance them. Privatizing infrastructure requires the ability to securitize revenue flows. Which one do you think modern America does better?….
The political coalition today augurs for far different policies — despite what the politicians may say. The New Deal coalition melted in the 1970s, the political scholar Tom Ferguson points out, as international competitiveness and environmental costs drove the logic of cost reductions into our political order. Today, we are still living in the Ronald Reagan-Paul Volcker era of low taxes, low regulations, low pay, low spending and high finance.
Today’s intellectual consensus thus fiercely opposes public infrastructure. For example, while it’s always nice to talk about repairing bridges, in 2009, Rep. Peter DeFazio (D-Ore.) pointed out the truth of the Obama administration’s stimulus program: “Larry Summers hates infrastructure. And some of these other economists — they don’t like infrastructure. … They want to have a consumer-driven recovery.”
Both domestic manufacturing and taxation are opposed by the current corporate and political elites. Take the liberal establishment economist Alan Blinder, who horrified former Intel chief Andy Grove when he celebrated as “success” the fact that America today cannot make televisions. Or Michael Boskin, an economic adviser to President Reagan, saying potato chips, microchips, what’s the difference?…
Are these good deals? History would say no. The granddaddies of privatization were Fannie Mae and Freddie Mac, the housing giants whose public role was supporting the secondary mortgage markets. These companies were “private” in the sense that they operated without public accountability. But eventually, their losses ended up on the public’s balance sheet…
In fact, the real allure of privatization is that it offers what looks like a free lunch. The public receives revenue, but privatization keeps the costs hidden by deferring them to the future. Political actors get to close deficits without raising taxes on wealthy interests. And the political muscle is provided by the people who ultimately benefit from the deal — the same way that Countrywide, Fannie Mae and allied private bankers brutalized their political critics in the name of homeownership….
Ultimately, of course, we will have no choice but to rebuild our infrastructure or risk social collapse. It’s not just the disintegrating bridges and extreme weather. Recent global supply chain disruptions suggest that certain parts of corporate America may turn toward a pro-infrastructure posture out of self-interest.
Meanwhile, the ideological fight is not over whether to spend more on infrastructure. It’s whether we should privatize what’s left.
Pointing out that Public Enemy Number One of the Republicans, the Democratic pork machines known as Fannie and Freddie, were privatizations, seems to have put conservatives who would normally tout the sale of public assets on tilt. Stoller posted at New Deal 2.0 on the reaction of the Cato Institute to his piece:
In a recent op-ed for Politico, Roosevelt Institute Fellow Matt Stoller argued that privatizing public assets leads to poorer service at a higher price. Below, he responds to a libertarian critique of that piece.
Cato’s Roger Pilon, who according to his bio held “five senior posts in the Reagan administration,” responded to my piece on infrastructure with an interesting sentiment: agreement.
Stoller does go on to criticize much of the “privatization” that’s taken place since – starting with Fannie Mae and Freddie Mac. He’s right there: These “private-public partnerships” are fraught with peril, not least by giving privatization a bad name, something he doesn’t consider.
I’m pleased that Pilon shares my skepticism towards privatization deals. Since Fannie worked pretty well when it was a fully public agency, I’m not inclined to care as he does about the PR value of privatization, but I will take agreement on the substance where I can get it. In fact, I’ll return the favor, and showcase another area of agreement between us.
The idea of “public goods” is not meaningless, but the definition has to be strict, as economists know, and the means for privatizing ersatz “public goods” have to be clean. Given the vast public sector before us, we’ve got years of privatization ahead. Let’s hope it’s done right.
I too hope these deals are done right. So whenever you see a private actor complaining about environmental reviews, safety reviews, Davis-Bacon restrictions, excessive public input, or pushback against other mechanisms that a democratic society uses to govern its own decisions, you should, as no doubt Pilon would, express skepticism that privatization is simply being used as a way to avoid public accountability.
While chanting “do you want another Fannie and Freddie” every time infrastructure sales comes up probably won’t stop this freight train, the GSEs are so hated, particularly on the right, that it might actually throw a bit of a spanner in the works.