Starving the infrastructure beast: Privatization vs. the American Jobs Act

With 13.1 million Americans waking up every morning with no job to go to, how should we make sense of the three-time Senate “no” vote at the end of 2011 to President Obama’s commonsense, job-creating, infrastructure-improvement bill?  Is there a defensible explanation for this knockdown proudly embraced by every Senate Republican and aided and abetted by two now-retiring senators—one Blue Dog Democrat and one Connecticut Independent?

What could have been

The American Jobs Act (S. 1769) would have provided $50 billion in immediate investment for highways, transit, rail, and aviation.  An additional $10 billion would have been provided as seed money for a newly created National Infrastructure Bank intended to jumpstart private investment in construction.  All was to be responsibly paid for by a scant 0.7 percent surtax on wealthy Americans earning more than $1 million a year. Most importantly, forecasts published by independent agencies indicate that S. 1769 would have boosted non-farm employment to the tune of hundreds of thousands to 1.3 million jobs by the time we’d be ringing in the new year in 2013.

With all those unemployed and under-employed and a crisis of crumbling infrastructure—68,842 deficient bridges alone—it defies logic to justify opposition to a jobs-creating bill of the magnitude of this importance to the country’s middle class as well as to the country’s future competitiveness.  In fact, no one in Congress challenges the need for boosting employment opportunities, nor is there disagreement about the necessity to provide safe, reliable, up-to-date infrastructure that is vital to business expansion.  So why this outcome, which flies in the face of mainstream economic theory?  Did the nays represent an honest disagreement about economics, or was the vote another cruel and cynical slap in the face to the interests of the middle class in an ugly battle for the presidency?

Reagan roots

To explain the vote, think just three destructive words:  “starve the beast.”  Since Ronald Reagan, Republicans have been staunchly loyal to a starve-the-beast strategy that attempts to shrink the role of government, no matter what the economic or social fallout. The strategy is as brilliant as it is cynical: Cut or cut back funding for government programs.  For lack of funds and staff, programs and departments fail to fulfill their missions.  When they fail, make the claim that “government doesn’t work.”

The flip side, of course, is that the needs government services address do not simply fade away.  When government can’t deliver, services get shifted to private businesses that pick up the slack from cash-strapped federal and local agencies, often profiting handsomely.

In this round of the battle, the beast being starved is America’s infrastructure.  And make no mistake about it, the profits generated by bridges, roads, airports, shipping ports, utilities, water supply, and public parking are up for sale to the highest bidders.

First embraced by Margaret Thatcher in the 1980s, the strategy of putting cash-strapped public assets up for sale or long-term lease led to large-scale privatization in Britain, with other European countries following suit. Not surprisingly, investment bankers in the U.S. took note. Fast forward to 2012, and many of the largest investment firms in the U.S. and abroad now have special departments dedicated solely to identifying and securing privatization of public assets through outright purchase or long-term leasing. More than thirty of the most highly capitalized funds across the globe—including our at-home giants, Goldman-Sachs, Morgan-Stanley, the Carlyle Group, and Citicorp—together wield a whopping $500 billion in assets that are out there trolling for infrastructure profits.

And why not? Infrastructure investment is monopolistic and extremely low risk as competition is limited. The result is a captive customer base with no alternative but to pay up on ever-higher tolls and charges.  Older Americans may remember a time when utilities, such as electric generation and water supply, were owned by local municipalities. In twenty-first-century America, these same utilities are overwhelmingly privately owned.

As bridges, toll roads, water systems, shipping ports, airports, and utilities across the U.S. age and are increasingly in need of a significant infusion of capital for repair and updating, they are being sold or leased to the private sector. Many of these transfers span 75 to 100 years, thereby decreasing public influence and oversight for the long term and raising questions of pricing and adequate delivery of services when and if leases are sold.


In many instances, the fallout of privatization hasn’t been pretty. Unexamined rate hikes, questionable maintenance, loss of public oversight (particularly concerning security issues), and revenue loss over the long term have become the norm. For example, in 2006 Republican governor Mitch Daniels of Indiana sealed a deal for a 75-year lease for the Indiana East-West Toll Road with Cintra of Spain and Macquarie of Australia. The $3.8-bilion deal was the largest privatization of a U.S. roadway to date.  The consequences for users of the road, particularly truckers, has been devastating. Prior to privatization, the toll was $14. Five years later, the toll price has skyrocketed to $32.50—a 151% increase.

Not surprisingly, cash-strapped local governments whose share of federal funding has been steadily decreasing are turning in desperation to privatization in order to help retire debt, balance budgets, and prop up desperately needed social programs for, you guessed it, the unemployed and the working poor—the very people who would have benefited from the jobs created by The American Jobs Act.