A sampling of pieces from London's
Daily Mail shows that privatization is not a free-lunch answer to public-sector woes, even as cash-strapped American states seize on the strategy to rescue themselves from deficits.
inches of snow lightly coated London two Saturdays ago - and paralyzed
Heathrow for days. Airlines had to cancel thousands of flights just
last week, it emerged that Heathrow's Spanish-owned private-sector
operator, BAA, has skimped on its capital investments compared to
airports in other cities where it sometimes snows. Heathrow has just
46 "specialist vehicles," including snowplows, for example,
against Chicago's 225.
had no motive to over-invest for a predictable emergency. The regulatory "Civil Aviation Authority ... was powerless to punish Heathrow's
Spanish owners for the shutdown," the newspaper reports. The British
government is just now pledging to try to open up BAA's long-term
contract so that officials can levy fines for non-performance in the
future. BAA's top Heathrow executive, who made $1.5 million last
year, said he won't take his bonus, but this after-the-fact move
won't help Britain recover lost pre-holiday business.
The episode shows that government should view an international airport as more of a public-sector loss leader, a role that outweighs its standing as a potential profit center in the eyes of private-sector concessionaires. Walk on London's Oxford Street - or try to - in the days before and after Christmas and you'll jostle for space with hundreds of thousands of foreign tourists gripping shopping bags. All of these people took planes to get there. Cancelled trips cost Britain's competitive profit-seeking private sector - hotels, shops, banks - money, lots of it.
Relatedly - though less immediately - Britain's decade-old private finance initiative (PFI) is showing some (new) wrinkles, too. Under the scheme, private companies build and manage infrastructure such as hospitals and schools in return for rent and other payments made by the public sector. Britain's Labour Party, under Tony Blair and Gordon Brown, pushed this type of financial arrangement in order to keep capital investment and debt off the government's books.
But the year-old Conservative government now says the projects may yield cost overruns of four to five five times their original price tags. Under a long-term services contract, for example, a private company was supposed to provide Chancellor George Osborne's office with a Christmas tree at a cost of $1,400, even though he could buy one at the store for $65.
States including New Jersey, which is preparing to privatize its parking lots for mass-transit riders to raise cash for deficits, should take note. Public-private partnerships can work well in some cases, and we may well benefit from other nations' more extensive experience in the area and draw up superior contracts in the first place. But "privatization" isn't equivalent to "fail-safe solution" when it comes to public-sector puzzles.