South Australia sold its state owned electricity grid to Chinese owners for 200 years. Every time people say our high power prices are due to renewables think critically. A "conservative" government granted the right to tax our entire population and our businesses for multiple human lifetimes, longer than our state has existed for a short term windfall that disappeared in the blink of an eye. Call it corruption, or call it mismanagement, probably neither given Australia's harsh defamation laws but privatization should be viewed with extreme suspicion. Services can often be run more efficiently in private hands but the opportunities for corruption in the sale of public assets is massive and there is rarely any accountability.
> Services can often be run more efficiently in private hands
Hard disagree. Business optimized for the value it can capture in the short term. It will be more efficient at that.
Services such as electricity benefit from long-term investment, and create much hard to capture value. In theory, a government will be efficient at allocating resources for that.
We HAVE to stop thinking that business is always more efficient at everything. Business is great, I've started a few and see what they've done to lift people out of poverty-- but it is built on the back of responsible government.
Imagine a train line that allows commuters to get to work. Trains are expensive to run, so the actual cost to get a commuter to work and back is £100. The commuters are paid (say) £150 a day, after tax. Is this train worth 2/3 of their post-tax income? Probably not, so they won't use it, and the company can't get workers if there's no other practical way to commute. Workers can take less good jobs near home, earn less, but take home more. Or even no job at all. However, a worker generates substantially more than their post-tax salary in value to the economy as a whole, so subsidy of the train fare creates value by getting them to work and generating that value, even though the train cannot actually turn a profit itself by charging the commuters out of their income.
Even if you say "well the company should just pay more if they've made that value", not all that value manifests directly on the company's bottom line, it includes downstream value, as well as intangible things like worker skills that are more of an abstract societal benefit.
In the same way, roads produce massively more value than people would be willing to pay individually: all the food deliveries in a week might be worth, at retail, about £4 billion, say. If those deliveries can't be made, what will be the cost? £4 billion? Or more because the whole country will become a much less effective economy when everyone is starving and looking for food? And the universal-delivery postal system. Healthcare, childcare, energy, etc etc.
Your argument assumes good faith on behalf of the buyer, and that said long-term investment is actually coming.
But I can show you PGE and SDGE as examples of privatization WITHOUT any of that good-faith investment, and then when the situation went critical (massive wildfires a few years back due to bad electricity infra), electricity consumers being forced to foot the bill. Where I live, my utilities bill has quadrupled in the past three years (from ~$100 to ~$450 a month for literally identical usage, I checked my statements), rate regulation (the CPUC) is seemingly toothless, and my utilities company sends me these insultingly understated letters about how they can't control energy pricing and have to pass on rates to consumers.
Except they won't tell you that they are owned by the company they buy their energy from, and that THAT company happily will set prices to whatever they want if it means sucking off their pathetic little shareholders just a little bit more. Sempra Energy has been doing gangbusters on their quarterly earnings reports!
I think business is actually better at long term planning than most people give it credit for. There is a lot of discussion about "next quarter" thinking but in my experience working in bizdev, I haven't really seen that. There are always long term directional strategies in play.
But politics, (at least democracy) has the double edged sword of election cycles. This heavily incentivizes short term thinking.
Ex. Should the mayor pour millions into sewer system maintenance or millions in flashy projects and waste?
If the sewer maintainance is done right, none of the electorate notices. But the electorate will see the flashy spending and vapid superficial projects. And who cares if we defer sewer maintainance, that will only cause issues 20 years from now.
> Hard disagree. Business optimized for the value it can capture in the short term. It will be more efficient at that.
Not necessarily true, many power generation projects are built knowing that they won’t be profitable for many decades and are happily funded by pension companies that treat them like bonds. Many government projects don’t get done because their payoffs won’t be seen within the election cycle.
I think that business is most often more efficient, but efficiency doesn’t need to be the goal for everything and those are the areas where government is needed. This is assuming that the people running the government aren’t just as corrupt and greedy as their corporate brethren.
Do you see the irony arguing that businesses optimize for the short term while government is efficient at allocating for the long term while talking about a story in which the government sold the rights to long term cashflows to private hands for a short term windfall?
It looks like the business optimized for the long term while government optimized for short term
Living in a 3rd world country the experience is the polar opposite. Everything the government touches fails here and quite dramatically.
You mention business efficiency being built on the back of a responsible government, but I've often heard here where I live (South Africa), if you want to know where to deploy capital look for companies doing something the gov should be doing...because it's easy to compete (port management, electricity, rail, air lines, mines, refuse management)
> Business optimized for the value it can capture in the short term
As opposed to government? The reason every government is so bureaucratic is precisely because it's incentives are structured to optimize for the short term. At least private business pays with blood for it's mistakes.
> In theory, a government will be efficient at allocating resources for that
In theory dictatorship is more efficient that any other form of government. In practice, humans are more flawed than we like to admit.
> We HAVE to stop thinking that business is always more efficient at everything
Nobody thinks business is always more efficient. But it turns out to be way more efficient on average.
> it is built on the back of responsible government
The beauty of capitalism is that it allows society to thrive even when all actors are irresponsible. Which we, humans, are.
I wonder what would happen if you could somehow decouple businesses running critical infrastructure from the stock market. For example, make it so shares must be held for at least 3 years before they are sold if you don't want to pay a massive extra tax on them, and you can't borrow/lend against these shares.
I generally agree with you, but it looks like there cases where governments like the City of Chicago and Australia do a terrible job of balancing short term versus long term economics.
some things are better handled by local governments. There's nothing worse than private companies that can do things like force civil fines. Local government is more accountable to the people.
The biggest issue is "responsible government". The closest this ever implemented in world history is Singapore with the government largely stuffed with PhDs and graduates - heck their PM can even solve sudoku in C++. In most cases, government would be closer to American form running by incompetent or less educated leaders of semi democratic with fraud and excessive spending (Sri Lanka, Japan, Germany, etc). I recalled one of German leaders even plagiarised their master/dr thesis yeara ago. In this situation, private enterprises especially lots of it competiting fiercely would be way more efficient. Chicago and Australia privatisations are really just government monopolies relegated to private monopolies. So efficiency of private enterprise will not that readily available in short-medium term. In long term, we dont know - economics theory a lot doenst match up reality. Malaysia has gone through this during their 4th PM and today result is pretty mixed with a lot of corruptions.
> Services can often be run more efficiently in private hands
I’m not sure I’ve ever seen an example where “efficiency” wasn’t just giving up on social obligations (either by screwing employees, or screwing customers, often both).
I’m looking around and see postal services (it still breaks me that “going postal” means what it means), roads, railways, energy production. I don’t see any of them having gotten meaningfully cheaper or providing better service or handling their employees better through privatization.
As an hybrid, splitting into nationalized infra management and privatized customer facing service potentially worked for ISPs. That’s the only mildly positive example I can come up with.
One example is the privatization of telecommunication sector in India. They now have some of the cheapest data in the world and have brought on tens of millions of new users in recent years. Competition has been a force for good.
An additional one that comes to mind is following the privatization of airlines in many countries, air travel got much cheaper. India is also a glaring example, there are instances in Europe as well. (The US was never a monopoly but it was highly regulated up until the Carter admin in the 1970s. Deregulation produced a similar positive result)
Going further back there are numerous academic examples. The classic figure is that private farms in the soviet union worked only 3% of the total sown land, but produced 66% of the eggs, 64% of the potatoes, 40% of the meat, and 39% of the milk. China had similar figures.
In general I think privatization works best where that force of competition can influence things. I'm not sure exactly how Chicago parking meters companies could compete with each other or improve 'service', but for industries prone to competition, privatization makes a lot of sense to me over government monopoly.
This. I literally can't think of a single time where something public was privatized and it got better. Usually, it just gets more expensive and a bit worse.
My dad talks about how the wait to get a new phone line put in went from a month to the next day, virtually overnight, when privatisation happened, since the company now had a profit motive to get you using your phone as fast as possible. But I haven't seen anything like that personally.
Pass a law and fix it. Australia is a sovereign state. I know it sounds simple and it is, but the politicians might not actually represent their voters.
Set a maximum power rate, service level agreement, and mandatory renewable generation. Drive them into bankruptcy and have the court offer it to a new operator when they can't comply. Eminent domain to prevent power outages, before they can even shut things down.
If Sri Lanka (or Africa) didn't need more money from China (eg US, India, etc.) they could take back their port tomorrow by passing a law.
There will be be repercussions from both China and global trade organizations as applicable - although that may indeed be worth it in the end. In addition the country will lose a bit of credibility with investors putting at risk investment in other areas where the government might "change its mind" like natural resources. This is hard to quantify but has an impact in aggregate.
Ontario, Canada sold one of the countries most important highways back in the 90's to investors for 100 years but at least the owners were still Canadians.
Trade agreements (eg: ChAFTA in this case) typically contain clauses which restrict the ability to pass laws that directly harm the interests of one countries investments in the other.
But in any case, transmission grid operators are natural monopolies that are usually heavily regulated and can’t simply charge whatever they want. I’m sure South Australia’s grid is no different.
The opportunity for corruption in the sale of state assets is always there. You are right.
But it's also an ever constant presence when the assets are state run. In my (LatAm) country, privatization has generally been a great success where it's happened because when the companies are run by the government, there's constant grift going on. The privatization of the mines in particular was wildly successful. Production went up, costs went down, and the state still collects profits in the form of mineral taxes. The mines were a black hole of public money when the government was in charge of them.
There are many similar stories around the world. A government, usually a center-right one, sells some critical public infrastructure for relatively little money. The new owners then raise prices as much as they can and make major profits. I believe the reason is more likely ideology than corruption.
Certain kinds of pro-business politicians tend to think that privately run services are morally superior to government services. Because this is an ideological argument, they are unwilling to listen to empirical counterpoints. As politicians they are also prone to teleological thinking: because the purpose of privatization is to benefit the public, it will benefit the public. Hence they care less about the details of the privatization deal than they should.
A comment further down says the sale price was 3.5 billion dollars, revenue of the company is $600 million. If the profit margin is 10% (not unreasonable for a regulated utility) that works out to an interest rate of 1.7%. So basically a $3.5 billion loan at a 1.7% rate locked in for 200 years. Sweet deal.
In theory - and as has happened in history - governments can repatriate (nationalize) critical assets. So as long as a nationstate has meaningful independence, even the threat of that emergency lever can prevent the worst abuse.
If such meaningful independence doesn’t exist, it arguably doesn’t make much of a difference who’s name plate is on the ownership?
39% all goods exported from Australia in 2019-20 were to China. Of that 39%, over half of that was iron ore. Australian iron ore production is valued at $136 billion a year to the economy.
Unfortunately, Australia really doesn't have much leverage in this space, and forcibly re-nationalizing an asset like that, would cause major diplomatic problems, like the harsh trade sanctions imposed by China over the last few years due to Australia backing a COVID inquiry.
When we give a monopoly to a private company that is really bad… when we allow private companies to fight for every little bit of market share that is usually pretty good… subtle differences and agreed corruption tends to lead to monopolies that is bad
There are a lot of responses to this comment along the lines of 'privatisation leads to more/less efficiency'. I'd like to point out that although 'efficiency' is usually the stated reason for privatisation, in reality it is often simply a distraction from the more significant (and fundamentally more ideological) consideration - providing those with capital with more investment opportunities.
Edit:
Unfortunately, because of the nature of much of what is privatised, these investment opportunities are often rent-seeking opportunities.
> South Australia sold its state owned electricity grid to Chinese owners for 200 years. Every time people say our high power prices are due to renewables think critically.
With electrical rates above $0.35/kWh, that's the point where I would get a loan to install a massive off grid solar system with LiFePo4 batteries and probably have a ROI period of under 7 years. And then leave a basic meter and panel connected to the grid with nothing on it.
I live in Texas where we have an “efficient” system. It efficiently transfers wealth from the many to the few while providing unlimited anxiety.
When my power was off for multiple days in subzero temps and i seriously considered one morning we might just not wake up I had a realization. Another way to look at “inefficiency” is: “redundancy”. And I sure as heck wish our grid had a little more redundancy.
Just take it back, pay compensation. People r so scared to set a bad precedent for future business deals and yet businesses repeatedly don’t care about leveraging every advantage they have for profit over people.
Contracts are only as good as the enforcement mechanism and in this case, the fact that it’s critical infrastructure only works in their favor. Just nationalize it, pay the existing owners some “fair value” amount for their trouble and resign to fighting a WTO lawsuit.
Over 40% of homes have rooftop solar PV as do many businesses. It is harder for renters and low income earners. Going off grid completely is difficult and generally impractical for most people as the return on investment with storage is still questionable and the costs are high. While they can offset some costs with their own generation they, their children and grandchildren are still going to be taxed for their grid connection. Overbuilding the electricity grid would be a ridiculously inefficient and expensive task and is unlikely to save anyone money. It is a natural monopoly.
The grid was originally bought by the state from private operators to support the state's industrialization and economic growth as foreign investors didn't want to help grow our economy. That was decades ago under an old-school conservative leadership that was pro-business and the interests of all and not just looking after their mates and themselves. I think we need to rethink our conception of political parties and who they represent because I question how many truly represent me.
> Services can often be run more efficiently in private hands but ...
It's not because it's private. It's because it's forced to compete. You can't just transfer ownership of a monopoly into private hands and call it privatisation. You need to split it first, sell parts to adversarial entities and prevent them from buying each other.
> the most expensive building[1] ever built in Australia, and the most expensive hospital[2] ever built anywhere in the world, at US$2.44 billion in construction and equipment costs.
How could it not be corruption? If it weren't corruption it would almost make the situation worse. That somebody who got elected thinks that would be a good idea, genuinely...
Why would Chinese owners want to buy that? It seems unlikely that Australia will hold its bargain for the whole 200 years given current political climate.
They bought it for $3.5B, but the annual revenue of SA Power Networks is around $600M. I don't know the profit margin, but they won't have to wait for 200 years to get their investment back.
That was 14 years later. The initial privatisation was in 1999 and retail went to AGL and power distribution was sold to Cheung Kong Infrastructure from Hong Kong. They retain majority ownership. State Grid of China is a much more recent investment in transmission and not as controversial as the original privatization of the entire public utility. Australia isn't against foreign investment or Chinese investment in particular. I added China more or less as clickbait but the real problem was the lack of public interest and the impact it has had on livability and the economy. I believe the SA grid operator has the highest profit per customer in the country which probably means they are some of the highest per customer in the world.
The 200 year lease was mentioned as it is unusually long and there was some misrepresentation over the length of the lease to people who voted for it and the public.
The question of sovereign interests is real. The original nationalisation in the 50s or 60s was I think due to issues the state government had with the British owners interests not aligning with the state's ambitions. But at the time of sale tensions with China were not the same and the problem was that it was a terrible deal for the state that led to a subsequent explosion in power prices.
Neoliberal economic policy is an ideology that only needs to work out for the first generations of neoliberals. After that they've 'got their's' and everyone else gets' to deal with the consequences. Example: See the state of the world at the moment.
I generally agree but just a thought exercise: Public government is what got us in this mess in the first place and isn't 'run efficiently'. What if all government functions were privatized?
So much to unpack.
City selling things cheaply to sovereign funds.
Price hikes when bought by VC for no reason (other than profit)
Capture of car-centric infrastructure, which makes it less likely to turn towards zero-carbon or multi-modal space - you can park 20 bikes in 1 car space.
and more....
I really wonder if there is any way to change the structure of government so that politicians are forced to reckon with some of the longer term impacts of their decisions, as opposed to "I'll be out in a couple years, that'll be future mayor's problem".
Right now Austin is trying some very dubious eminent domain measures (which were pretty drastically clobbered in court) to get out of a long term lease they signed just a few years ago to have a private operator run a small separate terminal at the airport. I think it was especially braindead for Austin to ever sign that lease - we were (and still are) growing like crazy, it didn't take much foresight to think Austin would eventually need to seriously expand the airport.
Of course, hardly anyone involved with the original bad decision is still on city council, so it became someone else's problem.
This is around the same time that PA tried to lease their turnpike, and cities all over the US were facing a post-boom hangover when projected revenues from permits and property taxes didn't align with budget realities.
I'm not defending the decision, but it was far more shortsightedness than corruption.
It was done at the end of the reign of someone who had been mayor for 22 years, whose father had been mayor for 21 years. There aren't really any laws against corruption in Illinois unless you get both sides of a clearly stated quid pro quo on tape, and physical proof of the action and the compensation actually having occurred. It's also illegal to tape people unless they consent.
> The City Of Chicago retains control over pay station parking rates. CPM does not – and never has – set pay station parking rates. The City retains exclusive authority to determine and establish rates, set hours of operation, and place, add or remove metered spaces. The initial five‐year rate schedule, which ended in 2013, was approved by the City Council to align with rates comparable with other large U.S. cities. Prior to the agreement, parking rates in Chicago were much lower than the national average. Seventy percent of meters had not seen an increase in 20 years.
This should be the opposite: Sell the rights. Then abolish most of the parking and replace it with bike paths. No drop in city revenue. Sorry "investors", you SOL.
What I don't understand: If the city really needed short-term money, why couldn't they take out a loan against the parking-meter-system? It's extremely low-risk and in the long run the city could have keept it. This has to be corruption, doesn't it?
Mayor Daley was on his way out and only cared about the short term boost. This was his MO for years though, he took several pension holidays which the subsequent mayors have been trying to grapple with, and yet people remember the Daley years fondly because of it.
People often don't associate the bad things with the people that caused them. They associate the bad things with the person cleaning up the mess.
Daley didn't raise their taxes. The meters didn't skyrocket in price under his tenure. People rarely look for causes to things. Ah, so he didn't fund pensions so now my taxes are going up? No, it's the newer mayors who are the ones raising my taxes!
Yes, if you look at the situation, he might have caused those problems, but during his tenure people probably felt better. They had more money in their pocket and weren't being told bad news.
Why can't things be like they used to be? Well, turns out it was never sustainable for things to be like that and when you mortgage your future the bill eventually comes due.
The parking deal happened because of corruption, not because it was the only way to raise money. It was rammed through the city council in a day after being negotiated behind closed doors.
I hate that argument because it absolves the council from doing their job of reviewing the laws they are signing.
Nobody could honestly think a $1B windfall appearing from nowhere was worth signing without significant review. Every person involved understood the significance of the deal.
On the corruption point, it depends on if it was an open bidding process (there are many laws and protocols governing the sale of public property). The city has probably borrowed against the meters in some form many times over so they may have transferred certain debts to the new owner as an additional way to reduce debt and raise liquidity (I don’t know the details of this transaction specifically however)
Do you still have to pay it? If it’s a private meter my first thought is that non-payment becomes a civil matter and in that case you likely can get away without paying.
I get “civil speeding tickets” (traffic cameras) all the time in my state. I simply throw them away without repercussion because the cost of suing to collect from every individual who hasn’t paid just isn’t worth it. Not sure if it applies in this case but in my state these also cannot legally be reported to credit agencies or insurance companies.
If this is not the case and the city is criminally prosecuting people (with taxpayer resources) to enforce private debts owed to the meter company, there’s a good chance a court would find the practice to be illegal. At least I hope that’s how it would turn out…
I can't find a reference now, but when I visited in January there was a story on the news where a tow truck was starting to tow a legally parked car, the owner showed up and tried to stop them, so a tow company employee pulled a gun and left with the car. The police came and basically said they couldn't do anything and suggested paying the fine to get the car back, or something to that effect.
Typically laws get passed along with them allowing for an (insane) increase in fees associated with this. So the $0.75 toll might not be worth collecting, but on the Dallas tollway, every single one of those unpaid incurs a $75 charge on top. It very quickly becomes worth collecting.
$75 is not enough to pay a lawyer for 1 hour to prove the company’s right to collect $75, and they have to file a new suit for each person who didn’t pay. Not to mention there is a chance of losing and having to pay legal fees for both parties after years fighting in court. It’s far more profitable for them to pocket the money from those who do pay and forget about the rest.
In my case, the tickets I get are usually $150 to $350 per and there isn’t a single instance of someone being sued for non-payment.
> criminally prosecuting people (with taxpayer resources) to enforce private debts owed to the meter company, there’s a good chance a court would find the practice to be illegal.
The deal structure is as follows:
- if the city fails to prosecute a parking violation, the city pays to the parking company anyways.
- so your debt is to the city: fee for a parking violation, not a debt to the private company.
- the city can immobilize / tow your car if it has an unpaid ticket. That’s very expensive.
This is only tracking revenue. The numbers are meaningless without expenses. I'm sure they make a sizable profit margin, but conflating revenue with profit is sensationalism.
In 2021, Chicago Parking Meters LLC had $136M revenue minus $50M of various expenses, leaving $86M of net operating income.
But of that $50M, $15M is "amortization of intangible asset", and I think "intangible asset" refers to the right to operate the meters. So it's effectively only $35M of "running-the-business" expenses, leaving $101M of effective profit.
Well, they might have to grease the wheels more than once. There's nothing to stop the city from setting a maximum rate on parking, or tickets, or recovery in court or during vehicle registration. Changing a city, county, or state ordinance/law or simply not enforcing rules is the purview of the state and mostly the executive.
I guess what I'm saying is that these are long term grifts and the city could deal with it (the fleecing of their voters), but chooses not to, because they know where their bread gets buttered.
They replaced all the meters with the boxes and made an app. They also pay for all the meter maids even though the ticket revenue goes to the city. So there are definitely some expenses, but yea margins are surely crazy.
I haven’t checked, but I suspect the return is less than they would have gotten just sticking the money in an S&P 500 index fund over the same 14 years. Still, the risk is lower.
Even if true today, very unlikely to be true in the long run. From the numbers provided in the title, this deal is like an effectively risk free 16% yielding bond, except the revenues will also grow with inflation.
And it's definitely not true on a risk adjusted or cash flow basis. Also these deals can be (and probably was) levered to levels which equity investments cannot. Borrow at SOFR+x% and earn on the spread between that value and 16%. Extremely profitable and uncommon carry trade
If everyone invested in the S&P 500 we would all be rich. Companies should raise capital just to buy S&P 500 index fund so we can finally have universal prosperity.
Except the profit can also be reinvested. That kind of free cash flow is pretty insane - and will help dollar cost average any equity investments during down markets, compared to just lump sum investing $1.5B and letting it ride.
Yeah. And the system that's used to track the parking tickets by the city, CANVAS (IBM), cost the city over 100 million dollars alone. Currently suing for the system's database schema and our oral arguments are being brought to the IL supreme court later this month.
Would you mind sharing the docket number or anything similar that would allow me to follow this case? I work in government and have had similar concerns about software vendors being very restrictive with data that's paid for with public/taxpayer funds.
Selling something with long-term value for a short-term lump sum is the kind of thing a politician would do. He or she isn't going to be around later, so why not get reelected now?
On the other side, Richie Daley didn't have the acumen of David Bowie, who did the same thing:
Just think: who knew that parking meters would continue to throw off money? what happens when self-driving cars are cruising around and no one needs to park anymore?
In the 80's, some western governments did that. People were unhappy but those economies did great. Eg. UK (Thatcher), and New Zealand (Rob Muldoon). Some of these businesses were just weird to be government owned - like a print shop.
Some businesses are best owned by government and some privately. It's not just a blanket good thing that governments should ratchet their way towards communism. Natural monopolies and public goods can be better owned by government because the private sector needs competition to be efficient.
Highway 407 in Ontario is high on the list of nice deal badboys:
"SNC-Lavalin Group Inc. will sell 10.01 per cent of its stake in 407 International Inc., the private consortium that controls the profitable tolled highway in north Toronto, for an expected $3.25 billion, the company announced Friday.
That’s more than a billion than what the government earned 20 years ago – for selling the leasing rights to the entire highway.
In 1999, the Ontario government leased Highway 407 for the next 99-years for $3.1 billion, or $4.4 billion in today’s dollars.
At the time, it was the largest privatization of a public asset in Canadian history. But in hindsight, it may be considered one of Ontario’s biggest financial missteps, considering the SNC-Lavalin sale pegs the value of the highway at at least $30 billion.
The company running the 407 reported revenues of $1.4 billion in 2018"
...they sold the 10% to... Ontario's pension fund...
Came here looking for the highway 407 comment! Speaking of privatization, how's it going with Hydro One? And you must be so excited for the upcoming privatized surgeries...
It's "weird" because it should be straight up illegal.
Anything developed with public money or eminent domain should be off the table for selling to a private entity. If private investment wants to own parking spots or highways, it can pay to create them itself. Private investment should result in development, not rent seeking on things that were already developed.
Law should be fully mutable and not subject to privately owned restrictions. Any terms that have been written in to keep the city from doing things like lowering parking rates should be considered unenforceable. And since the city is no longer getting revenue from the meters, citizens should vote to eliminate the parking fees.
Furthermore, most long term debts or contracts that a government could enter into should be repudiatable due to the principle agent problem - specifically the corrupt incentive of politicians to favor short term benefits and ignore long term liabilities. There should be very limited exceptions such as purely financial bonds that are voted on directly, and even those should have time limits of a few decades.
There are significant risks on some of those deals, as, if the toll highway doesn't get enough traffic, governments will lack the political will to let the road decay, and often will end up buying back the highway, and paying for the repairs.
So if the highway goes well, the company makes money hand over fist, and it all looks like a giant scam. If it goes really badly, the government takes a bath, and it all looks like a bunch of waste. So ultimately it's very difficult to set up a deal that lasts very long and doesn't seem like a regulatory mistake, one way or the other.
Also note that this isn't purely a US situation: Some form of privatization of toll roads happens all over the world, and success rates are also not all that great
In Texas the state government does not want the toll roads to become public because the revenue collected from gasoline taxes and vehicle registration is not enough to pay for their upkeep.
Same with national parks, the federal government sold recreation.gov to Booz-Allen and now they get to collect lottery application fees and processing fees for their mediocre website from millions of people every year forever.
For the past 20 years or so, Colorado has raised taxes in order to pay for a commuter train from Denver <-> Boulder. After the funds were collected, they decided to use it to build a toll/HoV lane on the highway between those two cities(US-36) and offer an occasional bus service. And then sell the rights to some Australian company.
Readit News
Hard disagree. Business optimized for the value it can capture in the short term. It will be more efficient at that.
Services such as electricity benefit from long-term investment, and create much hard to capture value. In theory, a government will be efficient at allocating resources for that.
We HAVE to stop thinking that business is always more efficient at everything. Business is great, I've started a few and see what they've done to lift people out of poverty-- but it is built on the back of responsible government.
This is pretty key.
Imagine a train line that allows commuters to get to work. Trains are expensive to run, so the actual cost to get a commuter to work and back is £100. The commuters are paid (say) £150 a day, after tax. Is this train worth 2/3 of their post-tax income? Probably not, so they won't use it, and the company can't get workers if there's no other practical way to commute. Workers can take less good jobs near home, earn less, but take home more. Or even no job at all. However, a worker generates substantially more than their post-tax salary in value to the economy as a whole, so subsidy of the train fare creates value by getting them to work and generating that value, even though the train cannot actually turn a profit itself by charging the commuters out of their income.
Even if you say "well the company should just pay more if they've made that value", not all that value manifests directly on the company's bottom line, it includes downstream value, as well as intangible things like worker skills that are more of an abstract societal benefit.
In the same way, roads produce massively more value than people would be willing to pay individually: all the food deliveries in a week might be worth, at retail, about £4 billion, say. If those deliveries can't be made, what will be the cost? £4 billion? Or more because the whole country will become a much less effective economy when everyone is starving and looking for food? And the universal-delivery postal system. Healthcare, childcare, energy, etc etc.
But I can show you PGE and SDGE as examples of privatization WITHOUT any of that good-faith investment, and then when the situation went critical (massive wildfires a few years back due to bad electricity infra), electricity consumers being forced to foot the bill. Where I live, my utilities bill has quadrupled in the past three years (from ~$100 to ~$450 a month for literally identical usage, I checked my statements), rate regulation (the CPUC) is seemingly toothless, and my utilities company sends me these insultingly understated letters about how they can't control energy pricing and have to pass on rates to consumers.
Except they won't tell you that they are owned by the company they buy their energy from, and that THAT company happily will set prices to whatever they want if it means sucking off their pathetic little shareholders just a little bit more. Sempra Energy has been doing gangbusters on their quarterly earnings reports!
But politics, (at least democracy) has the double edged sword of election cycles. This heavily incentivizes short term thinking.
Ex. Should the mayor pour millions into sewer system maintenance or millions in flashy projects and waste?
If the sewer maintainance is done right, none of the electorate notices. But the electorate will see the flashy spending and vapid superficial projects. And who cares if we defer sewer maintainance, that will only cause issues 20 years from now.
Not necessarily true, many power generation projects are built knowing that they won’t be profitable for many decades and are happily funded by pension companies that treat them like bonds. Many government projects don’t get done because their payoffs won’t be seen within the election cycle.
It looks like the business optimized for the long term while government optimized for short term
You mention business efficiency being built on the back of a responsible government, but I've often heard here where I live (South Africa), if you want to know where to deploy capital look for companies doing something the gov should be doing...because it's easy to compete (port management, electricity, rail, air lines, mines, refuse management)
And in practice it’s all about ass covering and getting re-elected.
As opposed to government? The reason every government is so bureaucratic is precisely because it's incentives are structured to optimize for the short term. At least private business pays with blood for it's mistakes.
> In theory, a government will be efficient at allocating resources for that
In theory dictatorship is more efficient that any other form of government. In practice, humans are more flawed than we like to admit.
> We HAVE to stop thinking that business is always more efficient at everything
Nobody thinks business is always more efficient. But it turns out to be way more efficient on average.
> it is built on the back of responsible government
The beauty of capitalism is that it allows society to thrive even when all actors are irresponsible. Which we, humans, are.
I’m not sure I’ve ever seen an example where “efficiency” wasn’t just giving up on social obligations (either by screwing employees, or screwing customers, often both).
I’m looking around and see postal services (it still breaks me that “going postal” means what it means), roads, railways, energy production. I don’t see any of them having gotten meaningfully cheaper or providing better service or handling their employees better through privatization.
As an hybrid, splitting into nationalized infra management and privatized customer facing service potentially worked for ISPs. That’s the only mildly positive example I can come up with.
An additional one that comes to mind is following the privatization of airlines in many countries, air travel got much cheaper. India is also a glaring example, there are instances in Europe as well. (The US was never a monopoly but it was highly regulated up until the Carter admin in the 1970s. Deregulation produced a similar positive result)
Going further back there are numerous academic examples. The classic figure is that private farms in the soviet union worked only 3% of the total sown land, but produced 66% of the eggs, 64% of the potatoes, 40% of the meat, and 39% of the milk. China had similar figures.
In general I think privatization works best where that force of competition can influence things. I'm not sure exactly how Chicago parking meters companies could compete with each other or improve 'service', but for industries prone to competition, privatization makes a lot of sense to me over government monopoly.
Dead Comment
Set a maximum power rate, service level agreement, and mandatory renewable generation. Drive them into bankruptcy and have the court offer it to a new operator when they can't comply. Eminent domain to prevent power outages, before they can even shut things down.
If Sri Lanka (or Africa) didn't need more money from China (eg US, India, etc.) they could take back their port tomorrow by passing a law.
Ontario, Canada sold one of the countries most important highways back in the 90's to investors for 100 years but at least the owners were still Canadians.
But in any case, transmission grid operators are natural monopolies that are usually heavily regulated and can’t simply charge whatever they want. I’m sure South Australia’s grid is no different.
But it's also an ever constant presence when the assets are state run. In my (LatAm) country, privatization has generally been a great success where it's happened because when the companies are run by the government, there's constant grift going on. The privatization of the mines in particular was wildly successful. Production went up, costs went down, and the state still collects profits in the form of mineral taxes. The mines were a black hole of public money when the government was in charge of them.
We're talking about government services here. Of course a mine will be more profitable in private hands.
Certain kinds of pro-business politicians tend to think that privately run services are morally superior to government services. Because this is an ideological argument, they are unwilling to listen to empirical counterpoints. As politicians they are also prone to teleological thinking: because the purpose of privatization is to benefit the public, it will benefit the public. Hence they care less about the details of the privatization deal than they should.
If such meaningful independence doesn’t exist, it arguably doesn’t make much of a difference who’s name plate is on the ownership?
Unfortunately, Australia really doesn't have much leverage in this space, and forcibly re-nationalizing an asset like that, would cause major diplomatic problems, like the harsh trade sanctions imposed by China over the last few years due to Australia backing a COVID inquiry.
Not to mention if you rub the wrong people your house might get fire bombed:
https://www.google.com/search?q=australia+house+firebombed
Deleted Comment
Edit:
Unfortunately, because of the nature of much of what is privatised, these investment opportunities are often rent-seeking opportunities.
With electrical rates above $0.35/kWh, that's the point where I would get a loan to install a massive off grid solar system with LiFePo4 batteries and probably have a ROI period of under 7 years. And then leave a basic meter and panel connected to the grid with nothing on it.
When my power was off for multiple days in subzero temps and i seriously considered one morning we might just not wake up I had a realization. Another way to look at “inefficiency” is: “redundancy”. And I sure as heck wish our grid had a little more redundancy.
The grid was originally bought by the state from private operators to support the state's industrialization and economic growth as foreign investors didn't want to help grow our economy. That was decades ago under an old-school conservative leadership that was pro-business and the interests of all and not just looking after their mates and themselves. I think we need to rethink our conception of political parties and who they represent because I question how many truly represent me.
It's not because it's private. It's because it's forced to compete. You can't just transfer ownership of a monopoly into private hands and call it privatisation. You need to split it first, sell parts to adversarial entities and prevent them from buying each other.
Their new hospital is (from wikipedia)
> the most expensive building[1] ever built in Australia, and the most expensive hospital[2] ever built anywhere in the world, at US$2.44 billion in construction and equipment costs.
That's something of a stretch.
State Grid Corp of China bought a 41% stake in South Australia's transmission network owner ElectraNet. See:
https://archive.is/0yXEH
The 200 year lease was mentioned as it is unusually long and there was some misrepresentation over the length of the lease to people who voted for it and the public.
The question of sovereign interests is real. The original nationalisation in the 50s or 60s was I think due to issues the state government had with the British owners interests not aligning with the state's ambitions. But at the time of sale tensions with China were not the same and the problem was that it was a terrible deal for the state that led to a subsequent explosion in power prices.
Dead Comment
Right now Austin is trying some very dubious eminent domain measures (which were pretty drastically clobbered in court) to get out of a long term lease they signed just a few years ago to have a private operator run a small separate terminal at the airport. I think it was especially braindead for Austin to ever sign that lease - we were (and still are) growing like crazy, it didn't take much foresight to think Austin would eventually need to seriously expand the airport.
Of course, hardly anyone involved with the original bad decision is still on city council, so it became someone else's problem.
This is around the same time that PA tried to lease their turnpike, and cities all over the US were facing a post-boom hangover when projected revenues from permits and property taxes didn't align with budget realities.
I'm not defending the decision, but it was far more shortsightedness than corruption.
It clearly said it was in Chicago and involved a Daley.
The company doesn't actually control the prices. See https://parkchicago.com/about/
> The City Of Chicago retains control over pay station parking rates. CPM does not – and never has – set pay station parking rates. The City retains exclusive authority to determine and establish rates, set hours of operation, and place, add or remove metered spaces. The initial five‐year rate schedule, which ended in 2013, was approved by the City Council to align with rates comparable with other large U.S. cities. Prior to the agreement, parking rates in Chicago were much lower than the national average. Seventy percent of meters had not seen an increase in 20 years.
Oulu is at least as cold as Chicago and has twice as much snowfall https://en.wikipedia.org/wiki/Oulu#Climate vs https://en.wikipedia.org/wiki/Chicago#Climate . I'm not saying that _you_ would wish to cycle in December but making it practicable for many is a choice, as Oulu shows.
That must be a very big car, or very tiny tightly packed bikes?
At 7x2.5m I can imagine 10 bicycles side-by-side with ~70cm each, with another 10 'interleaved' opposite.
Deleted Comment
Daley didn't raise their taxes. The meters didn't skyrocket in price under his tenure. People rarely look for causes to things. Ah, so he didn't fund pensions so now my taxes are going up? No, it's the newer mayors who are the ones raising my taxes!
Yes, if you look at the situation, he might have caused those problems, but during his tenure people probably felt better. They had more money in their pocket and weren't being told bad news.
Why can't things be like they used to be? Well, turns out it was never sustainable for things to be like that and when you mortgage your future the bill eventually comes due.
Nobody could honestly think a $1B windfall appearing from nowhere was worth signing without significant review. Every person involved understood the significance of the deal.
Chicago is pretty famous for corruption.
That might be an understatement of all time winner, I opine, as someone originally from there.
I get “civil speeding tickets” (traffic cameras) all the time in my state. I simply throw them away without repercussion because the cost of suing to collect from every individual who hasn’t paid just isn’t worth it. Not sure if it applies in this case but in my state these also cannot legally be reported to credit agencies or insurance companies.
If this is not the case and the city is criminally prosecuting people (with taxpayer resources) to enforce private debts owed to the meter company, there’s a good chance a court would find the practice to be illegal. At least I hope that’s how it would turn out…
https://www.youtube.com/watch?v=mfTcZbOmLl0
https://www.youtube.com/watch?v=bJg9m0eOjsM
https://wgntv.com/news/wgn-investigates/rogue-towing-some-to...
I can't find a reference now, but when I visited in January there was a story on the news where a tow truck was starting to tow a legally parked car, the owner showed up and tried to stop them, so a tow company employee pulled a gun and left with the car. The police came and basically said they couldn't do anything and suggested paying the fine to get the car back, or something to that effect.
Edit: Found the story - https://www.nbcchicago.com/consumer/unlawfully-towed-refunds...
In my case, the tickets I get are usually $150 to $350 per and there isn’t a single instance of someone being sued for non-payment.
The deal structure is as follows:
- if the city fails to prosecute a parking violation, the city pays to the parking company anyways.
- so your debt is to the city: fee for a parking violation, not a debt to the private company.
- the city can immobilize / tow your car if it has an unpaid ticket. That’s very expensive.
Dead Comment
Ridiculously advantageous to the partners of the LLC, and good on them for securing this. Easily one of the best rev deals in history..
Can't knock it
In 2021, Chicago Parking Meters LLC had $136M revenue minus $50M of various expenses, leaving $86M of net operating income.
But of that $50M, $15M is "amortization of intangible asset", and I think "intangible asset" refers to the right to operate the meters. So it's effectively only $35M of "running-the-business" expenses, leaving $101M of effective profit.
Source: have had visibility into businesses that look like they ought to print money reliably, but actually don't.
I guess what I'm saying is that these are long term grifts and the city could deal with it (the fleecing of their voters), but chooses not to, because they know where their bread gets buttered.
Dead Comment
And it's definitely not true on a risk adjusted or cash flow basis. Also these deals can be (and probably was) levered to levels which equity investments cannot. Borrow at SOFR+x% and earn on the spread between that value and 16%. Extremely profitable and uncommon carry trade
Selling something with long-term value for a short-term lump sum is the kind of thing a politician would do. He or she isn't going to be around later, so why not get reelected now?
On the other side, Richie Daley didn't have the acumen of David Bowie, who did the same thing:
https://www.investopedia.com/terms/b/bowie-bond.asp
https://www.billboard.com/music/music-news/david-bowies-bowi...!
Just think: who knew that parking meters would continue to throw off money? what happens when self-driving cars are cruising around and no one needs to park anymore?
But no. So what is it? He has lots of quotes.
Some businesses are best owned by government and some privately. It's not just a blanket good thing that governments should ratchet their way towards communism. Natural monopolies and public goods can be better owned by government because the private sector needs competition to be efficient.
It’s weird to think that the state Highway you drive on is owned by some private equity company.
https://www.npr.org/templates/story/story.php?storyId=569539...
"SNC-Lavalin Group Inc. will sell 10.01 per cent of its stake in 407 International Inc., the private consortium that controls the profitable tolled highway in north Toronto, for an expected $3.25 billion, the company announced Friday.
That’s more than a billion than what the government earned 20 years ago – for selling the leasing rights to the entire highway.
In 1999, the Ontario government leased Highway 407 for the next 99-years for $3.1 billion, or $4.4 billion in today’s dollars.
At the time, it was the largest privatization of a public asset in Canadian history. But in hindsight, it may be considered one of Ontario’s biggest financial missteps, considering the SNC-Lavalin sale pegs the value of the highway at at least $30 billion.
The company running the 407 reported revenues of $1.4 billion in 2018"
...they sold the 10% to... Ontario's pension fund...
https://www.yahoo.com/now/worst-deal-ever-the-407-is-worth-3...
What a sad fiasco.
Anything developed with public money or eminent domain should be off the table for selling to a private entity. If private investment wants to own parking spots or highways, it can pay to create them itself. Private investment should result in development, not rent seeking on things that were already developed.
Law should be fully mutable and not subject to privately owned restrictions. Any terms that have been written in to keep the city from doing things like lowering parking rates should be considered unenforceable. And since the city is no longer getting revenue from the meters, citizens should vote to eliminate the parking fees.
Furthermore, most long term debts or contracts that a government could enter into should be repudiatable due to the principle agent problem - specifically the corrupt incentive of politicians to favor short term benefits and ignore long term liabilities. There should be very limited exceptions such as purely financial bonds that are voted on directly, and even those should have time limits of a few decades.
It’s not sold, it’s leased.
So if the highway goes well, the company makes money hand over fist, and it all looks like a giant scam. If it goes really badly, the government takes a bath, and it all looks like a bunch of waste. So ultimately it's very difficult to set up a deal that lasts very long and doesn't seem like a regulatory mistake, one way or the other.
Also note that this isn't purely a US situation: Some form of privatization of toll roads happens all over the world, and success rates are also not all that great