Balance Sheet Recession

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Erik Kain

Erik writes about video games at Forbes and politics at Mother Jones. He's the contributor of The League though he hasn't written much here lately. He can be found occasionally composing 140 character cultural analysis on Twitter.

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7 Responses

  1. Avatar Andrew says:

    “I also like the idea of projects with public/private partnership potential.”

    Out of curiosity, E.D., why do you like such projects? Frequently, the projects that the government undertakes are projects where there’s a very high value in having a monopoly and competition requires excess infrastructure without large cost savings. I am thinking of public utilities, specifically, but this applies to roads as well. Turning over such projects to private companies seems like a recipe for abuse.

    Furthermore, there was just a story yesterday on CNN about a privately-operated youth detention facility bribing judges to send kids to them, thus increasing their profits (http://www.cnn.com/2009/CRIME/02/23/pennsylvania.corrupt.judges/index.html). Some of the worst abuses in Iraq were perpetrated by the private contracting firms that Bush hired. The list of abuses of public-private partnerships is not trivial. It seems to me that the “public-private” partnerships you advocate often end up featuring the worst parts of both public and private ownership, rather than the best of both.

    The most important benefit of a public enterprise is the competition that helps make sure the company is putting out a quality product at a reasonable price. How is a HSR public-private partnership going to be exposed to this competition to keep their quality high and prices reasonable? I think you need to make a more affirmative case for public-private partnerships than you’re making here, where you’re just asserting it as a good thing.Report

  2. Avatar E.D. Kain says:

    That is certainly a risk. I’m against privatization of certain things (like jails) on moral and ethical grounds. For instance, your example of the detention facility, but also the fact that I think nobody should profit off of crime, even those who are housing the criminals.

    However, public/private enterprises really can work, and quite well. In my home town this is how we finally were able to have recycling instead of just trash pick-up. The city provided the facility, and a private company provided the staff and collection. I think with infrastructure projects a similarly mutually beneficial arrangement can be made. For instance, as with other means of transport, why shouldn’t private companies provide the actual trains? Government may build the rails themselves, and even the terminals, but the trains and the staff of those trains should be private. Private contractors could bid on maintenance projects and so forth. It’s a perfect public/private venture for the long term.Report

  3. Avatar Dave says:

    I think you need to make a more affirmative case for public-private partnerships than you’re making here, where you’re just asserting it as a good thing.

    There have been instances of toll roads entering into a public-private partnership where the State (or the Tollway Authority) sells a leasehold interest to an outside investor who operates the roads, is responsible for maintenance and pays some annual fee. This was done with the Indiana Toll Road. Competition may not be necessary (although it is preferred).

    So far so good I think although time will tell.

    http://www.reason.org/commentaries/segal_20070725b.shtmlReport

  4. Avatar Freddie says:

    Of course, there’s the absolutely terrible public-private partnerships in the penal and defense contracting worlds too.Report

  5. Avatar E.D. Kain says:

    Well yes, I mentioned that above. I’m morally and ethically opposed to such partnerships, as I don’t believe profit should be made off of criminals or off of war. This is why it’s so important to limit both government and the private sector, to achieve balance.Report

  6. Beautiful piece E.D. Lots of great points, so i will just choose one:

    Re: How to get private capital flowing gain?

    I work for a Fortune 500 company and without revealing too much, we are basically just tightening the hatches to ride out this storm. We’re cutting back on expenses like crazy (everything from corporate travel to bonuses to matching stock contributions). Our company is very conservatively run and we keep a big war chest. So we will ride this out like we have other recessions. A lot of companies are doing this (not to mention a lot of families). So it’s going to take a powerful incentive to get these companies to risk spending in uncertain times. The only way I see to get capital flowing again is to provide really fantastic incentives. That’s where the government has to get more creative than just throwing money around.

    I was reading an article yesterday by Bill Gates and he was talking about a little-known law that gives incentives to drug companies to provide cheap drugs to other countries. The way the government rewards this is that is agrees to have the FDA fast track approval of one other drug for each milestone they meet. By getting their drugs approved faster, these companies can start realizing billions in profits far earlier than they would have. And it doesn’t really cost the government anything.

    Gates refers to this as ‘creative capital’. So what we’re doing is still asking companies to invest, to take risks, etc but we try to offset at least some of this through the power of the fed.

    To take this down to the more micro level, my wife and I just purchased new windows. We consider it an investment in our home with a return in the form of lower energy bills and hopefully greater appeal to buyers when we sell. This investment put $2000 in the pockets of a local window company, meanwhile we will see a nice tax credit for putting in energy efficent windows. So the govt loses a certain amount of tax revenue but sees a larger amount invested. That’s a good scenario in my book.Report

  7. Avatar E.D. Kain says:

    Thanks, Mike. Great points. I think “creative” is the key word in all of it. Creative capital, creative solutions, creative partnerships. Not just the same old talking points.Report

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