When Daniels ran for governor of Indiana in 2004, the Washington Post began its profile of him by noting that “President Bush admiringly called him ‘the Blade,’ for the gleam in his budget-cutting eye.” He won that year, as did his former boss.
Needless to say, Mitch Daniels was not a Keynesian. Nor was he interested in slowing the race to the bottom on wages and working conditions that “free trade” had created for global workers. Daniels did not, upon assuming office, ask himself what sorts of state and national policies might put the jobless people of Gary or South Bend back to work. It did not occur to him to promote national policies that might provide jobs for the residents of my hometown of Utica, New York, so that their schools could once again purchase Elkhart-made brass instruments like the trombone I once played in the marching band.
Instead Mitch Daniels did what comes naturally for politicians like him: He privatized. Then the financial crisis of 2008 struck. That crisis was a direct result of deregulation – another key element of the corporatization agenda. Hoosiers started driving less, according to some analyses, which was bad news for the purchasing consortium, as toll revenues turned out to be 17 percent less than projected (although the projections themselves may have been initially overstated by consultants with conflicts of interest).
Then the Macquarie-Cintra venture was hit hard by an interest-rate swaps deal gone bad, and by some unusually high interest charges on its debt. That left it unable to meet the reserving requirements of its lease agreement. Soon it was struggling to serve the toll road’s users. A report earlier this month in the Indianapolis Star told of a state senator who said he’d fielded complaints about “long waits at toll plazas, bridges that haven’t been repaired in more than a year and rest stops that reek of urine.”
Australia-based IFM Investors has been announced as the winning bidder to assume the remainder of Cintra-Macquarie’s lease. But how has the economy of Indiana, and the broader national economy, fared in this deal? Angie Smith and Payton Chung examined the deal closely and found “an opaque agreement based on proprietary information the public cannot access; a profit-making strategy … divorced from the actual infrastructure product or service; and faulty assumptions … which can incur huge public expense down the line.”
TaxPIRG’s Melissa Cubria outlined some of the hidden costs of roadway privatization. Cubria notes that “road privatization contracts in Texas can instead stipulate that the public must pay steep compensation for the company’s loss of profits,” and that firms can “stipulate that the public must pay steep compensation for the company’s loss of profits” by “designating a wide range of state actions as potential ‘adverse actions.’”
In other words, privatization deals often limit the ability of people to govern themselves.
San Diego’s bus privatization has not performed as promised. Most of the savings came from crude cuts in service, not from privatization or the much-vaunted “efficiency of the private sector.” The city’s privatized South Bay Expressway, another toll road managed by Indiana co-owner Macquarie, went bankrupt in 2010. (Do we sense a pattern here?) In other California privatization failures, costs for San Francisco’s Presidio Parkway more than doubled, while Orange County’s Highway 91 went bankrupt and required a $207 million public bailout.
The Congressional Budget Office found that bankruptcy proceedings for Macquarie’s failed South Bay Expressway ultimately “imposed a loss of 42 percent on federal taxpayers.”
There are other problems with privatization. Private companies also charge far more for water and sewer services than governments do. (Food and Water Watch found that their rates were 33 percent higher.) Private prisons appear to cost more, as the New York Times reported, while the ACLU found that higher incarceration rates lead to windfall profits under privatized prison systems.
Nor is the inefficiency and greed limited to civilian life. The privatization of military housing has proven costly, according to the Government Accounting Office, and an Air Force major who studied the privatization of Newark Air Force Base stated (in a rather folksy way) that “the Air Force seems to be just flat out paying more for the same service it received under the old depot system.”
Privatization is often a bad deal for investors, too, as the Congressional Budget Office noted in 2012. The CBO studied eight highway projects and found that, with one exception, “private equity investors’ expectations of profitability for the projects have been unfulfilled.”
Under privatization, the goal is no longer to provide publicly funded services effectively and efficiently. Nor is the goal to make a profit for investors. The deal itself is the goal, because that’s where intermediaries make their profits.