Tag: infrastructure projects

Republican Agenda: Privatization

In coming months, new Republican members of Congress will be looking for ways to cut the budget deficit and also to increase economic growth. One way to do both is to privatize government assets, such as the U.S. Postal Service, Amtrak, and the air traffic control system.

Privatization can reduce deficits from the one-time gain of an asset sale and from the elimination of annual taxpayer subsidies. Privatization can spur economic growth by moving resources from moribund government agencies to the higher-productivity and more innovative private sector.

A new report by a trade magazine specializing in privatization confirms that the United States lags many nations on innovative infrastructure financing. Public Works Financing has been tallying data on “public-private partnerships” around the world since 1985. PPP is sort of half way toward the full privatization of government assets such as highways. I prefer full privatization (such as this highway), but PPP has swept the world in recent years and it is a step in the direction of market reform.

Public Works Financing is subscription only, but I can summarize a few findings from their October annual survey.

  • Since 1985, the magazine has tallied 1,867 PPP infrastructure projects worldwide valued at $712 billion. U.S. projects represented just 8 percent of the total value.
  • With a population about 10 percent as large as the United States, Canada had 53 percent of the U.S. PPP deal value. With a population of a similar size as the United States, Europe has had five times the value of PPP deals.
  • Of the 35 top global transportation firms doing PPP deals, the United States had only one firm, Flour, which was ranked number 33. Countries with firms heavily involved in PPP include Spain, Australia, China, and France. American entrepreneurs are apparently losing out because U.S. policymakers are asleep at the switch regarding private sector infrastructure financing.

Examples of PPP in the United States include the project to widen the Capital Beltway in Virginia, which involves the firms Transurban and Flour, and the leasing of the Indiana Toll Road, which involves Cintra and Macquarie. These deals aren’t full privatization, but they will hopefully bring some market efficiencies into an area of the economy dominated by the government over the last half century.

Congress is expected to write a major transportation authorization bill next year. The likely GOP chairman of the House Transportation and Infrastructure Committee, John Mica, has a more favorable view of private infrastructure than the prior Democratic chairmen. However, it is not clear that some of the incoming Republicans really understand the anti-spending message that voters delivered on Tuesday. Regarding President Obama’s $8 billion in wasteful high-speed rail subsidies, Mica did not call for killing them, but just for making them “better directed.”

The election ended the debate over whether to cut federal spending, but the debate about cutting particular programs has just begun.

Obama and Infrastructure

The President is continuing his push for the federal government to go deeper into debt in order to fund infrastructure projects. While nobody disputes that the country has infrastructure needs, the precarious nature of federal and state finances indicate that policymakers need to starting thinking outside the box. Specifically, policymakers should be looking to make it easier for the private sector to fund and operate infrastructure projects.

As my colleagues Chris Edwards and Peter Van Doren have explained, the main problem with government infrastructure spending is the lack of efficiency:

More roads and transit capacity may or may not make sense depending on whether the benefits exceed the costs. One sure way to find out is to have private provision and user charges. If users are not willing to pay the costs of extra or newer capacity, then calls for taxpayer involvement probably imply subsidy of some at the expense of others rather than efficiency.

A lot of what the the president wishes to spend taxpayer money on – for example, high-speed rail – is of questionable economic value. Unfortunately, policymakers all too often allocate resources on the basis of politics rather than economics.

For more on this topic, interested readers should check out our essays on the Department of Transportation. Also, an essay on privatization argues that “The benefits to the federal budget of privatization would be modest, but the benefits to the economy would be large as newly private businesses would innovate and improve their performance.”