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Regular readers know that Reason Foundation has been closely following Georgia's new wave of "contract cities" in the Atlanta area—start-up cities like Sandy Springs and Dunwoody that have recently incorporated and chosen to contract out virtually all of their non-safety related government services. Reason's new Annual Privatization Report 2009 gave a lengthy update on how things are going in these cities, and today there's some additional news to report. Synthesizing some recent highlights:

In its fourth year of cityhood, Sandy Springs officials have reported that despite a projected 20 percent decline in revenues, operational expenditures and tax levels will remain stable and many planned capital expenditures will still proceed. Conservative fiscal management has produced a budget surplus exceeding $14 million that will be used to cover revenue shortfalls; city officials note that these surpluses are distinct from the city’s current “rainy day fund”—set at 16 percent of the total budget—which will not be tapped. More from Mayor Eva Galambos here.
Two of the contract cities—Sandy Springs and John's Creek— agreed to jointly develop a $3.5 million 911 center in an effort to speed dispatching and improve emergency response times. The cities agreed on a joint contract with iXP Corp. to establish and operate the 911 network, which is expected to roll out soon.
The Atlanta Journal-Constitution reports that a major revenue shortfall is forcing the young city of Milton to cancel it's full service contract with CH2MHill and pursue alternative delivery methods. Like the smaller Chattahoochie Hills which recently made a similar decision (reported in APR2009), they couldn't afford their contracts and are working with the company to transition out of them. In Milton's case, officials are exploring the possibility of continuing to partner with the company to provide public works and other services. It's important to note that in both cases, city officials stressed the point that it was their fiscal condition—not dissatisfaction with the contractor—that drove their decisions and that they couldn't have gotten up and running without their private sector partners.
To me this indicates that we may see an evolution in the models on how bundled services contracts are developed, particularly as they relate to smaller communities like Milton and Chattahoochie Hills that are more vulnerable to economic shocks. But things appear to be going quite well in the larger cities of Sandy Springs, John's Creek and Dunwoody thus far, so I don't see this as the beginning of a trend.
Last but not least, the Dunwody Crier reports that DeKalb County has officially withdrawn a resolution passed last summer calling for a legal challenge to Dunwoody's incorporation.

Overall, so far, so good, IMO. Sandy Springs and its contract city peers are demonstrating in real time that there's really no limit to how far you can take privatization and competitive contracting in practice (as long as your budget allows it, that is). Whenever someone says, "well, you can't privatize that," one can always point to these cities and respond, "Why not?" After all, if private contractors can run entire cities...

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Privatization News Roundup, 8/21/2009

leonard.gilroy@reason.org (Leonard Gilroy) — Fri, 21 Aug 2009 15:53:00 EDT

The articles below are some privatization news highlights from the last week that haven't been covered elsewhere on the blog:

FEDERAL

"Dear USPS: Consider privatizing," CNNMoney.com
"Two Army hotels in Hawaii in privatization program," TMCnet
"Lend Lease sets sights on public private projects," Architecture and Design

STATE & LOCAL:

"Would Privatization Help Public Universities Excel?," U.S. News & World Report
"Education Security Provider Wren Helps Texas Schools Streamline Procurement Process Through TCPN Partnership," PR Newswire
"Oklahoma Public Employees Association seeks court action against privatizing Griffin Memorial Hospital," The Oklahoman
"Privatization of group homes protested," Connecticut Post
"Chicago's parking-meter lease draws lawsuit," Chicago Tribune
"100 Addiction Workers Face Layoff, Union Says," Washington Post
"County Commissioners Seek Proposals To Privatize Ascarate Golf Course," KFOXtv.com
"Town May Privatize Animal Shelter," The Sag Harbor Express

INTERNATIONAL:

"Bulgaria State Goes after Telecom for Unpaid Privatization Dues," Novinite.com
"Air France Withdraws From Czech Airlines Bidding," Wall Street Journal
"East Africa Seeks Private Investment for Energy Projects," GlobalAtlanta
"Govt. to pay for 20% cost of mega development projects under PPP model," Thaindian.com
"Govt forms Joint Hydropower Public Private Partnership Committee," Regional Times
"TOKİ cancels Ataköy land privatization tenders," Today's Zaman
"Kuwait launches first public-private partnership power scheme," MEED
"Romanian President Says Privatization Auth Was Wrong To Shut Down Tractor Maker," Mediafax
"China Steelmakers Block Privatization," Wall Street Journal
"OECD to Israel:Privatize farmland, cut water subsidies," Ha'aretz
"BCWD privatization: Creating equity to Butuanons access to cheaper water rates, better service," Philippine Information Agency
"Port workers vow to stop privatization of North Harbor," Business Mirror

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Streamlining Government vs. Expanding It

leonard.gilroy@reason.org (Leonard Gilroy) — Thu, 20 Aug 2009 16:47:00 EDT

The St. Tammany News weighed in on Louisiana's new Commission on Streamlining Government in an editorial yesterday, and they seem to clearly understand the critical importance of the Commission's work:

Yesterday, an advisory group made up of state legislators and government officials sat down and began a process by which they hope to cut down on the waste in government spending, yet improve the efficiency of government services to the people. [...]

This is a tall order for government officials to cut the size of our state government. It is a tightrope act, to say the least. The commission has to cut waste and improve efficiency, yet keep essential services. However success is essential if our state is to come out of the current economic morass intact.

Over the years state government has become bloated and costly. We applaud the Legislature and Gov. Bobby Jindal for finally taking the bull by the horns and looking at ways to pare down the giant state bureaucracy that we call a government.

Streamlining will make government more efficient, less costly and more responsive to the people the government serves — the taxpayer. In this time of talk about the federal government taking over car companies and healthcare, it is refreshing to hear about politicians who actually want to cut government. Good luck gentlemen.

Ditto ad inifitum. It is indeed refreshing to hear about politicians who actually want to cut government. In fact, as I wrote in my post yesterday, I believe that other states should be looking to Louisiana right now for a strong example of policymakers taking the fiscal crisis seriously and taking proactive steps to address it.

For more on the Commission on Streamlining Government see here, as well as the lengthy discussion in Reason Foundation's Annual Privatization Report 2009.

» Reason Foundation's Privatization Research and Commentary

Want a Real Stimulus? Privatize.

leonard.gilroy@reason.org (Leonard Gilroy) — Thu, 20 Aug 2009 16:24:00 EDT

My earlier post discussed the new Rockefeller Institute report showing that government employment has been on a slow uptick thus far in the recession, even as private sector employment has dropped by 6.9 million. Beyond the economic implications I discussed earlier, there's another salient issue here that merits discussion.

As if the employment trend imbalance wasn't troubling enough on its own, what makes it worse is that a significant percentage of government employees are engaged in commercial activities that are widely provided in the public sector—things like accounting, payroll, IT, human resources, mail, printing, vehicle maintenance, landscaping, and the like. The tendency in government is just to hire someone to do those things in-house, apparently unaware that every single state employee imposes short- and long-term costs on taxpayers. Employee pensions are one of those very significant costs, and even there governments across the country are struggling to fund them. Throw in long-term health benefits and you've got a massive obligation.

Overall, government is in many ways like a obsessive DIY addict who doesn't know when to stop for his/her own good and hire out for a specialist to get the job done right.

Here's the deal: perpetually rising government employment—which with some temporary exceptions have been the norm over the last 50 years—is inherently unsustainable. And since the private sector can perform many of the same tasks as government employees at a much lower cost, it should behoove policymakers to become smarter shoppers for services and tap good privatization opportunities when they make sense.

This isn't a small problem. At the federal level, roughly a quarter of employees—over 800,000— are engaged in activities that could be provided by the private sector. In another example, Virginia conducted a survey of state agencies in 1999 to determine what commercial activities were being conducted by state personnel and found that there were 205 commercial activities that were being performed by nearly 38,000 state employees. This accounted for between a quarter to half of the state's workforce.

This should concern anyone who believes that government should be focused on performing its core functions well and should not be in competition with its own citizens to perform non-core functions. Today, the opposite is happening. Not satisfied with just managing education, roads, police and the other core duties that traditionally define the scope of government, public officials are operating and creating agencies and departments that compete directly with the private sector. State and local governments are literally cutting into the business of business.

Want a real, sustainable stimulus? Start getting government out of the business of business. Start applying the "Yellow Pages Test" and privatize those activities that aren't inherently governmental. Start right-sizing government by letting the private sector do those things it does most efficiently and focusing government squarely back on core priorities. Start recognizing that just because government decides that it wants to see a service provided, it doesn't mean that government employees need to be the ones delivering it. Start recognizing that modern public management is increasingly cognizant of the fact that service delivery need not be top-down, but rather implemented via sophisticated networks of public, private for-profit and private non-profit providers.

States and local governments seem to be recognizing this, according to Reason Foundation's new Annual Privatization Report 2009, but unfortunately the federal government is not. In fact, the Obama administration and Congress are trying to cut private sector contracts and bring more work in-house, which will have the effect of significantly increasing the federal bureaucracy at a time when we can ill-afford it. The feds can certainly stand to get better at contracting, but you'd think that they'd be trying to expand their capacity to do so in order to do more of it, not less, given the federal fiscal situation.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Broadband Stimulus Deadline Extended Amid Clogged Servers and Confusion

steven.titch@reason.org (Steven Titch) — Thu, 13 Aug 2009 17:01:00 EDT

The $7.2 billion broadband stimulus is off to an inauspicious start. In two articles this week, Telephony Online has reported on the flood of applications that have crashed government servers (where have we heard that one before), resulting in a one-week extension of the application deadline to August 21.

Telephony interviewed Craig Settles, an industry consultant specializing in broadband infrastructure issues, who said applicants are submitting multiple applications to cover different parts of their broadband projects rather than putting all their eggs in one application basket for fear of seeing their entire funding request rejected on a technicality. “It’s been clear from the beginning if there is a technical error, if you omit some data or it is not formatted correctly, your application will be rejected,” Settle told Telephony.

“The volume of applications is making things worse,” Settles said. He had advocated a 30-day extension back in mid-July when the volume of applicants became apparent, but that idea was rejected.

Those who applied early are in the best shape, Settles said. He’s concerned that a one-week extension may not be enough for those who waited.

“For those folks who got ahead of the curve, they are in great shape, but for others, it’s going to be an ordeal,” Settles said. “I have no idea how many servers they are able to add or what kind of capacity they have behind the scenes for this. People are frantic, they’re upset. What happens if, even with a one-week extension, some applications can’t be finished?”

The problem, Settles said, is that this kind of fast-paced process has not been attempted before, making it harder for the federal government to prepare technology resources. Previous grant programs were done over much longer periods of time. “They haven’t done this dance before,” he said. “Murphy’s Law of technology will always rear its head.”

Nonetheless, a number of winners have already been announced, primarily for the “mapping broadband” phase. In a second story, Telephony reports on the overall confusion that’s become inherent in the broadband stimulus process.

While the pace of the overall broadband stimulus process has overwhelmed many would-be applicants (to the point where many of them are skipping the first round and focusing on the second), the broadband mapping component of the plan has been regarded as especially confusing. To better understand the nation’s broadband needs, the federal government has allocated some $350 million to create a national broadband availability map that won’t be completed until early 2011, long after stimulus funds have been awarded.

“It strikes many of us that we put the cart before the horse,” said Joel McCamley, senior vice president and division manager of telecommunications and technology services for L. Robert Kimball Associates, which is helping broadband stimulus candidates apply for funding.
While it’s true that this rushed pace is likely to result in some sloppiness in the way that broadband is funded and deployed (and could even give rise to fraud, as Yankee Group analyst and Telephony alum Vince Vittore recently told BusinessWeek), the immediate goal of the stimulus program is more about feeding employment than it is about achieving universal broadband. Critics of the stimulus plan sometimes confuse the plan’s long-term stimulus ambitions — which come from more widespread use of broadband — with its short-term job-creation imperatives. For now, whether the cart goes before the horse or vice versa is less important than whether or not they are both put to work.

More information about the broadband stimulus can be found in the telecommunications section (p. 114) of Reason’s 2009 Annual Privatization Review.

New at Reason: Time to Step It Up on Privatization in Virginia

leonard.gilroy@reason.org (Leonard Gilroy) — Tue, 11 Aug 2009 14:10:00 EDT

In my new Bacon's Rebellion column, I write that Virginia is generally regarded as a pioneer and early adopter in the privatization of various state government programs and functions. But at the same time, the state's privatization efforts of late have tended to advance slowly and in piecemeal fashion. Given the pace at which other states are moving forward with privatization initiatives large and small, Virginia policymakers will need to step up their game.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Panama Canal Expansion and Port Privatization

shirley.ybarra@reason.org (Shirley Ybarra) — Sun, 09 Aug 2009 14:37:00 EDT

Reason Foundation's Annual Privatization Report 2009 details the latest trends in privatization and public-private partnerships. One of the emerging trends discussed is in the port sector. As I have stated before, “One of the forces driving investor confidence in ports is the opening of the expanded Panama Canal, which is scheduled to be completed by 2014. Once the Panama Canal is expanded, mega-ships, which cannot fit through the Canal in its current condition, will be able to reduce their transit times by cutting through the canal en route from China to East and Gulf Coast ports in the United States.”

An excellent background article appeared in the USA Today about the $5.25 billion Panama Canal widening project. The Panama Canal Authority is adding a third lane to the ocean-spanning waterway that will double its capacity and allow access to the world's largest cargo-carrying vessels. Cargo from Asia, for example, can reach U.S. markets either via the canal (if the ship fits) or by docking at a West Coast port and riding rail lines or going by truck to inland destinations. With the expansion of the canal, the larger mega ships (called post-panamax) will be able to efficiently travel directly to the East Coast ports saving travel time and costs of rail or truck.

The canal handled 310 million tons of cargo in 2007, an amount officials hadn't expected to see until 2012 or 2013. Even during the worst recession in 80 years, shipments this year are expected to total 295 million to 299 million tons — less than 5% below the peak two years ago. Once an economic recovery kicks in, that total is certain to rise.

"We are quite confident that growth is going to return," says Francisco Miguez, the canal authority's chief financial officer.

The real impact of the bigger, better canal on global trade patterns remains to be seen. Roughly 65% of the goods sailing through the canal go to or from U.S. shores. Obviously there are investors who believe the East and Gulf Coast ports have significant upsides.

For an interesting background and insight into the current Panama Canal project as well as into the original project, the article is worth a read.

Oklahoma Should Look to West Virginia on Workers' Compensation Insurance Privatization

leonard.gilroy@reason.org (Leonard Gilroy) — Fri, 07 Aug 2009 18:04:00 EDT

As reported in Reason Foundation's new Annual Privatization Report 2009, a newly created legislative task force in Oklahoma is rightfully taking a close look at why the state is competing against private enterprise to provide workers' compensation insurance, and if and how it could get itself out of a business in which the state's "public option" is taking about a one-third share of the market and is crowding out private providers. Here's more from The Oklahoman:

A legislative task force began work Thursday to find the best way to privatize the state agency that provides workers' compensation insurance.

"We have an organ of the state that is competing with private insurers for premium dollars for workers' comp," said Rep. Dan Sullivan, co-chairman of the Task Force on the Privatization of CompSource Oklahoma.

"It’s a fundamental issue of what is the proper function of government," said Sullivan, R-Tulsa. "Is it to compete with private enterprise? We think not."

A state law passed this year states it is the intent of the Legislature to privatize CompSource no later than Dec. 31, 2010. Options include selling CompSource, which has about 300 employees, or mutualizing it, meaning it would be owned by its members, said Sen. Cliff Aldridge, R-Midwest City, task force co-chairman. "All of those options are on the table,” Aldridge said. [...]

Sullivan said CompSource has about a 5 percent advantage over private carriers because it doesn’t have to pay premium taxes and doesn’t have to contribute to the state’s guarantee fund, which covers the costs of claims of an insolvent insurance company. "That automatically gives them a competitive advantage,” he said.

CompSource officials said the agency has about 26,000 policyholders and writes about 35 percent of the workers' compensation policies in the state. Other employers are self-insured or are insured by private companies.

I would suggest that they start looking closely at the tremendously successful workers' comp privatization West Virginia has been rolling out in recent years. While West Virginia's former state-run insurance company had a monopoly on the entire market—as opposed to a large portion of it as in Oklahoma's case—it still offers a current case study in how to successfully privatize a state-run insurance dinosaur. Here's a short excerpt from our longer Annual Privatization Report 2009 story detailing West Virginia's successes to date:

In August 2008, state Insurance Commissioner Jane Cline detailed a number of benefits of the privatization initiative thus far:

Privatization helped facilitate a dramatic reduction—from $3.2 billion to $1.9 billion—in the outstanding unfunded liabilities of the old state-run system in just two years, potentially accelerating the payoff of these liabilities by some two decades.

Workers' compensation rates declined an average of 30 percent since privatization, saving employers over $150 million annually. According to Cline, "That’s $150 million that companies have to invest in improvements for employees or for infrastructure, for other capital improvements. That’s huge. Especially when you're talking about a state that wants to be welcoming to employers."

There were an estimated 8,532 protested claims in 2008, over 80 percent lower than the average of 46,076 protests filed with the state in 2005 and 2006. The amount of time required for a ruling on protested claims is also down.

And competition certainly increased with the exit of the "public option." Within the first year of the opening of competition, Brickstreet—the private insurer spun out of the state's old public entity—faced over 140 competitors, including more than 25 insurers that had not previously done business in the state. Seems like things are going well in West Virginia, which should hopefully inform the discussion in Oklahoma.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Virginia Unnecessarily Mingles Politics and IT

steven.titch@reason.org (Steven Titch) — Thu, 06 Aug 2009 16:29:00 EDT

Information Technology (IT) outsourcing is one of the bright spots in terms of privatization trends. As I note in Reason Foundation’s 2009 Annual Privatization Review (page 117),

Government IT outsourcing generates far less controversy than outsourcing and privatization initiatives in other areas, such as roads, prisons and airports. This is due to several factors. First, IT was never a “traditional” responsibility of government, the way other services supported by heavy infrastructure—transportation, utilities and schools—are perceived. Second, government IT operations are inwardly focused—they support the day-to-day processes of government departments and employees. Hence, politically, there’s no negative perception among voters that a “free” government service is being transferred to a corporation that will run it for profit. Quite the opposite: To the extent that the public sees a benefit from improved IT, it’s in the way they can handle their government business online. If anything, the private sector has raised constituents’ expectations about Web- and Internet-based applications such that frustrations will grow if people can’t find critical information, submit forms or make payments via the Web.

The APR, however, went to press just as news was breaking about the contoversy at the Virginia Information Technology Authority (VITA). This has been an unfortunate development, as Virginia was among the first states to launch a large-scale statewide IT outsourcing project aimed at consolidating and streamlining its many isolated information systems. Projects like these, although carry big price tags and can take five to ten yeasr to run their course, pay much more in dividends in terms of increased productivity, more efficient and economical use of IT assets, and far, far less redundancy in hardware and data.

While in Virginia there have been some serious problems with the deliverables, Gov. Tim Kaine’s decision to replace fire the state’s chief information officer and subsequent attempt to bring VITA under the control of his office was the wrong response and will likely prove counterproductive in the long term.

Virginia’s ten-year, $2.3 billion IT outsourcing contract with Northrop Grumman is highly visible and although he did not initiate the plan, Kaine, as governor, does have substantial political capital at stake in its success. However, despite the rhetoric and nomenclature one tends to see in press releases, the state of Virginia is Northrop Grumman's customer, not its “partner.” So when state CIO Lemuel Stewart Jr. questioned a $14.3 million bill claiming that certain certain goals had not been met on time, Kaine should have backed Stewart, not sacked him. Worse, Kaine’s replaced Stewart with Leonard Pometa, a member of Kaine’s cabinet. The matter is that much more exacerbated by the fact that Northrop Grumman reportedly is a Kaine campaign contributor. All this has prompted the Virginia Assembly to begin an investigation into Stewart’s dismissal.

Now what had been a good plan, and an opportunity for Virginia to demonstrate leadership in the IT sphere, risks getting swamped in a sea of politics. The logical solution is for the governor’s office to step back and re-assert VITA’s independence and allow it to manage the state’s relationship with Northrop Grumman. This would mean hiring a new CIO with no ties to the executive mansion. Indeed, IT independence is crucial to the success of any IT outsourcing project because it serves as a buffer against the sort of conflicts of interest, or appearance of such, that arise as part of the campaign funding process.

The lesson other governors should take form this is to be a little less sensitive. No IT overhaul project goes smoothly. And one of the best talents a CIO can have is the ability to separate the run-of-the-mill grumbling that occurs when employees are forced to change their technology habits (you can see this reflected in a lot of Web comments to the various news articles that have run on the VITA controversy), with critical feedback as to whether the necessary changes are being implemented correctly and are delivering the increased productivity. In the private sector, large users have learned the only way to get what they want is to hold their contractors’ feet to the fire. And this sometimes means withholding payment. Kaine may yet regret coddling Northrop Grumman. He’s certainly not doing any favors for VITA nor the Virginia taxpayers of the state.

For more background, follow these links:

The Washington Post

TradingMarkets.com

The Richmond Times-Dispatch

Annual Privatization Report Examines Latest Trends At All Levels of Government

Thu, 06 Aug 2009 11:15:00 EDT

Federal tax revenues have fallen to levels not seen since the Great Depression. The deficit is a record $1.8 trillion and rising. Led by California’s $26 billion deficit, state governments across the country are facing a cumulative deficit of over $142 billion in fiscal 2010. And budget shortfalls are so bad at the local level that cities like Georgetown, Indiana, are considering filing for bankruptcy.

Amidst that backdrop, all levels of government should be looking for ways to save taxpayer money and cut costs. “When it comes to looking at how the city can fulfill its obligations to the public, and pay for it, no subject should be taboo,” California Inspector General and former Los Angeles City Controller Laura Chick aptly put it while addressing LA’s deficit last year.

Reason Foundation’s 23rd Annual Privatization Report details the latest trends and examples of how public officials are reducing costs and improving service delivery through public-private partnerships, outsourcing, and performance-based government.

“Governments are swimming in red ink and realizing the effects of the recession will be felt long after the economy recovers,” said Leonard Gilroy, editor of the report and director of government reform at Reason Foundation. “Interest in privatization is sky-high and rightly so. Now more than ever, policymakers need to study their priorities, re-examine what are really core government functions, and then tap the private sector’s expertise in all of the areas where they can save taxpayer money and improve the quality of services.”

The Annual Privatization Report highlights developments across the country, including:

Florida's Council on Efficient Government identified 511 outsourced projects in 2008. A review of 21 potential privatization projects forecast $94 million in savings for taxpayers.
Louisiana Gov. Bobby Jindal established a Commission on Streamlining Government that is using privatization to help reduce the size and cost of state government.
California Gov. Arnold Schwarzenegger signed a public-private partnership law that enables and encourages the private sector to fund and manage road, prison and courthouse projects.
New York Gov. David Paterson created a Commission on State Asset Maximization to identify areas where public-private partnerships can save the state money.
New Jersey policymakers are achieving a major environmental goal by privatizing the cleanup of nearly 20,000 contaminated properties in the state.

At the local level, Chicago continues to be the leader in privatization efforts. In December 2008, Mayor Richard Daley agreed to a 75-year lease of the city's parking meters in exchange for a $1.15 billion upfront payment. "This is not a core business of the city of Chicago," Daley stated.

The Annual Privatization Report examines the operational issues and political challenges that have arisen in Chicago since the deal took place. Los Angeles, Pittsburgh and several other cities are closely monitoring Chicago's situation as they consider similar parking meter deals.

The report also highlights the growing number of taxpayers choosing to opt-out of deficit-riddled local governments that are wasting taxpayer money and not delivering quality services. The report says, "Over 80 percent of 37,000 residents of the north DeKalb County community voted in July 2008 to incorporate the new city of Dunwoody." Dunwoody became Georgia's fifth "contract" city. Following the lead of Sandy Springs, Georgia taxpayers are ditching bloated county bureaucracies and creating local governments focused on their priorities. In Dunwoody, safety is a main concern so 40 percent of the budget is directed towards law enforcement. To keep costs low, private businesses, not government agencies, provide nearly all non-safety-related services.

The Annual Privatization Report also examines privatization's progress in transportation, education, corrections, water and wastewater services and telecommunications.

Reason Foundation's Annual Privatization Report 2009 is online here.

Previous editions of the Annual Privatization Report are online here.

Reason Foundation's Annual Privatization Report 2009

Thu, 06 Aug 2009 00:00:00 EDT

Federal tax revenues have fallen to levels not seen since the Great Depression. The deficit is a record $1.8 trillion and rising. Led by California's $26 billion deficit, state governments across the country are facing a cumulative deficit of over $142 billion in fiscal 2010. And budget shortfalls are so bad at the local level that cities like Georgetown, Indiana, are considering filing for bankruptcy.

Amidst that backdrop, all levels of government should be looking for ways to save taxpayer money and cut costs. "When it comes to looking at how the city can fulfill its obligations to the public, and pay for it, no subject should be taboo," California Inspector General and former Los Angeles City Controller Laura Chick aptly put it while addressing LA's deficit last year.

Reason Foundation's 23^rd Annual Privatization Report details the latest trends and examples of how public officials are reducing costs and improving service delivery through public-private partnerships, outsourcing, and performance-based government.

"Governments are swimming in red ink and realizing the effects of the recession will be felt long after the economy recovers," said Leonard Gilroy, editor of the report and director of government reform at Reason Foundation. "Interest in privatization is sky-high and rightly so. Now more than ever, policymakers need to study their priorities, re-examine what are really core government functions, and then tap the private sector's expertise in all of the areas where they can save taxpayer money and improve the quality of services."

The Annual Privatization Report highlights developments across the country, including:

Florida's Council on Efficient Government identified 511 outsourced projects in 2008. A review of 21 potential privatization projects forecast $94 million in savings for taxpayers.
Louisiana Gov. Bobby Jindal established a Commission on Streamlining Government that is using privatization to help reduce the size and cost of state government.
California Gov. Arnold Schwarzenegger signed a public-private partnership law that enables and encourages the private sector to fund and manage road, prison and courthouse projects.
New York Gov. David Paterson created a Commission on State Asset Maximization to identify areas where public-private partnerships can save the state money.
New Jersey policymakers are achieving a major environmental goal by privatizing the cleanup of nearly 20,000 contaminated properties in the state.

The Annual Privatization Report also examines privatization's progress in transportation, education, corrections, water and wastewater services and telecommunications.

Full Report Online

Reason Foundation's Annual Privatization Report 2009 is online here.

Previous editions of the Annual Privatization Report are online here.

About Reason Foundation

Reason Foundation is a nonprofit think tank dedicated to advancing free minds and free markets. Reason Foundation produces respected public policy research on a variety of issues and publishes the critically-acclaimed Reason magazine and its website www.reason.com. For more information, please visit www.reason.org.

Contact

Leonard Gilroy, Director of Government Reform, Reason Foundation, (713) 927-8777

Chris Mitchell, Director of Communications, Reason Foundation, (310) 367-6109

Annual Privatization Report 2009

leonard.gilroy@reason.org (Leonard Gilroy) — Thu, 06 Aug 2009 00:00:00 EDT

With governments at all levels facing severe budget deficits and prolonged fiscal crises amid the national economic recession, privatization and public-private partnerships have become increasingly prominent in fiscal policy debates, according to Reason Foundation's Annual Privatization Report 2009.

The Annual Privatization Report details the latest trends and examples of how public officials at the federal, state and local level are reducing costs and improving service delivery through public-private partnerships, outsourcing and performance-based government. It also examines privatization's progress in transportation, education, corrections, water and wastewater services and telecommunications.

Will DoD ever learn to do contracting right?

adrian.moore@reason.org (Adrian Moore) — Mon, 02 Feb 2009 11:13:26 EST

They are all set to repeat in Afghanistan the lousy contract management that plagues Iraq reconstruction. It just remians such a low priority and a red-headed stepchild of the overall effort, despite the failings undermining our goals there, as well as wasting untold millions of tax dollars. You'd think extending the simple truth that "when you hire someone to do work for you, you want to make sure you get what you pay for" would be easy to execute compared to say, invading a foreign country thousands of miles away. I am not saying this is trivial or easy. I am saying it is important. DoD has moved to a model in which they contract for a lot of support services. But they have not made the investment in personel, training, and most important managment, as well as command focus, needed to bring the clarity and accuntability to contracting that is necessary to make it successful. Just for starters, having spent a lot of time with government contracting personel, I can tell you they tend to have a "it's us vs. the contractors" attitude. When you hire a plumber to fix your pipes, you can have a "you vs. the plumber" relationship. The same truth scales up. A lot of change needs to happen, and it is moving slow. According to the AP:

Waste and corruption that marred Iraq's reconstruction will be repeated in Afghanistan unless the U.S. transforms the unwieldy bureaucracy managing tens of billions of dollars in infrastructure projects, government watchdogs warned Monday. The U.S. has devoted more than $30 billion to rebuilding Afghanistan. Yet despite the hard lessons learned in Iraq, where the U.S. has spent nearly $51 billion on reconstruction, the effort in Afghanistan is headed down the same path, the watchdogs told a new panel investigating wartime contracts. "Before we go pouring more money in, we really need to know what we're trying to accomplish (in Afghanistan)," said Ginger Cruz, deputy special inspector general for Iraq reconstruction. "And at what point do you turn off the spigot so you're not pouring money into a black hole?" .......Cruz, along with Stuart Bowen, the top U.S. official overseeing Iraq's reconstruction, delivered a grim report to the Commission on Wartime Contracting. Their assessment, along with testimony from Thomas Gimble of the Defense Department inspector general's office, laid out a history of poor planning, weak oversight and greed that soaked U.S. taxpayers and undermined American forces in Iraq. ......A 456-page study by Bowen's office, "Hard Lessons: The Iraq Reconstruction Experience," reviews the problems in an effort the Bush administration initially thought would cost $2.4 billion. The U.S. government "was neither prepared for nor able to respond quickly to the ever-changing demands" of stabilizing Iraq and then rebuilding it, said Bowen. "For the last six years we have been on a steep learning curve." Overall, the Pentagon, State Department and U.S. Agency for International Development have paid contractors more than $100 billion since 2003 for goods and services to support war operations and rebuilding projects in Iraq and Afghanistan....... There are 154 open criminal investigations into allegations of bribery, conflicts of interest, defective products, bid rigging and theft in Iraq, Afghanistan and Kuwait, said Gimble, the Pentagon's principal deputy inspector general.

Hat tip to Brian Doherty over at Hit and Run for this.

Privatization Roundup, 2/2/2009

leonard.gilroy@reason.org (Leonard Gilroy) — Sun, 01 Feb 2009 16:49:58 EST

Below is a roundup of recent articles on privatization, covering highlights from the last two weeks:

"Finance Coalition Touts Private Stimulus," Wall Street Journal
"DHR defends mental care plan," Atlanta Journal Constitution
"Lawmakers sharply question plan to privatize mental hospitals," Atlanta Journal Constitution
"Cuts run deep in Perdue's budget proposal," Macon Telegraph
"First, chart SPA course change," Charleston Post Courier
"Asset privatization talk heats up," Crain's Cleveland Business
"Pol wants free market brought to bear on workers' comp monopoly," Columbus Business First
"Gov. wants to privatize Pike service plazas," Boston Herald
"Budget woes prompt states to rethink prison policy," The Associated Press
"A higher tax on liquor, but is the state a retailer?," Seattle Times
"Liquor Sales: Add the stores," Seattle Post Intelligencer
"Virginia state liquor monopoly to continue," Warren County Report
"Outsourced cities consider options during recession," Atlanta Journal Constitution
"American Water lauded for Phoenix plant," Philadelphia Inquirer
"Charlotte studies privatization," Sarasota Herald-Tribune
"Tulsa: Lawmaker pushes for private prison use in Oklahoma," NewsOK.com
"Milwaukee County call center County panel rejects call center privatization," Milwaukee Journal Sentinel
"School budget woes prompt look at privatization plan," Mirror
"Somerville, Raritan Borough consider public-works consolidation," Scarlet Scuttlebutt
"Regional wastewater plan rejected by council," Bethany Beach Wave
"Big Chino money matters top Prescott council agenda," Prescott Daily Courier

Previous roundups are here and here. » Reason's Annual Privatization Report 2008 » Reason's Privatization Research and Commentary

Even with special powers, you have to get the contract right

adrian.moore@reason.org (Adrian Moore) — Sun, 01 Feb 2009 06:58:32 EST

Staff members with the California prison health care receiver ignored state contract rules and court edicts as they awarded more than $28 million in technology deals in 2007 and 2008, the state auditor said Thursday.

Read the rest here. Short story is that the contracting process violated many of California's technical rules governing contracting. While receiver is not bound by state law in the same way as state agencies, this is still a big red flag. The article I'd like to see would look at those contracts and the process flaws and see if they caused bad deals for the taxpayers. CA has many unwieldy contracting rules that focus on process rather than outcomes, so this may have been the receiver's staff just getting the job done more rationally. But if they did not replace those rules with other forms of real accountability, chances of a bad contract go up. Contracting is a great way for the government to purchases services it cannot provide and/or save money. But transparency and accountability for outcomes are paramount to achieve those outcomes.

The Chicken-and-the-Egg Problem

steven.titch@reason.org (Steven Titch) — Thu, 29 Jan 2009 13:43:30 EST

Reason's Sam Staley pointed me to a question poised by the Cato Institute's Randal O'Toole at his Anti-Planner blog, namely is central planning required to advance certain technologies that require substantial investment from both users and suppliers? Randal raises the chicken-and-the-egg problem with driverless cars. Although the technology has been around for ten years, he sees something of a standoff--consumers won't install the technology in their cars until the government upgrades the roads and the government won't install the technology on the roads until consumers upgrade their cars. Must the government then step in to arbitrate the transition? My argument, of course, is that market mechanisms work. The downside is that they may take a little longer than government intervention to hash themselves out. The upside is that, in the end, the technology solution is sustainable, profitable and more economical for consumers and suppliers. The business process is always more prosaic, damanding extensive research and persuasive business cases. That's why when there's any uber-cool technology on the table, there is an unfortunate temptation to use the political process to subvert the business process, usually out of a belief that if someone doesn't take action now, all will be lost for good. This impatience, for one, led to the municipal broadband disasters of the last few years, and stands to be a problem as various parties vie for a piece of the broadband stimulus. I waded in because Randal chose HDTV as another chicken-and-egg example. Although there was some central planning involved, in my opinion it was not necessary. I elaborate on that in a reply on Randal's site.

Private sector brings infrastructure projects in on time and under budget

sam.staley@reason.org (Samuel Staley) — Mon, 05 Jan 2009 08:10:45 EST

It's more than a bit odd that Congress is debating the efficacy of private sector participation in providing infrastructure in the U.S. Congressmen, apparently, are reluctant to expand critical programs such as TFIA and Private Activity Bonds (PAB) at the federal level that could significantly boost private sector participation in building roads, ports, airports, and other projects. Yet, as Bob Poole pointed out recently in his Surface Transportation Innovations newsletter, the private sector is consistently bringing key projects on-line on budget and ahead of schedule:

But now an extremely well-done study has addressed that question, using a database of 54 infrastructure projects in Australia, of which 21 were concession-type projects (which the report defined as PPPs) and 33 were Traditional. It was conducted by The Allen Consulting Group and the University of Melbourne for the nonprofit group, Infrastructure Partnerships Australia. (http://infrastructureaustralia.org/research/pdf/InfrastructurePartnershipsAustralia_PPPReport_Final.pdf) The findings of "Performance of PPPs and Traditional Procurement in Australia" are dramatic. "Our overall conclusion is that PPPs provide superior performance in both the cost and time dimensions, and that the PPP advantage increases (in absolute terms) with the size and complexity of projects." More specifically, on $4.9 billion of PPP projects, the net cost over-run was just $58 million, which (at 1.2%) is not statistically different from zero. By contrast, on $4.5 billion of Traditional procurements, the net over-run was a whopping $673 million (15%). Likewise, regarding on-time completion, PPP projects were on average completed 3.4% ahead of schedule, versus Traditional projects averaging 23.5% late. And while smaller Traditional projects tended to be completed on schedule, on-time performance decreased sharply as project size increased-but size made no difference in the on-time performance of PPP projects.

State Asset Inventories, Divestiture are Key Reform Tools

leonard.gilroy@reason.org (Leonard Gilroy) — Sun, 04 Jan 2009 13:36:13 EST

Reason friend and colleague John Palatiello has an excellent article today in the newly-relaunched Bacon's Rebellion advancing a innovative proposal to use asset divestiture to fund augment transportation funds in Virginia—not to mention the obvious additional benefit of enhancing the effectiveness and efficiency in government (for starters, I know what land I own, right; shouldn't government?):

Georgia Governor Sonny Perdue (R) and Ohio Treasurer Richard Corday (D) both had questions they could not answer: how much land does the state own, where is it, what is it worth and is anyone interested in putting such land to a more productive use? Perdue and Corday embarked upon efforts to develop state land inventories to answer those questions. Georgia now operates the Building, Land and Lease Inventory of Property (BLLIP), an interactive web-based geographical information system designed to enable registered users to query, search and generate reports using real time information about state owned and leased properties and buildings. Ohio has implemented a Comprehensive Inventory of State Real Property, a database of 53,010 distinct state-owned parcels located throughout all of Ohio's 88 counties. Similar efforts in Virginia have fallen behind. Governor Allen appointed a Blue Ribbon Strike Force on Government Reform that recommended that "all state agencies should inventory and justify the retention of each individual real estate holding." Allen also formed the Governor's Commission on Surplus Property, leading the way to identifying the "Elko" property in Henrico, which ultimately became the site of the Qimonda semi-conductor plant, as surplus. Governor Warner's Commission on Efficiency and Effectiveness found that Virginia did not have an adequate portfolio management system for handling real estate in the Commonwealth and suggested that the possible beneficial sales and public-private development of surplus property be maximized by developing better methods for designating property as surplus and by re-examining the opportunities for property that has already been designated as surplus. As of 2006 the Joint Legislative Audit and Review Commission (JLARC) found these reforms had not been fully implemented. A current, accurate, comprehensive state land inventory is an idea Virginia should reinvigorate. Here are steps that could be undertaken in the Commonwealth: � Require an appropriate agency to compile a current, accurate inventory of all land owned or leased by the Commonwealth of Virginia in a parcel based "cadastre" or geographic information system. The Commonwealth has a statewide GIS, known as the Virginia Base Mapping Program, operated as part of the Virginia Geographic Information Network (VGIN); � Require a review of all parcels that includes an analysis of whether the land serves the mission and priorities of the agency, whether ownership by the Commonwealth is needed and whether ownership by the Commonwealth is the highest and best use of the land; � Declare as surplus and put out for competitive disposal all lands that are currently owned by the Commonwealth and no longer need to be, in accordance with the steps above; � Designate that 100 percent of the proceeds generated from the sale of unneeded land goes to transportation. This will require new legislation as current law (Code of Virginia � 2.2-1156 sale or lease of surplus property) requires 50 percent of the proceeds of the sale of surplus property go to the Conservation Resources Fund; and � Require an update of the inventory and the review and surplus/disposal of unneeded land on an annual or biennial basis. In Ohio, House Bill 420, sponsored by Rep. Tom Brinkman Jr. (R-southwestern Ohio), was recently signed by Ted Governor Strickland (D) after having passed the House and Senate by overwhelming margins. The law not only provides for transparency in government spending, but statutorily creates a council to coordinate management of property owned by the state, including an inventory and providing an assessment of the disposal potential. Treasurer Corday was elected Ohio's Attorney General on November 4, so the newly passed law will make the inventory process permanent, rather than the administrative initiative of an individual Treasurer. Georgia won the 2007 Innovations Award from the National Association of State Facilities Administrators (NASFA) for its BLLIP program. The award recognizes efforts to enhance efficiency and effectiveness in state government. It has recently added features such as a risk management interface, total cost of ownership details and portfolio management. With this information the state is better able to determine where space is available, to negotiate better lease terms, to identify surplus or underutilized property and to provide better resource allocation for the taxpayers of Georgia. A current, accurate land inventory is a government reform that is sweeping the nation. Governors, legislators and other officials in states across the country are recognizing the value of knowing what they own, where it is and whether there is a compelling case for continued state ownership. Legislation to establish a Federal land inventory, known as the Federal Land Asset Inventory Reform Act (FLAIR) has been introduced in Congress.

Read the whole thing here. Also, check out my piece on privatizing state psychiatric services and facilities in the same issue.

India's Private Education Boom

adam.summers@reason.org (Adam Summers) — Tue, 30 Dec 2008 22:24:56 EST

According to a recent report by Asian brokerage and investment group CLSA, India's education and training market is valued at $40 billion and is growing rapidly. It is expected to be a $70 billion industry by 2012. Primary education (K-12) makes up about half of the market. In addition to traditional schools, there is strong demand in India for supplemental teaching. As Bhavtosh Vajpayee notes in the CSLA report, "We estimate at least 20 million children take some form of tuition outside the classroom." Today, India's 75,000 private schools have an enrollment of 90 million students, compared to public school enrollment of 129 million and an additional 142 million students who are not yet in the system. Many believe that public education in India has failed to provide high-quality instruction. This, combined with a significant gap between the relatively small portion of students who graduate with a strong education and the vast majority who struggle to obtain basic schooling, has led parents and government officials to turn to the private sector to improve the education system. India's industrial liberalization beginning during the early 1990s led to a boom in information technology and infrastructure. This, in turn, led to a greater demand for well-educated employees. As a result, public-private partnerships (PPPs) began forming in the mid-1990s to provide information and communications technology services, including teacher training and IT education, in schools. Such PPPs between the central government and private providers follow the build-own-operate-transfer (BOOT) model. While privately-funded schools in India must be run by nonprofit trusts, for-profit businesses may contract with the trusts for services such as administration, IT, food services, transportation, and security. In addition, related sectors such as preschools, private tutoring, teacher training, the development of learning aids such as educational software and multimedia, and e-learning have become attractive opportunities for many for-profit businesses. Moreover, the central government welcomes foreign direct investment–seen especially in higher education–as a means of potentially reducing government expenditures. India's education market is growing exponentially. Despite regulatory hurdles and an aversion to for-profit "commercialization" of the schools themselves, the nation is increasingly embracing private-sector involvement in education in order to improve instruction and meet the rising demand for well-educated, highly-skilled workers. For more information on the growth of the market for private education in India, see: Shamni Pande, "India Inc. goes to school," Business Today, July 23, 2008 Seema Jhingan and Dimpy Mohanty, "India's Education Sector – Back to School," eZineArticles.com, November 6, 2008.

Chicago parking privatization

adrian.moore@reason.org (Adrian Moore) — Thu, 25 Dec 2008 11:09:49 EST

Len's nice article on Chicago's major parking privatization deal is here. On December 2nd he [Mayor Daley] announced the winning bid for a 75-year, long-term franchise for the city's downtown parking meter system. In exchange for an upfront $1.15 billion payment, the agreement will grant the operator--a consortium led by Morgan Stanley Infrastructure Partners--the right to maintain and operate the meters throughout the life of the contract. The deal also requires the operator to make significant investments in the system itself, replacing the antiquated coin-based meter system with a high-tech, multi-space/multi-pay meter system that will facilitate payment via cash, credit card, and other pay systems.

L.A. City Controller Urges Broad Privatization Agenda to Shore Up Fiscal Health

leonard.gilroy@reason.org (Leonard Gilroy) — Mon, 22 Dec 2008 12:51:14 EST

This may be the most sensible set of proposals to come out of Southern California in some time...

The city of Los Angeles should consider privatizing dozens of major operations, including Ontario International Airport, according to a report commissioned by the office of City Controller Laura Chick and released on Monday. The privatization would generate revenue for the city in the face of current and projected budget deficits in the hundreds of millions of dollars. The report, which Chick commissioned from L.A.-based Public Financial Management Inc., recommended that the city privatize operations in nine broad areas, including animal shelters and city-owned golf courses. The report also proposed joint development with private partners of vacant or underutilized city parcels. The report identified privatization of Ontario International Airport as the item that could generate the most revenue for the city. Also on the potential privatization list: some residential solid waste collection, operation of the Hyperion Waste Water Treatment facility, fleet maintenance services and joint development of some underutilized city parking facilities. In a letter to Mayor Antonio Villaraigosa and the City Council prefacing the report, Chick wrote, "The cost of delivering essential services keeps growing at a rate that exceeds the city's ability to generate revenue, and is a major reason we've had a structural deficit for years now. When it comes to looking at how the city can fulfill its obligations to the public, and pay for it, no subject should be taboo." Privatization of city services is not unprecedented. Private contractors manage scores of operations for the city, such as street repairs. Also, the city entered a public-private partnership arrangement with TrizecHahn Inc. to build the Hollywood & Highland shopping center. There have been several previous attempts to privatize more city services, particularly during the administration of former Mayor Richard Riordan. Those attempts met with stiff opposition from public employee unions. As a result, only a fraction of the additional services recommended for privatization were ever implemented. Similar opposition is expected to many of these recommendations. "I know that many suggestions in this report will touch a nerve with the good men and women that work for our city and their union leadership," Chick wrote. "That is why the report calls out that any steps, must include, at the front end, labor as a partner."

More here. A great editorial from the Daily Breeze suggests that:

The controller's report lists many intriguing opportunities for the city to reduce financial risks and economize using the public-private partnership model. Among the suggestions: * The operation of Ontario Airport could eventually be turned over to the private sector using a long-term lease arrangement -- in exchange for a large up-front payment. * Nonprofit groups or other entities could be enlisted to take over some of the city's animal shelter operations. Such a partnership might be able to attract more volunteers and private donations and thus reduce costs. * Private companies could be tapped to offer vehicle rental services, replacing some of the city's existing vehicle fleet. * The report notes that several of the city's 13 golf courses are in highly valued areas that could command much higher fees from patrons. Leasing some courses to private operators, which would charge market prices, could net the city a greater revenue stream. * City parking lots and parking structures could be leased as concessions, with private operators taking responsibility for operations and upkeep. * Municipal water and wastewater systems could also be restructured. The report mentions how the city of Hawthorne more than a decade ago signed a long-term lease with California Water Service Co. to operate its water system. The deal netted the city a $6.5 million up-front payment and lease payments of $100,000 annually for 15 years. The report cites the experience of Los Angeles County, which saved millions of dollars annually by allowing private contractors to perform custodial services. Obviously, such proposals should require that the city retain adequate controls and oversight to assure that new public-private partnerships act in the public interest. But there's ample reason to investigate how these ideas could make the city leaner and better able to deliver public services during tough economic times. A business would not hesitate to experiment along these lines. Neither should local governments.

As I've written about extensively lately, urban leaders should take a close look at what Mayor Daley's doing in Chicago for ideas on how to use privatization to improve the quality of services, control costs, and do more with less as they stare down their growing fiscal crises. » Reason's Annual Privatization Report 2008 » Reason's Privatization Research and Commentary

Privatization Roundup, 12/18/2008

leonard.gilroy@reason.org (Leonard Gilroy) — Wed, 17 Dec 2008 04:43:03 EST

Interest in privatization has continued to surge over the last few months as state and local budget shortfalls continue to mount. Below is a roundup of recent articles on privatization, covering highlights from the last several weeks:

"SE Valley GOP members ready to push spending cuts," Arizona Republic
"Can public-private partnerships save our infrastructure?," Financial Post
"UK's Royal Mail to be part-privatized," Forbes
"Proposal to privatize UM meets criticism," Detroit News
"Japan plans to privatize sections of penal system," Mainichi Daily News
"O'Keeffe approves seven public-private school projects," Belfast Telegraph
"Jindal administration looking at major budget cuts," Monroe News Star
"Schools seek service bids, but no decision made yet on privatization," Lansing State Journal
"Privatizing hospitals weighed," Columbus Ledger-Enquirer
"Ga. commission weighs privatizing mental hospitals," Macon Telegraph
"Georgia government to privatize IT services," Atlanta Business Chronicle
"State eyes grocery store liquor sales," The Union Leader
"A toast to extending liquor privatization," Regina Leader-Post
"Having privately and publicly managed prisons in the same state brings benefits," Vanderbilt University News
"Privately run jail, fire department under cutting discussion," Charlotte Sun
"Private prisons trump state's," Florida Times-Union
"Privatization discussed at medevac hearing," Annapolis Capital
"City Council approves privatization of parking meters," Chicago Sun-Times
"Prattville may privatize garbage pickup," Montgomery Advertiser
"Dunwoody already up, running Day 1 of cityhood," Atlanta Journal Constitution
"Panel weighs APM Terminal options: Investor or partner?," The Virginian-Pilot
"Pols mull Pike privatization," Boston Herald
"Des Moines to seek private bids for some jobs," Des Moines Register

The October 29th roundup is here. » Reason's Annual Privatization Report 2008 » Reason's Privatization Research and Commentary

Obama's drive toward auto-industry nationalization

sam.staley@reason.org (Samuel Staley) — Mon, 08 Dec 2008 17:45:21 EST

The most troubling part of the auto-industry bailout may not be the actual investment of taxpayer dollars in a failing industry. It may be that this is really tantamount to the nationalization of one of the "commanding heights" of the US economy. David Singer says as much in his article in the New York Times summarizing the bail-out effort. On the one hand, President-elect Obama says: "We don't want government to run companies. Generally, government historically hasn't done that very well." But what is the government doing with the bailout? As Singer writes:

But what Mr. Obama went on to describe was a long-term bailout that would be conditioned on federal oversight. It could mean that the government would mandate, or at least heavily influence, what kind of cars companies make, what mileage and environmental standards they must meet and what large investments they are permitted to make – to recreate an industry that Mr. Obama said "actually works, that actually functions." It all sounds perilously close to a word that no one in Mr. Obama's camp wants to be caught uttering: nationalization.

Yes, indeed. Singer's article has plenty of other nuggets, including the contradictions implicit in US trade policy.

And the third risk – one barely discussed so far – is that in trying to save the nation's carmakers, the United States is violating at least the spirit of what it has preached around the world for two decades. The United States has demanded that nations treat American companies on their soil the same way they treat their home-grown industries, a concept called "national treatment." Yet so far, there is no talk of offering aid to Toyota, Honda, BMW or the other foreign automakers that have built factories on American soil, employed American workers and managed to make a profit doing so. "If Japan was doing this, we'd be threatening billions of dollars in retaliation," said Jeffrey Garten, a professor at the Yale School of Management, who as under secretary of commerce in the 1990s was one of many government officials who tried in vain to get Detroit prepared for a world of international competition. "In fact, when they did something a lot more subtle, we threatened exactly that," referring to calls for import restrictions.

And this is just the beginning. Mr. Obama hasn't even been sworn in yet!