D. Dowd Muska

 

Privatization, Now More Than Ever

July 18, 2013

The capital of Pennsylvania doesn’t pop up during most discussions about the history of the American West.

But Harrisburg’s former mayor never let a discouraging word prompt him to rethink his dopey scheme to build a Western-themed museum in the city. Stephen Reed devoted a decade and a half to gathering memorabilia, including Annie Oakley’s Louis Vuitton suitcase, a poker table once owned by Wyatt Earp, “Doc” Holiday’s dental chair, artifacts from the Battle of Little Bighorn, one of Chief Big Foot’s moccasins, and vintage guns manufactured by Colt, Winchester, and Remington.

How much generosity were taxpayers compelled to provide for Reed’s project? In a 2006 loan application, the collection was valued at $8.3 million. But according to Harrisburg’s newspaper, “Record-keeping failures mean the true total spent might never be known.”

You get where this is headed. The museum wasn’t built. But all those antiques would prove useful in another capacity -- raising cash to cover Harrisburg’s near-insolvency.

The Keystone State’s capital went “entrepreneurial” in 1969, and borrowed millions of dollars to built an electricity-generating trash incinerator. A bungled upgrade launched a decade ago -- the feds had shut the plant down, due to air-pollution violations -- drove the facility’s debt past $300 million.

As The New York Times put it, municipal officials once hoped that the revamped incinerator would be a “moneymaker.” Instead, it torched tax revenue, and combined with the Great Recession, pushed Harrisburg to the point of bankruptcy. The city succumbed to state receivership at the close of 2011, and as part of its desperate grab for cash, it has now conducted what one expert called “the largest auction of Wild West items ever.”

How ironic. One ill-advised mission creep helped to cover the failure of an earlier ill-advised mission creep.

Full disclosure: Harrisburg’s unbuilt museum is an extreme example. But it’s common for government to possess assets that do not contribute to the protection of lives and liberties -- i.e., the commission that was once sacred to the “public” sector.

Convention centers, ports (air, sea, and space), landfills, golf courses, liquor stores, parking garages, and power stations are the top prospects for relinquishment. (After the easy stuff, it’s on to schools, hospitals, highways, and rail/bus lines.) It’s called “privatization.” Contrary to the crazed bleatings of government unions, the term has nothing to do with outsourcing tasks such as prison, IT, and groundskeeping services to contractors, a process accurately called “competitive sourcing” or “contestability.”

Privatization means getting land, buildings, and other marketable assets away from pols and bureaucrats -- permanently. No more tax perks. No more exemptions from regulations. No more bailouts when the bottom line looks grim. Full transference to the scary world of competition and accountability.

It’s not easy to do. Margaret Thatcher’s privatization reforms were despised by her nation’s political establishment. Ronald Reagan had big plans to get Washington out of the business business. (Heck, a White House working group was established.) Upon leaving office, the Gipper hadn’t much to show for his efforts. Few experienced observers were surprised. When the “p” word is tossed around, the unlimited-government crowd leaps into hyperdrive. In a 1985 Newsweek article, an energy bureaucrat in the Pacific Northwest squealed that privatizing the Bonneville Power Administration would be “mindless,” likening it to “selling the Mississippi River.”

Decades later, nothing had changed. At the height of the Bush-Obama economic calamity, Jon Shure, deputy director of the far-left Center on Budget and Policy Priorities, sniffed that privatization was “a short-term, one-time fix that avoids the difficult decisions of having to find revenue.”

Cynics will pooh-pooh it as wishful thinking, but despite privatization’s innumerable enemies, it has a future. At $16.7 trillion, the national debt is dwarfed by D.C.’s unfunded liabilities, which are driven by Medicare, Medicaid, and Social Security expenditures for Baby Boomers. A June analysis by Moody’s Investors Service found that 10 states have unfunded pension obligations that surpass annual revenues. In some states -- e.g., Illinois, Connecticut, and New Jersey -- economic growth is so tepid, bureaucrat compensation so high, and Medicaid “demand” so strong, full-bore fiscal implosions are likely. Many towns, cities, and counties face employee-compensation nightmares and stagnant revenues.

No-longer-avoidable realities could flip the privatization debate’s advantage to the forces of the free market. Their policy prescription is a fiscal-responsibility twofer. Privatization cuts costs and shifts control of assets to owners who, if successful, will generate tax revenue.

Perhaps, in a decade or two, The Great Harrisburg Wild West Auction will be remembered not as a curiosity, but as a trailblazer.

D. Dowd Muska (www.dowdmuska.com) writes about government, economics, and technology. Follow him on Twitter @dowdmuska.

# # # # #