The American economy is sluggish, the government is running
large deficits, and the public is frustrated with the poor
performance of federal bureaucracies. One reform that can tackle
all of these problems is privatizing federal businesses and assets.
This study discusses a dozen advantages of privatization and
describes government activities that should be moved to the private
A privatization revolution has swept the world since the 1980s.
Following the United Kingdom’s lead, governments in more than 100
countries have transferred thousands of state-owned businesses to
the private sector. Railroads, airports, energy companies, postal
services, and other businesses valued at more than $3 trillion have
been privatized. Governments of both the political right and left
have unloaded state-owned businesses.
Despite the global success of privatization, reforms have
largely bypassed our own federal government. Indeed, many
activities that have been transferred to the private sector abroad
remain in government hands in this country. That creates an
opportunity for U.S. policymakers to learn from foreign
privatization and enact proven reforms here.
This study describes why the federal government should privatize
the U.S. Postal Service, Amtrak, the Tennessee Valley Authority,
the air traffic control system, lands, buildings, and other
businesses and assets. Such reforms would increase efficiency, spur
innovation, create greater transparency, and improve the
Privatization would allow entrepreneurs to take on challenges at
which federal bureaucracies are failing. The United States is a
land of huge talent and diversity. But to take full advantage of
those assets, we should divest the government of activities that
individuals and businesses can perform better by themselves.
A privatization revolution has swept the world since the 1980s.
Governments in more than 100 countries have moved thousands of
state-owned businesses and other assets to the private sector.
Airports, airlines, railroads, energy companies, postal services,
and other businesses valued at about $3.3 trillion have been
privatized over the past three decades.1
Privatization has improved government finances by raising
revenues and reducing spending. More important, it has spurred
economic growth and improved services because privatized businesses
have cut costs, increased quality, and pursued innovation.
In a 1969 essay, management expert Peter Drucker said that
politicians in the 20th-century had been “hypnotized by government
… in love with it and saw no limits to its
abilities.”2 But he said that the
love affair was coming to an end as the mismanagement of
state-owned businesses was becoming more apparent everywhere. In
his essay, Drucker called for a “reprivatization” of government
activities, but he was a bit ahead of his time.
The privatization revolution was launched by Margaret Thatcher’s
government in the United Kingdom, which came to power in 1979.
Prime Minister Thatcher popularized the word
privatization, and her successful reforms were copied
around the globe.3 She was
determined to revive the stagnant British economy, and her
government privatized dozens of major businesses, including British
Airways, British Telecom, British Steel, and British Gas. Other
nations followed the British lead because of a “disillusionment
with the generally poor performance of state-owned enterprises and
the desire to improve efficiency of bloated and often failing
companies,” noted a report on privatization by the Organisation for
Economic Co-operation and Development (OECD).4
Privatization swept through other developed countries in the
1980s and 1990s, with major reforms in Australia, Canada, France,
Italy, New Zealand, Portugal, Spain, Sweden, and other nations. A
Labour government elected in New Zealand in 1984 privatized dozens
of state-owned companies, including airports, banks, energy
companies, forests, and the national airline and telecommunications
companies. Australia privatized dozens of companies between the
mid-1990s and mid-2000s, generating proceeds of more than $100
During the 1980s and 1990s, Canada privatized more than 50 major
businesses, including electric utilities, a railway, an airline,
and the air traffic control system. France sold 22 major companies
in 1986 and 1987 under the conservative Chirac
government.6 In the 1990s and
2000s, both conservative and socialist governments continued to
privatize. The number of companies in which the French government
holds a majority stake plunged from 3,000 in the early 1990s to
about 1,500 mainly smaller companies today.7
Privatization swept through many developing nations. In Latin
America, Chile, Mexico, and Panama had particularly large and
successful privatization programs. Mexico, for example, slashed the
number of state-owned firms from 1,155 in the early 1980s to just
210 by the early 2000s.8 In
Eastern Europe, huge privatizations were pursued after the fall of
communism, and the government share of total economic output in
that region fell from about three-quarters in 1990 to about
Privatization has gained support from both the political right
and left. Left-of-center governments in Australia, the United
Kingdom, France, Canada, and New Zealand all pursued
has attracted opposition from the public in many countries, but
very rarely have reforms been reversed once put in place.
Privatization works, and so the reforms have lasted.
Privatization has “massively increased the size and efficiency
of the world’s capital markets,” one finance expert
found.11 As of 2005, the 10
largest share offerings in world history were
privatizations.12 By 2010, about
half of the global stock market capitalization outside of the
United States was from companies that had been privatized in recent
years.13 Privatization has had a
huge effect on the global economy.
Today, many countries have privatized the “lowest hanging
fruit.” But there is much left to sell, and global privatization is
continuing at a robust pace. Over the past four years, governments
worldwide have sold an average $203 billion of state-owned
businesses annually.14 China is
now the largest privatizer, but Western nations continue to pursue
reforms. The British government, for example, sold a majority stake
in Royal Mail in 2013 and then unloaded the final block of shares
Privatization has been a very successful reform. An OECD report
reviewed the research and found “overwhelming support for the
notion that privatization brings about a significant increase in
the profitability, real output and efficiency of privatised
companies.”16 And a review of
academic studies in the Journal of Economic Literature
concluded that privatization “appears to improve performance
measured in many different ways, in many different
Despite the success of privatization, reforms have largely
bypassed our own federal government. President Ronald Reagan’s
administration explored selling the U.S. Postal Service, Amtrak,
the Tennessee Valley Authority, the air traffic control system, and
federal land, but those efforts stalled.18 President Bill Clinton had more success.
His administration oversaw the privatization of the Alaska Power
Administration, the Elk Hills Naval Petroleum Reserve, the U.S.
Enrichment Corporation, and Intelsat.19
Little action on federal privatization has been pursued since
then, but there are many federal activities that should be turned
over to the private sector. The United States has a government
postal system, but European countries are privatizing their systems
and opening them to competition. The United States has a government
air traffic control system, but Canada and the United Kingdom have
privatized their systems. Our federal government owns electric
utilities and a passenger rail service, but other countries have
privatized those businesses.
The first section of this study examines the path-breaking
British privatizations of recent decades. The second section
discusses 12 advantages of privatization. The third section
describes six businesses and assets that federal policymakers
should privatize: the U.S. Postal Service, Amtrak, the Tennessee
Valley Authority, the air traffic control system, land, and
buildings. That section also highlights other businesses and assets
This study mainly uses privatization in a narrow sense
to mean fully moving ownership of businesses and assets to the
private sector. The term is often used more broadly to include
government contracting, public-private partnerships, vouchers, and
other forms of partial privatization. Those are all worthy reforms,
but they are not the focus here.
When the next president comes into office in 2017, the time will
be ripe for privatization reforms. Privatization would help spur
growth in our underperforming economy and modestly reduce rising
budget deficits. Privatization would also create qualitative
benefits, such as increasing transparency and improving
environmental stewardship. After decades of privatization abroad,
U.S. policymakers have a wealth of foreign experience to guide
their reform efforts.
Margaret Thatcher Blazes the Trail
Margaret Thatcher was elected Conservative Party leader in the
United Kingdom in 1975, and her party gained a majority in
parliament in 1979. Prime Minister Thatcher came into office
promising to “denationalize” the government-dominated
economy.20 However, Thatcher
faced numerous crises her first few years in office that limited
her privatization efforts, including a deep recession, high
inflation, labor union strife, and the Falklands War.
At first, Thatcher and the Conservatives did not have a detailed
agenda for privatization. They were cautious, but they learned as
they went, and the early successes generated momentum for further
reforms. One important early reform was the popular “Right to Buy”
law, which allowed people to buy the government-owned “council”
houses that they lived in. With that successful reform, the share
of British households in council housing plunged from 31 percent in
1981 to just 7 percent today.21
With the economy recovering in the early 1980s and with Thatcher
reelected with a large majority in 1983, the British privatization
program kicked into high gear. Campaigning in 1983, the
Conservatives promised wide-scale privatizations, and that created
a strong mandate for them to move boldly after their landslide
Thatcher had a strong personal belief in privatization.
Privatization was crucial for “reversing the corrosive and
corrupting effects of socialism,” she said, and central to
“reclaiming territory for freedom.”22 The purpose of privatization was to ensure
“the state’s power is reduced and the power of the people
enhanced.”23 Thatcher was heavily
influenced by economist F. A. Hayek and by her key adviser, Keith
Thatcher blazed the trail, but there were some international
precedents for her reforms. In the 1950s, the British Conservatives
privatized some activities — including the steel industry
— that had been nationalized by the previous Labour
government. And in the 1950s and 1960s, West German political
leaders Konrad Adenauer and Ludwig Erhard began “denationalizing”
industries to improve efficiency and broaden public share
ownership. The German government, for example, sold a majority
stake in Volkswagen in a public share offering in 1961.
Another influence on Thatcher’s government was a Canadian
privatization effort. Some of Thatcher’s key advisers, including
Alan Walters, were familiar with the privatization of a huge
resources company in British Columbia in 1979.24 That process included a distribution of
free shares to all citizens in the largest share offering in
Canadian history to that date. A 1980 book describing that reform
was the first with the word privatization in its
Numerous privatization methods have been used in the United
Kingdom and other developed nations.26 The dominant method has been share issue
privatizations. The government proceeds with an initial public
offering (IPO) of all or a portion of company shares, usually
followed with the later sale of remaining shares. British Aerospace
was privatized in 1981 with an IPO of 52 percent of its shares,
with remaining shares unloaded in later years.
The British Telecom (BT) IPO in 1984 was a mass share offering,
which “did more than anything else to lay the basis for a
share-owning popular capitalism in Britain,” said
Thatcher.27 The government ran
high-profile television ads to encourage the purchase of BT shares,
and more than two million citizens participated in the largest
share offering in world history to that date.28
Selling the 250,000-worker BT was a bold decision, and its
success generated momentum for further reforms. The OECD called the
BT privatization “the harbinger of the launch of large-scale
privatisations” internationally.29 In the years following, the British
government proceeded with huge public share offerings in British
Gas, British Steel, electric utilities, and other companies. In the
gas privatization, two million individuals who bought shares had
never held corporate equities before.30
A second privatization method is a direct sale or trade sale,
which involves the sale of a company to an existing private company
through negotiations or competitive bidding. For example, the
British government sold Rover automobiles and Royal Ordnance to
British Aerospace. Other privatizations through direct sale
included British Shipbuilders, Sealink Ferries, and The Tote.
A third privatization method is an employee or management
buyout. The United Kingdom’s National Freight Corporation was sold
to company employees in 1982, and London’s bus services were sold
to company managers and employees in 1994. Management and employee
buyouts were also popular in Eastern Europe after the fall of
communism. The mass issuance to citizens of free or low-cost share
vouchers was also a popular privatization method in Eastern
In most cases, British privatizations went hand-in-hand with
reforms of regulatory structures. The government understood that
privatization should be combined with open competition when
possible.31 British Telecom, for
example, was split from the U.K. post office and set up as an
arm’s-length government corporation before shares were sold to the
public. Then, over time, the government opened up BT to
The British government opened up intercity bus services to
competition beginning in 1980. That move was followed by the
privatization of state-owned bus lines, such as National Express.
British seaports were privatized during the 1980s, and the
government also reformed labor union laws that had stifled
performance in the industry.
Studies in the United Kingdom and elsewhere have found that
opening industries to competition is important to maximizing
productivity gains from privatization.32 When possible, privatization should be
paired with the removal of entry barriers — open competition
is preferable to either government or private monopolies. However,
the British experience also shows that even when industries have
natural monopoly elements, privatization combined with improved
regulatory oversight spurs gains to efficiency and
Table 1 lists the major privatizations in the United Kingdom
since 1979.34 It shows company
names at the time of privatization and the year that the first
portion of each business was privatized. For less-familiar
companies, the industry is noted in parentheses.
British privatization has been a big success. Entrepreneurs and
competition have transformed the British economy. Bloated
workforces at many formerly state-owned firms were slashed.
Employment in the electricity and gas industries was cut in half
between the mid-1980s (before privatization) and mid-1990s (after
has typically generated large improvements in labor productivity,
particularly for firms in competitive industries, such as British
Steel, British Coal, British Telecom, British Airways, and
Associated British Ports.36
Just knowing that privatization was coming spurred efficiency
reforms in many companies, as Thatcher herself had predicted in a
1981 speech.37 British Steel
hugely chopped its workforce and improved its productivity leading
up to its 1988 privatization, as did British Airways before its
1987 privatization. After privatization, with revenues and
profitability rising, British Airways increased its employment to
serve expanding markets. That pattern of cost cutting, increased
efficiency, and then growth is common among privatized firms.
British consumers benefited as privatization and competition
reduced prices and improved service quality. A British Treasury
study found that real prices after a decade of privatization had
fallen 50 percent for telecommunications, 50 percent for industrial
gas, and 25 percent for residential gas.38 A decade after electricity privatization,
real prices were down more than 25 percent.39 The environment gained from the latter
privatization as well, as the privatized electricity industry moved
rapidly to adopt natural gas as a fuel and replace
The Treasury study found that “most indicators of service
quality have improved” in privatized businesses.41 Economist David Parker found, “There is no
substantial evidence that lower manning and price reductions in the
public utilities have been at the expense of service
quality.”42 The share of British
Telecom service calls completed within eight days soared from 59
percent to 97 percent in the decade after
privatization, it had taken months and sometimes a bribe to get a
new telephone line.44 By various
measures, safety also improved in the privatized industries,
including gas, electricity, and water.45
Millions of British savers gained from investing in the
privatized companies. The government made share offerings appealing
to small retail investors, which fit with Thatcher’s belief in
“popular capitalism.” She wanted to create a “capital-owning
democracy … a state in which people own houses, shares, and
have a stake in society, and in which they have wealth to pass on
to future generations.”46 Under
Thatcher, the share of British citizens owning equities soared from
7 percent to 25 percent.47 Many
middle-income savers bought shares of companies such as British
Gas, and they generally earned solid returns.48
The government itself gained from privatization because
money-losing companies, such as British Steel, were removed from
the budget. Also, the government gained revenues from the share
offerings and direct sales, and from the taxes paid by the newly
privatized firms. The British government has raised more than 70
billion pounds (more than $100 billion) from
A few British privatizations were particularly controversial.
State-owned British Rail had long consumed taxpayer subsidies, and
it faced a long-term decline in its transportation market share. In
1994 the government split up the company and privatized separate
pieces: Railtrack took control of tracks and stations; 3 firms took
control of rail freight; and 25 firms received franchises to
operate passenger services.50 The
British rail industry went from being vertically integrated to
being split into separate pieces.
In the late 1990s, a few high-profile rail accidents raised
concerns about the industry’s new structure. Some accidents may
have been due to insufficient track maintenance — in both the
years before and the years after privatization. Those problems led
to the renationalization of Railtrack in 2002 as Network Rail. Some
experts believe that undoing the industry’s vertical integration
was a mistake.51 Before
nationalization in the 1940s, British passenger rail was vertically
integrated as four regional private rail firms owning both track
and rolling stock.52
Despite uncertainty about the optimal structure for the
industry, British rail has flourished since passenger services were
privatized in the 1990s.53 Unlike
elsewhere in Europe, rail ridership in Great United Kingdom has
soared. Total passenger trips bottomed out in 1995 and then began
rising. By 2014, total passenger trips had more than doubled since
privatization, from 740 million to 1.5 billion.54 Rail ridership is now hitting levels not
seen since the early 1920s.55
Despite the rise in passengers, the on-time performance of
British passenger rail improved after privatization.56 Also, surveys find fairly high levels of
customer satisfaction with rail travel.57 And despite the few high-profile accidents
in the 1990s, the overall safety record of British rail has
steadily improved since privatization.58
In a 2013 study, the European Commission found that the United
Kingdom’s railways were the “most improved” in all of Europe since
the 1990s and were second only to Finland’s in customer
satisfaction.59 In sum, British
rail reform has been a success, not the failure that some critics
The privatization of British water and sewer provision has also
been criticized. The government privatized 10 regional water and
sewer agencies in 1989 and created a new regulatory authority to
oversee them. After the reforms, people complained that water
prices rose. But those increases stemmed from the private firms’
increased capital investment to modernize very old government
infrastructure and from increased European regulation.
Privatization gave the companies access to the capital they needed
to upgrade.60 Put another way,
water prices had been kept artificially low under government
ownership, which led to underinvestment and inefficient
overconsumption. After increases in the first six years following
privatization, British water prices have risen just 9 percent in
real terms over the past two decades.61
Furthermore, water industry efficiency and service quality have
increased. Wasteful leaks in the British water system have fallen
by one-third since privatization, supply interruptions are down,
and the number of customers with low water pressure has
plummeted.62 Drinking water
quality has improved, and pollution has fallen. In sum, the overall
quality of the British water system has substantially improved
Advantages of Privatization
Since Margaret Thatcher got the ball rolling in 1979, more than
100 countries have raised about $3.3 trillion by selling off
thousands of state-owned businesses.63 The revolution spread from the United
Kingdom to Continental Europe, Latin America, Australia, Canada,
Israel, and many other places. In dollar value, the bulk of
privatization has occurred in developed nations. In those
countries, some of the largest reformers relative to the size of
their economies have been Australia, New Zealand, Portugal, Spain,
and the United Kingdom.
For governments, a main benefit of pursuing privatization is to
raise revenue. But for citizens, the main benefit is the positive
effect on economic growth from increased efficiency and greater
innovation. Businesses that are more productive can pay workers
better and cut prices for consumers. Also, by reducing waste they
are better environmental stewards.
Many statistical studies have examined the performance of
businesses before and after privatization. A 1994 study in the
Journal of Finance looked at 61 privatizations in 18
countries and found “strong performance improvements, achieved
surprisingly without sacrificing employment security. Specifically,
after being privatized, firms increase real sales, become more
profitable, increase their capital investment spending, improve
their operating efficiency, and increase their work
A 1999 study in the Journal of Finance compared the
performance of 85 firms across 28 countries before and after
privatization. It found that privatization increased
“profitability, output, and operating efficiency.”65 Firms increased sales per employee an
average of 23 percent. The statistical results “strongly suggest
that privatization yields significant performance improvements,”
concluded the authors.66
A 2003 study on privatization in the Journal of Public
Economics found that “the empirical literature has provided
systematic evidence that privately-owned companies outperform
A 2004 study by the Inter-American Development Bank of Mexico’s
reforms found that “privatization leads to dramatic improvements in
firm performance and that they are the result of efficiency gains,
not transfers from workers or exploitation of
consumers.”68 The study found
other social benefits: “greater access to services, which usually
follows privatization, leads to welfare gains for the poorest
consumers that outweigh any increase in prices.”69 Mexico privatized hundreds of companies
during the 1980s and 1990s.
A 2012 study looked at more than 50 Canadian businesses
privatized during the 1980s and 1990s, including an airline, a
railroad, manufacturers, and energy and telecommunications firms.
It found, “[T]he overall impacts have been largely positive, in
many cases impressively so. Key economic indicators such as capital
expenditures, dividends, tax revenues and sales per employee tended
to increase.”70 One sign of the
success of reforms is that very few privatized firms in industrial
countries have been renationalized, even when political parties
changed. In Canada, none of the more than 50 major privatizations
have been reversed.71
Privatization works, which is why even left-of-center governments
generally accept reforms once the dust has settled.
A 2012 review by privatization expert John Nellis found that
“the vast majority (but not all) of firm studies or surveys in most
countries and sectors [have] continued to find positive
post-privatization performance changes in terms of lowered costs,
improved labor efficiency, increased outputs, higher returns to
owners and shareholders, and, very often, increased
investment.”72 In another study,
Nellis found that “contrary to popular conception,” privatization
“has not contributed to maldistribution of income or increased
A 2001 Journal of Economic Literature article by
William Megginson and Jeffry Netter provides a detailed
international review of academic studies. They found studies
“almost unanimously report increases in
performance. . . . Privatization appears to improve
performance measured in many different ways, in many different
countries.”74 They concluded that
privatized firms “almost always become more efficient, more
profitable, increase their capital investment spending, and become
Megginson examined hundreds of studies for his 2005 book,
The Financial Economics of Privatization. He concluded,
“Private ownership must be considered superior to state ownership
in all but the most narrowly defined fields or under very special
“the weight of empirical evidence on the state versus private
ownership question . . . now strongly supports those
who believe that private ownership is inherently more efficient
than state ownership. This is true even for natural
Most academic studies on privatization examine quantitative
factors, such as efficiency and output. But privatization also
creates qualitative improvements, such as greater transparency and
improved customer service. The following sections describe a dozen
advantages of privatization.
1. Promotes Efficiency and Innovation
Private businesses in competitive markets have strong incentives
to increase efficiency — to produce more and better products
at lower costs. Businesses seek profits, which are a measure of net
value creation. If a business performs poorly, it will lose money
and have to change course, or ultimately face bankruptcy or a
By contrast, government entities are usually not penalized for
excess costs, misjudging public needs, or other failures. They can
deliver bad results year after year and still receive funding.
Government workers are rarely fired, and there is no imperative for
managers to generate net value.
The superiority of private enterprise is not just a static
efficiency advantage. Instead, businesses in competitive markets
must pursue continuous improvements. They learn by doing and adjust
to changes in society, a process called adaptive
efficiency.78 By contrast,
governments get ossified by bureaucracy and are slow to adapt.
Businesses routinely abandon low-value activities, but “the
moment government undertakes anything, it becomes entrenched and
permanent,” noted management expert Peter Drucker.79 As an example, the demand for mail has
plunged and the U.S. Postal Service (USPS) is losing billions of
dollars a year, but Congress has blocked obvious reforms, such as
ending Saturday delivery. Private businesses make such adjustments
all the time as demand for their products fluctuates.
Government organizations undermine growth by keeping resources
employed in low-value activities, even as tastes and technologies
change. That is why Drucker said, “[T]he strongest argument for
private enterprise is not the function of profit. The strongest
argument is the function of loss.”80 Losses encourage private businesses to drop
less-valuable activities and move resources to more promising
In the 20th century, many economists supported government
ownership because they thought that expert planners could
efficiently organize production. But they ignored the dynamic role
of businesses in continuously improving products and production
techniques. In a Journal of Economic Perspectives article,
Andrei Shleifer said that many economists did not foresee the
“grotesque failure” of government ownership, and they did not
appreciate the private-sector role in generating
2. Increases Labor Productivity
Lacking incentives to control costs, government organizations
tend to employ excess workers. In a survey of its member countries
on privatization, the OECD said, “state-owned enterprises (SOEs)
tend to be overstaffed. Empirical studies of privatization
generally identify the downsizing of a bloated payroll in SOEs
among the main sources of efficiency gains.”82 Similarly, a World Bank study on
Governments the world over have employed too many
workers in their state enterprises. Many of these enterprises were
in fact designed as vehicles for job creation and political
patronage. Protection from competition, lack of hard budget
constraints, and security of tenure of public sector positions have
led to chronic overstaffing.83
The OECD suggested that SOEs are sometimes overstaffed by 30
percent to 50 percent.84 With
privatization, that sort of bloat can be cut. Surveying
international experience, John Nellis found that layoffs of 25
percent are not uncommon after privatization.85 Postal system reforms, for example, often
produce job cuts of that magnitude.86 In Canada, the parliamentary library said
that state-owned Petro-Canada “was widely regarded as inefficient,
oversized and debt-ridden,” and the company’s workforce was slashed
40 percent with privatization.87
When employment falls after privatization, labor productivity
(output per employee) generally rises. One study found that the
typical labor productivity increase after privatization is about 20
percent.88 In Canada, the air
traffic control system has cut its workforce 30 percent since
privatization in the 1990s, but it is handling 50 percent more
In the United Kingdom, labor productivity doubled in the
electricity and gas industries in the decade after
privatization.90 For British
railroads, passenger journeys per employee increased 37 percent in
the 15 years after privatization.91 That improvement occurred as rail safety
increased and customer satisfaction remained high.
Japan privatized much of its passenger rail system in the 1990s.
The railroads reformed their rigid union rules and slashed their
workforces.92 Labor productivity
increased more than 50 percent, on average, in the restructured
companies.93 The privatization of
Argentina’s national railroad in the 1990s produced remarkable
results. Labor productivity shot up 370 percent as the bloated
railroad workforce was chopped by four-fifths.94 Despite the workforce reductions, Argentine
freight service greatly improved and passenger ridership
Higher productivity generally translates into higher worker
earnings and greater output in the overall economy. One study found
that privatized firms in Mexico reduced their employment, on
average, by about half.96 But as
workforces were cut, labor productivity doubled, and remaining
workers at privatized Mexican firms enjoyed substantial wage gains.
Surveying the international literature, William Megginson found,
“most privatizations result in some employment shedding, but …
the workers who remain at privatized companies are usually paid
Initial job cuts are often just a short-run phenomenon. As
productivity improves after privatization, employment often
rebounds as companies find new markets and expand sales. A review
of privatizations in Canada found that often “employment initially
fell, only to rise again over the long term.”98 The study noted, “After many of these
companies restructured, which took about five years following
privatization, hiring began again.”99
In sum, privatization often dislocates workers at bloated
companies in the short run. But over the longer run, privatized
companies grow, employment expands, and compensation rises. The
overall economy gains because higher productivity translates into
rising incomes. Economic change can be difficult, but governments
can ease the process with tax and regulatory reforms to spur
creation of new businesses that will create new jobs.
3. Improves Capital Investment
In the private sector, businesses have incentives to maintain
their facilities in good repair and to invest to meet rising
demands. To fund expansions, they reinvest their profits and raise
financing on debt and equity markets.
By contrast, government organizations often consume their
funding on bureaucratic bloat and have little left over for repairs
and upgrades. Government infrastructure is often old, congested,
and poorly maintained. Capital investment falls short and tends to
be misallocated. This was a common experience with British
industries before they were privatized, and access to private
funding to increase capital investment was an important factor in
the Thatcher government’s privatization drive.100
The same problems of run-down public infrastructure are apparent
in the United States today. The National Park Service has many
poorly maintained facilities and billions of dollars of deferred
maintenance. Urban subway and light rail systems across the nation
have tens of billions of dollars of maintenance backlogs.
Politicians enjoy launching new parks and rail systems, but they
put little effort into maintaining what the government already
Federal agencies cannot count on Congress for funding. Consider
the air traffic control system, which is run by the Federal
Aviation Administration (FAA). The system needs billions of dollars
in investment to meet rising passenger demands, but the FAA has not
secured stable long-term funding from Congress. Furthermore, the
FAA mismanages its capital investment projects, which often
experience delays and cost overruns.
Amtrak’s investment budget is also mismanaged. Because of
politics, the company invests in rural routes that have few
passengers instead of higher-demand routes in the Northeast. In his
book on Amtrak, rail expert Joseph Vranich argued, “Congressional
requirements that Amtrak spend money on capital improvements to
lightly used routes are outrageous. . . . Throughout
Amtrak’s history, it has devoted too much of its budget to where it
is not needed, and not enough to where it is.”101
Privatization solves these sorts of problems. Privatized
businesses use customer revenues and capital markets to finance
upgrades. They do not have to lobby Congress to receive needed
funding. And they have strong incentives to invest where the actual
demand is, free from political pressures that plague
4. Expands Entrepreneurship and
When the government produces goods and services, it tends to
squelch competition, either directly by enforcing a monopoly, or
indirectly by deterring entrants unwilling to compete with a
subsidized government producer.
Devoid of competition, government organizations resist change
and are slow to adopt better ways of doing things. The FAA runs the
air traffic control system with outdated technology. The USPS is
being undermined by email, but it does not have the flexibility to
adapt. Airlines and intercity buses have improved their
efficiencies and reduced costs under competitive pressures, but
Amtrak’s costs remain high.102
In the economy, major innovations often come from upstarts, not
industry-dominant firms. Big advances in industries, from computers
to retail, have come from new firms doing things in new ways. So
economic progress depends on open entry, on the ability of
entrepreneurs to challenge existing providers. That is hard to do
when the existing provider is the government.
Privatization abroad has often been paired with the removal of
entry barriers. The European Union has urged member countries to
open their markets as they privatize their airline, energy,
telecommunications, transportation, and postal companies. British
postal markets were opened for competition, and then Royal Mail was
privatized. The privatization of British Telecom was followed by
deregulation and then the rise of competitors such as Vodaphone,
which is now one of the largest telecommunications firms in the
U.S. policymakers should use privatization as a catalyst for
pro-competition reforms. The government should privatize USPS,
Amtrak, and other companies, and at the same time open industries
to new entrants. Open entry attracts people with new ideas and
encourages the dissemination of new production techniques. The best
and the brightest do not want to work for moribund bureaucracies
such as the USPS and Amtrak. As a result, those companies today are
essentially closed to external know-how and global best
The American economy is rapidly evolving, driven by
globalization and new technologies. We can keep up with all the
changes by making our economy as flexible and open to new ideas as
possible, and privatization and competition are the best ways to do
that. If America opened its postal industry to competition, there
would likely be many entrepreneurs ready to revolutionize it.
5. Increases Transparency
Citizens have difficulty monitoring the activities of government
agencies. The goals of agencies are often vague, and their finances
are difficult to understand. Government officials are protected by
civil service rules and can be secretive in their activities. Even
members of Congress have difficulty squeezing information out of
agency leaders, as we often see at congressional hearings.
By contrast, private companies have clear goals such as earning
profits and expanding sales. Performance is monitored by auditors,
shareholders, and creditors. And consumers monitor companies in the
marketplace, giving feedback with their purchasing behavior.
Moving government activities to the private sector would make
them more “public.” Economist John Blundell said that, where he
grew up in England, a government water facility had posted a sign,
Public Property: Keep Out. But after the facility was privatized, a
new sign went up: Private Property: Public Welcome.103 Private businesses have an incentive to
be transparent and promote good community relations.
British privatizations revealed problems that had been hidden
inside government businesses, such as unknown debts, pension
liabilities, and performance issues.104 With the privatization of the British
nuclear industry, the large size of its financial problems was
revealed.105 In preparing
British Telecom for privatization, the Thatcher government found
that the company “had not the faintest idea which of its activities
were profitable and which were not.”106 For British Airways, the government found
undisclosed losses of hundreds of millions of British pounds as the
company was being readied for privatization.107
In the U.S. government, the National Park Service provides few
public details about the budgets of its individual parks and
sites.108 By contrast, the
private, nonprofit Mount Vernon estate in Virginia — home of
George Washington — publishes audited financial statements
showing how money is raised and spent.109
Or consider the USPS’s accounting. The postal company provides
some services in its legal monopoly and other services in
competitive markets, but its financial statements make it difficult
to determine how much it earns or loses on each.110 The company attributes a large share of
costs to overhead, which hides internal cross-subsidies. Economist
Robert Shapiro found that the USPS manipulates its accounting to
raise prices on letters, and then uses the extra revenues to
subsidize its express mail and package delivery.111
Amtrak similarly hides cross-subsidies behind its opaque
accounting, so it is difficult to determine the profits or losses
on each of its routes.112 Amtrak
also has a history of hiding information from investigators and of
presenting unrealistic projections to Congress.113
The Tennessee Valley Authority (TVA) has long been a secretive
organization and immune from outside criticism, particularly with
respect to its safety and environmental record.114 Failures at its Kingston Fossil Plant in
2008 led to the largest coal ash spill in U.S. history. The TVA had
been aware of the risk but failed to take needed steps to avert
it.115 Why? Federal auditors
blamed TVA’s management culture, which focuses on covering up
mistakes.116 At the TVA, a
“litigation strategy seems to have prevailed over transparency and
accountability,” said the auditors.117
A final transparency issue is that federal agencies that operate
services are often the same agencies that regulate them. The FAA
operates air traffic control and regulates aviation safety. The
Transportation Security Administration operates airport security
and also regulates it. In such cases, privatizing the operations
would eliminate the conflict of interest, and agency decisions that
are now made internally would be made externally and publicly. This
transparency issue is one reason the Thatcher government figured
that — even if an industry had monopoly elements —
privatizing that industry would improve it because the government
regulator would be split off from the entity being
regulated.118 Privatization and
transparency go hand in hand.
6. Ensures Efficient Pricing
Economic theory indicates that general welfare is maximized when
prices for goods and services are set by supply and demand in
competitive markets. With government goods and services, however,
prices are often set too high or too low. Setting prices too high
induces people to reduce their purchases, and they gain fewer
benefits than optimal. Setting prices too low induces wasteful
The government tends to set prices based on political and
bureaucratic factors, not market supplies and demands. That results
in misallocating resources, meaning that capital, labor, land, and
commodities are used in low-value ways that reduce overall welfare
Government-owned resources are often underpriced. Irrigation
water from federal dams in the western United States is subsidized,
which reduces incentives for conservation. The use of federal lands
is also subsidized in many cases. Some government agencies, such as
the USPS, underprice some services and overprice others —
An advantage of privatizing water, land, postal services, and
other items is that private and unsubsidized providers set prices
on the basis of supply and demand. Market pricing is efficient and
fair. It is also environmentally friendly because it creates
incentives to minimize waste. Privatizing water and opening water
markets in the western states would ensure that water is not wasted
on low-value crops when the rivers could produce more value by
supporting recreation and wildlife. Privatizing Amtrak and ending
rail subsidies would discourage the company from wasting energy
running trains on low-value routes.
When the United Kingdom privatized its regional water utilities
in the 1990s, people criticized the subsequent price increases. But
water prices had been too low under government ownership, which
encouraged overconsumption and wasteful leaks. Under privatization,
leaks have fallen one-third over the past two decades.119 Privatization improves both efficiency
and environmental stewardship.
7. Enhances Customer Service
Governments are often the butt of jokes for their poor customer
service. Not all government agencies provide poor service, and
people have bad experiences with private companies, of course. But
public polling shows that Americans have a dim view of the service
they receive from federal agencies. One poll found that just
one-third of the public thinks that the government gives competent
service.120 And an annual survey
of the public’s “customer satisfaction” with various public and
private services found that satisfaction with federal services is
lower than with virtually all private services.121
The problem is one of incentives. Government employees usually
receive no tips, promotions, or other benefits for providing good
service. Unlike sales people in private companies, they do not have
to compete to find customers, so they have free rein to be
unfriendly and slow.
A British Treasury study found that “most indicators of service
quality have improved” in the privatized industries in that
nation.122 When British Telecom
was privatized and opened to competition, the wait time for a new
phone line fell from many months to two weeks.123
With British passenger rail privatization, on-time performance
improved and customer satisfaction has been quite high, despite a
huge increase in ridership.124
With Japanese rail privatization, fares dipped modestly, accident
rates plunged, and ridership increased.125
In the United Kingdom’s privatized water industry, supply
interruptions are down, the number of customers with low water
pressure has fallen, and water quality has improved.126 Privatization is not just about
efficiency, it is also about better serving public needs.
8. Removes Politics from Decisionmaking
Decisions in government organizations often reflect political
factors that raise costs and misallocate spending. Comparing
government and private ownership in the Journal of Economic
Perspectives, economist Andrei Shleifer argued, “Elimination
of politically motivated resource allocation has unquestionably
been the principal benefit of privatization around the
A British finance expert said that in the years before Thatcher,
“there had been frequent interference in running the nationalized
industries,” with politicians often making conflicting demands of
companies, such as favoring higher prices one day and lower prices
the next.128 Before Thatcher,
many coal mines were kept open, not because they made economic or
environmental sense, but because the coal mining unions had
In America, federal businesses are unable to end unneeded
spending because members of Congress defend activities in their
districts. To please politicians, Amtrak runs low-value routes that
lose hundreds of dollars per passenger. And Congress blocks the
USPS from consolidating mail processing centers and closing
low-volume post offices. The agency’s least-used 4,500 rural post
offices average just 4.4 customer visits a day.130
The story of the FAA is similar. Politicians prevent the agency
from closing unneeded air traffic control (ATC) facilities, and
they prevent the elimination of jobs in FAA facilities in their
districts.131 They have even
required the FAA “to procure certain hardware and encouraged it to
select certain contractors.”132
Then there is the problem of “zombie” ATC towers:
More than 100 U.S. airport towers and radar rooms have
so few flights that they should be shut down late at night under
the government’s own guidelines, a move that would save taxpayers
$10 million a year. Air-traffic controllers, who make a median
$108,000 annual wage, have little to do overnight at those
locations, which remain open because of pressure from lawmakers who
control the Federal Aviation Administration’s budget. Members of
Congress from both parties have blocked attempts to cut tower hours
or merge radar rooms, according to interviews and
Such pork barrel politics make us all poorer by raising the
costs of services. The environment also suffers because it is
wasteful to run low-value trains and to keep open low-value ATC
facilities and post offices.
9. Attracts Foreign Investment
One reason nations have pursued privatization has been to
attract foreign investment. By selling equity in postal or energy
companies, a country can attract foreign capital to help build its
economy. A substantial share of privatization proceeds in OECD
nations has come from foreign buyers.134
The British were the pioneers. The British Telecom privatization
in 1984 was the largest IPO in world history to that date, and it
was the first truly global share offering.135 The government set aside tranches of
shares for international investors.
New Zealand pursued a large amount of privatization in 2013 and
raised billions of dollars by floating shares in numerous
companies. Commenting on the sales, a New Zealand finance expert
said, “Privatizations help the development of capital markets in
terms of liquidity by attracting greater offshore and domestic
participation and encouraging other unrelated
Foreign investment is not just about attracting money. Capital
inflows often come with inflows of foreign technology and
management skills. An analysis of European privatization by
Deutsche Bank said, “[W]hen foreign investors acquire stakes in
companies, the influx of capital is in many cases also accompanied
by an inflow of important expertise.”137
Government monopoly companies tend to be cut off from industry
innovations occurring abroad. If European postal services adopt new
and better practices, the current monopoly USPS could simply ignore
them. By contrast, private postal companies would have incentives
to adopt innovations from anywhere in the world. They could also
hire foreign executives who have unique talents. The executive who
led British postal reforms, for example, is a Canadian with
experience in both privatization and the postal
industry.138 Privatization helps
an economy take advantage of globalization.
10. Boosts Exports
Typically, federal government businesses do not export their
goods and services. They have no incentive to do so. They are
content to quietly fulfill their domestic roles. But that
artificially restricts growth opportunities in our economy.
Private businesses that develop specialized products and
expertise often pursue sales in both domestic and foreign markets.
Those earnings are plowed back into the company, which encourages
further research and product development.
Canada privatized its ATC system in 1996. The new company, Nav
Canada, has become a leader in ATC innovation and has developed
numerous technologies that it exports abroad. One expert noted,
“The technical expertise at Nav Canada has led to a thriving
business marketing innovative ATC hardware and software and
advising other air navigation service providers on
modernization.”139 Nav Canada
earns income from foreign contracts and royalties, which help fund
its research program and benefit its domestic services.
There are other export successes from Canadian privatization. In
1986 the government privatized Canadian Arsenals, which was the
entity that manufactured large-caliber ammunition for Canada’s
military. Today, the company is owned by General Dynamics; its
manufacturing facilities supply not only Canada’s military, but
also the militaries of a dozen other countries.140 The company has developed a range of
products that it sells internationally.
Canada also has an interesting history with its bank notes and
postage stamps. The government has long contracted the printing of
those products to the private Canadian Bank Note Company. The
company has used its domestic expertise as a base to go global, and
today it prints stamps, bank notes, and various high-end security
products for more than 60 nations.141 By contrast, bank note printing in the
United States is a government monopoly carried out by the U.S.
Bureau of Engraving and Printing, an agency that supplies only the
The lesson is that we waste the talents of American workers when
we keep business activities trapped inside the federal government.
Moving in-house government activities to the private sector opens
the door for workers to capitalize on their skills and sell their
11. Deepens and Broadens Equity Markets
An important goal of privatization in many countries has been to
deepen equity markets and widen share ownership.142 Most privatizations include public share
offerings, and many of the largest companies on exchanges around
the world are formerly state-owned firms. By 2010, about half of
the global stock market value outside of the United States was from
companies that have been privatized in recent decades.143
William Megginson found that privatization has “massively
increased stock market capitalization and trading volume in many
developing (and more than a few developed) countries.”144 The number of people who own common stock
has increased in countries that have had major privatization
programs.145 That point is
important because larger and more efficient capital markets promote
overall economic growth.146
As a result of British privatizations, the share of British
citizens owning equities soared from 7 percent to 25 percent during
the 1980s.147 British efforts to
broaden share ownership with privatization influenced other
countries. Germany, for example, heavily advertised its 1996
privatization of Deutsche Telekom and convinced two million
citizens to buy shares.148
Privatizations have created new opportunities for households to
save and allowed more people to benefit from economic growth.
Investors around the globe have generally earned solid returns from
share issue privatizations.149
That benefit of privatization is less relevant to the United
States, which already has deep equity markets. Still, it was this
“popular capitalism” aspect of Thatcher’s program that helped
inspire President Reagan to push for privatization in the United
12. Benefits the Government Budget
America’s economy would gain from federal privatization, and so
would the government. The federal budget would benefit in three
ways. First, sales of federal businesses and assets would raise
revenues, which has been an important political motivator in many
countries. As noted, privatizations have raised $3.3 trillion for
governments over the past three decades.
Second, subsidies to government businesses could be cut with
privatization. Privatizing Amtrak, for example, would allow the
rail system to run more efficiently. Money-losing routes could be
eliminated, bloat could be reduced, and the government could end
its more than $1 billion in annual aid to the company. Similarly,
privatizing the air traffic control system would allow it to be
fully self-funded without the need for taxpayer subsidies.
Third, privatization would raise money for governments over time
as newly privatized entities paid income, property, and other taxes
from which they are currently exempt. Government businesses and
facilities do not pay federal or state income taxes, and generally
they do not pay property taxes to local governments. Privatization
would allow governments to broaden their tax bases, thus generating
revenues that could be used to reduce overall tax rates.
Without major reforms, the federal government faces a financial
crisis down the road as spending on entitlement programs soars in
coming decades. Annual budget deficits are expected to rise from
more than $500 billion this year to more than $1 trillion by 2022
— and keep on rising after that. Policymakers should cut
programs in every federal department. The main focus of reforms
should be the major entitlements, such as Medicare and Medicaid,
but privatization can make a modest positive contribution to fixing
the government’s fiscal woes as well.
Opportunities for Federal Privatization
President Ronald Reagan started a discussion on federal
privatization in the 1980s. His administration explored privatizing
the postal service, railroads, electric utilities, the air traffic
control system, and federal land. A Reagan-appointed commission
issued a major report in 1988 proposing various privatization
options, but the administration’s efforts mainly
stalled.151 The administration
did oversee the privatization of the National Consumer Cooperative
Bank in 1981 and the freight railroad, Conrail, in 1987 for $1.7
billion.152 Following Reagan,
President George H. W. Bush issued an executive order supporting
privatization, but he made little progress on reforms.153
President Bill Clinton had more success. During his
administration, the Alaska Power Administration was sold in 1996
for $87 million; the Elk Hills Naval Petroleum Reserve was sold in
1998 for $3.7 billion; and the U.S. Enrichment Corporation was sold
in 1998 for $3.1 billion.154 In
2000, Congress passed legislation putting Intelsat (owned by a
consortium of governments) on the road to
The George W. Bush administration proposed partly privatizing
the Social Security retirement system, but that effort was blocked
in Congress. On the other side of the ledger, Bush signed into law
a bill nationalizing security screening at U.S. airports.
President Barack Obama’s budget for 2014 proposed privatizing
the Tennessee Valley Authority. The administration has also pursued
the sale of excess federal buildings.
Recent decades have seen more of a focus on partial
privatization. Under Presidents Bill Clinton and George W. Bush,
for example, the Pentagon moved a large number of military families
to 187,000 private housing units. That program has been very
successful: housing quality has improved and costs are
down.156 Also, recent
administrations have encouraged private involvement in the U.S.
space program, and a number of firms have won contracts to resupply
the International Space Station.
Privatization will likely be on the agenda in coming years.
Budget deficits are here to stay, so policymakers will be looking
for ways to reduce spending and raise revenues. Policymakers will
also be looking for ways to boost America’s sluggish economic
growth. As time passes, policymakers will be able to draw on ever
more foreign privatization successes. We know that postal services,
air traffic control, passenger railroads, and other activities can
be successfully moved to the private sector because other countries
have now done it.
Any activity that can be supported by customer charges,
advertising, voluntary contributions, or other sorts of private
support can be privatized. Government activities may be privatized
as either for-profit businesses or nonprofit organizations,
depending on the circumstances. The important thing is to move
activities to the private sector, where they can grow, change, and
be an organic part of society connected to the actual needs of
The following six sections look in detail at privatizing the
USPS, Amtrak, TVA, air traffic control, land, and buildings.
Following those discussions are shorter discussions of additional
businesses and assets that the federal government should
U.S. Postal Service
The USPS is a major business enterprise operated by the federal
government. Revenues from the sale of USPS products are supposed to
cover the company’s costs. But with the rise of electronic
communications, mail volume has plunged, and the 600,000-worker
USPS has been losing billions of dollars a year. Other countries
facing falling mail volume have privatized their systems and opened
them to competition. America should follow suit and liberalize its
postal industry so that it can adjust to changes in the modern
Congress confers on the USPS a legal monopoly over the delivery
of certain types of mail: first-class mail (letters under 13
ounces) and standard mail (bulk advertising items). The USPS also
has a legal monopoly on access to mailboxes, which is a unique
protection among postal systems in the world.157 This system prevents entrepreneurs from
competing in the postal industry to improve quality and reduce
costs for the benefit of consumers.
The USPS also enjoys a range of other benefits:158
- It has been able to borrow $15 billion from the U.S. Treasury
at subsidized interest rates.
- It is exempt from state and local sales, income, and property
taxes and fees.
- It pays federal corporate income taxes, but those taxes are
essentially circulated back to the USPS.
- It is not bound by local zoning ordinances, is immune from a
range of civil actions, and has the power of eminent domain.
- It has government regulatory power, which it has used to impede
Despite those advantages, the USPS has lost more than $50
billion since 2007 and will likely continue losing money unless
there are major reforms.159 One
problem is that Congress stymies USPS efforts to improve
efficiency. It impedes USPS plans to close unneeded post office
locations, even though the bottom 4,500 rural locations average
just 4.4 customer visits a day.160 It blocks the consolidation of
mail-processing centers, and it blocks USPS plans to end Saturday
delivery. Private businesses make such adjustments to their
operations all the time as demand for their products
The USPS’s costly union workforce is another problem. USPS
worker compensation is substantially higher, on average, than that
of comparable private-sector workers.161 Collective bargaining agreements —
which cover more than four-fifths of the USPS workforce —
make it more difficult for management to make cost-saving changes,
such as increasing part-time work. And, in some cases, unions have
resisted the automation of postal functions.
The postal system’s financial challenges stem from the decline
in first-class mail volume, which fell from a peak of 104 billion
pieces in 2001 to 62 billion pieces in 2015, a 40 percent
drop.162 The decline is driven
by the rise of email, Facebook, Evite, and Internet bill paying; a
decrease in printed magazines; and the rise of online advertising
as an alternative to bulk print advertising.
The USPS’s financial challenges have been compounded by a
requirement passed in 2006 to pay down the company’s large unfunded
liabilities for retiree health care.163 USPS defenders complain that private
companies are not required to prepay retiree health costs. But the
vast majority of private firms do not even offer retiree health
coverage. Also, since traditional mail faces a continued, long-term
decline, it is better to tackle these costs now than to leave them
to taxpayers down the road under a possible federal bailout.
Other nations with money-losing mail systems have either
privatized them or opened them to competition — or both.
Private companies have more flexibility to deal with today’s
challenges. And with the rise of the Internet, the claim that mail
is a natural monopoly needing special protection is weaker than
The European Union has recognized those realities and pressed
its member nations to deregulate their systems. Most European Union
countries now have a more entrepreneurial postal industry than we
do. The United States ranks near the bottom of the Consumer Postal
Council’s 26-country “Index of Postal Freedom.”164
Here is a sampling of postal reforms abroad:
- Sweden in 1993 became the first major European country to
repeal its postal monopoly. Sweden’s main postal company (now
PostNord) was put into a corporate structure but is still owned by
- The Netherlands partly privatized its national postal company
in 1994. Majority control shifted to the private sector in 1995,
and the company later became part of TNT, a global delivery
company. The Netherlands opened postal markets to competition in
- New Zealand cut costs at New Zealand Post in the 1980s and put
the company into corporate form. The country repealed its postal
monopoly in a series of laws during the 1980s and 1990s.
- Germany partly privatized Deutsche Post in a stock offering in
2000. Today, 79 percent of company shares are publicly
traded.165 Germany opened its
postal markets to competition in 2008.
- The United Kingdom opened postal markets to competition in 2006
and privatized the Royal Mail in share offerings in 2013 and
In many countries, dominant national carriers now have some
competitors, often focused on niches such as business mail or bulk
mail. Some privatized companies, such as Deutsche Post, have
expanded internationally. Progress toward full competition has been
a slow but steady process.
Experience has shown that both privatization and open
competition create efficiency gains. In New Zealand and Sweden,
government postal firms slashed their workforces by about one-third
when they were restructured and opened to competition.167 Similar job cuts were prompted when
Germany and the Netherlands privatized their systems.
Congress should privatize the USPS, repeal its legal monopolies,
and give the company the flexibility it needs to innovate and
reduce costs. Those reforms would give entrepreneurs a chance to
improve America’s postal services. In 1979, when the USPS —
under political pressure — lifted its monopoly over
“extremely urgent” mail, we saw the growth of innovative private
delivery firms such as FedEx.
Instead of privatization, some USPS supporters want the company
to expand into banking, payday loans, grocery delivery, and other
activities. But rather than solving any problems, such expansions
would create more distortions. The USPS would have to find
activities in which it could earn above-normal profits to funnel
excess cash back to support the mail system. But a government
agency — if not subsidized — is not likely to be able
to out-compete private firms in other industries. Past USPS forays
into nonmail areas, such as electronic bill paying, ended in
failure.168 And if the USPS used
its government advantages to undercut private firms, it would be
both distortionary and unfair.
In a 2015 study, economist Robert Shapiro found that the USPS
raises prices on its monopoly products and uses those revenues to
subsidize express mail and package delivery.169 The agency is able to do so because
consumers are less sensitive to prices for monopoly products than
competitive products. Shapiro estimates that the cross-subsidies
amount to $3 billion or more a year.
For FedEx, United Parcel Service (UPS), and other private firms,
however, such cross-subsidies are unfair because — unlike
USPS — they have to pay taxes, borrow at market rates, and
follow all the normal business laws and regulations. Shapiro thinks
that without receiving special breaks, the USPS “probably could not
compete at all” against the more nimble private firms.170
These problems are difficult to solve under the current postal
structure because the USPS hides the cross-subsidies in its books
by attributing a large share of costs to overhead.171 Thus a benefit of privatization and open
competition would be an increase in transparency in postal finances
and pricing, and an end to the cross-subsidies.
Policy experts are coming around to the need for major reforms.
Economist Robert Atkinson proposed that the USPS focus on
delivering the “final mile” to homes, while opening collection,
transportation, and the processing of mail to
competition.172 Elaine Kamarck
of the Brookings Institution has also proposed partial
privatization.173 She would
split the USPS into a government piece that fulfills the “universal
service mandate” for delivering mail to every address, and a
privatized piece that would compete with other firms for activities
such as collecting mail.
The Atkinson and Kamarck proposals move in the right direction,
but foreign reforms show that full privatization is both feasible
and consistent with universal service. In Germany, the United
Kingdom, and the Netherlands, the dominant firms continue to
provide universal service. Postal companies have a strong incentive
to provide universal service because, as a network industry, the
value to customers of the service increases the more addresses that
USPS supporters fear that rural areas would be left out if the
government no longer required universal service. But economist
Richard Geddes argues that is probably not the case.174 Rural postal routes can be as
cost-effective to serve as urban routes because rural letter
carriers stay in their trucks and use roadside boxes, whereas urban
letter carriers often walk their routes.
Economists Robert Carbaugh and Thomas Tenerelli looked at
nations that have privatized or opened their postal systems to
competition. They found that, rather than the price increases and
service reductions that some people fear, “liberalizing countries
have shown the ability to offer affordable, reliable, universal,
and increasingly efficient postal-delivery services.”175
U.S. policymakers should be more flexible with the idea of
“universal service.” For example, if delivery was reduced from six
days a week to every second day, that change would allow the USPS
to slash its massive fleet of 211,000 vehicles, which would reduce
both costs and energy consumption. Other countries interpret
universal service more narrowly than we do — some countries
have cluster boxes for communities, some exclude bulk mail from
universal service requirements, and some allow more flexibility in
All that said, a universal service obligation for paper mail is
not needed in the modern economy. Electronic communications bind
the country together without it. Household-to-household personal
letters have plunged to just 3 percent of total mail volume
today.177 Advertising represents
60 percent of the entire household mail volume. Bills and other
business statements are the second largest type of mail, but those
are being replaced by electronic bill payments, which now account
for 63 percent of all bill payments.178
Essentially then, Congress imposes a rigid monopoly on the
nation so that we can continue to receive mainly “junk mail” in our
mailboxes six days a week — while 205 billion emails blast
around the planet every day.179
Retaining special protections for the government’s old-fashioned
paper delivery system makes little sense.
In a Washington Post op-ed, former U.S. Postmaster
General William Henderson said, “What the Postal Service needs now
is nothing short of privatization.”180 He is right. Congress should wake up to
changes in technology and to postal reforms around the world. Other
countries have shown that postal liberalization works, and it would
work in America as well.
Private passenger rail service thrived in the United States
between the mid–19th century and the early–20th
century. By the late 1950s, however, passenger rail was struggling
because of the rise of automobiles, buses, and airlines. Railroads
faced large tax, regulatory, and union burdens not faced by other
modes of transportation.181 The
Interstate Commerce Commission micromanaged the railroads and
prevented them from cutting excess costs. Railroads also paid heavy
property taxes, and the federal government imposed a special excise
tax on rail tickets from the 1940s until 1962.
After a number of major railroads, including Penn Central, went
bankrupt, Congress stepped in to take over passenger rail by
creating Amtrak in 1970. Amtrak is structured like a corporation,
but the government owns virtually all the stock. It was supposed to
become self-supporting and begin earning profits after a transition
period. But it has never earned a profit and has consumed more than
$40 billion in federal subsidies over four decades. In 2014 it had
revenues of $3.2 billion and expenses of $4.3 billion, and it
received direct federal subsidies of $1.5 billion.182
Amtrak has many woes. Its operations are so inefficient that it
even loses tens of millions of dollars a year on its food
service.183 Amtrak’s on-time
service performance is poor. For the overall system, only about
three-quarters of Amtrak’s trains are on time, and its
long-distance routes have a particularly bad record.184 The entire Amtrak system accounts for
only a tiny fraction of America’s passenger travel.
Amtrak has an expensive and inflexible workforce. It has 20,000
employees earning an average $105,000 a year in wages and
benefits.185 The company pays a
huge amount of overtime, a substantial amount of which seems to be
unnecessary and improper.186
More than a dozen collective bargaining agreements cover 86 percent
of the workforce.187 Unions
undermine efficiency by protecting poorly performing workers and
pushing for larger staffing levels than required. They resist
innovation and create a more rule-laden workplace. Former Amtrak
head David Gunn complained that at Amtrak’s maintenance facilities,
workers from different unions were not allowed to share work on
projects outside their narrowly designated
With a rail system plagued by late trains and endless losses,
Amtrak’s management has been subject to much criticism. Over the
years, federal auditors have charged Amtrak with a lack of
strategic planning, inefficient procurement policies, weak
financial management, and insufficient accountability.189 Auditors found that the company
manipulated its financial statements to obscure unfavorable
However, most of Amtrak’s problems are created by Congress,
which prevents the company from making rational business decisions.
In particular, Congress insists on supporting an excessively large
nationwide system of passenger rail that does not make economic
sense. Nor does it make environmental sense for Amtrak to run many
routes that have low ridership.
Amtrak operates 44 routes on 21,000 miles of track in 46 states.
Amtrak owns the trains, but freight rail companies own about 95
percent of the track. A 2008 analysis by the Pew Research Center
found that the system loses money on 41 of its 44 routes, with an
average loss per customer of $32.191 A 2012 analysis by Randal O’Toole found
similar results — only four Amtrak routes earned an
operational profit.192 Some
Amtrak routes lose hundreds of dollars per passenger and fill less
than 40 percent of the seats.
The few routes that earn a positive return are in the Northeast,
whereas the biggest money losers are the long-distance routes, such
as New Orleans to Los Angeles.193 The Government Accountability Office
(GAO) found that the long-distance routes account for 15 percent of
Amtrak riders but 80 percent of its financial losses.194 In sum, Amtrak spends a lot of money
maintaining high-loss routes at the expense of routes with heavier
Privatization would increase rail efficiency and bring costs
down. A private rail company could prune excess workers, base
worker pay on performance, and end harmful union rules. It could
close the routes that are losing the most money. Passenger rail
makes sense in the Northeast corridor between Boston and
Washington, D.C., but that corridor accounts for less than 500
miles within a 21,000-mile system. Other routes may also make sense
within a lower-cost privatized system. A privatized Amtrak could
close the most uneconomic routes and shift investment and
maintenance efforts to the core routes to improve service
Reforms abroad show that privatizing passenger rail works. In a
2004 book, rail expert and former Amtrak spokesman Joseph Vranich
counted dozens of nations that had either partly or fully
privatized their passenger rail systems.195 He found that privatized rail systems
generally provide better service, increased ridership, and more
In the United Kingdom, rail privatization brought
entrepreneurial innovation to the industry. Vranich noted that
“private operators have demonstrated more initiative, imagination,
and visionary planning than state-run British Rail did in its prime
or Amtrak does today.”197 As
already discussed, British rail ridership more than doubled in the
20 years since privatization, from 740 million passenger trips to
1.5 billion, far surpassing growth elsewhere in
Japanese rail privatization provides useful lessons as well. In
the 1980s, Japanese National Railways (JNR) was stagnating as a
result of bloated labor costs, labor strife, and political
manipulation. The government-owned JNR was “conservative, indolent,
and fearful of change.”199 The
government broke up JNR into six regional and vertically integrated
passenger rail companies in 1987, then started privatizing them in
The JNR companies reformed their rigid union rules and slashed
their workforces by roughly one-third following the
reforms.200 A National Bureau of
Economic Research study found that labor productivity in the
Japanese passenger rail companies increased, on average, about 50
percent with the restructuring and privatization of the
1990s.201 It also found that
accident rates were cut in half. The study concluded, “The Japanese
approach to rail restructuring has succeeded in many ways, by
improving productivity, cutting operating deficits, decreasing
fares, and providing better services.”202
The privatized Japanese rail companies still receive subsidies,
but they are more efficient than before and provide better service.
Vranich called the results of JNR’s privatization
“stunning.”203 Like Japan, the
United Kingdom has continued to subsidize rail infrastructure after
privatization, but the subsidies are less than elsewhere in
Europe.204 The important thing
is that the system is much more efficient, and ridership has
soared. So while subsidies should be ultimately eliminated, the
first job is to fix the rail system’s institutional structure by
A Canadian example also illustrates the power of privatization.
In 1990, the government-run passenger rail company, Via Rail
Canada, was losing money and canceling services. Fortunately, an
entrepreneur stepped in to run the routes through the Rocky
Mountains. Today, the Rocky Mountaineer company operates four
hugely successful routes in western Canada. Travel writers and
international tourist organizations laud the services.205
The United States has its own positive experience with rail
privatization — freight rail privatization. When the Penn
Central Railroad collapsed in 1970, it was the largest business
failure in American history to that date. Other railroads followed
it into bankruptcy. Congress created Conrail in the mid-1970s to
replace the failed private railroads. The government-owned company
consumed $8 billion of subsidies and floundered until Congress
finally deregulated freight rail under the Staggers Rail Act of
1980.206 Deregulation allowed
Conrail to become profitable, and it was privatized in 1987. Since
then, U.S. freight railroads operating in a deregulated environment
have been a dramatic success. Rail’s share of total U.S. freight
has increased substantially in recent decades.207
Leading rail experts, including two former champions of Amtrak,
support privatizing the company. Anthony Haswell founded the
National Association of Railroad Passengers in 1967 and is referred
to as the “father” of Amtrak. He lamented, “I feel personally
embarrassed over what I helped to create.”208And Joseph Vranich, the former Amtrak
spokesman, came to recognize that the government-run system was a
Amtrak is a massive failure because it’s wedded to a
failed paradigm. It runs trains that serve political purposes as
opposed to being responsive to the marketplace. America needs
passenger trains in selected areas, but it doesn’t need Amtrak’s
antiquated route system, poor service and unreasonable operating
Amtrak supporters argue that since other modes of transportation
receive subsidies, so should passenger rail. But Amtrak currently
receives vastly more subsidies — measured by subsidies per
passenger mile — than other modes of transportation,
including automobiles, buses, and aviation.210 Automobiles receive relatively little in
net subsidies because government highway spending is mainly covered
by fuel taxes. That said, subsidies to all modes of transportation
should be cut.
The problem for passenger rail is not that it needs more
subsidies, but that competitors to rail have become much more
efficient. Real rail prices have risen in recent decades, while
real airline prices have plunged because of the deregulated and
competitive airline environment.211 Intercity bus prices have also fallen
with the rise of low-cost firms such as Megabus. To tackle air and
bus competition, rail needs to be moved to a similarly private and
Amtrak supporters say that we should subsidize passenger rail to
reduce energy consumption and help the environment. But intercity
buses are more energy efficient than trains, and thus better for
the environment.212 And, as
already noted, running half-empty trains over Amtrak’s
long-distance routes is a waste of energy.
It seems unlikely that passenger rail will play a big role in
America’s transportation future. Today, rail carries very few
people compared with automobiles and airplanes. Even a high-speed
rail system in the Northeast would reduce automobile use in that
region by less than 1 percent, according to a Department of
But who knows? Maybe that assessment is wrong. Perhaps
entrepreneurs could bring enough cost cutting, flexibility, and
innovation to passenger rail that it could become financially
viable in numerous U.S. corridors. We will never know unless we
free passenger rail from the government.
Tennessee Valley Authority
The TVA is one of the largest electric utilities in the nation.
It was created as part of the New Deal in 1933 by assembling land
surrounding the Tennessee River and tributaries across seven states
using land purchases and eminent domain. With the advantage of
taxpayer funding and federal legal power, the TVA bullied private
power producers out of the way, removed more than 15,000 people
from their land, and grew by selling power through municipal power
distributors, which were also subsidized by the
The TVA was championed by Progressives, who wanted to uplift the
people in the Tennessee Valley with subsidized power, flood
control, farming, and economic development. It turned out, however,
that neighboring states with private power grew just as fast as
Tennessee in subsequent decades, and they extended power to rural
communities as fast as the TVA.215
Today, the TVA generates and transmits power to nine million
people. The power comes from a fuel combination of 34 percent coal,
34 percent nuclear, 11 percent oil and natural gas, 9 percent
hydro, and 12 percent purchased power.216 The company has 10,900 employees and
about $11 billion in annual revenues.
The TVA is a legally protected monopoly within its service
region, and it has unilateral authority to set its own rates
without the regulatory reviews that private utilities elsewhere in
the nation face.217 The company
does not pay federal, state, or local income, property, or other
taxes. It does make “payments in lieu of taxes” to state and local
governments, but those are less than the typical taxes paid by
private utilities.218 The TVA is
mainly a wholesaler of power, selling it to 155 municipal and
cooperative distributors, who in turn sell it to retail customers.
In an anti-competitive twist, those local utilities must provide 5-
to 15-year notices if they want to terminate their relationship
with the TVA.219
The government-owned TVA has become an anachronism, as the
global trend for three decades has been to privatize electric
utilities. In the United States, private-sector corporations
dominate the electric generation and transmission industries. There
is no theoretical or practical reason why the TVA should not be
If the TVA had a record of performing better than private
utilities, government ownership might make sense. But the company
has a poor record on both financial and environmental management.
Privatizing it would create an institutional structure that would
improve efficiency, reduce costs, create more transparency, and
allow for better environmental oversight.
A centerpiece of TVA’s dysfunction has been its nuclear program,
which has been problematic since the beginning. A 1985
Washington Post story provides a taste of the historic
TVA had envisioned the most ambitious nuclear system in
the United States, planning in three states to build 17 reactors
capable of supplying 40 percent of the Tennessee Valley’s
Today TVA is operating two atomic plants. Eight were
abandoned while under construction. Three were shut down by TVA
earlier this year following pressure from the [Nuclear Regulatory
Commission (NRC)] over serious safety concerns. Four others, now
partially built, have experienced substantial construction delays
or have been questioned for safety reasons.
In the intervening years, according to a recent NRC
report, TVA has been cited for more than 1,000 violations of NRC
regulations, twice as many as an unidentified utility of comparable
size and three times the national average.
In addition to a record number of fines and penalties,
TVA appears to suffer serious internal problems and has been
criticized by the NRC for mismanagement. Nuclear engineers and
safety officials at TVA say they have so little confidence in TVA
management and the regional NRC that they have bypassed the usual
channels and gone to Capitol Hill to make serious allegations about
the adequacy of the reactors’ design and construction.
Their complaints have prompted four federal
investigations, which are examining a host of charges, ranging from
inadequate safety standards to harassment of whistle
Many problems have afflicted the TVA’s nuclear program,
including ineffective leadership, management infighting, and a
major fire at an Alabama plant.221 The company ended up canceling a slew of
nuclear plants during the 1980s for which it had spent $5
billion.222 In 1998 Ralph Nader
opined, “TVA is by any measure the worst nuclear project in the
country . . . [and] has the poorest safety
In 2007, the TVA restarted its nuclear construction program with
the building of the Watts Bar 2 plant. Just like past nuclear
projects, this project went far over budget, with its cost rising
from $2.5 billion to about $4.5 billion.224 Also, the TVA moved forward and then
backward in recent years on completing two Bellefonte nuclear
plants in Alabama that were originally started in the 1980s. The
plants were almost complete, but now they appear to be canceled for
good. The company spent a remarkable $6 billion on the Bellefonte
plants — spending that is now down the drain.225
Even when they are up and running, the TVA’s nuclear plants have
not been good performers. Operationally, they are generally less
reliable than the nuclear plants of other companies.226 All of this is not surprising because the
federal government’s capital investments in general tend to be
misallocated, mismanaged, and subject to cost
The TVA has another problem with capital investment: as a
government entity, it cannot tap equity markets for financing, so
it relies heavily on debt. The company is able to borrow at
artificially low interest rates because it is part of the
government, but that has created an incentive to borrow
excessively. As a consequence, the TVA has built up a high debt
load compared with private utilities, which makes its financial
On top of a large debt, the TVA has large unfunded obligations
in its retirement plans. At the end of 2014, the TVA’s pension plan
was only 61 percent funded.229 A
2014 analysis found that the average pension funding level of six
comparable private utilities was 96 percent.230 The utility also has a large unfunded
obligation for postemployment health benefits.
The TVA has a poor environmental record. In 2008, mismanagement
led to major environmental damage from a spill of five million
cubic yards of coal ash into the Emory River and across 300 acres
of land at its Kingston Fossil Plant. That was the largest coal ash
spill in U.S. history. USA Today said, “Enough muck spewed
forth to fill a football field more than 2,500 feet into the
air.”231 The company had been
aware of the risk of such an accident but had rejected ideas to fix
the problem.232 It has since
spent $1.2 billion cleaning up the mess.233
Private businesses also make mistakes that harm the environment.
But over the decades, the TVA has been particularly irresponsible.
As a government entity, it has been less transparent about its
environmental and safety activities than private companies and more
immune from outside criticism.
A 2009 study by the Environmental Integrity Project (EIP) found
“a long history of environmental mismanagement” at the
TVA.234 EIP found that the
- “exemplifies some of the worst environmental practices in the
- spends less on coal-plant maintenance than private-sector
- has a “poor record of compliance with environmental
- suffers from a “culture of neglect” that has created a “large
and dirty” environmental footprint;238
- has “repeatedly invoked its status as a federal agency to avoid
responsibility for its own environmental misconduct”;239 and
- lags private utilities in adopting pollution controls, and
indeed is “recalcitrant.”240
The utility’s inspector general issued a critical report after
the Kingston coal waste spill.241 It blamed a corporate culture that
focused on covering up mistakes rather than proactively reducing
environmental risks. Furthermore, it stated that the TVA “avoided
transparency and accountability in favor of preserving a litigation
strategy.”242 In numerous
investigations over 10 years, the inspector general repeatedly
found noncompliance with safety policies and
In the early years federal taxpayer dollars heavily subsidized
the TVA, allowing it to charge artificially low rates. But rates
have risen substantially over the decades, partly because of the
TVA’s expensive mistakes. A 2014 study by former federal budget
official Ken Glozer found that the utility has somewhat higher
rates than utilities in nearby states today, despite the tax and
regulatory advantages that it enjoys.244 The TVA is exempt from a range of
regulations that are imposed on private producers, it can borrow
cheaply because it is owned by the government, and its power is
sold at retail by subsidized local utilities.
Given those advantages, the TVA should be able to sell power for
substantially less than if it were a private utility. But according
to Glozer, the retail rates in its service area are higher than for
other utilities in the overall region.245 He says the problem is that the TVA and
its local distributors have become “highly inefficient” over
time.246 Another study compared
the TVA’s operating and maintenance costs (other than fuel costs)
with 18 other utilities and found that the TVA’s costs were the
highest.247 Apparently, the
TVA’s government-conferred cost advantages end up being consumed by
the company’s general bloat and mismanagement.
The TVA’s employee compensation is generous. It pays its leaders
not like civil servants, but like top-performing corporate
executives. In 2015, its top five executives “were paid anywhere
from five to 16 times more than what President Barack Obama is
paid.”248 TVA’s CEO Bill Johnson
has an annual compensation package of more than $6 million, and
four other executives are paid more than $2 million.249 In 2012 a Tennessee newspaper disclosed
the company’s salaries and found that 105 people were earning more
than $200,000.250 The company
also gives its employees large performance bonuses.251 All this is in a state where median
income is 19 percent below the U.S. average.
In sum, the TVA is compensating employees as if it were a very
successful private company, but it is delivering the performance of
a government bureaucracy. Then why not privatize it? That way its
highly paid employees would be in an environment where they could
generate performances that match their compensation.
The attraction of electric utility socialism may be finally
waning in America — more than two decades after the United
Kingdom privatized its utilities. In the federal budget for 2014,
President Obama proposed the “possible divestiture of TVA, in part
or as a whole” because it may “no longer require federal
participation.”252 Obama is
following in the footsteps of President Reagan, who also favored
Privatization would create incentives for the TVA’s leaders to
cut costs, improve environmental stewardship, and set power rates
at efficient market levels. The company has a history of shady
dealings, such as handing out noncompetitive contracts to cronies
of company leaders and creating a secret retirement fund for
would reduce those sorts of problems and make the TVA a more
transparent and accountable organization.
The TVA has been profitable in recent years, so privatization
would raise billions of dollars. An analyst for the investment
research firm Morningstar told Bloomberg.com that the TVA
might sell for $30 billion to $35 billion.254 Ken Glozer estimated a similar figure,
between $30 billion and $40 billion.255 He noted that Duke Energy purchased
Progress Energy in 2012 for $32 billion, and Progress had somewhat
lower revenues than the TVA.
Privatization would better ensure that the TVA’s capital
investments were allocated and managed efficiently. It would free
the utility from costly prevailing wage labor rules. The federal
budget would benefit because a privatized TVA would pay federal
income taxes. And privatization would spare taxpayers from a
possible future bailout stemming from the utility’s high debt and
Policymakers could privatize the TVA through a public share
offering or by a direct sale of portions of the company to
utilities in neighboring states.257 Some portions of the company not related
to power production — such as recreational areas and nonpower
dams — could be transferred to the ownership of state and
In recent years, the TVA has made some reforms, including
trimming its bloated labor force and canceling work on the
Bellefonte nuclear plant.258
Perhaps a Democratic administration in the White House that
threatened to privatize it prompted the company to make changes. In
other good news, the TVA’s Watts Bar Unit 2 nuclear plant recently
received a federal license to generate power. Those positive
developments will help ease the transition to privatization and
allow the government to command a higher sale price.
The editorial page of the Chattanooga Times Free Press
favored privatizing the TVA in 2013.259 It listed four advantages: greater safety
and accountability, environmental improvements, higher tax revenues
for governments, and reduced financial risks of a possible taxpayer
bailout. To those advantages, we could add greater operational
efficiency, better capital investment management, and the potential
to open the region to more competition. It is long past time to
privatize the TVA.
Air Traffic Control
The Federal Aviation Administration (FAA) operates the nation’s
air traffic control (ATC) system, regulates aviation safety, and
provides grants to airports. The agency’s $16 billion budget is
mainly funded by taxes on aviation.260 The FAA has 45,000 employees.
The FAA has struggled to modernize the ATC system. It still
relies on 20th century technologies, such as radar and voice radio,
despite the development of newer technologies, such as
satellite-based navigation and text communications. Air traffic
control is a high-technology industry, yet we are still running it
as an old-fashioned bureaucracy from Washington, D.C.
One of the problems with America’s ATC is stifling bureaucracy.
In a detailed analysis of the FAA’s performance, economist Robert
Poole found that the agency was risk averse and slow to make
decisions.261 It loses
high-skilled workers to private industry because of a lack of
federal pay flexibility and frustration with the government work
environment. Poole found that the FAA “is slow to embrace promising
innovations” and “is particularly resistant to high-potential
innovations that would disrupt its own institutional status
quo.”262 That is the opposite of
what is needed in the dynamic, technology-dependent aviation
Dorothy Robyn, a policy expert who worked in the Clinton and
Obama administrations, examined ATC reforms in a Brookings
Institution study. She concluded, “As a traditional government
agency constrained by federal budget rules and micromanaged by
Congress, the FAA is poorly suited to run what amounts to a
capital-intensive, high-tech service business.”263 She noted that as late at the 1990s the
FAA was the nation’s largest purchaser of vacuum tubes.
Another problem with our ATC system is Congress. Politicians,
Robyn says, have “long blocked large-scale consolidation of the
FAA’s aging and inefficient facilities,” and Congress “micromanages
FAA spending on investment and maintenance.”264 The FAA’s so-called zombie air traffic
control towers, which receive little traffic, are another example
of politically induced waste. Both Robyn and Poole propose that the
ATC system be separated from direct federal control, as many other
nations have done.
One concern of both Robyn and Poole is that the FAA both
operates the ATC system and oversees aviation safety. That is a
conflict of interest. A basic principle of good governance is that
regulators should be independent of the entities they regulate. The
International Civil Aviation Organization recommends just such a
separation for the ATC. Separating the aviation regulator from the
ATC operator would increase transparency because hidden decisions
made internally within the FAA today would instead be made
A high-performing ATC system is important for the U.S. economy,
yet the rising demand for air travel is expected to severely strain
the FAA. Airspace is getting crowded and our antiquated ATC is
causing delays, wasting fuel, and generating pollution.
Transitioning to new technologies, such as satellite-based
navigation, would increase safety while also raising airspace
capacity, reducing delays, and saving fuel by allowing aircraft to
fly more direct routes. New technologies would also save costs by
reducing the number of ATC facilities needed across the
The FAA has long struggled to upgrade its technology. A 2005
Department of Transportation study looked at 16 major ATC projects
and found that the combined costs had risen from $8.9 billion to
$14.5 billion.266 A 2005 GAO
analysis concluded, “For more than two decades, ATC system
acquisitions under the National Airspace System modernization
program have experienced significant cost growth, schedule delays,
and performance problems.”267
A 2012 GAO report found that half of FAA’s major acquisition
programs were behind schedule.268 And a 2016 auditor’s report found that
several critical programs “remain over budget and behind schedule
due to overambitious plans, unresolved requirements, software
development problems, ineffective contract management, and
unreliable cost and schedule estimates.”269
The FAA has made some advances, but the 2016 auditor’s report
found that its “total budget, operations budget, and compensation
costs have doubled while operational productivity
. . . has decreased substantially.”270 Another recent report found shortcomings
in the FAA’s workforce management, including too few qualified
controllers at numerous major airports.271
A report from the U.S. Travel Association warned that our “air
traffic control system uses technology from the World War II era
that causes systematic delays and cancellations,” and that upgrades
remain “mired by setbacks, cost overruns and delays as a result of
FAA mismanagement” and budget cuts.272 A report from the Eno Center for
Transportation found that “many stakeholders are losing confidence
in FAA’s ability to move forward” with technology
Our ATC system needs to be restructured. Other nations have made
their systems partly or fully independent of their governments.
Canada privatized its ATC in 1996, creating a self-funded nonprofit
corporation called Nav Canada. That reform was the model for
legislation introduced by House Transportation and Infrastructure
Committee chairman Bill Shuster (R-PA) in 2016, which would
transfer our system to an “independent, not-for-profit corporation”
that would have a “self-sustaining, cost-based user fee
structure.”274 The legislation
was passed out of committee but will likely not pass Congress this
Since privatization, Nav Canada has won three International Air
Transport Association Eagle Awards as the world’s best ATC
provider.275 The association
reports that Nav Canada is a “global leader in delivering top-class
performance”; and its “strong track record of working closely with
its customers to improve performance through regular and meaningful
consultations, combined with technical and operational investments
supported by extensive cost-benefit analysis, place it at the
forefront of the industry’s air navigation service
In Canada, funding was changed from a government ticket tax to
direct charges on aircraft operators for services provided. Nav
Canada’s revenues come from charges for en route and terminal
services. Airlines are charged for flying through Canadian airspace
and for landing at Canadian airports. Those cost-based charges are
a more efficient way to price ATC services than the U.S. system,
which is based on ticket fees and general federal revenues. Dorothy
Robyn notes, for example, that the U.S. system biases airlines in
favor of multiple small jets for routes, when a single larger jet
would be more efficient from an ATC perspective.277
Nav Canada is a private monopoly, which might raise concerns
that its user charges would rise excessively. But that has not
happened. Indeed, Nav Canada’s real customer charges have fallen by
one-third over the past decade, as efficiency has
increased.278 The system is
handling 50 percent more traffic now than before privatization, but
with 30 percent fewer employees.279 One reason for the good performance is
that airlines and other aviation stakeholders are represented on
Nav Canada’s corporate board, and those stakeholders have a strong
interest in increasing safety and efficiency while reducing
People may also be concerned that an important institution such
as ATC be open and transparent. That is what privatization can
achieve. Nav Canada publishes regular reports detailing its
financial and operating metrics. For example, it publishes an
in-depth annual safety plan and is proud to be among the top ATC
systems worldwide for safety. One key metric known as losses of
separation has been cut in half since privatization, as safety has
improved.280 Another advantage
of privatization is innovation. Nav Canada has become a leader in
its field and is praised for its sound finances, solid management,
and investment in new technologies. According to the company’s
former chairman, Nav Canada has “sold and installed our home-grown
technology around the world from Australia to Hong Kong to Dubai,
and all over the U.K. and Europe.”281
In Senate hearings in 2015, the head of the U.S. National Air
Traffic Controllers Association described some of Canada’s
They have the air traffic controller, the engineer, and
the manufacturer working together from conceptual stage all the way
through to training, implementation, and deployment within their
facilities. And what that does is it saves time and money. And they
actually are developing probably the best equipment out there, and
they are selling it around the world. And they are doing it in a
30-month to three-year time frame, when we have to look much longer
down the road because of our procurement process in this
In 2016 the air traffic controllers association backed the
Shuster legislation to move ATC to a nonprofit
corporation.283 It may seem odd
for a labor union to support such reforms, but the controllers are
concerned that our ATC system is not receiving the steady funding
and advanced technology that it needs. A self-funded system would
create more financial stability than the current system, which is
buffeted by chaotic federal budget battles.
A 2009 report by Glen McDougall and Alasdair Roberts compared
the FAA to 10 partly or fully “commercialized” (or privatized) ATC
systems in other countries.284
They looked at performance and safety data and conducted hundreds
of interviews with managers, workers, and users of the different
systems. They found that, generally, service quality improved,
safety improved, and costs were reduced with
A 2005 GAO study looked at the performance of commercial ATC
systems in Australia, Canada, Germany, New Zealand, and the United
Kingdom. It concluded that those systems had cut costs, invested in
new technologies, and either maintained or increased
safety.286 The United Kingdom
privatized its ATC in 2001 as a for-profit business, called NATS,
with ownership shares split between private investors, NATS
workers, and the government. The British government has announced
that it will sell its remaining stake in NATS.287
In the United States, various studies and commissions since the
1970s have recommended ATC restructuring or
privatization.288 In the 1990s,
the Clinton administration proposed separating ATC from the FAA and
setting it up as a self-funded government corporation.289 In 1997, the National Civil Aviation
Review Commission, chaired by Norman Mineta, also proposed a
self-funded ATC system.290
Today, the dominant reform model is the Canadian system, which
inspired the 2016 House legislation of chairman Shuster.
Privatization would give ATC leaders the flexibility, incentives,
and funding they need to improve efficiency and innovate. New
technologies are the key to reducing flight times, cutting fuel
costs, and minimizing the environmental impact of aviation.
Privatization would also encourage America’s ATC organization to
develop technologies that it could sell globally.
In a recent interview, the head of Nav Canada, John Crichton,
was blunt: “This business of ours has evolved long past the time
when government should be in it. . . . Governments
are not suited to run . . . dynamic, high-tech, 24-hour
The federal government owns 640 million acres of land, which is
28 percent of the land in the United States.292 It owns 61 percent of the land in Alaska
and 47 percent in the 11 coterminous western states, but just 4
percent of the land in the other 38 states. The federal agencies
with the largest land holdings are the U.S. Forest Service (USFS)
in the Department of Agriculture and the Bureau of Land Management
(BLM), National Park Service (NPS), and Fish and Wildlife Service
in the Department of the Interior (DOI).
Americans generally support federal ownership of the major
national parks, such as Yellowstone. But many westerners have grown
frustrated with the top-down controls on much of the federal land
within their states. They want more local control because the
economic and environmental decisions made in faraway Washington,
D.C., often do not reflect their needs. Federal land and resource
management has been bureaucratic, restrictive, and inefficient.
For more than a century after the nation’s founding, the federal
government’s general policy was to sell or give away western lands
to individuals, businesses, and state governments.293 The federal government privatized 792
million acres of land between 1781 and 1940.294 Some of those acres, for example, were
privatized under Abraham Lincoln’s Homestead Act of 1862. In
addition, the federal government has transferred 471 million acres
of land to state governments. The federal government, for example,
transferred huge tracts of land to “western” states such as
Illinois and Missouri when they gained statehood in the 19th
century. The federal share of land in those middle states went from
about 90 percent to less than 4 percent. Yet states farther west,
such as Utah and Nevada, did not gain substantial ownership of
their lands; instead, those lands remain mainly in the hands of the
By the turn of the 20th century, federal policy came under sway
of progressives, who favored retention of lands and increased
federal control. That approach continues today. The federal
government’s Land and Water Conservation Fund, for example, spends
hundreds of millions of dollars a year on land
purchases.295 In addition, the
federal government has increasingly restricted the use of western
lands by state residents through such actions as “national
monument” designations. By 2015, President Obama had “established
or expanded 19 national monuments for a total of more than 260
million acres of public lands and waters, more than any previous
Such designations generally reduce the use of lands for
activities such as cattle grazing, logging, hunting, fishing, and
off-road recreational vehicles. A slew of federal environmental
laws passed since the 1960s adds another layer of restrictions on
land use. The overall effect is that westerners have less control
over their lands, resources, tax base, and economic development
than do easterners.297 Federal
agencies are increasingly putting up roadblocks to longstanding
uses of federal lands. Since the 1950s, for example, the amount of
grazing on BLM’s 155 million acres of grazing lands has been cut
roughly in half.298
Some recent land-related protests against the federal government
in the western states have attracted criticism because of the
tactics that protestors used. But recent news articles have also
captured the frustration of westerners about federal power
grabs.299 The Wall Street
Journal, for example, profiled a north Texas rancher whose
family had been grazing cattle on 900 acres of its own land for
more than 70 years; then, to their shock, the BLM swooped in and
grabbed 650 of those acres, claiming that the land was actually
When the government does allow the use of its lands and
resources, it often does not price them in a sound manner. It
generally sets fees for grazing, water, recreational activities,
mineral extraction, and other resources at below market levels,
which encourages overconsumption. As a result, federal lands cost
taxpayers billions of dollars a year for administration costs,
rather than producing a net return. Economists Terry Anderson,
Vernon Smith, and Emily Simmons noted, “It is remarkable that the
federal government actually loses money in the course of managing
federal land assets estimated to be worth billions. Moreover, the
federal government has a poor record of ecological
A 2015 study by the Property and Environment Research Center
compared western land management by the BLM and the USFS with land
management by four western state governments.302 It found that federal agencies generally
lose money managing their lands and resources, while state
governments earn a positive return. For example, the USFS generates
just 32 cents for each dollar it spends on timber management,
whereas state agencies earn an average $2.51 for each dollar they
spend. On rangeland management, the BLM earns just 14 cents for
each dollar it spends, whereas state agencies earn an average of
$4.89 for each dollar they spend. The federal grazing fee in 2014
was just $1.35 per “animal unit month,” but the fees charged by the
four state governments ranged from $2.78 to $11.41 per animal unit
In 2005 the GAO reported, “The grazing fees BLM and the Forest
Service charge … [are] generally much lower than the fees
charged by the other federal agencies, states, and private
ranchers.”303 The auditors found
that grazing fees collected by the BLM are only about one-fifth the
level needed for the agency to break even. The Congressional Budget
Office came to similar conclusions: “The current formula appears to
result in fees that are well below-market rates and below the costs
of administering the grazing program.”304
Federal grazing fees have remained at low levels in recent
decades even though grazing fees on private lands have risen
substantially in response to changing market supply and demand
interesting factor is that, whereas the BLM sets its grazing fee
annually for the entire western United States, private fees vary
substantially in different locations, as one might expect in the
Government pricing often causes distortions, and federal grazing
fees are no exception. Artificially low federal grazing fees may
encourage harmful overgrazing. However, the situation is
complicated. Federal grazing permits are generally attached to
particular parcels of private ranch lands, or base
property.306 As such, low
grazing fees are partly or fully capitalized in the value of those
private lands. Therefore, current ranchers may not receive the
benefits of the low federal grazing fees because they would have
paid a premium when they purchased their private land.307
This economic feature of western lands is the source of a lot of
tension. The long-running battle between the BLM and Nevada rancher
Cliven Bundy apparently stemmed from a 1993 BLM decision to cut
back on his grazing on federal lands because of concerns about
desert tortoises.308 Bundy and
his family had long grazed the lands and had a valid permit to do
so attached to his base private property. The tortoise decision
imposed a large capital loss on Bundy’s base property because its
value is directly related to the amount of grazing it can
In a recent study, Shawn Regan of the Property and Environment
Research Center noted that similar battles are going on all over
the western United States because the current grazing system
“encourages conflict, not negotiation.”309 The BLM and USFS, under pressure from
environmentalists, are imposing increasing restrictions on grazing
lands, which is disrupting longstanding ranching activities and
imposing capital losses on ranchers’ private property. Part of the
solution, according to Regan, is to allow ranchers more secure and
tradable property rights in their use of grazing lands and allow
them to transfer those rights directly to environmental groups that
want to protect sensitive areas. Under that system, rather than
lobbying politicians and officials and filling the courts with
litigation, the energy of environmentalists would be channeled into
voluntary conservation efforts in the marketplace.
A more thorough reform would be to begin privatizing BLM and
USFS grazing lands. Economist Steve Hanke pursued BLM land
privatization as a member of President Reagan’s Council of Economic
Advisers. He proposed that ranchers be offered the option to buy
the grazing land that they currently rent from the
government.310 The price would
be set so that the ranchers were charged for only that portion of
the BLM land value that has not already been paid for through
private ranch land premiums.
Privatization would create the benefit of secure property
rights. The fact that grazing lands are currently government-owned
makes ranchers insecure about their tenure, so they have an
incentive to overstock grazing lands and a disincentive to make
long-term investments to improve the lands.311 Such counterproductive incentives have
increased as the government has made grazing tenures more
precarious in recent decades. Thus, an advantage of privatization
would be to provide ranchers more incentives to plan their
rangeland management for the long term.
It is true that the BLM, USFS, and other federal agencies have
difficult tasks. They are supposed to optimally manage the use of
vast rangelands, timberlands, minerals, wildlife, water, and other
resources. But rather than trying to price the use of those
resources to ensure efficient use, federal agencies — under
sway of politicians — generally misprice and misallocate
Now let us consider the National Park System. The NPS operates
more than 400 parks, monuments, historic sites, and other areas.
The total acreage of NPS holdings has quadrupled from 20 million in
1940 to 85 million today. That is far too large an inventory to
manage efficiently, and many NPS sites suffer from deterioration.
Visitor centers are aging, artifacts are being vandalized, and
historic structures are getting damaged.312 About 60 percent of the 27,000 NPS
historic structures need repairs.313 The NPS and other DOI agencies have
accumulated somewhere between $14 billion and $20 billion in
The primary blame lies with Congress because it keeps adding to
NPS holdings without paying for the upkeep. In a report on the NPS,
former U.S. Sen. Tom Coburn (R-OK) said, “Politicians would rather
take credit for creating a new park in their community than caring
for the parks that already exist.”315 As a result, we end up with NPS sites
such as the Eugene O’Neill facility in California, which receives
only eight visitors a day but has nine full-time
staff.316 Most of the
least-visited parks and sites were established in recent decades,
and these facilities steer NPS resources away from the older
“national jewels” such as Yellowstone.
Another problem is that NPS does not charge visitors in an
efficient manner. Some NPS parks and sites charge users, but others
do not. Great Smoky Mountains National Park is the most visited
national park, yet it does not charge an entrance fee at all, even
though a modest fee of just $2 would cover its operating
costs.317 The overall average
charge for almost 300 million annual NPS visitors in 2012 was just
63 cents.318 The study by the
Property and Environment Research Center found a similar pattern of
low fees that do not cover expenses for USFS and BLM recreation
This discussion only scratches the surface of the complex issues
surrounding federal land holdings. There are contentious issues
regarding wildlife management, endangered species, wildfires,
energy and mining activities, and allowable recreational
activities. Many industries and jobs depend on the use of federal
lands and resources, so legislative and regulatory restrictions on
access affect state economies and many state residents.
As noted, there is great frustration about the heavy-handed way
that federal officials impose rigid regulations on western lands
and resources.319 The core
problem is that federal politicians and agency leaders are far
removed from the costs and benefits of their decisions. They cannot
fairly balance all the economic and environmental concerns within
What the federal government essentially tries to do is centrally
plan the interactions of millions of citizens with 640 million
acres of land and resources. A recent example showing the
difficulty of central planning is the government-created
overpopulation of wild horses on BLM lands.320 A 1971 statutory change sought to protect
the horses; but the change eliminated all the population-balancing
mechanisms, so now there are far too many horses in some western
states, and BLM has failed to find an administrative solution. A
similar overpopulation problem with federally protected burros on
BLM lands is playing out in Arizona.321
A final problem with federal land management is that federal
land agencies are subject to all the usual bureaucratic failings.
For example, DOI’s inspector general testified before Congress in
2006, “Simply stated, short of a crime, anything goes at the
highest levels of the Department of the Interior.”322 He lambasted the ethics failures of DOI
leaders and their “bureaucratic bungling” of oil and gas leases
that cost billions of dollars in lost revenues. That case was
typical of a “culture of managerial irresponsibility and lack of
accountability” at DOI, he noted.323 Another example of DOI mismanagement was
the negligent way that it mishandled billions of dollars of
royalties that were supposed to be accumulating in Indian trust
funds during the 20th-century.324
The best reform for federal lands is the original one —
transferring them to state governments and private owners. Many
parks, grazing lands, historical sites, and other assets should be
either privatized or transferred to state and local governments.
Residents of the western states can better balance the competing
needs of agriculture, ranching, industry, recreation, wildlife, and
environmental stewardship than policymakers in Washington, D.C.
For many NPS parks and sites, most of the visitors live in
state; thus, state ownership makes more sense than federal
ownership. Alternatively, individual parks and sites could be
transferred to private nonprofit organizations. Yet another option
would be for state governments to retain ownership of lands but
devolve operation and maintenance of parks to private
concessionaires. For some parks, the USFS and numerous state
governments currently use that sort of partial
For environmentally sensitive lands, an important development is
the growth of conservation land trusts. These organizations “have
emerged in recent years as central actors in land conservation,”
noted Resources for the Future in 2009.326 The number of land trusts in the nation
soared from 400 in 1980 to more than 1,700 today.327 These organizations include well-known
groups such as the Nature Conservancy and Ducks Unlimited.
Currently, 50 million acres are being conserved by land trusts
through ownership, easements, or other means.328
Nonprofit groups offer a more efficient way to manage
environmental resources than governments. One reason is that
nonprofits usually benefit from extensive volunteer efforts. The
Land Trust Alliance estimates that almost 350,000 volunteers
nationwide take part in managing land trusts.329 The private, charitable sector is unique
in the way it taps this vast workforce of low-cost, flexible, and
New York City has numerous examples of volunteer park efforts.
The Central Park Conservancy has managed Central Park since the
1990s.330 The group raises the
bulk of funding for the park’s maintenance from donations, and it
relies extensively on volunteers in its operations. Bryant Park,
which was restored from dereliction in the 1980s by private
efforts, is now managed and funded by a nonprofit
corporation.331 And the very
successful High Line Park was conceived by a private group and
partly funded by $44 million in private donations.332
Privatizing federal parks would increase transparency. As
already noted, Coburn’s study found that the NPS provides almost no
detail to the public about how individual parks spend their money.
By contrast, the private, nonprofit association that runs Mount
Vernon, home of George Washington, publishes audited financial
statements.333 Mount Vernon
relies on private support and does not receive government
In recent years, numerous western states have passed legislation
calling for the transfer of federal lands to the
states.334 At the federal level,
the next administration should create a detailed inventory of land
and resource holdings and identify those assets that can be moved
to state and private ownership. Congress and the administration
should then work with the states and begin paring back the vast
Buildings and Structures
The federal government owns or leases 275,000 buildings,
including offices, warehouses, and health facilities.335 The government also owns or leases
481,000 structures, such as parking lots and bridges. The annual
operating costs for the buildings and structures is $30
billion.336 The replacement
value of federal buildings and structures was estimated at $1.5
trillion in 2007.337
The federal government is a poor asset manager. The GAO has had
federal real property on its “high risk” waste list for years and
found that “many assets are in an alarming state of
deterioration.”338 A House
committee examining federal building mismanagement found that
buildings in prime locations in some cities have been left empty
for years.339 The committee also
found that agencies grabbed excessive office space, wasted money by
not coordinating with each other, and incurred excessive lease
The GAO noted that the government has “many assets it does not
need.”340 The Obama
administration found that “agencies have accumulated properties in
excess of what the government needs to effectively meet its
mission. This has resulted in a large number of excess properties
and underutilized or unutilized properties in the
portfolio.”341 According to one
estimate, the government has 77,000 buildings that are unused or
Excess federal buildings and structures should be sold. That
would put them into more productive private uses, and boost overall
efficiency in the economy. Selling assets would reap a short-term
revenue gain for the government, and it would broaden the property
and income tax bases — to the benefit of all levels of
Unfortunately, there are bureaucratic hurdles to selling federal
buildings. One problem is that the government does not know exactly
what it owns. The GAO says that the federal government has a “lack
of accurate and useful data to support decisionmaking” on its
properties.343 The government’s
property database held by the General Services Administration is
riddled with inaccuracies, such as faulty data on building
conditions, costs, and valuations.344 Oddly, the database is also apparently
withheld from Congress because it is “proprietary.”345
Another problem is that the process of selling properties is
lengthy, convoluted, and costly.346 Legally, properties must meet standards
of repair and environmental remediation before sale, but agencies
often do not have enough budgeted funds for that. Another hurdle is
that all surplus property must be evaluated for possible use by
homeless persons, and that evaluation — believe it or not
— can take two years to complete.347
As a result of such hurdles, many agencies put little effort
into selling unneeded assets. One solution would be for Congress to
mandate that agencies sell a certain dollar value of assets by a
specific date. To give agencies an added incentive, they would keep
a modest portion of sale proceeds. That approach was proposed in a
bill introduced by Rep. Jason Chaffetz (R-UT).348
There is hope for bipartisan reforms. President Obama issued a
memorandum in June 2010 that encouraged agencies to identify excess
assets and sell them.349 He
argued that privatizing unneeded federal buildings would be good
for both taxpayers and the environment. Obama noted, for example,
that private data centers had become more energy efficient over
time, but government data centers had not.
Obama administration official Jeffrey Zients said that hurdles
to federal property sales include a culture of inertia, lack of
funding in agency budgets for sales transactions, politicians who
prefer ribbon-cutting on new facilities over selling unneeded ones,
and 20 different laws that govern federal sales.350 Nonetheless, the administration has
reported some progress on property reforms, and in 2015, it
released a “national strategy” to continue the
Those efforts are positive but too modest. With a general
downsizing of the federal government, most federal buildings and
structures could be sold. For example, the Department of
Agriculture owns 21,000 buildings and 18,000 structures, which have
a market value of $30 billion or more.352 If the government were to abolish farm
subsidy programs and devolve the food stamp program to the states,
most of that infrastructure could be sold. The government would
also create savings in the department’s building operating costs,
which are $600 million a year.353
In the United Kingdom, the government launched a Right to
Contest initiative, under which citizens who think that particular
plots of government land or buildings are not being used
efficiently can ask for an official review.354 The government also created a website for
citizens to examine the status of particular government properties
across the nation.355 When those
initiatives were launched in 2014, the official in charge said
government “should not act as some kind of compulsive hoarder of
land and property.”356 We need
less “compulsive hoarding” by government on this side of the pond
Other Privatization Opportunities
Power Marketing Administrations
The federal government owns the Bonneville Power Administration,
the Southeastern Power Administration, the Southwestern Power
Administration, and the Western Area Power Administration. These
four utilities transmit wholesale electricity in 33 states. The
power is mainly generated by the 130 hydroelectric plants owned by
the Army Corps of Engineers and Bureau of Reclamation. Power
Marketing Administrations (PMAs) account for 7 percent of U.S.
The PMAs sell most of their power at below-market rates to
“preference” customers, meaning utilities owned by local
governments and more than 600 nonprofit rural electric
cooperatives.358 The PMAs and
utilities benefit from numerous subsidies. None of them pay federal
or state income taxes.359 The
local utilities issue tax-exempt bonds. The PMAs can borrow from
the U.S. Treasury at favorable rates, and PMA bonds have implicit
federal backing. Finally, some of the PMAs receive direct subsidies
from federal appropriations, which totaled $368 million in
Those subsidies distort the economy; they also harm the
environment because they result in artificially low prices, which
However, a portion of the subsidies are likely dissipated by
government inefficiencies, rather than benefiting consumers. A
Congressional Budget Office study in 1997 found that the
“managerial structure of the federal power program … makes it
hard to operate efficiently.”362
And it found “inadequate maintenance of power assets — a
problem that applies to all of the federal power agencies —
and low utilization rates of hydropower generating
capacity.”363 Private hydro dams
“produced an average of 20 percent more electricity per unit of
capacity than did [federal] dams supplying the power marketing
administrations.”364 In addition
to these hydropower shortcomings, one PMA — Bonneville
— also has a history of supporting boondoggle nuclear
The Congressional Budget Office has concluded that the reasons
for federal ownership of electricity assets that “might have been
appropriate in the 1930s are no longer valid.”366 That is true. There is no need for the
government to be in the hydropower business today, especially since
more than two-thirds of U.S. hydropower plants are already owned
The PMAs and the generating plants owned by the Army Corps of
Engineers and Bureau of Reclamation should be privatized. That
would increase operating efficiency and allow prices to be set at
market rates, thus ending incentives to overconsume power. For the
government, privatization would reduce spending by ending
subsidies, while raising revenue from the asset sales and taxation
of the privatized entities.
President Reagan proposed privatizing the PMAs in his 1986
budget. President Clinton oversaw the sale of the Alaska Power
Administration in 1996 but was unable to sell the other PMAs.
Congress should dust off the Clinton reform plans and let the
private sector run the electricity industry.
Army Corps of Engineers
The civilian part of the Army Corps of Engineers has more than
20,000 employees and annual net outlays of $7 billion. It
constructs and maintains water infrastructure such as locks,
waterways, and flood control structures. It owns and operates 75
hydropower plants, manages more than 4,000 recreational areas, and
performs other engineering and construction activities, such as
Although the Corps has built some impressive structures, it also
has a history of scandals and failures, including the disastrous
levee failures in New Orleans during Hurricane Katrina in 2005.
Congress has long used the agency as a pork barrel spending
machine, often directing funds to low-value projects in the
districts of important members of Congress.
The Corps does the analyses of proposed projects that it will
build itself, creating a bias toward large and expensive projects.
The Pentagon’s inspector general found that the Corps has a
“systemic bias” toward major construction and has been known to do
bogus studies to justify costly projects.368 A number of years ago, leaked internal
memoranda by Corps leaders revealed a strategy to “get creative” in
accounting in order to “get to yes as fast as possible” on proposed
The Corps has a poor environmental record because of its
pro-construction tilt. It has “channelized dozens of rivers for
barges that never arrived.”370
And its navigation and flood-control structures on the Mississippi
and other rivers may have made flooding worse by forcing rivers
into narrow channels, destroying wetlands, and encouraging the
development of flood-prone areas.371 In his classic 1993 book on federal water
infrastructure, Cadillac Desert, Marc
Reisner said that the Corps has “ruined more wetlands than anyone
in history, except perhaps its counterpart in the Soviet
A 1971 book by distinguished engineer Arthur Morgan, Dams
and Other Disasters, castigated the Corps for its arrogance
and mismanagement.373 It
described how the agency underestimated the costs of projects,
followed shoddy engineering practices, lied to the public, hid
information, and pursued environmentally damaging projects. Former
U.S. Senate majority leader Tom Daschle said the Corps is “one of
the most incompetent and inept organizations in all the federal
Here is the good news: we do not need a federal agency to build
civilian water infrastructure. The Corps is filling roles that
private engineering and construction companies could fill. When the
states need to construct and maintain levees, harbors, beaches,
inland waterways, and recreational areas, they should hire private
companies to do the work. The Army Corps of Engineers should be
privatized and compete for such work.
Consider the Corps’ harbor maintenance activities, which are
funded by a federal harbor maintenance tax collected from shippers
on the basis of the value of cargo. The tax generates about $1.6
billion a year and is spent on projects chosen by Congress and the
Corps. But the federal government is an unneeded middleman here
— local seaport authorities could impose their own charges on
shippers to fund their own dredging and maintenance activities.
That way, seaports could respond directly to market demands, rather
than having to lobby Washington for funding.
The Corps’ 75 hydropower plants should also be privatized. More
than two-thirds of U.S. hydropower plants are owned privately, and
those plants produce more than one-quarter of U.S.
hydropower.375 While federal
facilities dominate hydropower in the western United States,
eastern states such as New York and North Carolina have substantial
private hydropower. The private sector is entirely capable of
owning and operating hydropower plants.
Bureau of Reclamation
The federal Bureau of Reclamation is at the center of water
policy in the arid American West. For more than a century, the
agency has built and operated dams, canals, and hydropower plants
in the 17 western states. It owns 76 hydropower plants and is the
largest wholesaler of water in the nation.376 It has 5,200 employees and net budget
outlays of $1.5 billion annually.
Reclamation’s policies have created economic distortions and
environmental damage. Numerous dams were not worth the cost of
construction and only won approval because of pork barrel politics.
About four-fifths of the water that Reclamation supplies today goes
to farmers, who receive it at a fraction of its market value.
Subsidized irrigation water causes various environmental harms,
including inefficient water use, high salinization levels in
rivers, and damage to wetlands.
In the 19th century, irrigation was a state, local, and private
concern. The Mormons, for example, arrived in Salt Lake Valley in
1847 and within a year had created an irrigation system covering
5,000 acres.377 But lobbying by
western interests, such as the railroads, paid off with the
Reclamation Act of 1902, which launched massive federal dam
building. From the beginning, projects were chosen based on
politics, not because they made sense on a cost–benefit
Despite Reclamation’s huge investments to increase supply, the
western United States is in the midst of a serious water crisis
today. Groundwater levels are falling and surface sources of water
are tapped out. Major river systems in the west have been
engineered by federal and state water infrastructure to maximize
water consumption. But the drought of recent years has exposed
longstanding failures in government policies.
The underlying problems of western water stem from misguided
policies on water prices and water transfers. Governments have kept
prices artificially low for so long that they have encouraged water
use in low-value activities. Water subsidies combined with federal
farm subsidies have encouraged inefficient agricultural
Restrictions on water transfers between users add to the
problems. Surface water in the western states is generally
allocated by government rules, not by markets. Farmers who receive
Reclamation water often do not have the option to resell it, so it
gets locked into low-value uses. Water shortages are often caused
by restrictions on transfers, not overall supply problems. The
solution is to end the subsidies and liberalize rules on transfers
so that water prices reflect market supply and demand. That would
promote efficiency and benefit the environment.
Water policy issues are hugely contentious in the western
states. In the long run, they cannot be solved in Washington, nor
should they be. Water policy should be handled by the states, which
should control their own water infrastructure. Congress should
transfer water infrastructure to state and local governments, who
in turn should consider privatizing it. The single largest
Reclamation project is the Central Valley Project; its huge
facilities are all located in California and should be transferred
to that state.
In the 1990s, efforts were made to devolve Reclamation
facilities. Under its “reinventing government” initiative, the
Clinton administration sold federal water projects to local
irrigation districts.379 About
19 Reclamation projects were transferred to nonfederal
owners.380 Experience has shown
that local control of water infrastructure increases efficiency as
a result of lower labor costs, less paperwork, and faster
Congress should privatize the 76 hydropower plants owned by
Reclamation. That reform should be combined with privatizing the
PMAs that transmit the power produced in Reclamation dams.
In a 2015 book, former commissioner of the Bureau of Reclamation
Daniel Beard describes how the agency “destroyed hundreds of miles
of free-flowing rivers, promoted excessive water use, and sent
billions of dollars in subsidies to a small number of
people.”382 With decades of
expertise on water issues under his belt, Beard called for
abolishing the Bureau of Reclamation, and Congress should heed his
Transportation Security Administration
The government nationalized airline security screening in 2001
with the creation of the Transportation Security Administration
(TSA). Today, TSA operates screening at about 450 commercial
airports. It has 59,000 employees and net annual outlays of about
The government takeover of airport screening was a mistake.
Federal auditors have found that TSA’s screening performance has
been no better, and possibly worse, than private screening. TSA has
become known for mismanagement, dubious investments, and security
A House committee reported in 2012 that TSA’s operations are
“costly, counterintuitive, and poorly executed.”383 A House report in 2011 said that TSA
“suffers from bureaucratic morass and mismanagement.”384 And former TSA chief Kip Hawley said that
the agency is “hopelessly bureaucratic.”385
In undercover tests in 2015, investigators slipped guns and fake
bombs past TSA screeners at numerous airports a remarkable 95
percent of the times they tested. That result prompted a former TSA
chief to comment, “[I]t’s just completely unacceptable to have such
a high failure rate.”386
The government conducts annual surveys on employee satisfaction
in more than 200 federal agencies, and TSA is usually ranked one of
the worst.387 TSA has high
workforce turnover, and there are frequent reports of employee
misconduct.388 A House committee
report described the agency as “an enormous, inflexible and
distracted bureaucracy” that has “lost its focus on transportation
TSA misallocates its investment. It spends more than $200
million a year on the Screening of Passengers by Observation
Techniques (SPOT) program, which tries to catch terrorists by their
suspicious behaviors in airports. According to the GAO, TSA
deployed SPOT nationwide before validating the science behind it.
The GAO found little, if any, evidence that SPOT works and
recommended that it be canceled, but the program continues to
TSA spent hundreds of millions of dollars on poorly performing
full-body scanners from 2009 to 2013. These were the backscatter
radiation machines that caused a civil liberties backlash because
of the nude images they showed. After the machines were withdrawn
from airports, a team of outside experts tested them. They reported
in 2014 that terrorists carrying various types of weapons and
explosives could have easily fooled the machines.391
The problem is that TSA is a secretive near monopoly. It is
difficult for policymakers and the public to judge the agency’s
performance and hold it accountable for results. The solution is to
devolve airport screening operations to the nation’s airports.
Airports would then be able to contract security operations to
expert private firms. That would allow diversity and innovation in
security techniques and management, and allow open comparisons of
performance across airports.
Congress has allowed more than a dozen U.S. airports to use
private screeners, which makes possible some comparisons. Over the
past decade, numerous studies have found that private screeners
perform on security at least as well as, if not better than,
government screeners.392 Private
screeners at San Francisco International Airport, for example, have
been found to perform better than federal screeners at Los Angeles
Devolving all screening operations to the nation’s airports
would end the conflict of interest stemming from TSA’s roles as
both overseer and operator of screening. Under a restructured
system, the federal government would retain its role in aviation
oversight and security intelligence. But airports would hire
aviation security firms to screen; if those firms did not achieve
high-quality results, airports could fire them. Private firms have
incentives to invest in procedures that add security in the most
Most other high-income nations use private airport screening.
More than 80 percent of Europe’s commercial airports use private
screening, including those in the United Kingdom, France, Germany,
and Spain. Canada uses private screening at all its major airports.
After 9/11, Canada created an oversight agency for aviation
security, but the screening itself is done by private firms, which
compete for contracts to handle different airports. Private
businesses make mistakes, but unlike government bureaucracies, they
are more likely to improve their performance over time, especially
when they face competition.
Veterans Health Administration
The Veterans Health Administration (VHA) will spend $68 billion
this year on its system of 150 medical centers, 1,400 clinics, and
numerous other facilities for veterans.393 The VHA owns the facilities and employs
about 320,000 doctors, nurses, and administrators to operate the
system.394 The VHA is an outlier
in American health care, as even the giant Medicare and Medicaid
programs rely on services provided through privately owned and
operated health facilities. The VHA system serves about 8 million
veterans each year.395
The VHA suffers from the usual problems of government
monopolies, such as the misallocation of resources, excessive
bureaucracy, congestion, and a lack of transparency. VHA’s
facilities, for example, are overcrowded in the states where the
population of veterans is growing, but they have excess capacity in
other states. Allocation of resources is based partly on political
factors, not market demands.
The VHA has a huge backlog of about 900,000 pending applications
from veterans, and many veterans face long waits for doctor
appointments.396 VHA capital
investment is inefficient, and often results in large cost
overruns. GAO studied the four largest VHA hospital construction
projects in 2013 and found that the combined costs of the projects
had doubled.397 GAO pinned the
blame on “weaknesses in VA’s construction management
A major scandal erupted in 2014 regarding waiting lists for VHA
services. Investigators found that many veterans face excessively
long waits, with some veterans dying before their scheduled
appointments. VHA administrators were found to routinely falsify
data to hide the long wait times. The scandal initially focused on
the Phoenix VHA hospital, but investigators found that improper and
fraudulent scheduling practices were a “nationwide systemic
problem.”399 A September 2015
report from the VA’s Inspector General found that the agency’s
system for tracking patient enrollments was a mess.400
A 2014 report from the Obama White House lambasted the VHA,
saying it suffered from “significant and chronic system
failures.”401 The system has a
“corrosive culture of distrust,” “acts with little accountability
or transparency,” and “encourages discontent and backlash against
employees.” The White House report also said that the VHA has
unresponsive leadership and its insularity has impeded innovation
Even Sen. Bernie Sanders (D-VT) chimed in: “No organization the
size of VA can operate effectively without a high level of
transparency and accountability. . . . Clearly, that
is not the case now at the VA.”402 But the mistake Sanders and others make
is to think that simple management reforms can fix such problems.
They do not realize that these sorts of problems are endemic and
systemic in large federal bureaucracies, particularly monopolies
such as VHA.
Fundamental reforms are needed in the direction of privatizing
veterans’ care. In response to the crisis, Congress passed a law in
2014 that included a Choice Card allowing some veterans to go to
private health facilities if they were not able to get an
appointment within 30 days or if they lived more than 40 miles from
a VHA facility.403 But Congress
should take further steps in the direction of individual choice in
veterans’ health care. Ultimately, veterans’ health facilities
should be privatized, and all veterans should receive vouchers to
access care at private facilities of their choice.404
Government as Purchaser
The main focus of this study has been activities that the
federal government should get out of completely, such as the
electric power business. There are other activities that the
government will continue to fund but could be partly privatized,
such as veterans’ health care. The Office of Management and Budget
(OMB) found that about 850,000 federal workers have been
“identified as performing commercial activities.”405 Generally, such activities can be
purchased from contractors, and OMB Circular A-76 describes a
process to determine when that makes economic sense.406 The Clinton and Bush administrations, as
noted, successfully privatized 187,000 units of military housing.
That initiative improved housing quality, reduced housing costs
about 10 percent, and cut energy use.407 The next president should expand such
Government as Seller
The federal government not only purchases products from the
private sector, it also sells them to the private sector. But that
often puts the government in competition with private
firms.408 The USPS, for example,
delivers packages in competition with FedEx and UPS. The government
sells many other products as well, including maps, pest eradication
services, and laboratory work.409 Allowing the government to sell items
that the private sector can or does sell makes no sense. Congress
should privatize such activities, and bar federal agencies from
entering activities that private businesses perform.
This study has described an array of federal businesses and
assets that should be privatized. But there are many others. The
government should sell financial assets and businesses, such as its
portfolio of student loans and the mortgage giants Fannie Mae and
Freddie Mac. It should sell some of the 260 million ounces of gold
that it holds at Fort Knox and elsewhere.410 At a price of about $1,200 an ounce, the
gold stockpile is worth more than $300 billion.
The government should sell its stockpile of about 700 million
barrels of crude oil in the Strategic Petroleum Reserve
(SPR).411 Our oil security rests
on market forces and a diversity of supplies in the global economy,
not the SPR.412 At about $40 a
barrel, the SPR is worth roughly $28 billion. Taxpayers would also
save annual SPR operating costs of more than $200 million.
Congress should also remove federal barriers to state and local
privatization. State and local governments own highways, bridges,
seaports, airports, and other infrastructure. Much of that
infrastructure can be financed, built, and operated by the private
sector. It can be fully privatized in some cases, or partly
privatized through public-private partnerships.413 Such partnerships shift elements of
building, financing, management, operations, and project risks to
the private sector.
The United States lags countries such as Australia, the United
Kingdom, and Canada on infrastructure privatization and
public-private partnerships. One reason is that the federal income
tax exemption for state and local bond interest allows governments
to finance infrastructure at a lower cost than private businesses
can. Congress should repeal this tax break and level the playing
field between government and private infrastructure projects.
Federal spending subsidies also stack the deck against state and
local privatization. The federal government provides grants for
government-owned airports and urban transit but not private
airports and urban transit. Those federal subsidies should be
repealed. Also, federal rules that require state and local
governments to repay past aid if facilities are privatized should
be repealed. Politicians love to tout the economic benefits of
public infrastructure, but if they leveled the playing field, the
private sector would provide much more of it.
A study by Jonathan Karpoff provided a unique comparison between
government and private enterprise. He looked at 92 missions of
discovery to the Arctic and the North Pole during the 19th century,
some of which were private and some government.414 Karpoff found that the private missions,
on average, performed substantially better than the government
ones, even though the latter were better funded. Private missions
made more discoveries, and they lost fewer expedition members and
ships. The study illustrated the importance of institutional
structures on incentives. Unlike governments, private entrepreneurs
face strong incentives to generate value, pursue innovations, and
achieve their stated goals.
Margaret Thatcher believed that the 20th-century takeover of
industries by governments was a mistake and that decentralized
efforts by private businesses are superior to state efforts. The
results of three decades of privatization around the world have
proven her right. Thousands of government businesses have been
privatized, and very few have been renationalized. The revolution
begun by Thatcher has been sustained because leaders of all
political stripes have recognized that privatization simply
Privatization increases economic efficiency, spurs
entrepreneurship, creates greater transparency, and benefits the
environment. Private-sector organizations make many mistakes, but
they are also constantly fixing them. They have to innovate to keep
up with the changing needs of society. By contrast, federal
organizations, such as Amtrak, the USPS, and the FAA, follow failed
and obsolete approaches decade after decade.
The next president should work with Congress to line up the best
candidates for privatization, explain the benefits of reform to the
public, and move ahead with legislation. With many activities, such
as postal services and air traffic control, we can look to the
extensive experience from abroad about how to structure
It is true that reforms would face political hurdles, as
interest groups defended the status quo. A British expert noted
that “nearly every U.K. privatization was a struggle.”415 But the world is always changing, and
that creates fresh opportunities for reform-minded leaders.
Margaret Thatcher dared not privatize the Royal Mail, but current
Prime Minister David Cameron recently did so because it had become
clear that a snail-mail monopoly has no place in an email
America is still the dominant economy in the world, but the
privatization revolution shows that we have a lot to learn about
economic reforms from abroad. In many countries, politicians have
let entrepreneurs take a crack at long-sheltered government
fiefdoms. American leaders should show the same boldness and let
entrepreneurs replace federal bureaucracies wherever they can.
1. Worldwide privatization proceeds between 1988 and
August 2015 were $3.26 trillion. See William L. Megginson,
“Privatization Trends and Major Deals in 2014 and Two-Thirds 2015,”
in “The PB Report 2014/2015,” Privatization Barometer,
www.privatizationbarometer.net. This amount does not include the
privatizations done through distribution of free vouchers, which
was common in Eastern Europe in the 1990s.
2. Peter F. Drucker, “The Sickness of Government,”
The Public Interest 14 (Winter 1969): 4.
3. The word privatization was used
occasionally in the mid–20th century, but it was Thatcher’s
government that popularized it. See Germa Bel, “The Coining of
‘Privatization’ and Germany’s National Socialist Party,”
Journal of Economic Perspectives 20, no. 3 (Summer 2006):
187–94. Initially, Thatcher did not like the word
privatization, but other terms had shortcomings as well,
and so she began using it publicly in 1981. See Charles Moore,
Margaret Thatcher: At Her Zenith in London, Washington and
Moscow (New York: Alfred Knopf, 2016), pp. 34, 39. Meanwhile,
in the United States, economist Steve Hanke was helping popularize
the word. See Dan Balz, “Once Riding High, Sagebrush Rebels Turn in
Midstream,” Washington Post, April 10, 1982.
4. Organisation for Economic Co-operation and
Development (OECD), Privatising State-Owned Enterprises
(Paris: OECD, 2003), p. 21.
5. Chris Aulich and Janine L. O’Flynn, “From Public
to Private: The Australian Experience of Privatisation,” Asia
Pacific Journal of Public Administration 29, no. 2 (December
2007): 161. About $160 billion in federal and state privatization
in Australian dollars is more than $100 billion in U.S.
6. William L. Megginson, The Financial Economics
of Privatization (Oxford, U.K.: Oxford University Press,
2005), p. 17.
7. Dieter Brauninger, “Privatisation in the Euro
Area: Differing Attitudes towards Public Assets,” Research
Briefing, Deutsche Bank, August 20, 2013, p. 4. See also Dieter
Brauninger, “Privatisation in the Euro Area: Governments Should
Grasp Opportunities,” Research Briefing, Deutsche Bank, July 31,
2015, p. 5.
8. Alberto Chong and Florencio
López-de-Silanes, “Privatization in Mexico,” Inter-American
Development Bank, August 2004, p. 8.
9. Julia Borrmann, et al., “The Privatisation
Goldmine,” New Direction Foundation (Brussels), June 2013, p.
10. The Labour government in the United Kingdom,
the Liberal government in Canada, the Socialist government in
France, the Labour government in New Zealand, and the Labor
government in Australia all privatized.
11. Megginson, The Financial Economics of
Privatization, p. 4.
13. William L. Megginson, “Privatization and
Finance,” Annual Review of Financial Economics 2 (December
14. Worldwide privatization proceeds between 1988
and August 2015 were $3.26 trillion. See Megginson, “Privatization
15. The privatized Royal Mail delivers letters and
packages. The government retained what is now called the Post
Office, which is a retail chain providing postal and other
16. OECD, Privatising State-Owned
Enterprises,” p. 9.
17. William L. Megginson and Jeffry M. Netter,
“From State to Market: A Survey of Empirical Studies on
Privatization,” Journal of Economic Literature 39, no. 2
(June 2001): 25.
18. Robert Poole, “Ronald Reagan and the
Privatization Revolution,” Reason Foundation, June 8, 2004.
19. The USEC sold uranium to nuclear utilities. The
company filed for bankruptcy protection in 2014 in the wake of
falling demand. It was restructured and adopted the name Centrus
Energy. Intelsat was owned by a consortium of countries and was
privatized by the Orbit Act of 2000.
20. Thatcher began using the word
privatization publicly in 1981. See Moore,
Margaret Thatcher: At Her Zenith, pp. 34, 39.
21. U.K. Department for Communities and Local
Government, English Housing Survey: Headline Report
2014–2015 (London: U.K. Government, February 2016),
Annex Table 1.1. A Guardian story said the drop was from
42 percent to 8 percent: John Harris, “The End of Council Housing,”
The Guardian, January 4, 2016.
22. Margaret Thatcher, The Downing Street
Years (New York: HarperCollins, 1993), p. 676.
24. Mark Milke, “The Iron Lady for a New
Generation: Why Margaret Thatcher Mattered,” Fraser Forum,
Fraser Institute, March/April 2012. Walters was in close contact
with the Canadian Fraser Institute and was familiar with the
institute’s book: Theodore M. Ohashi and T. P. Roth, eds.,
Privatization: Theory and Practice (Vancouver, British
Columbia: The Fraser Institute, 1980). The book described
privatization of the British Columbia Resources Investment
Corporation, which was the largest Canadian share offering to that
25. Ohashi and Roth, Privatization: Theory and
26. For a discussion of privatization methods, see
Organisation for Economic Co-operation and Development,
Privatisation in the 21st Century: Recent Experiences of OECD
Countries (Paris: OECD, 2009).
27. Thatcher, The Downing Street
Years, p. 680.
28. Megginson, The Financial Economics of
Privatization, p. 15.
29. OECD, Privatising State-Owned
Enterprises, p. 24.
30. Moore, Margaret Thatcher: At Her
Zenith, p. 211.
31. However, there was tension in some
privatizations, such as with British Gas, between increasing
industry competition and maximizing the sale value by privatizing
companies as a single unit rather than splitting them up.
32. For example, see David Parker, “The UK’s
Privatisation Experiment,” CESifo (Munich) Working Paper no. 1126,
February 2004, p. 12.
33. Ibid., p. 22.
34. The table is based on various sources. One good
source is Chris Rhodes, David Hough, and Louise Butcher,
“Privatisation,” Research Paper 14/61, British House of Commons
Library, November 20, 2014. Another is Megginson, The Financial
Economics of Privatization, app. 1.
35. Peter Lloyd and Anne-Mari Nevala, The
Employment Impact of the Opening of Electricity and Gas
Markets (Brussels: European Commission, March 2007), p. 14.
See also Parker, “The UK’s Privatisation Experiment,” p. 12. Parker
cites a smaller employment drop for gas.
36. Ryan Bourne and Tim Knox, “What Did
Privatisation Do for Us?” Centre for Policy Studies Growth Bulletin
no. 28, April 11, 2013. See also Stuart Holder, National Economic
Research Associates, “Privatisation and Competition: The Evidence
from Utility and Infrastructure Privatisation in the UK” (paper
presented at 12th plenary session of OECD Advisory Group on
Privatisation, Helsinki, September 1998).
37. Moore, Margaret Thatcher: At Her
Zenith, p. 39.
38. Her Majesty’s Treasury, Implementing
Privatisation: The UK Experience (London: HM Treasury, 1997),
39. Parker, “The U.K.’s Privatisation Experiment,”
pp. 15, 16, 41.
40. David M. Newbery and Michael G. Pollitt, “The
Restructuring and Privatization of the U.K. Electricity Supply
— Was It Worth It?” World Bank Viewpoint Note no. 124,
41. Her Majesty’s Treasury, Implementing
Privatisation, p. 14.
42. Parker, “The U.K.’s Privatisation Experiment,”
43. Holder, “Privatisation and Competition,” p.
44. John Blundell, “The Miracle of Privatization,”
The Freeman, September 1, 2000. See also Daniel Yergin and
Joseph Stanislaw, The Commanding Heights (New York: Free
Press, 1998), p. 101.
45. Bourne and Knox, “What Did Privatisation Do for
46. Yergin and Stanislaw, Commanding
Heights, p. 97.
47. Emma Simon, “Thatcher’s Legacy: How Has
Privatisation Fared?” Telegraph, April 12, 2013. See also
Her Majesty’s Treasury, Implementing Privatization, p.
48. Parker, “The U.K.’s Privatisation Experiment,”
49. Rhodes, Hough, and Butcher, “Privatisation,”
50. For a detailed examination, see John Hibbs et
al., The Railways, the Market and the Government (London:
Institute of Economic Affairs, 2006).
51. For example, see Richard Wellings, “The
Privatisation of the U.K. Railway Industry,” Economic
Affairs 34, no. 2 (June 2014): 255–66. See also the
discussion in Hibbs et al., The Railways.
52. For a brief history, see John Hibbs, “Railways
and the Power of Emotion: From Private to Public Ownership,” in
Hibbs et al., The Railways.
53. Association of Train Operating Companies,
Growth and Prosperity: How Franchising Helped Transform the
Railway into a British Success Story (London: Association of
Train Operating Companies, July 2013). See also the data set that
goes with the report at
54. For the recent trip data, see U.K. Department
of Trade and Investment, The U.K. Rail
Industry: A Showcase of Excellence (London: U.K. Government,
2014). See the “Overall Passenger Growth” chart.
55. See historical data in Joseph Vranich, End
of the Line: The Failure of Amtrak Reform and the Future of
America’s Passenger Trains (Washington: American Enterprise
Institute, 2004), p. 144.
56. Rico Merkert and Chris Nash, “The Restructuring
of the Rail System in Britain,” in Hibbs et al., The
Railways, pp. 81, 82. More recent data are at
57. Paul Ormerod, “Evolutionary Approaches to
Privatisation,” Economic Affairs 34, no. 2 (June 2014):
58. Merkert and Nash, “Restructuring of the Rail
System,” p. 83. See also Wellings, “Privatisation of the U.K.
Railway Industry,” p. 259.
59. See the European Commission study discussed in
Department of Trade and Investment, UK Rail Industry.
60. John Campbell, The Iron Lady (New
York: The Penguin Group, 2009), p. 402.
61. U.K. National Audit Office, The Economic
Regulation of the Water Sector (London: National Audit Office,
October 14, 2015), p. 7.
62. Ofwat, The Development of the Water
Industry in England and Wales (Birmingham, U.K.: Office of
Water Services, January 2006). See also George Day, “An Insider’s
View of U.K. Privatization,” Global Water Intelligence 3,
no. 1 (January 2012); U.K. National Audit Office, The Economic
Regulation of the Water Sector, p. 23; and Ofwat, “Leakage,”
63. Worldwide privatization proceeds between 1988
and August 2015 were $3.26 trillion. See Megginson, “Privatization
64. William L. Megginson, Robert C. Nash, and
Matthias Van Randerborgh, “The Financial and Operating Performance
of Newly Privatized Firms: An International Empirical Analysis,”
Journal of Finance 49, no. 2 (June 1994):
65. Juliet D’Souza and William L. Megginson, “The
Financial and Operating Performance of Privatized Firms during the
1990s,” Journal of Finance 54, no. 4 (August 1999):
67. Bernardo Bortolotti, Marcella Fantini, Domenico
Siniscalco, “Privatisation around the World: Evidence from Panel
Data,” Journal of Public Economics 88 (2003): 306.
68. Chong and López-de-Silanes,
“Privatization in Mexico,” p. 5.
69. Ibid., abstract.
70. Anthony E. Boardman and Aidan R. Vining, “A
Review and Assessment of Privatization in Canada,” School of Public
Policy, University of Calgary, January 2012, summary.
71. Ibid., p. 21.
72. John Nellis, “The International Experience with
Privatization: Its Rapid Rise, Partial Fall, and Uncertain Future,”
School of Public Policy, University of Calgary, Alberta, Canada,
January 2012, p. 13.
73. John Nellis, “Privatization: A Summary
Assessment,” Center for Global Development Working Paper no. 87,
March 2006, abstract.
74. Megginson and Netter, “From State to Market,”
75. Ibid., p. 48.
76. Megginson, The Financial Economics of
Privatization, p. 52.
77. Ibid., p. 66.
78. Economist Douglass North used the phrase
adaptive efficiency to describe institutions that learn,
adjust, take risks, are creative, and resolve bottlenecks. Adaptive
efficiency relies on decentralized decisionmaking and the
exploration of alternatives. See Douglass C. North, “Privatization,
Incentives, and Economic Performance,” in The Privatization
Process: A Worldwide Perspective (New York: Rowman &
Littlefield, 1996), p. 26.
79. Drucker, “Sickness of Government,” p. 12.
80. Ibid., p. 21.
81. Andrei Shleifer, “State versus Private
Ownership,” Journal of Economic Perspectives 12, no. 4
(Autumn 1998): 135.
82. Organisation for Economic Co-operation and
Development, Privatisation in the 21st Century: Recent
Experiences of OECD Countries (Brussels: OECD, January 2009),
83. Sunita Kikeri, “Privatization and Labor: What
Happens to Workers When Governments Divest?” World Bank Technical
Paper no. 396, 1997, p. 3.
84. OECD, Privatising State-Owned
Enterprises, endnote 11.
85. Nellis, “International Experience with
Privatization,” p. 16.
86. R. Richard Geddes, “Reform of the U.S. Postal
Service,” Journal of Economic Perspectives 19, no. 3
(Summer 2005): 226. See also Vincent Geloso and Youri Chassin,
“Canada Post: Opening Up to Competition,” Montreal Economic
Institute, May 2011.
87. Allison Padova, Federal Commercialization
in Canada (Ottawa, ON: Library of Parliament, Government of
Canada, December 20, 2005), p. 7.
88. D’Souza and Megginson, “Financial and Operating
Performance,” pp. 1397–438.
89. Dorothy Robyn, “Alternative Governance Models
for the Air Traffic Control System,” Brookings Institution, April
90. U.K. Department of Energy and Climate Change,
U.K. Energy Sector Indicators (London: U.K. Government,
2012), p. 12. More recently, there are concerns that increasing
subsidies and regulations are reversing productivity gains in the
U.K. energy industry. See Rupert Darwall, “United Kingdom’s Energy
Market Is Back under State Control,”
April 8, 2015,
91. U.K. Department of Trade and Investment,
U.K. Rail Industry.
92. Stephen Smith, “Republicans Can Privatize
Amtrak If They Want To,” Bloomberg View, September 26,
93. Fumitoshi Mizutani and Kiyoshi Nakamura, “The
Japanese Experience with Railway Restructuring,” in Governance,
Regulation, and Privatization in the Asia-Pacific Region,
National Bureau of Economic Research East Asia Seminar on
Economics, vol. 12, ed. Takatoshi Ito and Anne O. Krueger (Chicago:
University of Chicago Press, January 2004), table 12.3,
94. Megginson and Netter, “From State to Market,”
95. Sunita Kikeri, “Privatization and Labor: What
Happens to Workers When Governments Divest?” World Bank Technical
Paper no. 396, 1997, p. 10.
96. Chong and López-de-Silanes,
“Privatization in Mexico,” p. 13.
97. Megginson, The Financial Economics of
Privatization, p. 396.
98. Boardman and Vining, “Review and Assessment,”
99. Ibid., p. 17.
100. Moore, Margaret Thatcher: At Her
Zenith, pp. 189, 190.
101. Vranich, End of the Line, p. 5.
102. Randal O’Toole, “Stopping the Runaway Train:
The Case for Privatizing Amtrak,” Cato Institute Policy Analysis
no. 712, November 13, 2012.
103. Blundell, “The Miracle of Privatization.”
104. David R. Myddelton, “The British Approach to
Privatisation,” Economic Affairs 34, no. 2 (June 2014):
105. Thatcher, The Downing Street Years,
106. Yergin and Stanislaw, Commanding
Heights, p. 100. See also Moore, Margaret Thatcher: At Her
Zenith, p. 38.
107. Moore, Margaret Thatcher: At Her
Zenith, pp. 199, 201.
108. Office of U.S. Senator Tom Coburn, “Parked!
How Congress’ Misplaced Priorities Are Trashing Our National
Treasures,” October 2013.
109. Financial statements for Mount Vernon are
110. Michael A. Schuyler, “Troubles at the Postal
Service,” Tax Foundation Fiscal Fact no. 481, September 2015. See
also Michael A. Schuyler, “The Postal Service’s Market Grab,” in
Mail @ the Millennium, ed. Edward L. Hudgins (Washington:
Cato Institute, 2000).
111. Robert J. Shapiro, How the U.S. Postal
Service Uses Its Monopoly Revenues and Special Privileges to
Subsidize Its Competitive Operations (Washington: Sonecon,
112. Ronald D. Utt, “President Obama Sees Amtrak
as Key to America’s Transportation,” Heritage Foundation WebMemo
no. 3206, March 28, 2011.
113. Vranich, End of the Line, pp. 2, 3,
114. Environmental Integrity Project, Outside
the Law: Restoring Accountability to the Tennessee Valley
Authority (Washington: Environmental Integrity Project,
December 2009). See also Douglas A. Houston, “Privatization of the
Tennessee Valley Authority,” Reason Foundation Policy Insight no.
106, October 7, 1988.
115. Environmental Integrity Project, Outside
the Law, p. 2
116. Tennessee Valley Authority, Office of the
Inspector General, Review of the Kingston Fossil Plant Ash
Spill Root Cause Study and Observations about Ash Management,
Inspection Report no. 2008-12283-02 (Knoxville, TN: TVA, July 23,
117. Ibid., p. 4.
118. Moore, Margaret Thatcher: At Her
Zenith, p. 196.
119. Ofwat, “Leakage.”
120. John Samples and Emily Ekins, “Public
Attitudes toward Federalism,” Cato Institute Policy Analysis no.
759, September 23, 2014, fig. 27.
121. American Customer Satisfaction Index, CS
Federal Government Report 2014: Citizen Satisfaction with Federal
Government Services Declines for Second Year (Ann Arbor, MI:
ACSI, January 27, 2015),
122. Her Majesty’s Treasury, Implementing
Privatisation, p. 14.
123. Yergin and Stanislaw, Commanding
Heights, p. 101.
124. Merkert and Nash, pp. 81, 82. See also
Ormerod, “Evolutionary Approaches,” p. 159.
125. Mizutani and Nakamura, “The Japanese
Experience with Railway Restructuring,” table 12.3.
126. Ofwat, “The Development of the Water Industry
in England and Wales,” January 2006. See also George Day, “An
Insider’s View of U.K. Privatization,” Global Water
Intelligence 3, no. 1 (January 2012); and U.K. National Audit
Office, The Economic Regulation of the Water Sector.
127. Shleifer, “State versus Private Ownership,”
128. Myddelton, “The British Approach to
Privatisation,” p. 131.
129. Shleifer, “State versus Private Ownership,”
130. U.S. Postal Service, “Our Plan to Preserve
Rural Post Offices,” May 9, 2012.
131. Robert W. Poole, Jr., Organization and
Innovation in Air Traffic Control (Washington: Hudson
Institute, 2013), p. 39.
132. Ibid., p. 41.
133. Alan Levin, “Zombie Towers Live as Taxpayers
Fund Flightless Skies,” Bloomberg Business, November 13,
134. OECD, Privatising State-Owned
Enterprises, figs. 1.8A and 1.8B.
135. Megginson, The Financial Economics of
Privatization, p. 286.
136. Quoted in Gillian Tan, “Privatization Raises
Billions in Australia, New Zealand,” Wall Street Journal,
November 5, 2013.
137. Brauninger, “Privatisation in the Euro Area:
Governments Should Grasp Opportunities,” p. 2.
138. Moya Greene is the chief executive officer of
Royal Mail Group.
139. Poole, Organization and Innovation in Air
Traffic Control, p. 46.
140. The business is part of General Dynamics’
Ordnance and Tactical Systems (Canada) group. See General Dynamics
141. See Canadian Bank Note Company,
142. OECD, Privatising State-Owned
Enterprises, p. 37.
143. Megginson, “Privatization and Finance.”
144. Megginson, The Financial Economics of
Privatization, p. 232.
145. William L. Megginson and Maria K. Boutchkova,
“The Impact of Privatisation on Capital Market Development and
Individual Share Ownership” (paper presented at the Federation of
International Stock Exchanges’ Third Global Emerging Markets
Conference and Exhibition, Istanbul, Turkey, April 8, 2000). See
also Megginson, The Financial Economics of Privatization,
146. Megginson, The Financial Economics of
Privatization, p. 234.
147. Simon, “Thatcher’s Legacy.” See also Her
Majesty’s Treasury, Implementing Privatization, p. 20.
148. Megginson, The Financial Economics of
Privatization, p. 293.
149. Ibid., pp. 232, 396.
150. Reagan said, “As recent experience in Great
Britain shows, privatization also increases the public
participation in the market system: By selling government-owned
enterprises, the number of families owning stock increased
dramatically.” President Ronald Reagan, “Statement on the
President’s Commission on Privatization,” September 3, 1987.
151. President’s Commission on Privatization,
“Privatization: Toward More Effective Government,” (Washington:
President’s Commission on Privatization, March 1988),
Reagan commission proposals were acted on in later administrations,
including selling the Elk Hills oil reserves, substituting housing
vouchers for public housing, and contracting out government
152. The law to privatize Conrail was passed in
1986, and the stock offering was in 1987. Congress had created the
National Consumer Cooperative Bank in 1978.
153. Executive Order 12803, “Infrastructure
Privatization,” April 30, 1992.
154. Steven Overly, “For USEC, a New Name, Centrus
Energy, and Financial Footing,” Washington Post, September
20, 2014. The USEC sold uranium to nuclear utilities. The company
filed for bankruptcy protection in 2014 in the wake of falling
demand. It was restructured and renamed Centrus Energy.
155. This was the Orbit Act of 2000.
156. Adam Summers and Anthony Randazzo, Annual
Privatization Report 2010: Federal Government Privatization,
ed. Leonard Gilroy (Los Angeles, CA: Reason Foundation, February
2011), p. 23.
157. Geddes, “Reform of the U.S. Postal Service,”
158. Robert J. Shapiro, The Basis and Extent
of the Monopoly Rights and Subsidies Claimed by the United States
Postal Service (Washington: Sonecon, March 2015).
159. Schuyler, “Troubles at the Postal
160. USPS, “Plan to Preserve Rural Post
161. Shapiro, Basis and Extent of Monopoly
Rights, p. 14.
162. U.S. Postal Service, “First-Class Mail Volume
Since 1926,” February 2016,
163. The requirement was passed in the Postal
Accountability and Enhancement Act of 2006.
164. See Consumer Postal Council, “Index of Postal
Freedom” (Arlington, VA: Consumer Postal Council, 2012),
165. The other 21 percent is held by a
166. The privatized Royal Mail delivers letters
and packages. The government retained the “Post Office,” which
operates a retail chain providing postal and other services.
167. Geloso and Chassin, “Canada Post.” See also
Geddes, “Reform of the U.S. Postal Service.”
168. Robert D. Atkinson, “Postal Reform for the
Digital Age,” Information Technology and Innovation Foundation,
June 2013, p. 13.
169. Shapiro, “How the U.S. Postal Service Uses
170. Ibid., p. 4.
172. Atkinson, “Postal Reform for the Digital
173. Elaine Kamarck, “Delaying the Inevitable:
Political Stalemate and the U.S. Postal Service,” Brookings
Institution, September 18, 2015.
174. Geddes, “Reform of the U.S. Postal Service,”
175. Robert Carbaugh and Thomas Tenerelli,
“Restructuring the U.S. Postal Service,” Cato Journal 31,
no. 1 (Winter 2011): 140.
176. Don Soifer, Universal Postal Service in
Major Economies (Arlington, VA: Consumer Postal Council, June
177. John Mazzone and Samie Rehman, The
Household Diary Study in FY 2012 (Washington: USPS, May 2013),
tables E.2. and 3.1. See also the discussion in James L. Gattuso,
“Can the Postal Service Have a Future,” Heritage Foundation
Backgrounder no. 2848, October 10, 2013.
178. Janet Granger, “How Americans Use the Postal
Service: By the Numbers,” Pitney Bowes, blog entry, August 26,
179. Email statistic from The Radicati Group,
“Email Statistics Report, 2015–2019,” press release, March 2,
180. William J. Henderson, “End of the Route: I
Ran the Postal Service — It Should Be Privatized,”
Washington Post, September 2, 2001.
181. O’Toole, “Stopping the Runaway Train,” pp.
182. Ernst & Young LLP, Amtrak,
Consolidated Financial Statements, Years Ended September 30, 2014
and 2013, with Report of Independent Auditors, (McLean, VA:
Ernst & Young LLP, October 1, 2015).
183. Jessica Chasmar, “Amtrak Loses Millions in
Free Food, Alcohol for Weary Travelers: Report,” Washington
Times, November 14, 2013.
184. Paul Nussbaum, “Amtrak’s On-Time Performance
Runs off the Rails,” Philly.com, August 1, 2014.
185. Author’s calculation based on data in Ernst
& Young, Amtrak, Consolidated Financial Statements. In
2014 total employee wages and benefits were $2.1 billion, and the
number of employees was about 20,000.
186. Diana Stancy, “Amtrak Paid $200m in Overtime
to Employees in 2014,” Daily Signal, June 23, 2015.
187. Ernst & Young, Amtrak, Consolidated
Financial Statements, p. 43.
188. Smith, “Republicans Can Privatize
189. For example, see Government Accountability
Office, Amtrak Management: Systemic Problems Require Actions to
Improve Efficiency, Effectiveness, and Accountability,
GAO-06-145 (Washington: GAO, October 2005).
190. Jim McElhatton, “Amtrak Misled Congress on
Finances,” Washington Times, May 31, 2010.
191. See the Pew Charitable Trusts, “Subsidyscope
— Transportation Sector,” November 24, 2009,
192. O’Toole, “Stopping the Runaway Train,” table
193. Pew, “Subsidyscope —
194. Government Accountability Office,
Intercity Passenger Rail: National Policy and Strategies Needed
to Maximize Public Benefits from Federal Expenditures,
GAO-07-15 (Washington: GAO, November 2006), p. 4.
195. Vranich, End of the Line, pp.
196. Ibid., pp. 195–202.
197. Ibid., p. 147.
198. U.K. Department of Trade and Investment,
U.K. Rail Industry. See the “Overall Passenger Growth”
199. Mizutani and Nakamura, “The Japanese
Experience,” p. 335.
200. Vranich, End of the Line, p. 153.
See also Mizutani and Nakamura, “The Japanese Experience.”
201. Mizutani and Nakamura, “The Japanese
Experience,” table 12.3.
202. Ibid., p. 334
203. Vranich, End of the Line, p.
204. O’Toole, “Stopping the Runaway Train,” fig.
206. Vranich, End of the Line, p. 15.
207. Randal O’Toole, Gridlock: Why We’re Stuck
in Traffic and What to Do About It (Washington: Cato
Institute, 2009), p. 20.
208. Quoted in Vranich, End of the Line,
209. Brian Hansen, “Future of Amtrak,” CQ
Researcher, October 18, 2002, p. 845.
210. Ken Notis, Federal Subsidies to Passenger
Transportation, (Washington: Department of Transportation,
Bureau of Transportation Statistics, December 2004), table 3. See
also Wendell Cox and Ronald Utt, “Federal Transportation Programs
Shortchange Motorists: Update of USDOT Study,” Heritage Foundation
Backgrounder no. 2283, June 8, 2009.
211. O’Toole, “Stopping the Runaway Train,” fig.
212. Ibid., p. 10.
213. Cited in David Randall Peterman, John
Frittelli, and Williams J. Mallett, “The Development of High Speed
Rail in the United States,” Congressional Research Service Report
no. R42584, December 20, 2013, p. 20.
214. Richard D. Obenshain, “Public Power and the
TVA,” The Freeman, September 1, 1959.
215. Jim Powell, FDR’s Folly (New York:
Crown Forum, 2003), chap. 11.
216. Tennessee Valley Authority, Form 10-K filed
with the Securities and Exchange Commission, Fiscal Year Ended
September 30, 2015, p. 13.
217. The Energy Policy Act of 1982 also created an
“anti–cherry picking” rule that exempts the TVA from Federal
Energy Regulatory Commission orders requiring utilities to provide
transmission access to other companies.
218. Ken G. Glozer, “Time for the Sun to Set on
the Tennessee Valley Authority,” Heritage Foundation Backgrounder
no. 2904, May 6, 2014, p. 6.
219. TVA, Form 10-K, FY Ended September 30, 2015,
220. Stephen Labaton, “Tennessee Valley Authority
Generates Woes with Nuclear Power Program,” Washington
Post, August 3, 1985.
221. Brian Dumaine, “Nuclear Scandal Shakes the
TVA,” Fortune, October 27, 1986.
222. Tennessee Valley Authority, Office of the
Inspector General, Navigating Risk: Semiannual Report, October
1, 2012 to March 31, 2013 (Knoxville, TN: TVA, 2013), p. 8.
See also “T.V.A. Cancels 4 Reactors,” Associated Press,
August 30, 1984.
223. Quoted in Powell, FDR’s Folly, p.
224. Rebecca Smith, “U.S. Clears First New Reactor
in Years,” Wall Street Journal, October 22, 2015. See also
“TVA: Watts Bar 2 Cost Overruns Soar by $2B; Operation Delayed to
2015,” Power News, April 12, 2012, www.powermag.com.
225. Duane Gang, “6 Things to Know about TVA and
Nuclear Power,” The Tennessean, August 29, 2014.
226. Lazard Frères & Co., “Strategic
Assessment of the Tennessee Valley Authority, Form 8-K Current
Report,” (Knoxville, TN: TVA, June 4, 2014), p. 38.
227. Chris Edwards and Nicole Kaeding, “Federal
Government Cost Overruns,” Cato Institute Tax and Budget Bulletin
no. 72, September 15, 2015.
228. Julie Johnsson and Mark Chediak, “Roosevelt’s
TVA Seen as Hard Sell,” Bloomberg.com, April 15, 2013. See
also Glozer, “Time for the Sun to Set,” table 6.
229. Tennessee Valley Authority, TVA
Performance Report: Budget Proposal and Management Agenda for the
Fiscal Year Ending September 30, 2016 (Knoxville, TN: TVA,
February 2015), p. 10.
230. Daniel M. Pitts, “TVA Falls through Cracks as
Plan Funding Deteriorates,” Pensions and Investments, May
231. Duane W. Gang, “5 Years after Coal Ash Spill,
Little Has Changed,” USA Today, December 23, 2013.
232. Environmental Integrity Project, Outside
the Law, p. 2.
233. Gang, “5 Years after Coal Ash Spill.”
234. Environmental Integrity Project, Outside
the Law, p. 15.
235. Ibid., p. 21.
236. Ibid., p. 16.
237. Ibid., p. vi.
238. Ibid., p. vii.
239. Ibid., p. 5
241. TVA, Review of the Kingston Fossil
242. Ibid., p. 4.
243. Ibid., p. 31.
244. Glozer, “Time for the Sun to Set,” p. 8.
245. Ibid. But Lazard Frères found that TVA
retail rates are near the median of utilities in its region: Lazard
Frères, “Strategic Assessment,” p. 34.
246. Glozer, “Time for the Sun to Set,” p. 8.
247. Lazard Frères, “Strategic Assessment,”
248. Dave Flessner, “Top TVA Directors, Employees
Given Millions in Bonuses,” Chattanooga Times Free Press,
November 21, 2015.
250. “Public Government Salaries,” Right 2 Know
Project, Chattanooga Times Free Press, 2012.
251. Flessner, “Top TVA Directors.”
252. Budget of the U.S. Government, Fiscal
Year 2014 (Washington: Government Printing Office, 2013), p.
253. In 1996 TVA established a $5 million
executive retirement plan that neither Congress nor TVA’s inspector
general knew about. In the late 1990s, the Chattanooga
Times reported on hundreds of perhaps dubious nonbid contracts
handed out by top managers. See Richard Munson, executive director,
Northeast-Midwest Institute, Testimony before the Senate
Environment and Public Works Committee, 106th Cong., 1st Sess.,
October 6, 1999.
254. Johnsson and Chediak, “Roosevelt’s TVA Seen
as Hard Sell.”
255. Glozer, “Time for the Sun to Set,” p. 14.
256. William Newman, “Obama and Reagan Agree:
Divest the Tennessee Valley Authority,” Reason Foundation, October
257. William Newman discusses TVA privatization
options in Newman, “Obama and Reagan Agree.”
258. Dave Flessner, “Obama Softens Stance on
Selling TVA,” Chattanooga Times Free Press, February 2,
259. “TVA Privatization Would Benefit All,”
editorial, Chattanooga Times Free Press, April 14,
260. Federal Aviation Administration, Budget
Estimates, Fiscal Year 2016 (Washington.: Department of
Transportation, 2015), pp. 4, 10.
261. Poole, Organization and
262. Ibid., p. 3.
263. Dorothy Robyn, “Air Support: Creating a Safer
and More Reliable Air Traffic Control System,” Brookings
Institution, July 2008, p. 2. See also Dorothy Robyn, “It’s Time to
Corporatize Air Traffic Control (the Right Way),” Brookings
Institution, September 28, 2015.
264. Robyn, “Air Support,” p. 16.
265. Ibid., pp. 6, 17.
266. Department of Transportation, Office of
Inspector General, report discussed in “Cost Increases, Delays
Cited in FAA Programs,” Washington Post, June 1, 2005.
267. Government Accountability Office,
National Airspace System: FAA Has Made Progress but Continues
to Face Challenges in Acquiring Major Air Traffic Control
Systems, GAO-05-331 (Washington: GAO, June 2005), p. 1.
268. Government Accountability Office, Air
Traffic Control Modernization: Management Challenges Associated
with Program Costs and Schedules Could Hinder NextGen
Implementation, GAO-12-223 (Washington: GAO, February
269. Department of Transportation, Office of
Inspector General, FAA Reforms Have Not Achieved Expected Cost,
Efficiency, and Modernization Outcomes, Audit Report no.
AV-2016-015, (Washington: Department of Transportation, January 15,
2016), p. 10.
270. Ibid., p. 5.
271. Joan Lowy, “Watchdog: Too Few Air Traffic
Controllers Where Needed Most,” Associated Press, January
272. Cambridge Systematics, Inc., “Thanksgiving in
the Skies: A Look at the Future of Air Travel in America,”
(Washington: U.S. Travel Association, November 4, 2014), p. 5.
273. Eno Center for Transportation, Addressing
Future Capacity Needs in the U.S. Aviation System (Washington:
Eno, November 2013), p. 30.
274. U.S. House Transportation and Infrastructure
Committee, “Summary of the Aviation Innovation, Reform, and
Reauthorization Act of 2016,”
275. Nav Canada, “About Us,”
276. International Air Transport Association,
“IATA Announces 2011 Eagle Awards,” press release, June 6,
277. Robyn, “Air Support,” pp. 19, 20.
278. Nav Canada, “Overview of Service Charges,”
279. Robyn, “Alternative Governance Models.”
280. Edward H. Stevens, “Time for a Paradigm Shift
to Privatization and User Fees in the U.S.” The Journal of Air
Traffic Control (Winter 2013): 36–39.
281. Nicholas Geer, Chairman of the Board, Nav
Canada, Address at Annual General Meeting, Ottawa, Canada, February
282. Paul Rinaldi, president, National Air Traffic
Controllers Association, Testimony on Air Traffic Control
Modernization before the U.S. Senate Committee on Commerce,
Science, and Transportation, 114th Cong., 1st Sess., May 19,
283. National Air Traffic Controllers Association,
“NATCA Announces Position on Air Traffic Control Reform Proposal,”
press release, February 3, 2016.
284. Glen McDougall and Alasdair S. Roberts,
“Commercializing Air Traffic Control: Have the Reforms Worked?”
Suffolk University Law School Research Paper no. 09-11, February
285. Ibid., p. 3.
286. Government Accountability Office, Air
Traffic Control: Preliminary Observations on Commercialized Air
Navigation Service Providers, GAO-05-542T (Washington: GAO,
April 20, 2005).
287. James Salmon, “Britain’s Skies Up for Grabs
as Government Resurrects Controversial Plan to Sell Its Stake in
Air Traffic Control Provider,” ThisIsMoney.co.uk, November 25,
288. Bart Elias, “Air Traffic Inc.: Considerations
Regarding the Corporatization of Air Traffic Control,”
Congressional Research Service Report no. R43844, January 5,
289. The new entity would have been called the
U.S. Air Traffic Services Corporation.
290. National Civil Aviation Review Commission,
Avoiding Aviation Gridlock and Reducing the Accident Rate: A
Consensus for Change, Final Report (Washington: National Civil
Aviation Review Commission, December 1997),
291. Susan Carey, “Nav Canada Draws Interest in
U.S.,” Wall Street Journal, October 18, 2015.
292. Carol Hardy Vincent, Laura A. Hanson, and
Jerome P. Bjelopera, “Federal Land Ownership: Overview and Data,”
Congressional Research Service Report no. R42346, December 29,
293. For further discussion, see Chris Edwards and
Randal O’Toole, “Reforming Federal Land Management,”
DownsizingGovernment.org, Cato Institute, February 1, 2012.
294. Vincent et al., “Federal Land Ownership.”
295. Shawn Regan, research fellow, Property and
Environment Research Center, Testimony on Federal Land Acquisition
and Its Impacts on Communities and the Environment before the
Subcommittee on Federal Lands, House Committee on Natural
Resources, 114th Cong., 1st Sess., April 15, 2015. See also
Margaret Walls, “Federal Funding for Conservation and Recreation,”
Resources for the Future Backgrounder, January 2009.
296. Juliet Eilperin, “In Massive Expansion of
Lands Legacy, Obama Creates Three New National Monuments,”
Washington Post, July 10, 2015.
297. Leonard Gilroy, “Pursuing Fiscal
Self-Reliance in Utah: Interview with Utah State Representative Ken
Ivory,” Reason Foundation, November 27, 2013.
298. Grazing on public lands declined from 18.2
million “animal unit months” in 1954 to just 8.4 million by 2014.
See Bureau of Land Management, “Fact Sheet on the BLM’s Management
of Livestock Grazing,” January 11, 2016,
299. For example, see Carissa Wolf, Mark Berman,
and Kevin Sullivan, “Oregon Ranchers Say Federal Rules Imperil
Their Livelihoods,” Washington Post, January 5, 2016.
300. Jim Carlton and Dan Frosch, “Roots of Land
Dispute Stretch Back Decades,” Wall Street Journal,
January 6, 2016.
301. Terry L. Anderson, Vernon L. Smith, and Emily
Simmons, “How and Why to Privatize Federal Lands,” Cato Institute
Policy Analysis no. 363, November 9, 1999, p. 2.
302. Holly Fretwell and Shawn Regan, Divided
Lands: State vs. Federal Management in the West (Bozeman, MT:
Property and Environment Research Center, March 2015).
303. Government Accountability Office,
“Highlights,” Livestock Grazing: Federal Expenditures and
Receipts Vary, Depending on the Agency and the Purpose of the Fee
Charged, GAO-05-869 (Washington: GAO, September 2005).
304. Congressional Budget Office, “Budget
Options: Volume 2,” August 2009, p. 63.
305. Christine Glaser, Chuck Romaniello, and Karyn
Moskowitz, Costs and Consequences: The Real Price of Livestock
Grazing on America’s Public Lands (Tucson, AZ: Center for
Biological Diversity, January 2015), fig. 5.
306. For background on grazing lands, see Bureau
of Land Management, “Fact Sheet on the BLM’s Management of
307. B. Delworth Gardner, “Some Implications of
Federal Grazing, Timber, Irrigation, and Recreation Subsidies,”
Choices 12, no. 3 (Third Quarter 1997).
308. Shawn Regan, “Managing Conflicts over U.S.
Federal Rangelands,” Property and Environment Research Center,
January 8, 2016.
310. Steve H. Hanke, “The Privatization Debate: An
Insider’s View,” Cato Journal 2, no. 3 (Winter 1982).
311. Regan, “Managing Conflicts.”
312. For example, see Paul C. Barton, “California
National Parks among Those Threatened by Funding, Staffing
Shortages,” Gannett, September 1, 2011.
313. Coburn, “Parked!” p. 22.
314. Government Accountability Office, Federal
Real Property: Improved Transparency Could Help Efforts to Manage
Agencies’ Maintenance and Repair Backlogs, GAO-14-188
(Washington: GAO, January 2014), table 1.
315. Coburn, “Parked!” p. 1.
316. Ibid., p. 10.
317. Ibid., p. 79.
319. John M. Glionna, “BLM, Local Law Enforcement
Tensions Near Breaking Point in the West,” Los Angeles
Times, August 4, 2014.
320. Lenny Bernstein and Brady Dennis, “A
Horse-Management Policy Gone Wild,” Washington Post,
January 27, 2014.
321. Karin Brulliard, “Arizona Has a Wild Burro
Problem,” Washington Post, March 4, 2016.
322. Edmund L. Andrews, “Interior Official Assails
Agency for Ethics Slide,” New York Times, September 14,
324. Chris Edwards, “Indian Lands, Indian
Subsidies, and the Bureau of Indian Affairs,”
DownsizingGovernment.org, Cato Institute, February 2012.
325. Leonard Gilroy, Harris Kenny, and Julian
Morris, “Parks 2.0: Operating State Parks through Public-Private
Partnerships,” Reason Foundation Policy Study no. 419, November
326. Margaret Walls, Sarah Darley, and Juha
Siikamäki, The State of the Great Outdoors
(Washington: Resources for the Future, September 2009), p. 33.
327. Katie Chang, 2010 National Land Trust
Census Report (Washington: Land Trust Alliance, November
2011), p. 5. See also Walls et al., The State of the Great
328. Land Trust Alliance, 2014 Annual
Report (Washington: Land Trust Alliance, 2014). See also
Chang, 2010 National Land Trust Census Report.
329. Chang, 2010 National Land Trust Census
Report, p. 8.
334. Brian Seasholes, “Socialized Land Ownership
in a Democracy,” Daily Caller, December 9, 2015. See also
Gilroy, “Pursuing Fiscal Self-Reliance in Utah”; and
335. General Services Administration, “Federal
Real Property Report, Fiscal Year 2014,” April 30, 2015. Data set
is available at www.gsa.gov/portal/content/102880.
337. Federal Real Property Council, FY 2007
Federal Real Property Report (Washington: General Services
Administration, May 2008), www.gsa.gov/graphics/ogp/FRPP_FY07.pdf.
The government stopped including the total value estimate after
338. Government Accountability Office,
High-Risk Series: An Update, GAO-05-207 (Washington: GAO,
339. House Committee on Transportation and
Infrastructure, Republican Staff, “Sitting on Our Assets: The
Federal Government’s Misuse of Taxpayer-Owned Assets,” 111th Cong.,
340. Government Accountability Office,
341. Office of Management and Budget, “National
Strategy for the Efficient Use of Real Property: 2015–2020,”
March 25, 2015, p. 2.
342. Garrett Hatch, “Disposal of Unneeded Federal
Buildings: Legislative Proposals in the 113th Congress,”
Congressional Research Service Report no. R43247, September 27,
2013, p. 1.
343. Government Accountability Office, Federal
Real Property: Improved Standards Needed to Ensure That Agencies’
Reported Cost Savings Are Reliable and Transparent, GAO-14-12
(Washington: GAO, October 2013), p. 4.
344. Government Accountability Office, Federal
Real Property: National Strategy and Better Data Needed to Improve
Management of Excess and Underutilized Property, GAO-12-645
(Washington: GAO, June 2012).
345. Hatch, “Disposal of Unneeded Federal
346. Government Accountability Office, Federal
Real Property: National Strategy, p. 8.
347. Hatch, “Disposal of Unneeded Federal
348. Adam Summers and Anthony Randazzo, Annual
Privatization Report 2011: Federal Government Privatization,
ed. Leonard Gilroy and Harris Kenny (Los Angeles, CA: Reason
Foundation, April 2012), p. 19.
349. President Barack Obama, “Presidential
Memorandum: Disposing of Unneeded Federal Real Estate,” June 10,
350. Gregory Korte, “White House Identifies
Unneeded Government Property,” USA Today, May 4, 2011.
351. Office of Management and Budget, “National
Strategy.” See also Office of Management and Budget, “Manage Real
www.performance.gov/initiative/manage-property/home. The GAO is
skeptical of the administration’s claimed savings. See Government
Accountability Office, “Managing Federal Real Property,”
High-Risk Series: An Update, GAO-15-290 (Washington: GAO,
February 2015), p. 139.
352. General Service Administration, “Federal Real
Property Report, Fiscal Year 2014,” April 30, 2015. Data set is
available at www.gsa.gov/portal/content/102880. Valuation data are
from Federal Real Property Council, FY 2007 Federal Real
353. General Services Administration, “Federal
Real Property Report, Fiscal Year 2014,” April 30, 2015. Data set
is available at www.gsa.gov/portal/content/102880.
356. HM Treasury, “Right to Contest: New Plan to
Speed Up Sale of Public Land and Property,” news release, January
8, 2014, www.gov.uk.
357. U.S. Energy Information Administration,
“Federal Power Marketing Administrations Operate across Much of the
United States,” Today in Energy, June 12, 2013.
358. National Rural Electric Cooperative
Association, “Power Marketing Administrations (PMAs) & the
Federal Power Program,” Fast Facts, February 2013.
359. Government Accountability Office, Power
Marketing Administrations: Their Ratesetting Practices Compared
with Those of Nonfederal Utilities, GAO/AIMD-00-114
(Washington: GAO, March 2000), p. 37.
360. Budget of the U.S. Government, Fiscal
Year 2016, Analytical Perspectives (Washington: Government
Printing Office, 2015), table 29-1.
361. For background on PMA pricing, see Kyna
Powers, “Power Marketing Administrations: Proposals for
Market-Based Rates,” Congressional Research Service Report no.
RL32798, March 11, 2005. See also Congressional Budget Office,
Budget Options (Washington: Government Printing Office,
February 2005). The Congressional Budget Office says that
increasing PMA rates to market levels would raise $220 million a
year for the government.
362. Congressional Budget Office, Should the
Federal Government Sell Electricity? (Washington: Government
Printing Office, November 1997), p. xiii.
364. Ibid., p. 21.
365. Bonneville was a major player in a project of
the Washington Public Power Supply System (WPPSS) to build five
nuclear plants in the 1970s. Only one of the five was completed,
and WPPSS defaulted on the related bonds.
366. Congressional Budget Office, Should the
Federal Government Sell Electricity?, p. 13.
367. Douglas G. Hall and Kelly S. Reeves, A
Study of United States Hydroelectric Plant Ownership (Idaho
Falls, ID: Idaho National Laboratory, June 2006), p. 2.
368. Cited in Chris Edwards, “Cutting the Army
Corps of Engineers,” DownsizingGovernment.org, Cato Institute,
369. Michael Grunwald, “An Agency of Unchecked
Clout,” Washington Post, September 10, 2000.
371. Michael Grunwald, “The Floods: A Man-Made
Disaster?” Time, June 25, 2008.
372. Marc Reisner, Cadillac Desert (New
York: Penguin, 1993), p. 172.
373. Arthur E. Morgan, Dams and Other
Disasters: A Century of the Army Corps of Engineers in Civil
Works (Boston: Porter Sargent, 1971).
374. David Hosansky, “Reforming the Corps,”
Congressional Quarterly, May 30, 2003.
375. Hall and Reeves, Hydroelectric Plant
Ownership, p. 2.
376. The Bureau of Reclamation owns 76
hydroelectric power plants, but 23 are operated by nonfederal
entities. See www.usbr.gov/power/who/who.html.
377. Richard W. Wahl, Markets for Federal
Water Subsidies: Subsidies, Property Rights, and the Bureau of
Reclamation (Washington: Resources for the Future, 1989), p.
378. Chris Edwards and Peter J. Hill, “Cutting the
Bureau of Reclamation and Reforming Water Markets,”
DownsizingGovernment.org, Cato Institute, February 2012.
379. William H. Holmes, “Dams for Sale: The Ins
and Outs of Federal Facility Transfers,” Annual Institute
Proceedings, vol. 43 (Westminster, CO: Rocky Mountain Mineral
Law Foundation, 1997).
380. Terry L. Anderson, Brandon Scarborough, and
Reed Watson, Tapping Water Markets (Washington: Resources
for the Future Press, 2012), p. 364. That was the number as of
381. Senate testimony cited in Holmes, “Dams for
Sale.” See also Dan Keppen, executive director, Family Farm
Alliance, Testimony before the House Committee on Natural
Resources, Subcommittee on Water and Power, 110th Cong., 2nd Sess.,
September 25, 2008.
382. Daniel P. Beard, Deadbeat Dams
(Boulder, CO: Johnson Books, 2015), p. 1.
383. House Committee on Homeland Security,
Subcommittee on Transportation Security, Majority Staff Report,
Rebuilding TSA into a Smarter, Leaner Organization
(Washington: Government Printing Office, September 2012), p. 1.
384. House Committee on Transportation and
Infrastructure and House Committee on Oversight and Government
Reform, Joint Majority Staff Report, A Decade Later: A Call for
TSA Reform (Washington: Government Printing Office, November
16, 2011), pp. 2, 18.
385. Kip Hawley, “Why Airport Security Is Broken
and How to Fix It,” Wall Street Journal, April 15, 2012.
Hawley was TSA administrator from 2005 to 2009.
386. Ashley Halsey III, “Why the TSA Catches Your
Water Bottle, but Guns and Bombs Get Through,” Washington
Post, June 3, 2015.
387. Cited in Keith Laing, “Napolitano Worried
about TSA Job Morale,” The Hill, July 19, 2012.
388. See a summary of the report General
Accountability Office, Transportation Security: TSA Could
Strengthen Monitoring of Allegations of Employee Misconduct,
GAO-13-624 (Washington: GAO, July 30, 2013), in Ruth Tam, “TSA to
Reform Misconduct Review Policy,” Washington Post, August
1, 2013. See also Caitlin O’Neil, “400 TSA Employees Fired for
Stealing from Passengers from 2002 to 2011,” WCPO.com, October 24,
389. House Committee on Transportation and
Infrastructure and House Committee on Oversight and Government
Reform, “A Decade Later,” p. 2.
390. Discussed in Chris Edwards, “TSA Wastes $1
Billion on SPOT,” Cato at Liberty, November 14, 2013,
391. Discussed in Chris Edwards, “The Naked Truth
about TSA Spending,” Cato at Liberty, September 11, 2014,
392. Discussed in Chris Edwards, “Privatizing the
Transportation Security Administration,” Cato Institute Policy
Analysis no. 742, November 19, 2013.
393. Budget of the U.S. Government, Fiscal
Year 2016, table 29-1.
394. Employment numbers from Office of Personnel
Management, “Employment Cubes,” FedScope: Federal Human
Resources Data, www.fedscope.opm.gov/employment.asp.
396. Department of Veterans Affairs, Office of
Inspector General, Veterans Health Administration: Review of
Alleged Mismanagement at the Health Eligibility Center,
14-01792-510 (Washington: Department of Veterans Affairs, September
2, 2015), www.va.gov/oig/pubs/VAOIG-14-01792-510.pdf.
397. Government Accountability Office, VA
Construction: Additional Actions Needed to Decrease Delays and
Lower Costs of Major Medical-Facility Projects, GAO-13-556T
(Washington: GAO, May 7, 2013), table 1.
398. Ibid., p. 6.
399. Department of Veterans Affairs, Office of
Inspector General, Veterans Health Administration: Review of
Alleged Patient Deaths, Patient Wait Times, and Scheduling
Practices at the Phoenix VA Health Care System, 14-02603-267
(Washington: Department of Veterans Affairs, August 26, 2014).
400. Department of Veterans Affairs, Review of
401. Rob Nabors, Deputy White House Chief of
Staff, “Issues Impacting Access to Timely Care at VA Medical
Facilities,” June 27, 2014,
402. Jim Kuhnhenn, “VA Review Finds Significant
and Chronic Failures,” Associated Press, June 28,
403. The 2014 law was the Veterans Access, Choice
and Accountability Act.
404. Michael F. Cannon and Christopher A. Preble,
“The Other Veterans Scandal,” op-ed, New York Times, June
405. Office of Management and Budget, “Proposed
Revision to Office of Management and Budget Circular no. A-76,”
Federal Register, vol. 67, no. 223 (November 19, 2002), p.
406. Federal outsourcing policy is guided by OMB
Circular A-76 as well as the Federal Activities Inventory Reform
Act of 1998.
407. Summers and Randazzo, Annual Privatization
Report 2010, p. 23. See also www.acq.osd.mil/housing.
408. A group that focuses on this issue is the
Business Coalition for Fair Competition,
409. John Palatiello, Annual Privatization
Report 2014: Federal Government Privatization, ed. Leonard
Gilroy (Los Angeles, CA: Reason Foundation, June 2014). See also
John Palatiello, Annual Privatization Report: Federal
Government Privatization, ed. Leonard Gilroy (Los Angeles, CA:
Reason Foundation, May 2015).
410. Department of the Treasury, “Status Report of
U.S. Government Gold Reserve,” December 31, 2015,
411. The SPR inventory is listed at
412. For background, see Jerry Taylor and Peter
Van Doren, “The Case against the Strategic Petroleum Reserve,” Cato
Institute Policy Analysis no. 555, November 21, 2005.
413. Chris Edwards, “Infrastructure Investment,”
DownsizingGovernment.org, Cato Institute, August 1, 2013.
414. Jonathan M. Karpoff, “Public versus Private
Initiative in Arctic Exploration: The Effects of Incentives and
Organizational Structure,” Journal of Political Economy
109, no. 1 (2001).
415. Myddelton, “The British Approach to
Privatisation,” p. 137.