Tag Archives: PPP

Arnold’s Privatization Push: A Dangerous Giveaway For California

The campaign to turn California’s public infrastructure over to private profit is gathering steam. Today’s LA Times reports on a new push by Arnold for privatization of public resources:

Gov. Arnold Schwarzenegger signaled a major push today to engage private companies in the construction and management of state and local infrastructure, adopting a strategy employed in Canada, Britain and elsewhere…

The Schwarzenegger administration is contemplating a plan, probably requiring state legislation, to create a California agency to oversee state and local public-private partnerships, aides said. Modeled after one in British Columbia, it would be staffed by professional financiers and other experts who could oversee the structuring of deals by both state and local governments.

As Brian explained in his excellent Pat Brown is Rolling Over In His Grave post last month, this push is part of a broader assault on the public ownership and operation of our basic infrastructure. The LA Times does not quote a single opponent of privatization, instead casting opponents as merely greedy special interests wanting to protect their fief:

opposition from labor unions and from legislators reluctant to give up too much control over big spending projects.

One of Arnold’s financial advisors, David Crane, is allowed to declare that this is about innovation and progress:

Whereas we’re a very innovative state in many ways, when it comes to infrastructure we are less innovative, and the governor intends to bring public-private partnerships into our portfolio.

Read on to see why this is a dangerous idea…

In Naomi Klein’s new book The Shock Doctrine, she explains how the last 30 years of neoliberal economic policy, aimed at the transfer of wealth away from working people and toward a small elite, was implemented largely through the taking advantage of a crisis, a crisis usually manufactured by those same neoliberals. As she explained it to Democracy Now!:

The shock doctrine, like all doctrines, is a philosophy of power. It’s a philosophy about how to achieve your political and economic goals. And this is a philosophy that holds that the best way, the best time, to push through radical free-market ideas is in the aftermath of a major shock. Now, that shock could be an economic meltdown. It could be a natural disaster.

She went on to explain that Milton Friedman played a key role in articulating this idea:

He had a vision of society, in which the only acceptable role for the state was to enforce contracts and to protect borders. Everything else should be completely left to the market, whether education, national parks, the post office; everything that could be performed at a profit should be. And he really saw, I guess, shopping — buying and selling — as the highest form of democracy, as the highest form of freedom.

That digression is significant because David Crane, Arnold’s privatization guru, is a self-described follower of Friedman:

Crane’s economic philosophy sounds distinctly libertarian. He advocates against government intervention in private business and touts his admiration for conservative economist Milton Friedman.

“Governments don’t create jobs, and if they are not careful they can kill jobs,” Crane told an audience of business leaders at a San Francisco
luncheon last summer.

The Capitol Weekly profile that quote is taken from (linked above) goes on to detail Crane’s right-wing economic views, which hold that public pensions are “special privileges” and that the minimum wage hurts jobs. The Capitol Weekly claims his “abrasive” personality has alienated him from many Sacramento lobbyists and interest groups, which along with his right-wing economic views cost him a spot as a CalSTRS trustee earlier this year.

It’s not that Crane and his ideas are right-wing that is the problem. No, the real issue is that public-private partnerships (PPP or P3) don’t actually work in practice. Arnold is taking his cues from British Columbia, whose right-wing government has aggressively pursued P3. They point to British Columbia’s P3 projects as if we’re supposed to ooh and aah. Instead these projects have been extremely contentious, cost FAR more than originally anticipated, and caused a massive corruption scandal when the RCMP (the Mounties) raided the BC Legislature and found evidence that companies bribed government officials to win the privatization of BC Rail. A Canadian public employees union sums up the flaws of P3:

•P3s are being aggressively pursued in BC in spite of a lack of evidence that they are a superior option.
•P3s are less cost-effective, timely and transparent than traditional government procurement.
•Partnerships BC, whose mandate is both to promote P3s and evaluate whether they are appropriate for use on specific projects, cannot adequately protect the public

Another Canadian union has collected an extensive list of P3 problems. They note that in Ontario, a P3 hospital cost $300 million more than if it would have been publicly built.

Britain is also cited as having successful P3 projects. But in fact, their P3 projects and privatization have led to disaster and even deadly tragedy, especially on Britain’s P3 and privatized railways. As Christian Wolmar explains in his 2005 book On The Wrong Line: How Ideology and Incompetence Wrecked Britain’s Railways:

Britain’s rail privatisation has been one of the greatest political failures of recent history. A well-functioning industry was torn apart to satisfy political dogma and privatised in a way that not only compromised safety and wrecked performance but also resulted in financial melt-down…A decade after privatisation the railways receive more taxpayers’ money – over £6bn per year – than ever before. Yet there are still more late trains than in the days of British Rail which, though accused by the government of being inefficient and expensive, provided a better service and more investment on a fifth of today’s subsidies.

California is no stranger to P3 projects. In the 1990s a private company built the 91 Express Lanes – toll lanes in the middle of the extremely congested 91 freeway between Anaheim and Corona. Significantly, the private builders did not believe they could turn a profit without a “non-compete agreement” preventing Caltrans from widening the 91, even though such widening was sorely needed.

As it turned out, the 91 Express Lanes failed to ease congestion and was rumored to be financially insolvent (a charge never proven one way or the other because the books remained private). In 2002 the Orange County Transportation Authority, sick of the ongoing congestion, bought out the 91 Express Lanes at a cost of $207 million, so as to remove the non-compete agreement.

In Stockton, a deeply controversial water privatization was rescinded earlier this year after opponents successfully sued in federal court. As the Sierra Club noted, the privatization actually would lead to a serious decline in water quality and maintenance:

In fact, the city did no environmental review at all, despite evidence for potentially severe environmental consequences. At a time when the Sacramento Delta water system is already polluted and highly fragile, OMI-Thames declared a “Run to Fail” operating mode, consciously deciding to neglect management problems until resulting in harmful infrastructure neglect. The company proposed severe budgets cuts that would have undoubtedly affected quality of services in several arenas, including maintenance of systems, disposal of waste, dealing with vermin, odor control, and sewage over flows…

In Atlanta, for instance, after privatizing the water systems, the quality of the drinking water degraded to such a point as to make it undrinkable. Suez, the largest private water corporation in the world, operated the water systems, and as a result, the rates increased, the water became brown and people were advised to boil the water before drinking.

What, then, are the lessons of P3 around the Anglo world?

  • Failure to actually save money – instead they actually COST taxpayers more than a publicly funded project
  • Failure to provide efficient, quality services – instead they put people at risk
  • Lack of public oversight
  • Corruption

California should know better especially with regard to the latter point. Public infrastructure is public for a damn good reason. As California knew all too well, when vital transportation infrastructure is in the hands of private companies, they WILL use it to screw lower- and middle-income people and small and medium-sized businesses. The Southern Pacific railroad was the primary example here in CA – and to protect their cash cow they turned the State Legislature into a wholly owned subsidiary. They made the current system of corporate contributions look positively clean.

Because of SP’s many faults, Californians in the 20th century insisted that the road network they were developing (a network that barely existed in 1900) be owned by the public. This was a universal sentiment across the state. Hell, even the reactionary LA Times led the fight for a publicly-owned port (which is why the Port of Los Angeles is at San Pedro and not Santa Monica as originally planned).

By paying for infrastructure out of tax dollars, you can provide the kind of network that a modern society needs to function without causing ruin to the poorest and most vulnerable members of our society and parts of our economy. Additionally, by providing for infrastructure on an as-needed basis instead of on a “what will make us money” basis, every part of California gets to benefit from the public transportation system, even if they are poor or sparsely populated.

Going down the privatization road is a path that will ensure some wealthy areas have great infrastructure, and everyone else has squat, because private companies will see no incentive to build rail to South LA or rebuild sewers in east Oakland.

But we’re going to go down that path not because we must, but because California politicians are not willing to properly fund public infrastructure. Taxes are never fun, but they are FAR more affordable to Californians and bring much better, effective services than privatized services.

Ultimately, it seems more and more clear that this is deliberate. Arnold is leading a California Shock Doctrine in which taxes are kept low, even at the cost of fire protection, in which higher ed is slowly but steadily privatized, closing off access to education, basic security, and opportunity to all but those who can afford it. He “solved” the previous budget crisis by gutting $6 billion in MVET revenue and borrowed to cover the rest, leaving the state vulnerable to a fiscal crisis that can then be used to sell off effective, affordable, productive public assets. Privatization and P3 is but the final blow.