This year I spent the holidays in Chicago where I once lived for two decades. When I left Chicago in 2000, parking meters cost $.25 an hour in the downtown area called the “Loop.” Up until 2009, the rate was the same. As of January 1, 2013, thanks to the privatization of Chicago parking meters, the rate has soared to $6.50 an hour, payable 8 AM to 9 PM, seven days a week, including holidays (I had to feed the meter on Christmas Day). In the Central Business District just outside the Loop, the rate is $4.00, and everywhere else in the city street parking is $2.00 an hour. Chicago downtown parking rates are now the highest in the nation. This is the last scheduled rate increase of the 2009 privatization deal, but additional “cost of living” increases will be applied going forward.

It used to be that you parked, got out of your car, and fed the meter with the loose change in your pocket. Now, 34,000 of Chicago’s 36,000 meters have been replaced by 4,700 “pay and display boxes.” It works like this: You park and walk to one of the complicated looking “pay boxes” who some in the city have dubbed “Martian toilets.” After walking half a block and possibly waiting in line while freezing your butt off, you feed the box with a huge pile of change or use your credit/debit card, (they don’t take dollar bills). You get a receipt, then you walk back to your car and place it inside on the dashboard. If you have a motorcycle or motor scooter, you write your license plate number on the receipt and adhere it to your headlight. Way more complicated than when I lived there, and shockingly more expensive.

Unhappy Chicagoans have taken to avoiding parking in the downtown areas, switching to public transportation, and of course, in true Chicago style, defacing and vandalizing the hated boxes. In 2010, 20 of the 200 pound boxes were stolen. Chicagoans were impressed.

Who owns Chicago’s parking meters?

In 2009, Mayor Richard M. Daley struck a deal, behind closed doors, with a consortium of investors headed up by Morgan Stanley to privatize the city’s parking meters. If you want to know all the sordid details, read Matt Taibbi’s 2010 book, Griftopia: A Story of Bankers, Politicians, and the Most Audacious Power Grab in American History.

To make a long story short, Mayor Daley, having spent a year putting the parking meter deal together, introduced it as a fait accompli to the City Council on December 1, 2008, and asked for a rubber-stamp vote two days later. The final bid was $1,156,500,000 for a 75-year lease on the city’s parking meters to be paid in a lump sum. 75 years? The ever-fearful, clueless aldermen had no time to really examine the deal or determine who the investors were, yet they passed it 40–5.

Morgan Stanley and its investors formed a company called Chicago Parking Meter, LLC (CPM). The agreement stipulates that CPM receives all associated revenue from the parking meter system, with the exception of fines, until 2084. CPM subcontracted with LAZ Parking for the management and maintenance of all Chicago’s meters.

In February of 2009, in a classic bait-and-switch, the original investors stepped aside to make way for investors from Abu Dhabi. Taibbi estimates that Abu Dhabi investors are now at least 30 percent owners of Chicago’s parking meters. Another investor has an address in Luxembourg. The rest include various arms of Moran Stanley, JP Morgan Chase, the Teacher’s Retirement System of Texas and other insurers and pension funds.

Wall Street wins, Chicago loses

According to Bloomberg News, Chicago Parking Meters LLC (CPM), estimates that it will earn over $9.58 billion dollars from its parking meter deal with the city. CPM’s $9.58 billion revenue is more than eight times what CPM paid Chicago for the parking meter rights.

Another ridiculous provision of the deal is that if the city takes meters out of service for street repairs, festivals or other city-sponsored activities, the city owes CPM for loss of revenue. As of October 2012, the unpaid bill for out-of-service parking spots is $14.2 million. Aldermen used to have control over streets and parking in their districts, and would accommodate resident and small business needs. Not any more. Just one example of how privatization erodes democracy.

The total CPM is seeking from the city is nearly $50 million. The additional bill is for reimbursement for free parking the company provided to people displaying a disabled-parking placard or license plates—another part of the bad deal Daley made with Morgan Stanley and CPM.

Privatization and the undermining democracy

Wall Street banks, recipients of more than $300 billion in federal taxpayer bailouts in the worst credit collapse since the Great Depression, are using that money to prey on states and cities suffering from recession-induced deficits. They have massive taxpayer provided assets to wave under the noses of mayors of cities desperate to cover shortfalls. The deals invariably are very good for investors and, long-term, very bad for citizens.

The ultimate goal of Wall Street, and the billionaires who run it, is to privatize everything that is not nailed down. Our shortsighted, visionless and corrupt politicians, who gain personal rewards from the selling off of America, are accommodating them. The arranger of the Chicago parking meter deal, Mayor Richard M. Daley, made out OK. He now works for Katten Muchin Rosenman, the law firm that represented the city in the sale of its parking meters, downtown parking garages and the Chicago Skyway. (Yes, other pieces of Chicago, besides the parking meters, have already been sold off.) He is also on the payroll of JP Morgan Chase.

Reason Foundation, a pro “free market,” libertarian think tank and strong advocate of privatization, publishes an Annual Privatization Report. Reason Foundation avidly supports the selling off of public assets in what it calls “public-private partnerships.”  If you can stand the cheerleading for privatization, their website is a good place to keep track of privatization efforts around the country. If you spend time there you will learn that the Reason Foundation is thrilled that New York, Pittsburgh, Sacramento, Memphis and Harrisburg are considering privatizing their parking assets. You will read its ecstatic report that Osceola County Florida is “partnering with the private sector” in managing its library. And you will learn that last year Ohio became the first state to sell off a state prison to a private operator. It went for $72 million.

Privatization deals are being made by elected officials, in every major city in the country, behind closed doors, out of site of public scrutiny. The public sector is eroding, and the danger of this selling off of America can’t be overstated. The media is lax in covering these behind-the-scenes deals and tends to present private takeover of public assets in a neutral if not favorable light, although after the fact, it will report on how the citizenry hates it.

Privatization is one of the most dangerous aspects of the corporate takeover of government and politics in America. Americans, who as a group suffer from an unhealthy worship of money and power, and who naively conflate capitalism with freedom and democracy, have yet to raise a significant challenge to these ominous trends. As a nation, we have bought the decades of false corporate messaging that the private sector is more efficient and cost effective than government and the public sector. So, we are surprised, and even outraged, when the results of corporate takeover are unsatisfactory.

When we wake up and realize there is no public sector left, and we have no real voice, anymore, in how our country, state and cities are run, when democracy is nothing more than a farce (which it is close to becoming), it will be too late.

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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.

Consequences

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.

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Private corporations are setting their sites on the education industry, as spending on education comes under review as budget concerns continue to plague states and local schools. From the point of view of private industry, this is an extremely lucrative, untapped market, with Federal spending on education alone running well in excess of $500 billion in the US. For-profit private education companies have been salivating at the prospect of getting a juicy a slice of this prize, as they have of the for-profit college market, with often-questionable results.

For-profit colleges rely upon federally subsidized student loans, which allow them to recruit customers from lower economic levels with the promise of jobs. The effort to privatize K-12 education will similarly rely upon voucher systems to allow families to send their children to for-profit schools.

For-profit charter schools have already been started in some areas, and the results have not been attractive. Agora High School of Tennessee was opened as a virtual school by K-12, a for-profit education company, and is funded entirely by taxpayers. Just short of 60 percent of the school’s students are behind their grade levels on math, and 50 percent of the school’s students are struggling to keep in reading. Dropouts number in the hundreds, and 33 percent are failing to graduate with their public-school peers. It is important to remember: how well K-12 educates students may not be the report card that the company is worried about.

Wall Street thinks that Agora is doing just great. With earnings up 34 percent, and total profits for the year looking good, the company is a favorite in the market. With total earnings at just over half a billion dollars and rising, there is no reason for the company to worry at the moment. The theory behind privatization is that the private sector will be able to provide good quality education at a savings. The goal of the companies competing for contracts to provide schooling is to turn a profit.

A New York Times investigation found that K-12 was so eager to turn a profit that it abused the system by recruiting students lacking the necessary discipline and family support for online schooling. The company also pushes teachers to take larger numbers of students for less pay, a cost savings measure. Teachers sometimes have to deal with workloads of 250 students, with all of the accompanying grading, parent conferences, etc. for pay so low that the teachers are now attempting to organize a union. Teachers accuse the company of keeping students who do poor, little or no work to continue as students, allowing the company to continue billing taxpayers for students who should have been removed from classes.

As corporations move in to take advantage of the immense profits available in k – 12 education, they are getting assistance from unexpected sources. The Bill and Melinda Gates Foundation is famous for its work saving lives in Africa, but in the US it is working to encourage virtual classrooms. This includes donations to Jeb Bush’s efforts to make private education not just possible, but a requirement. Given that Microsoft will be a huge gainer in efforts to expand virtual education, one might begin to question whether the foundation’s efforts have any philanthropic element to them at all, or whether it is an effort to further expand Bill Gate’s software empire. Microsoft currently supplies software for servers, educational programs and, of course, operating systems, for many schools. The Gates Foundation has even stooped to making a contribution of $373,000 to ALEC – the Koch brother’s group dedicated to writing conservative-minded legislation for lawmakers to propose as their own.

Efforts to privatize schools would have an additional benefit for America’s conservatives. If schools are privatized, teachers unions could be broken up, eliminating an important support block for Democrats. The GOP has openly targeted public unions in Indiana, Wisconsin and other states across the nation. This would just be a bonus for the private companies that stand to cash in on billions more taxpayer dollars. The effects on America’s children would be a secondary consideration for those pushing these reforms – it even shows up on their radar at all.

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Republicans love to talk about privatizing government functions, because, according to them, a for-profit business model is so much more efficient. But Wendy Gittleson, writing at Addicting Info, has nine really good reasons why we don’t want those savvy businessmen teaching our children or putting out house fires.  Following are three of her compelling arguments, and you can read the rest here.

Companies are in business for one reason and one reason only—to make money. They are not in business to serve their employees or even their customers. A corporation is legally obligated to put profit above all else. This philosophy typically boils down to making the cheapest product the market will allow (or offering the least amount of service) and selling it at the highest price the market will allow. It’s one thing if your cell phone has a built in life span of six months to two years. It’s quite another for the electrical power grid.

The government is not in the business of creating demand. By and large, government services are services deemed necessary for our society to function. Businesses spring up every day by creating new demands for new products. Pharmaceutical companies invent illnesses. Clothing manufacturers convince us that we are somehow inferior if we are caught wearing last year’s styles. Governments pick up trash, teach children and put out fires. They have no incentive to have us create more trash, make dumber children or start fires. On the other hand, if those same services were run by business, the more trash they picked up, the more money they would earn. The more work they had to put into educating our children, the more money they would earn. The more fires they had to put out, the more money they would earn.

The government is directly accountable to us. Post-Citizens United, this might sound somewhat naive, but we do still hold elections and only the people are eligible to vote. A corporate CEO, on the other hand, is controlled by a small group of people known as the board of directors. If we, the customers, wish to fire our President or Congressperson, all we have to do is show up at the polls (something Americans are notoriously bad at). If we, the customers, wish to fire the CEO of a multinational corporation, well, good luck.

Photo credit: Wikipedia commons

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The move to privatize public services—parking meters, public libraries, postal services, correctional facilities, roads, bridges, national parks, the military and Social Security, to name but a few—is driven by conservatives and corporate greed. In the push for privatization, dubbed “piratization” by progressive critics, contracts for public services are doled out to well-connected private corporations without regard to cost effectiveness or quality. But the truth is, when public services and assets are privatized, the public pays more and gets lower quality of services.

Private companies are first and foremost interested in increasing profits. They are not responsible, as is government, for promoting public good and serving the needs of citizens. They are focused on increasing profits for management and shareholders. This flagrant conflict of interest is obscured by the myths surrounding privatization pushed by conservative politicians and their corporate donors interested in gaining lucrative contracts.

In the Public Interest, a website devoted to ensuring democratic control of public functions, does a good job of debunking these privatization myths. Here is a summary quoted from their more lengthy and well-documented expose on the dangers of privatization:

Myth #1:  Privatization saves money.

The Truth: Privatization often raises costs for the public and governments.

Proponents of privatization promise to fix budget woes by saving the government money.  But numerous examples in a variety of sectors show that projected savings don’t always materialize. Cost overruns combined with hidden and indirect costs, such as contract monitoring and administration, can make privatization more expensive than in-house services for governments. In fact, the Government Finance Officers Association estimates that hidden and indirect costs can add up to 25% to the contract price.

The Government Accountability Office has found that methods by which agencies and privatization consultants conduct projections and report contract costs can make cost savings appear greater than they actually are. According to a 2007 survey by the International City/County Management Association, 52% of governments that brought services back in-house reported that the primary reason was insufficient cost savings.

Myth #2:  Private companies do a better job than the public sector.

The Truth:  Many examples show declines in service quality under private contractors.

Faith in the private sector to outperform government agencies is deeply ingrained in the American psyche.  However, the facts disproving that belief are steadily mounting. In many cases, private contractors have failed to deliver, leaving communities without vital services and assets. Private companies naturally seek to maximize profits, which can incentivize cutting corners to reduce costs. This can greatly impair service quality and maintenance of vital assets. The most popular reason for in-sourcing, according to the International City/County Management Association survey mentioned above, was a decline in service quality. Over 60% of governments that brought functions back in-house reported this as their primary motivation.

Myth #3:  Privatization allows governmental entities to better anticipate and control budgetary costs.

The Truth:  Cost estimates are extremely unreliable and privatization can cause result in unforeseen budgetary consequences.

Some believe that privatization allows for more precise budgeting, since the inflow or outflow of money appears fixed once a contract with a private entity is signed. But hidden costs and cost overruns can significantly distort these figures, market circumstances can reverse the estimates, and ripple effects of privatization can increase unexpected areas of governmental budgets.

Governments cannot anticipate the cost of privatization failures, from the overtime expenses of sending city work crews to correct sloppy work by private road maintenance companies to the massive ordeal of rebuilding entire outsourced departments when a contractor’s costs, delays or service breakdowns become unsustainable.

Myth #4:  Privatization allows governmental entities more administrative flexibility.

The Truth:  Privatization requires substantial administrative resources for monitoring and oversight.

Substantial time and personnel are necessary to adequately monitor contracts, especially those involving essential governmental functions. If governments don’t dedicate sufficient personnel and time to monitoring contracts, they run a high risk of poor contractor performance and wasting large amounts of money.

Myth #5:  The public still maintains control over a privatized asset or service and the government retains the ultimate ability to make related public policy decisions.

The Truth: Privatization can bind the hands of policymakers for years, allowing private companies significant control of a privatized asset or service and the ability to dictate important policy decisions.

Non-compete and “make-whole” clauses are just a few of the ways that private companies control privatized assets and dictate important public policy decisions. Non-compete clauses forbid competition and prohibit the government from making policy and planning decisions that may affect the contractor’s revenues. These contract terms have prevented numerous cities and states from improving public transportation or implementing other planning or environmental initiatives that may have threatened contractor revenues.   Asset privatization contracts also frequently stipulate that the government must reimburse or “make whole” the contractor if an event, such as a parade or sudden natural disaster, occurs. Often the true ramifications of these types of provisions, which help reduce risk and guarantee profits for contractors, come as a surprise to policymakers.

Myth #6:  If anything goes wrong, the government can easily fire the contractor or adjust the contract.

The Truth:  Reversing privatization involves huge costs and service interruptions.

When governments turn over core services to private contractors, it can be very expensive and time-consuming to alter contract terms or cancel a contract.  Taxpayers can be stuck with legal expenses when companies file lawsuits seeking greater payment. Additionally, contract cancellation can lead to service interruptions or loss of access to public assets during the transition period.

Myth #7:  Companies are chosen for privatization contracts on the merits, not based on political or financial connections.

The Truth:  Government for profit opens doors to unscrupulous behavior by politicians and businesses.

As many examples illustrate, the companies that receive lucrative contracts may not be the best company for the job, but instead may have the most insider connections.

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