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.
This article begs the question, "Why does 'government' exists? What is it's rightful place?" In general, corporations (for profit and not for profit) tend to operate within contractual agreements, that is, agreements which detail the meeting of the minds extensively and behaviorally. If it is governments place to guard the greater public good, it is also their accountability in privatization matters to capture the meeting of the minds in great detail so that the greater public good can be realized. The representatives of the corporation are there to look out of their own shareholders; they are not there to do the legal work for those on the other side of the contractual process.
Fact is, the vast majority of public employees are lethargic, uncreative, and underqualified for their jobs...particularly when that job brings them into a somewhat competitive relationship with private business. Perhaps the best way for government, in this case Wisconsin, to represent the greater public good is by way of a "public corporation" so that the shareholders are the citizens of the state, allowing the private managers/operators to focus on benefiting their shareholders, and givng the shareholders a rightful voice in the operation of their corporation.
P.S. "Licensing" in the 3G example, was simply another tax, in an already tax-worn society; it is hardly an example of successful privatization.
#1 Posted by Bill Karns, CJR on Wed 23 Feb 2011 at 10:00 AM
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.
Felix, like you I would normally defer to Ed at “Gin and Tacos”, a political science professor, when making an argument like this. After all, its easier to defer to someone else who shares a similar worldview, quote them, and call the matter settled rather than take an in depth look at the issue. Isnt that what good journalism is all about: quote farming and superficiality?
But I decided to do a bit of digging on this one and asked myself a couple of questions: what exactly are these assets the state of Wisconsin wants to sell and why would they want to sell them? Now, the reason I asked myself the first questions is because I didn’t think that Wisconsin owns or operates any commercial generating units. Sure there are a few municipal power companies left in Wisconsin, like Manitowoc Public Utilities, but those don’t fall under the authority of the state and wouldn’t be affected by this. Well, turns out that all the facilities are institutional cogeneration units. These plants primarily supply heat in the form of steam to large institutions (universities, hospitals, prisons) and generate a small amount of electricity for use by these institutions.
Now, the authoritative “Gin and Tacos” insinuated that this was some kind of shady deal to allow Koch industries to come in and buy up power plants in Wisconsin for less than their market value because, as the authoritative “Gin and Tacos” argues, Koch is really into “buying up power plants”. But I scratched my noodle at this and asked ‘really’? To the best of my knowledge Koch is into fertilizers, petrochemicals, pipelines, forestry products and ranching, but commercial electric power generation, didn’t think they had any interest in that. And even if Koch did want to get into the commercial electric power generation business, why would they want to buy small units like UW Madison’s Charter Street Heating Plant which only puts out around 10MW? Independent power producers, which is what a company like Koch would fall into if they decided to get into the commercial utility game, sell to energy brokers and brokers typically don’t deal in lots of power less than 50MW.
Doesn’t make a lot of sense if you ask me. But I suppose since it falls into the kind of superficial argument that reinforces prior prejudices it makes for good journalism.
So knowing what kind of assets we are dealing with, we can now ask: why would the state want to sell them? Having a fair amount of experience with institutional cogen plants the answer immediately popped into my head: Boiler MACT. The EPA’s 2011 boiler MACT (maximum available control technology) rules will require all solid fuel boilers to comply with a very stringent set of emission standards by 2013. This means anyone operating a boiler that burns any kind of solid fuel (coal, municipal waste, medical waste, biomass, petcoke, etcetera) will either have to install a lot of pollution control equipment or convert to natural gas. Neither of these two options is inexpensive by the way, with estimates to upgrade and convert UW Madison’s plant from coal to biomass/natural gas running at around $250 million.
Commercial entities, power plants, cement kilns, blast furnaces and the like will finance these and call it the cost of doing business (or in many cases relocate out of the country), but what’s a prison or university to do? Float a bond or ask for more money would be the usual route, but as we all know,
#2 Posted by Mike H, CJR on Wed 23 Feb 2011 at 11:18 AM
"Fact is, the vast majority of public employees are lethargic, uncreative, and underqualified for their jobs."
Generalize much????
#3 Posted by Chubster, CJR on Wed 23 Feb 2011 at 08:06 PM
Are these plants money-makers or money-losers?
We need some background here.
If they're giving away elephants five for a dollar, it's a great deal... If you need five elephants and if you have a dollar to spend.
If they're giving away money-making plants, then it seems to me that the power to sell them should be checked. but if the law is merely allowing the governor to ditch money losing operations, then that would be a different story.
#4 Posted by padikiller, CJR on Wed 23 Feb 2011 at 09:28 PM
Mike & Padi: If these were a good deal why would you need to have the governor have unilateral, unchallengeable authority? You'd think an auction and open bids would be good, even if they are giving up more of a liability than an asset. Hiding the deal makes it look like a stinker. People don't hide the good work they do.
#5 Posted by Thalia, CJR on Mon 28 Feb 2011 at 06:57 AM