Is the Fault Privatization, or Just Bad Procurement Strategy

The Huffington Post has a critique of privatization, with a few scare stories.   Here is an example:

In December 2008, Chicago’s Mayor Daley rushed a 75-year lease of the City’s 36,000 parking meters through City Council for $1.15 billion in much-needed budget cash. There were no public hearings, no financial analysis, no alternative solutions given to the Council before it voted. The Mayor’s maneuvering was so airtight that his next proposed budget included this revenue even before the deal was done. Aldermen were given the impossible choice – question the deal or fill a $150 million shortfall. The result: a Morgan Stanley-led venture, Chicago Parking Meters, snagged a “win-win” deal for themselves, and a “win now-lose later” deal for the city….

That’s what happened in Chicago. When the private operator upped rates and installed faulty meters, a public backlash led to an after-the-fact investigation. The Chicago Inspector General concluded the parking meter lease was a “dubious financial deal.” The IG said the city received nearly a billion less for the system that it was worth, and the hasty “crisis” nature of the decision making process meant that Daley didn’t evaluate better deals.

Hmmm.  Is that the fault of privatization, or procurement?  I can spot at least 5 fatal errors made by the government that no self-respecting private company seeking outside services would make.

  • Huge contract with no competitive bidding
  • Way to long of a term.  A ten year term is typical for such a straight operating contract where the government has already made the investment.  Thirty years is typical with a private investment.  75 years???
  • No control over rates (we cannot change rates in recreation contracts without our landlord’s approval
  • No control over specs on capital improvements (we cannot install anything without the state approving the equipment)

I will say I agree with at least this part of the diagnosis:

Increasingly, small groups of power brokers, not public servants, are helping to midwife decisions, with little or no oversight, that benefit themselves, the politicians and players they’re connected to (here, primarily in the form of an easy budget fix), but not necessarily you, the voter and taxpayer.

So, five fatal errors (at least) by the government, and what is their conclusion?

The privatization craze is happening all over the country, and the risk of vanishing public power spreads with it.

OK, so?  You just demonstrated that the Chicago government was wildly incompetent, so now you want to, what, increase its power?   This is a reason not to make government smaller?  My conclusion would be “thank god we are diminishing the scope of this group of incompetents in the Chicago government.  Fortunately, with their reduced scope, we can maybe focus on improving their procurement process.”  I am simply amazed that the Huffpo things a city government driven by cronyism should be more rather than less powerful, have more rather than less scope.  Why is a story about government malfeasance and incompetence a morality tale about private business?  Sure, a scabby bunch of rent-seekers got a sweetheart deal, but is that the fault of those who seek to make government less powerful or those who seek to make it more powerful?

The truth of the matter is that private businesses do this type of contracting ALL THE TIME.  For them it is not emasculating, it is empowering, allowing them to focus on a few things they are good at.  These types of deals have proven to work in private transactions for decades.  This is a tale of government failure, and should be treated as such.

7 Comments

  1. Mike H:

    Something happened. GIVE THE GOVERNMENT MORE POWER!!!!

    It doesn’t matter what the thing is.

  2. Eric H:

    The privatization craze is happening all over the country, and the risk of vanishing public power spreads with it

    That’s laughable. The trend at the federal level is currently in the opposite direction; they call it “insourcing.” Also, this implies that the zenith of “public power” lies in the past – when? During this or the previous administration? The Reagan/Bush I period? I think the zenith lies bfore us.

  3. Max Lybbert:

    I simply can’t find the words to express how silly it is to think that a deal spearheaded by Mayor Daily somehow shows widespread corruption in private businesses.

  4. Ron H.:

    I agree with Max. Once I read the words “Chicago” and “Mayor Daley” I just know that the story that follows will describe something going horribly wrong, with taxpayers being hurt in one way or another.

  5. Rick C:

    Mike H, your comment could be more accurately phrased in this case as
    “The government screwed something up. GIVE THE GOVERNMENT MORE POWER!!!!”

  6. ADiff:

    Quite the opposite, Max. Show me a ‘no bid’ contract, and I’ll show you a ‘sweetheart’ deal brokered by government insiders to favored parties. It’s a way of life in Arizona, albeit on a much less institutional basis than in Chicago.

  7. Rick C:

    ADiff: i think Max forgot his sarcasm tags.