How Privatization Gets (and Deserves) a Bad Name

Gary Farber at Obsidian Wings points out this Matt Taibbi piece in Rolling Stone. Taibbi has always been skeptical of the free market movement, and sometimes his skepticism is even justified:

In the summer of 2009 I got a call from an acquaintance who worked in the Middle East. He was a young American who worked for something called a sovereign wealth fund, a giant state-owned pile of money that swims around the world in search of things to buy…

Aside from the hot weather, it wasn’t such a bad gig. But on one of his trips home, we met in a restaurant and he mentioned that the work had gotten a little, well, weird.

“I was in a meeting where a bunch of American investment bankers were trying to sell us the Pennsylvania Turnpike,” he said. “They even had a slide show. They were showing these Arabs what a nice highway we had for sale, what the toll booths looked like . . .”

I dropped my fork. “The Pennsylvania Turnpike is for sale?”

He nodded. “Yeah,” he said. “We didn’t do the deal, though. But, you know, there are some other deals that have gotten done. Or didn’t you know about this?”

As it turns out, the Pennsylvania Turnpike deal almost went through, only to be killed by the state legislature, but there were others just like it that did go through, most notably the sale of all the parking meters in Chicago to a consortium that included the Abu Dhabi Investment Authority, from the United Arab Emirates.

There were others: A toll highway in Indiana. The Chicago Skyway. A stretch of highway in Florida. Parking meters in Nashville, Pittsburgh, Los Angeles, and other cities. A port in Virginia. And a whole bevy of Californian public infrastructure projects, all either already leased or set to be leased for fifty or seventy-five years or more in exchange for one-off lump sum payments of a few billion bucks at best, usually just to help patch a hole or two in a single budget year.

Merely buying or selling something does not a free market make. When you buy or sell slaves, freedom has nothing to do with the transaction — only unfreedom on the one side, and dominion on the other. Let’s not be fooled by the cash nexus, okay?

A lesser but still quite grave offense is the buying or selling of privileges — government grants of exclusive economic activity. Privileges are bad because while, yes, they are bought and sold, they are still, at rock bottom, grants of highly unequal force and protection. When you buy an economic privilege, you buy the forced inactivity of your neighbors. It’s good to minimize this kind of buying and selling.

In the eighteenth and nineteenth centuries, the old-time liberals opposed privileged economic activities with almost as much force as they opposed slavery. “Monopolies,” they were called. The word monopoly has come to mean something else now, but what it meant originally was that if you tried to enter the business in question, armed goons would come along and stop you.

The old-time liberals were right on target here — when a government cordons off an entire market, refuses entry into it, and sells that market to a single firm, it’s done something terrible, both inefficient and morally wrong. It’s a pity that their so-called “free market” descendants have forgotten this.

Now, some things may be actual, natural monopolies, in which case the relatively best solution is to let the government run them, and to use any proceeds to run the government itself. Toll roads appear to be one of these, and I’m fine with that, because I don’t see a way around it. Selling these roads to a private company, however, seems a step too far to me, especially given that competition will be nonexistent, owing to the government’s self-granted advantages here. Tax subsidies and eminent domain are hard to fight, and these are precisely the advantages we’re giving a “private” firm when we sell them the roads.

Likewise, if a city sells off its parking meters and associated parking spaces — all to one firm, with no possibility of competition — then that’s an old-time monopoly. And this old-time liberal is squarely against it.

Do you want a free market approach to parking? Great! Auction off individual spots, one at a time, to all comers. If you’re really, really afraid of monopoly, put a limit on it — say, two per customer.

After that: When you own a spot, you can put a meter on it, or not. Your choice. You can reserve it for yourself and your friends. You can let it be free parking, if you really believe that economic goods all want to be free. And best of all, you can sell your spot to someone else, because it’s a free market.

One might point out that parking spots themselves still remain exclusive. But this claim has little force for two reasons. First, it’s just in the nature of parking spots to be a little bit exclusive — you can’t usually park more than one car in a given spot, and no amount of subtle moral philosophy is going to change that. Second, any complaint about exclusivity applies with so much more force when you’re being exclusive about every spot in the entire city for as long as you live.

Selling all the spots at once, to one firm, for seventy-five years, forbidding all competition is — wow, what to even call it — rent-a-communism? Whatever it is, it’s not an especially free market solution.