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Take the money and run

by Agnes a Paris Wed Dec 6th, 2006 at 04:40:52 PM EST

A follow-up on my yesterday's diary. True, investment bankers and equity funds can be blamed but none of them ever pretended to be entrusted with caring for the general good. Last century, a wide-spread opinion had it that governments were in charge.


There was a time when the honour of that mission had been bestowed upon governments. Governments, on a federal or local level, would run hospitals, ensure people can safely drive from one place to another (without even having to pay for that, what a preposterous idea...), provide a quality of services on airport and railway stations sites. Mission de service public we call in France. Services meeting fundamental needs were not to be handed over to a private party, period.

These times are gone for good, at least in the so-called civilized world. In some countries, far east, the quality of assets is so poor that no private investor will lay money on the table, but only that is hindering governments from divesting.

Hard core divestment, this is. Last year, the French government fast-tracked with so far seldom experienced speed its stake in toll road motorway operators. The fact that one of the local construction companies, Eiffage, had to tap the debt markets despite an already high leverage to be able to team up on a decent basis with Australia's Macquarie did not seem to alarm anybody. Some banks were annoyed not to be able to participate in the acquisition financing of the APRR (Autoroutes Paris Rhin Rhone) toll road operator, conducted through a vehicle jointly owned by eiffage and Macquarie, because they had already lent Eiffage too much on a corporate basis and they had capital adequacy constraints. A shame, these prudential ratios by the way. <s>
In unauthorised circles, general consensus had it that the French government would have gotten themselves a much better deal (ie the assets sold were allegedly worth more) had they not pushed for the acquisitions to close before budget year-end.

So, okay, banks and private equity investors are voracious and wicked. But all they do is graciously accept to take on their balance sheet the assets governments are dumping in a desperate need for quickly available cash. On the other end, the same governments find only natural that generations of "end-users" to come bear the brunt of today's hospitals, schools and prisons built and financed under PPP schemes.
Etat-providence is dead, long live the greedy markets. Still, in the case of formerly public owned assets, it is questionable whether and to what extent the free forces of the market should have been let in.
What's you opinion ?

Display:
by Laurent GUERBY on Wed Dec 6th, 2006 at 05:29:01 PM EST
I've yet to see anyone who can explain to me how privatisation can work on Infrastructure projects. The reason they have always been explained by politicians to be good is that they will bring the cost down due to competition. If you're building a transport route from Paris to Rheims though can you have real competition? doesn't the shortest route have an effective monopoly? unless it is running at capacity and people are forced onto a longer route

If you are buying motorway service from the private contractor, how can the costs come out less than that of the government?  The government is always going to be paying less for the loans it uses to finance the construction, if it isn't paying directly out of taxation. it doesn't need  a built in Profit margin.

Beyond the politicians and the construction companys bankers, who profits from this arrangement? Perhaps we'll see a return of the Rebecca Riots

Any idiot can face a crisis - it's day to day living that wears you out.

by ceebs (ceebs (at) eurotrib (dot) com) on Wed Dec 6th, 2006 at 05:57:57 PM EST
Now there's an instructive story. It seems as if our whole urban environment is littered with corrupting turnpikes.

You can't be me, I'm taken
by Sven Triloqvist on Wed Dec 6th, 2006 at 07:08:11 PM EST
[ Parent ]
Well your lesson from history should be to wear a dress and carry a big hammer.

I'm surprised that the anti- speed camera brigade and the welsh nationalists havent joined forces over this yet

Any idiot can face a crisis - it's day to day living that wears you out.

by ceebs (ceebs (at) eurotrib (dot) com) on Wed Dec 6th, 2006 at 07:47:02 PM EST
[ Parent ]
What's you opinion ?
Do you even have to ask? Strategically important infrastructure should be publicly owned and operated. In this category I include roads, railroads, public transport, electricity distribution networks, water, sewage, and telecommunication services at the very least. Large power stations such as nuclear plants as well. Let's kick the greedy corporate bastards to the curb! Time to, not renationalise, but to Europeanalise!
by someone (s0me1smail(a)gmail(d)com) on Thu Dec 7th, 2006 at 02:40:38 AM EST
The rationalization of privatization:

  1. Governments are inefficient.
  2. Private firms are more efficient because they are subject to competition.
  3. Therefore, the public will save money by turning over parts of government to the private sector.

How this works out in practice:

  1. Government "inefficiency" is a code word for having reasonably well-paid, unionized government employees.
  2. Labor costs can be lowered by privatization (of the workers).
  3. Management in private firms gets much more in compensation then those holding similar jobs in government.
  4. Private firms must also make a profit if they are to stay in business.

A simple example from health care: The head of the Social Security Administration gets a salary in the $100K range (I haven't been able to find the exact figure). The head of United Health Care has a retirement package of $1.1 billion. Medicare has an overhead rate of 2-3%, private insurers are typically in the 30% range.

The latest give away is US highways. Just today the governor of Pennsylvania has started talking about selling or leasing the Pennsylvania Turnpike (built with federal funds). His excuse is that the state can't raise the capital needed to maintain it and expand transportation services. This is obviously false, if a private firm can borrow against the revenue generated by the tolls so can the state. In addition the state can issue tax-exempt bonds which means the cost of financing will be lower.

What we can expect is higher tolls (to pay for the acquisition and decreased maintenance). This is just another one of fake economic theories (like a rising tide lifts all boats) that conservatives use to rip off the public.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Thu Dec 7th, 2006 at 10:14:08 AM EST
The head of United Health Care has a retirement package of $1.1 billion.
Could you provide a link please?  I'm definitely doing the wrong thing for a living.
by wchurchill on Thu Dec 7th, 2006 at 01:44:34 PM EST
[ Parent ]
by rdf (robert.feinman@gmail.com) on Thu Dec 7th, 2006 at 03:50:44 PM EST
[ Parent ]
thanks, incredible and ridiculous.  the stock did soar,,,but that is crazy.
by wchurchill on Sun Dec 10th, 2006 at 07:35:47 PM EST
[ Parent ]
Agnes, with the exception of healthcare, I'm not very knowledgeable in this area of infrastructure.  Hospitals in the US are owned/financed in one of three ways, that I know of: private for profit hospitals (ex. HCA, Hospital Corporation of America), private but non-for profit hospitals, (ex. Northwestern Memorial Hospital, University of Chicago Hospital, the Sisters of Whomever--financed through their revenues, charitable donations and municipal bonds), and government owned hospitals (ex. Cook County Hosptial, financed by their revenues and various taxes).  I haven't seen the %'s in a long time, but for profits are very small, I think like 10--15%.

But my impression is that almost all of the other areas you are talking about are owned and run by some level of government.
o  Roads--it made the news a few years ago when the Indiana Turnpike between Chicago and Indiana was privatized,,,,news because I think it was so unusual.
o  Airports--O'Hare is owned by the City of Chicago.  Isn't government ownership true of the vast majority.  Airlines are of course for profit companies, normally traded stocks on the stock markets.
o  Railroads--the track is government owned, the trains are mainly for profit private, though some are government owned.

Obviously I don't invest in this area.  But am I wrong here?  It almost seems Europe is going private  in some of the areas and the US is not--but that would be hard to believe.

by wchurchill on Thu Dec 7th, 2006 at 02:17:01 PM EST
As someone says above:  Do you have to ask?  

To that I will only add, if you are doing this, you KNOW that your civilization is evolving toward its demise.  Civilizations do not last long once their infrastructures are looted out.  

But let's look at an example:

The city of Atlanta Georgia decided that maintaining the city's drinking water was too much trouble, so they would sell it off to a private company, and make money to boot.  Or, at least, that is what they said they were doing.  

Well, the private company quickly decided that maintaing the water supply was indeed to much trouble, and drinking water was quickly replaced with smelly brown goop, which no one would even try to drink.  

They didn't quit charging for it, though.  

Last I heard, the city was trying to buy the system back, just so the city could have a water supply, but the company was demanding top dollar to give it up.  

Well, who could have imagined!  ;)

The Fates are kind.

by Gaianne on Fri Dec 8th, 2006 at 02:55:50 AM EST
do you have a link?
by wchurchill on Sun Dec 10th, 2006 at 07:37:37 PM EST
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