With privatization of government functions likely to be a significant theme following the most recent election, it might be worthwhile to read Aaron Renn’s latest, “The Privatization-Industrial Complex” at New Geography.
Even competent, ethical, well-meaning professional advisers have to guard against the incentives to move privatization forward.
One major source of conflict comes with the professional advisors that drive the deals. Since long term leases involve so much money and are so complex, they require millions of dollars of services from investment banks, lawyers, financial advisors, etc. Unlike for typical government transactions such as issuing bonds or contracting out services like printing, building maintenance, or call centers, for which cities have some experience, the vast majority of cities have little in house expertise for complex financial transactions.
Thus local officials are at the mercy of these out of town experts to give them the best advice they need to defend the public’s interest. But what advice can we expect from these firms, who have a stake on highly leveraged deals? The people in the firm may be technically competent and possess the highest levels of personal integrity, but still are prisoners of a structural conflict of interest in promoting privatization transactions.
And, as I’ve done before, I’ll go ahead and recommend keeping in mind the Ogden test for privatization. Essentially:
1. Competing vendors ready and able to provide the service.
2. Open bidding.
3. No long term contract.
4. Subject to public scrutiny
5. Subject to accountability
6. Company management not politically connected
But, as Gary Welsh and Carl Moldthan pointed out last summer, the Daniels administration doesn’t really value privatization as a tool to achieve more efficient government. Privatization is an end in itself.
Ogden’s test is well considered. I have never been involved in privitization, but I often got involved with outsourcing of company services. The first point about considering competing vendors is critical.
Outsourcing critical services without a market place of competing vendors is an endgame. You eliminate part of your organization and are at the mercy of the service provider.
The mess in Indianapolis with the incest ridden law firms and political hacks making money selling and buying and negotiating the sale of the water utility, the parking meters, the new development area south of town, and all of the other stuff with the cib and the sports stadiums is a clear example of why it is all about privatization–those in power make money on each and every deal–it does not matter what happens to the consumers and taxpayers. Back in the mid-eighties when goldsmythe and his ilk were talking up privatization (a big theme of reaganites) they never acknowledged that the common good was often left behind or trampled upon through these deals. Oh well.
No-bid consulting contracts from county and city government is a big money maker for Lake County Democrats, so don’t for a minute think that this is a Daniels administration problem only. I will grant you that Daniels has a “crony capitalist” image problem, which is one of my big beefs with the guy.
I think that we need a state law to require all contracts to be bid to three bidders. I think that it would largely solve the problem.
The law firm that “sold the tollway” is actually in Chicago and is run by the Democrat Speaker of the Illinois house. They also sold the Chicago Skyway and are heavily involved in the new Illiana tollway. They happen to be run by a huge NWI republican fundraiser (former state rep Dan Dumezich).
The point is that there are some seriously strange relationships here, and they not only cross party lines, they cross state lines. Money respects no borders.
Buzzcut,
Money respects no borders. Good points. Politicians have a healthy respect, and a healthy appetite, for money.
Like “Deep Throat” told Wooward and Bernstein, “follow the money.”
Todd, if you ever check out my blog, I give “Establishment” types like Mitch and this fundraiser Dan Dumezich almost as much shit as I give Democrats. I especially don’t like the ties that they have to Lake County Democrats, who have so ruined such formerly fine cities as Gary, East Chicago, and Hammond.
In fact, that law firm that sold the tollway represented Democrats in East Chicago who were brought up on federal charges of selling sidewalks for votes in an election in ’03. Like I said, there are strange relationships here.
Thanks, Buzzcut, I will check out your blog.