A New Twist on the Wisconsin Story With Gin and Tacos

Ed at Gin and Tacos picked up on a particularly audacious section of the Wisconsin budget-repair bill yesterday: the governor can sell off any state-owned heating, cooling, and power plants he likes, at any price, to anybody he wants, without any kind of auction or bid-solicitation process, and such a sale would be defined as being in the best interest of the state and to comply with criteria for certifying such a transaction.

Ed calls this “a highlight reel of all of the high-flying slam dunks of neo-Gilded Age corporatism: privatization, no-bid contracts, deregulation, and naked cronyism” — but as Yves Smith notes, the sad fact is that all this language is gratuitous: if you’re a state, there are essentially no legal restrictions on how to privatize state-owned industries and franchises if you’re so inclined.

It probably comes as little surprise to note that the most lucrative privatizations have generally been done by parties of the left: I’m thinking in particular of the UK’s auction of 3G licenses, which netted the Exchequer $35.4 billion at the height of the dot-com bubble.

Right-wing parties, by contrast, are more prone to thinking of privatization as something inherently good, and of monies flowing to the government as a kind of taxation which is inherently bad.

And then of course there’s the other spectrum, from clean to corrupt, which is orthogonal to the left-right spectrum — the more beholden the government is to special interests, the more likely those interests are to wind up with sweetheart deals. Sometimes, the special interests in question are public-sector unions, which find themselves able to negotiate the kind of final-salary defined-benefit pensions which are now threatening state solvency and municipal bond markets around the country. At other times, the special interests are large corporations looking to buy up lucrative monopolies on the cheap. In both cases, elected politicians are not the best people to ensure a good deal; non-partisan career civil servants tend to generate much better results.

The advantage of privatization in cases like the Chicago parking meters is that it removes the utility from political meddling — in that case, from local aldermen who would always agitate for parking rates well below the optimal level. (Relatedly, if you haven’t read it yet, go read Ed Glaeser’s Atlantic essay on the massive economic cost of urban zoning regulations.)

But in the case of Wisconsin-owned energy plants, such considerations don’t come into play. There’s no reason to believe that the private sector will run those plants in a way that is better for the public, and every reason to believe that they will run the plants in a way that is worse (ie, more expensive) for the public. If the state wants to cut such a deal in return for a one-time check, that check had better be enormous. And there’s absolutely no reason to believe that it will be.

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Felix Salmon is an Audit contributor. He's also the finance blogger for Reuters; this post can also be found at Reuters.com. Tags: