This Bridge for Sale
The privitazation of infrastructure is about to become the new norm. Elected officials, always fearful of spending money (except of course, when it comes to lining their own pockets), have deferred maintenance on the nation's roads and bridges for decades. The strategy is simple: let the next guy worry about paying for improvements.
Last year's collapse of the Interstate 35W in Minneapolis was a tragic reminder however, of the true price of lax maintenance. But cities, states and even the federal government are short on cash and unable or unwilling to make the investments needed to correct years of deferred maintenance. Private investment groups are ready to step in to plug short term budget holes for control of money generating infrastructure like airports, bridges and toll roads. But in ceding control of infrastructure to private industry looking to profit from their investment, the public is not necessarily safer.
Infrastructure repair is expensive. Consider for a moment the Pulaski Skyway, a structure built in 1932 and made famous in the opening credits of The Sopranos. The state of New Jersey began reconstruction efforts last year to secure the bridge before it became the next I-35W, though a repeat of that tragedy is still a real possibility. As reconstruction efforts progressed, the need to replace the bridge became more apparent, with the local newspaper calling for the bridge's immediate replacement. But the state of New Jersey faces another fiscal crisis, again, and the hundred and thirty million dollars needed to replace the span simply isn't available even if there was the political will.
But even if the state doesn't have money, private equity firms do. New Jersey's governor, Jon Corzine, has already floated the idea of privatizing state toll roads. With the Pulaski needing replacement, and advances in electronic toll collection allowing the free flow of traffic, building a for profit replacement for the Pulaski might seem an obvious solution. The Times lists Goldman Sachs as one of many equity investment firms that have recently set aside billions for infrastructure investment; Corzine is a former Goldman Sachs executive. The match seems almost too good to be true.
Private business has long been touted as more efficient than government by proponents of privatization. But anyone working for a large corporation probably knows that "more efficient" does not necessarily translate to safer, better, or more secure. If infrastructure is beholden to an investment group looking to turn a profit, costs like regular and proper maintenance are just that, a cost, an obstacle to shareholder profits. What happens when the for profit company cuts costs?
Government agencies maintain more or less, immunity from civil liability. If a state bridge collapses, victims are going to have little recourse. But if a private bridge, owned by a billion dollar investment firm such as Goldman Sachs, collapses and kills a few dozen people, personal injury lawyers across the country will be clamoring to sign clients.
Theoretically, a free marketeer will explain that the threat of civil liability will ensure private investors will properly maintain their infrastructure, explaining that the threat of a civil suit would likely make bridges safer, since government agencies don't have fiscal liabilities. But governments are accountable. If bridges start falling down in the state, rest assured voters will respond. But the only people private investment groups are accountable to are shareholders, and shareholders want to maximize profits by minimizing investment.
Private investors have every incentive to make the minimal capital investment in maintenance because any cost reduces profits. For a while, the system will work. That is, it will work until deferred maintenance simply becomes a tragic accident. The first large award in a civil suit will instantly make for profit infrastructure far too expensive to be a good investment. Private capital for infrastructure will disappear and investment groups might simply walk away from their existing projects.
If such a dire prediction seems unrealistic, consider how private investment groups handled the recent mortgage fiasco. Simplistically, capital investors increased profits by writing bad loans, and then walked away by selling those loans to other investment groups. Not only did those irresponsible practices send the economy into a tailspin, but it also made credit harder to get for everyone, even those with good credit. Imagine trying to build a new bridge or new airport after investment banks decide there is too much risk in building infrastructure.
Privatization of infrastructure is another gimmick to put off until tomorrow what should be done today. Building roads and bridges and airports is the fundamental responsibility of a mature government, and if our current elected officials are unable to make the commitment, then perhaps its time to un-elect them.
Last year's collapse of the Interstate 35W in Minneapolis was a tragic reminder however, of the true price of lax maintenance. But cities, states and even the federal government are short on cash and unable or unwilling to make the investments needed to correct years of deferred maintenance. Private investment groups are ready to step in to plug short term budget holes for control of money generating infrastructure like airports, bridges and toll roads. But in ceding control of infrastructure to private industry looking to profit from their investment, the public is not necessarily safer.
Infrastructure repair is expensive. Consider for a moment the Pulaski Skyway, a structure built in 1932 and made famous in the opening credits of The Sopranos. The state of New Jersey began reconstruction efforts last year to secure the bridge before it became the next I-35W, though a repeat of that tragedy is still a real possibility. As reconstruction efforts progressed, the need to replace the bridge became more apparent, with the local newspaper calling for the bridge's immediate replacement. But the state of New Jersey faces another fiscal crisis, again, and the hundred and thirty million dollars needed to replace the span simply isn't available even if there was the political will.
But even if the state doesn't have money, private equity firms do. New Jersey's governor, Jon Corzine, has already floated the idea of privatizing state toll roads. With the Pulaski needing replacement, and advances in electronic toll collection allowing the free flow of traffic, building a for profit replacement for the Pulaski might seem an obvious solution. The Times lists Goldman Sachs as one of many equity investment firms that have recently set aside billions for infrastructure investment; Corzine is a former Goldman Sachs executive. The match seems almost too good to be true.
Private business has long been touted as more efficient than government by proponents of privatization. But anyone working for a large corporation probably knows that "more efficient" does not necessarily translate to safer, better, or more secure. If infrastructure is beholden to an investment group looking to turn a profit, costs like regular and proper maintenance are just that, a cost, an obstacle to shareholder profits. What happens when the for profit company cuts costs?
Government agencies maintain more or less, immunity from civil liability. If a state bridge collapses, victims are going to have little recourse. But if a private bridge, owned by a billion dollar investment firm such as Goldman Sachs, collapses and kills a few dozen people, personal injury lawyers across the country will be clamoring to sign clients.
Theoretically, a free marketeer will explain that the threat of civil liability will ensure private investors will properly maintain their infrastructure, explaining that the threat of a civil suit would likely make bridges safer, since government agencies don't have fiscal liabilities. But governments are accountable. If bridges start falling down in the state, rest assured voters will respond. But the only people private investment groups are accountable to are shareholders, and shareholders want to maximize profits by minimizing investment.
Private investors have every incentive to make the minimal capital investment in maintenance because any cost reduces profits. For a while, the system will work. That is, it will work until deferred maintenance simply becomes a tragic accident. The first large award in a civil suit will instantly make for profit infrastructure far too expensive to be a good investment. Private capital for infrastructure will disappear and investment groups might simply walk away from their existing projects.
If such a dire prediction seems unrealistic, consider how private investment groups handled the recent mortgage fiasco. Simplistically, capital investors increased profits by writing bad loans, and then walked away by selling those loans to other investment groups. Not only did those irresponsible practices send the economy into a tailspin, but it also made credit harder to get for everyone, even those with good credit. Imagine trying to build a new bridge or new airport after investment banks decide there is too much risk in building infrastructure.
Privatization of infrastructure is another gimmick to put off until tomorrow what should be done today. Building roads and bridges and airports is the fundamental responsibility of a mature government, and if our current elected officials are unable to make the commitment, then perhaps its time to un-elect them.
Labels: Society, Transportation
