Recently by Robert Wenzel: Understanding Power and InfluencePlayers
When people think about a government unloading of an asset, they think of the way it is sold in the private sector: Keys are given to the new owner, he is free to do what he wants and the old owner walks away. But this is not the way government assets are necessarily "sold", especially "utilities. There is an on going relationship with the government where the monopoly utility gets to set fees approved by the government. In other words these deals have as much to do with the private sector as does the rum distiller business run by Fidel Castro’s brother, Raul.
With this in mind, here’s Yves Smith of Naked Capitalism taking a shot at understanding why the Koch bothers may need seven lobbyists in Wisconsin:
Mike Konczal (thanks to ed at ginandtacos) reported earlier today on the latest release of a movie coming to states and cities all over the US, namely the sale of state and local government assets to alleviate pressures on strained budgets.
For those new to this concept, the term of art is the anodyne infrastructure sales and the company that more or less invented this lucrative business is Macquarie Bank of Australia (known down under as the millionaires factory), although US firms clearly intend to exploit the once in a lifetime opportunity presented by widespread state and municipal budget distress and downgrades.
The problem, of course, is that these deals put important public resources paid for by taxes (or even worse, financed by bonds and thus potentially not even yet fully paid for) in the hands of private investors. They then earn their returns by charging user fees of various sorts. The public must rely on the new owners for reinvestment and maintenance, and depending on how the deal is negotiated, may have ceded control as far as fee increases are concerned. This is tantamount to selling the family china only to have to rent it back in order to eat dinner.
Now defenders will argue that there is nothing wrong with this in practice, as long as the price is fair, no one is harmed. Thats spurious. This is worse than an intergenerational transfer. Those future fees not only must recoup maintenance costs (which any owner would presumably pay) and the time value of money, but also the investors target return in excess of that. In addition, the large transaction costs of these deals are ultimately borne by the seller.
And the list of shortcomings thus far are merely those that result if you have two sides that are equally sophisticated. That is hardly the case with municipalities versus bankers and investors. As the old saying goes, If you sit down for a game of poker and you dont know who the sucker at the table is, its you.
But even that dim view presupposes that the government body will try to avoid being fleeced but will. Imagine what happens when government officials are in a position to lend a helping hand with a wholesale giveaway to their cronies.
Like I said earlier, this is the Russian oligarch play all over again. Smith has a decidedly "public good" view of these operations and probably would like to see the government maintain control of the operations, but she gets the problem of these asset sales to oligarchs.
The real answer is for the governments to get out of these businesses rather than continuing them as monopolies with oligarchs and their army of lobbyists controlling the game.