Donald Trump’s recently-unveiled 2018 federal budget is a big, bold conservative dream: Billions more for defense and security, much less for social welfare programs, and containing plans to attack the national debt. But with the GOP looking to cut taxes, especially on the wealthy, how can Trump keep his planned $4.1 trillion in federal expenditures? The answer is to engage in “asset recycling” by selling off public infrastructure and use the proceeds to build new infrastructure.
Specifically, Trump wants to spend some $200 billion to incentivize state and local governments to privatize public assets over the next decade.
The focus on privatizing public goods mirrors the president’s support for school voucher programs, which would lead to a greater role for private schools at the expense of traditional public schools. Popular among political conservatives, the goal of privatization hinges on a belief that the private sector is inherently more competent and competitive than the public sector. Republicans often view the civilian part of government as complacent and inefficient, while Democrats typically view privatization as risky profiteering that will inevitably hurt workers and the environment.
But, given America’s aging infrastructure, Trump’s unorthodox plan for generating infrastructure funding may have bipartisan support. Even liberals will find it hard to resist the money that will come rolling in as public assets sell to the highest bidder: Corporate money will create many new infrastructure jobs and help incumbents get re-elected. It may be pork-barrel spending, but few members of either party are willing to put principles ahead of votes.
However, both the White House and Congress should make sure to write the privatization policies carefully before things are implemented. A major risk of privatizing important infrastructure is that the government remains on the hook to maintain it if anything goes wrong. If the corporate owners fall down on the job, the government is obligated to step in. The principle is the same as the controversial bailouts that were used during the Great Recession of 2008-10: To protect jobs and production, the government subsidizes failing producers.
While the “asset recycling” plan could indeed generate many billions to build new infrastructure, it creates a moral quandary. The new owners of public assets will get to keep all the profits if they can operate efficiently…but will not be fully responsible if they take losses. It is almost guaranteed that the government will swoop in with subsidies to keep the privatized infrastructure operating for the public good.
As expected, the CEOs will continue to get paid, or at least “retire” with golden parachutes, while rank-and-file employees are laid off following bankruptcy. The infrastructure is then again sold to the highest bidder, and the cycle begins anew. For corporate officers, they win even if they lose. If the venture falls flat, they still get millions in severance pay.
Before auctioning off public assets, the Trump administration should ensure that taxpayers will not be on the hook if corporations fail to operate as effectively as predicted. Like with high-risk pools and insurance policies, separate funds from the corporations that are purchasing public assets should be set aside for use in the event that a venture faces bankruptcy. Instead of coming to Uncle Sam for a handout, the corporations would be insured. And, of course, only the most reputable and financially stable buyers should be allowed to bid. A “fire sale” of public assets to any and all bidders will result in lots of failed ventures and, thus, taxpayer-funded bailouts.
Other questions abound regarding how private companies should be allowed to operate previously-public infrastructure. Can they close off access to non-payers? Can they close the facilities, either partially or entirely? Will certain standards of operation have to be maintained? As the questions grow more numerous and complex, it begins to become less likely that private ownership of public assets can be successful and mutually beneficial.
To protect public access, corporations will be forced to comply with restrictive regulations that may quickly cause them to exit the agreement and subject the infrastructure to frequent changes in ownership. To protect corporate profitability, you must deregulate and hope that the private owner does not decide to cut services, raise prices, and/or begin selling assets. Ownership of a sports complex or airport could devolve into fragmentation, with many corporations owning portions of the property.
If public infrastructure is unnecessary, it should be auctioned off. If it is necessary, however, the government should avoid trying to privatize it. Privatization of public assets is unlikely to be successful in the long run, and that is why public goods exist in the first place. Had private firms been able to operate such goods and services for profit in the first place, government provision of such goods and services would not be necessary! After all, America was privatized before government intervention occurred: Toll roads, private security, and private schools were once common. Today, the government builds and maintains most roads, we rely on government police, and we send our kids to public schools… and there is a reason for that.