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What the Privatized Education Sector Looks Like

lisa.snell@reason.org (Lisa Snell) — Thu, 22 Oct 2009 00:27:00 EDT

Two new reports out of the Education Policy Research Unit at Arizona State University profile the Nonprofit and the For-profit Education Management Sector. The report offers detailed information about almost every management company from Green Dot to K12 Inc.

The reports defines an education management organization, or EMO, as an organization or firm that manages schools receiving public funds, including district and charter public schools. A contract details the terms under which executive authority to run one or more schools is given to an EMO in return for a commitment to produce measurable outcomes within a given time frame.

Profiles of Nonprofit Education Management Organizations: 2008-2009

A few facts from the new report:

While the number of schools operated by for-profit EMOs grew rapidly in the 1990s and is now leveling off, the number of schools operated by nonprofit EMOs has been growing more steadily and steeply over time.
Nonprofit EMOs operated public schools in 25 states during the 2008-09 school
year.
Nonprofit EMOs are most prevalent in Texas, California, Arizona, and Ohio. In terms of the proportion of charter schools managed by nonprofit EMOs, Illinois stands out, with 72% of its charter schools managed by nonprofit EMOs.
Nonprofit EMOs are garnering more support and are growing steadily, while the growth of for-profit EMOs is slowing.
A total of 103 nonprofit EMOs were identified and profiled in this report, including 16 large nonprofit EMOs, 40 medium-sized, and 47 small nonprofit EMOs.
The number of nonprofit EMOs that operated at least one charter school in 1995 is estimated to be 5. This number increased rapidly until 2004. Since then, only 5 new nonprofit EMOs have been established, although the number of schools operated by the existing organizations continues to grow.
KIPP, the Knowledge is Power Program, a national charter school network, experienced the largest net increase in schools during the past school year, from 57 to 64 schools.

Profiles of For-Profit Educational Management Organizations: 2008-2009

A few facts from the new report:

Since the first Profiles report was published for the 1997-1998 school year, the number of for-profit EMOs profiled has increased from 14 to 95, and the number of states in which EMOs are operating from 16 to 31.
Since the first Profiles report was produced for the 1997-1998 school year, the number of schools managed by for-profit EMOs has increased to 733 from 131. In the past year, the number of profiled schools has increased dramatically, to 733 from 533. However, we estimate that the actual number of EMO-managed public schools has leveled off over the past few years and attribute the dramatic increase only to a change in our methods.
Of the 733 schools profiled in this report, 74% are operated by large EMOs.
Fully 94% of EMO-managed schools are charter schools, and 6% are district schools. The number of district schools operated by EMOs continued to decline between 2007-2008 and 2008-2009.
The majority (57%) of EMO-managed schools profiled are primary schools.
The number of virtual schools operated by EMOs increased from 40 in 2007-2008 to 56 in 2008-2009. This is equivalent to 7.6% of all schools managed by for-profit EMOs.
The five states with the highest numbers of schools managed by for-profit EMOs are Michigan (191), Florida (136), Arizona (103), Ohio (95), and Pennsylvania (39).
The number of students in profiled EMO-managed schools increased by 84,809 in the last year. In total, the EMO-operated schools profiled in this report enrolled 339,222 students during the 2008-2009 school year.

New Zealand's Guidance for Public Private Partnerships

shirley.ybarra@reason.org (Shirley Ybarra) — Tue, 20 Oct 2009 11:17:00 EDT

The National Infrastructure Unit of the Treasury of New Zealand has published a new report entitled “Guidance for Public Private Partnerships (PPPs) in New Zealand”. This is a report that can provide significant insights to the PPP market not only in New Zealand for those working and thinking about the next steps for the PPP market in the United States.

The purpose of this guide is to outline for government agencies, potential bidders and the public the general direction and principles that will be adopted, the processes that are to be followed and the rationale for them. It also provides a framework for assessing whether a PPP is to be preferred over other forms of procurement in any given situation.

As noted in the report for New Zealand:

Public Private Partnerships (PPPs) can refer to many different kinds of relationships between the government and the private sector, but these guidelines use the term to refer to long-term contracts for the delivery of a service, where the provision of the service requires the construction of a facility or asset, or the enhancement of an existing facility.
The private sector partner finances and builds the facility, operates it to provide the service and usually transfers control of it to the public sector at the end of the contract. These contracts are sometimes also referred to as concession agreements.
The long-term nature of PPP contracts, the fact that these contracts are usually used for large and often complex projects which individual government agencies will engage in only infrequently, the importance of financing arrangements and the typically large bidding and contracting costs make it desirable to develop specialist expertise to support departments and agencies in the development of PPPs. In New Zealand, this role is played by the National Infrastructure Unit of the Treasury.

The guide looks at the well developed Australian guidance, but recognizes that New Zealand’s circumstances are different and therefore looks at what can be followed and what needs to be changed. The report looks at when/why a PPP should be considered, risk assessment, project management structure, project delivery structure, the bidding process, project negotiation, financial impacts and project review upon final negotiation.

Most importantly, the report states, “Finally, readers should note that these guidelines should not be substituted for common sense, judgement and experience. Expert advice should therefore be sought wherever appropriate.”

PPP’s are complex and there are no cookie cutters available to any country or any state in the USA. This report is well worth a review.

In Need of Cash, Britian Puts Chunnel Up For Sale

anthony.randazzo@reason.org (Anthony Randazzo) — Mon, 12 Oct 2009 09:58:00 EDT

In April, Chancellor of the Exchequer Alistar Darling, the U.K.'s finance minister, announced that our cousins across the pond were planning to use asset sales to raise funds, given their economy is in a similar place as ours. Yesterday, Prime Minister Brown reiterated this plan:

The British government is holding a fire sale of public assets including the undersea Channel rail link to raise 16 billion pounds ($25 billion) as Prime Minister Gordon Brown warned on Monday that the country is "only halfway there" in overcoming the recession.

The sale of assets, which also includes the government's 33 percent stake in European uranium consortium Urenco, spearheads the ruling Labour Party's attempt to boost its economic credentials as it loses ground to the opposition Conservative Party ahead of next year's general election.

Read the whole story from the AP here.

Competition Is Necessary For Privatization

anthony.randazzo@reason.org (Anthony Randazzo) — Sat, 26 Sep 2009 10:00:00 EDT

It is a pretty basic concept, but sometimes is lost in the haze of corruption: the value of privatization is driven by competition. The New York Times nailed this in an op-ed on Thursday:

Earmark spending — those thousands of customized budget items that Congress tailors as boons for favored contractors — is hardly the biggest dynamic driving the record federal deficit. But as President Obama warned in March, earmarking without competitive bidding requirements can be a “most corrupting” abuse of the budget process.

Competition is what creates incentives for companies to offer higher quality service. Competition pushes down prices, stretching taxpayer dollars farther. Competition encourages companies to honor the terms of their contract, or face losing the contract/not getting contracts in the future. Without these incentives, privatization can go awry. Contractors should have to bid against other companies in the private sector in order to achieve the full benefits of privatization. The government shouldn't outsource jobs just for the sake of using the private sector.

Prostitutes and Pitbulls: A State-Run Hospital Scandal

anthony.randazzo@reason.org (Anthony Randazzo) — Wed, 09 Sep 2009 17:19:00 EDT

Privatization of state-run facilities—such as hospitals, prisons, or mental health facilities—often get critiqued as corner cutting, inhumane, profit seeking, or unsafe. Of course these criticisms often come from people who have never visited a private facility. Aside from profit seeking critique, these complains are almost always inaccurate. And its because of the profit seeking. Profit creates incentives for private firms to create safe, stable facilities that reduce recidivism, meet government standards, and fulfill contractual terms. Otherwise they’d go out of business.

Of course there are occasional examples of negligence. But the same issues occur at state run facilities, and more frequently. The recent scandal at Florida’s state-run TB hospital in Lantana good example:

A crack-binging prostitute, pampered pitbulls, an illegal RV hooked up to taxpayer-paid utilities - an inspector general's report released on Thursday found all of them at the state-run A.G. Holley tuberculosis hospital in Lantana during the tenure of recently ousted interim CEO, Jeffrey Voiles. […]

On Thursday, Florida Surgeon General Dr. Ana Viamonte Ros announced the firing of three hospital employees, including the hosptial's PR person, and the demotion of two, for a range of misdeeds under Voiles' tenure, including interfering with the inspector general's investigation and failing to act on employee complaints about Voiles.

"The actions of these few individuals diminish the hard work the staff of AG Holley does every day," Viamonte Ros said.

Does this happen at every state-run hospital? No. But something to this extent would likely never have happened at a private facility. If a private firm was operating Holley for the state there would be state monitors to ensure quality service from the vendor. The private company would have the incentive of keeping its current contracts and getting new ones to drive quality provision of services. Just imagine if a private company had been caught with prostitutes on campus! But the only the state can do is fire the current management in bring in more state employees.

Private firms have a much higher incentive to manage their liabilities than the state does, because we can’t fire the state from running Holley hospital. The same people who hired Jeffrey Voiles will now hire someone else, what are the odds they make a mistake again?

Read the whole article from the Sun-Sentinel about A.G. Holley hospital here.

Fiscal Responsibility Demands Transparency in Future Government Liabilities

leonard.gilroy@reason.org (Leonard Gilroy) — Tue, 01 Sep 2009 16:05:00 EDT

San Diego City Councilman Carl DeMaio has an excellent op-ed in the Voice of San Diego that should be a must-read for policymakers everywhere. In a nutshell, DeMaio is asking for something simple—and something you'd think policymakers would have a grip on but unfortunately don't in most places: an accurate forecast of future long-term financial liabilities, as well as a realistic plan to fund them.

As DeMaio points out, the city is currently in the position of having the equivalent of a ton of credit card debt and no plan to actually get rid of it:

Suppose a friend, Louise, is facing severe financial problems and asks for advice on handling her household budget. She lays out a list of her liabilities -- from mortgage payments to multiple credit card balances.

Louise goes on to provide her forecasted monthly payments for each of these liabilities -- $25 per month for Credit Card A, $50 per month for Credit Card B, $2,500 per month for a mortgage payment, and so on.

While Louise should be credited with outlining a spending plan, her approach is ultimately inadequate. Her forecast lacks any indication of whether her monthly payments will result in eliminating or even reducing the sizeable debt she faces.

A closer look at Louise's financial condition over a five-year span from a liability standpoint reveals her dire predicament. Her mortgage is an interest-only loan, and her payment is expected to double in the coming years. Worse, she is planning to only make minimum payments on each credit card -- meaning she will end the five year period in deeper credit card debt than when she started.

After constructing a true financial forecast showing all of Louise's liabilities and incorporating her intended efforts to pay them off, a clear conclusion emerges. Louise has to find a way to cut expenses and renegotiate her liabilities. Anything short of such decisive action will perpetuate, or even make worse, Louise's financial quandary.

Like Louise, the city of San Diego faces its own financial crisis stemming from not one, but several growing financial obligations and liabilities. Although unlike the case of Louise, the taxpayer is ultimately responsible for paying off the city's liabilities.

DeMaio goes on to offer a laundry list of future obligations that aren't currently packaged together in a financial forecast format in a way that offers policymakers and the public a true sense of scale—and hence, no sense of what spending re-prioritization would have to occur to realistically fund them.

Policymakers elsewhere would likely be surprised by the results if they were to undertake a similar exercise as DeMaio for their own jurisdictions. Everything he lists are common liability categories—retiree pension and health care obligations (the big kahuna), labor contracts, pending litigation, debt service, deferred maintenance, environmental compliance and the like—and while other communities will certainly have different levels of obligation in each category, the mere exercise of putting it all on paper in one spot, so to speak, would be extremely informative for policymakers.

Addressing large budget deficits are rightfully a current preoccupation of many officials, but you can't take the necessary steps towards long-term fiscal health if you don't have an eye on what's lying just around the bend. Pension and retiree health care obligations alone present a massive funding problem, and that's just one slice of a larger liability pie.

Once the full range of future costs are fully transparent, then so will be the folly of tinkering around the edges with spending cuts here and tax hikes there to get a budget passed, avoiding the needed streamlining in government that has to occur to right the fiscal ship.

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

Corruption, or Perception of Corruption, in Privatization

adrian.moore@reason.org (Adrian Moore) — Tue, 11 Aug 2009 13:20:00 EDT

So, the guy hired to be the emergency manager of Detroit public schools to get them out of a severe financial crisis, has hired his old consulting firm in a no-bid contract to help him create a plan to fix the school's finances.

Details here.

Interesting case. On one hand, he can make a case that the firm is a good choice to do the work and the terms and price of the contract are reasonable. On the other hand, come on! The perception of corruption is obvious, especially in Detroit where political corruption is such a huge problem. Even if his old consulting firm is really the best of the job, there are other firms that are as qualified and competent that would avoid any fear of inside deals or kickbacks.

Preventing corruption and protecting the public interest in contracting means keeping all transaction clean and establishing transparency and accountability and avoiding conflicts of interests of the appearances of them.

Q&A on Safeguards in IN Tollroad Lease

adrian.moore@reason.org (Adrian Moore) — Tue, 11 Aug 2009 13:03:00 EDT

This article in the Ft. Wayne Journal Gazette points out that "Reports both nationally and internationally have heated up in recent weeks questioning the financial health of the foreign companies that leased the Indiana Toll Road three years ago, but state officials are maintaining their cool."

The article goes on to discuss fears that have been raised about what might happen to the road the public users of it if one of the companies that leased it folds, or stops maintaining the road etc., and why the state thinks they are well protected from such worries. The most interesting part of the article though is this Q&A:

Q. What would happen if the lease owners or operator stops maintaining the road?

A. Under the lease, the Indiana Toll Road Concession Co. is required to adhere to a vast array of operating standards. This includes how quickly potholes are filled and snow is removed and making hundreds of millions in capital investments to reduce congestion.

Kitchell said the lease sets up a dispute resolution process that could ultimately end with an Indiana arbitrator finding the operator in default and voiding the lease.

The state is even allowed to go ahead and “cure” problems on the road and bill the operator while this process is ongoing.

Q. Can Cintra or Macquarie sell its ownership stake in the lease?

A. Yes. Under the agreement, if there is a change in control – 50 percent or more of the interests – the state has no say if it is transferred to an entity in the U.S., Canada, Europe or Australia. But if the new owner would come from somewhere else, the state would have to consent.

Q. What would happen if the operators of the road would change?

A. Kitchell said because the operator has day-to-day control of the road, the state would have to approve any such change.

Q. If there is a default of some kind or a bankruptcy, can Indiana get the road back and lease it again?

A. Possibly. Kitchell said the consortium had to borrow much of the lease price to start with and the lenders could protect their investment by stepping in and finding new operators before it got to that point. But theoretically, the state could get the rights to the road back under the right circumstances.

Q. What could the state get if it sold the lease again?

A. Less than $3.8 billion.

With traffic counts declining on the Toll Road and the credit market tight, Kitchell said the state likely wouldn’t receive bids anywhere near as high. In fact, he pointed to one recent analysis that found the value of the lease has plummeted to just $445 million in three years.

Regardless of all the theoretical questions, Kitchell makes clear that he and other state officials are happy with the lease so far, noting improvements in congestion and electronic tolling while pointing to toll increases and maintenance deferral in other states.

“Folks that seem to be worried about what’s going on with Macquarie are not focused on what we think is most important – how the road is being maintained and operated,” Kitchell said.

Efficient, Effective And Run Privately

adrian.moore@reason.org (Adrian Moore) — Fri, 07 Aug 2009 10:55:00 EDT

My old friend Michael Deane, late of EPA, has this great column in the Milwaukee Journal Sentinel:

Americans are fortunate to have options for how we get the basic necessities of life, like food and shelter and water. It is important that Milwaukee residents have the same opportunities as other communities in deciding how their water is delivered, and that those options are supported by clear and indisputable facts.

To deliver water - a valuable and essential resource of finite quantity and inconsistent quality in its natural state - water utilities employ the latest technology to collect and treat water to ensure it meets state and federal health and environmental standards. They also manage the massive infrastructure that enables high-quality water to be delivered to our homes, schools, and businesses. Public and private utilities provide these services 24 hours a day, seven days a week, at a cost to the consumer of less than a penny a gallon.

The private sector has played a proud and important role in the provision of drinking water since the formation of our country. Some activist groups point to a handful of "case studies" to support their claims of service problems by private water service providers.

The facts are that today, nearly 73 million Americans - one of every four people in this country - receive water service from a privately owned water utility or a municipal utility operating under a public-private partnership. Contracts for these partnerships average a 93% renewal rate. Furthermore, the private sector has consistently been at the forefront of the industry when it comes to capital investment in infrastructure and technology, management and innovation.

When utilities lease or sell their water systems to a private company or management company, the company then provides a service, operates the facility, maintains and upgrades the infrastructure, and ensures that water quality standards meet or exceed government mandated regulations.

Further, all water utilities are subject to extensive government oversight. Public officials set water rates, establish and enforce health and environmental regulations, and make long-term water resource allocation decisions. Both public and private water utilities meet these regulations and deliver quality water in an efficient manner.

Full Colum Here

Check out the water/wastewater chapter in Reason's new Annual Privatization Report for more.

Better, Faster, Cheaper

adrian.moore@reason.org (Adrian Moore) — Wed, 05 Aug 2009 08:15:00 EDT

The two scarcest resources in better policy are good ideas and the will to make them happen. To help with the first comes Better, Faster, Cheaper, a new website from the Ash Institute for Democratic Governance and Innovation at the Harvard Kennedy School.

They have a team of top notch contributors, with a good eye for innovations that work and lessons learned. This should become an important resource for good policy ideas.

Already there is a great column on solving storm water runoff problems by my former colleague Lynn Scarlett, until recently deputy secretary at Interior. And another on electronic benefit transfer cards by John O'Leary, also formerly with Reason. Hmmm, maybe there is a trend here. . .

Future of Space Program May Depend on Private Space Transportation

adam.summers@reason.org (Adam Summers) — Fri, 31 Jul 2009 22:37:00 EDT

Members of a subcommittee of the Review of U.S. Human Space Flight Plans Committee, an independent, blue-ribbon committee formed to analyze the U.S. space program, have recommended that the National Aeronautics and Space Administration (NASA) utilize private companies to transport cargo and people to and from the International Space Station. Relying on private firms for transportation services would free up NASA resources for more ambitious ventures, such as human missions to the moon or Mars.

"I think you will find out there are a lot of people who will rise and compete," former Boeing executive Bohdan "Bo" Bejmuk told the panel. "Some of them will fail, some of them will succeed, but you will have essentially created a new industry."

Private space companies like Space Exploration Technologies Corporation, commonly known as SpaceX, and Orbital Sciences Corporation have already made great strides in developing rockets and launching satellites and space probes. SpaceX won a $278 million government contract in 2006 as part of NASA's Commercial Orbital Transportation Services projects. In 2007, Orbital Sciences took over a contract worth $170 million for its Taurus 2 launcher and Cygnus capsule combination after underfunded venture Rocketplane Kistler failed to deliver on its financial objectives.

The potential cost-saving privatization recommendation comes as questions are arising about the accuracy of NASA's budget and the future of the space program. Current plans call for seven more shuttle flights through September 30, 2010, after which the shuttle fleet is to be decommissioned and new space vehicles are designed and built. The new vehicles are not expected to be completed for some time, however, leading to a "launch gap" of five to seven years. But according to human space flight review panel member Sally Ride, former astronaut and the first American woman in space, NASA's budget--which totals $18 billion for the current fiscal year--is unlikely to even meet current goals. "We have come to believe very firmly that it's important to have a realistic view of what the existing program as it will realistically unfold most likely will cost and not put any smoke and mirrors to the budget to make it look like it will fit under the budget profile," Ride said during a public meeting earlier this week. In addition, panel members noted that NASA was unlikely to complete work on the space station and retire the shuttle fleet before March 2011, which would require additional funding. "But, of course, there is no funding for that possibility," Ride noted. "That's setting you up right away for a budget problem."

William Watson, executive director of the Space Frontier Foundation, which promotes commercial space activities, welcomes private-sector involvement in, and competition for, space transportation services. "Let's have an American competition in space--to create good jobs, fuel innovation and close the [launch] gap more quickly," Watson was quoted as saying in a May 2009 FoxNews.com article. "With private funds matching government investment, we can dramatically leverage taxpayer dollars to produce breakthroughs in a new American industry-commercial orbital human spaceflight."

Aerospace consultant and retired NASA aerospace engineer Don A. Nelson similarly sees privatization as a way to stem rapidly rising costs, address the anticipated launch gap, and allow NASA to refocus on its core mission. As Nelson wrote on the nasaproblems.com blog earlier this year,

NASA is struggling with developing the Orion [space shuttle replacement] vehicles . . . one for space station crew rotation and another for the lunar mission. It is the Orion space station crew rotation vehicle problems that is causing the launch gap. Privatization of the shuttle fleet solves these problems and allows NASA the time, resources, and budget to restructure the Constellation Program (CxP) for their primary goal of returning humans to the moon and beyond. Privatization of the fleet avoids the costly and embarrassing space gap, saves critical space jobs, and insures the operation of the space station. Privatization provides avenues to regain a share in the commercial launch market, crew escape pods, and the foundation for a 21^st century reusable space based transportation system.

The government is increasingly coming to the conclusion that a successful space program will depend on a partnership with private-sector ventures. Utilizing these resources will help contain costs, leverage taxpayer dollars, take advantage of the innovation and expertise of those employed by private firms, and free up NASA to focus on its core mission.

Moore Appointed to Infrastructure Advisory Commission

sam.staley@reason.org (Samuel Staley) — Sun, 26 Jul 2009 20:20:00 EDT

Reason Foundation vice president Adrian Moore has been apppointed to the California Public Infrastructure Advisory Commission. The legislation creating the commission gives it the power to review public-private partnership agreements before the state can enter into them, so it carries a lot of weight in public policy. According to the commission's web site:

"The Public Infrastructure Advisory Commission is a new auxiliary unit of the Business, Transportation and Housing Agency. In addition to reviewing proposed P3 agreements, the Commission will assist transportation agencies by: helping to identify suitable P3 opportunities, researching and analyzing P3 projects around the world, assembling a library of best practices and lessons learned, and providing advice and procurement-related services upon request."

Adrian joins distinguished company on the commission, including the director of the California Dept of Business, Housing and Transportation, the CEO of the San Diego Regional Chamber of Commerce, the CEO of the Associated General Contractors of California, the CFO of Demand Media, the CFO of the University of California system, and others.

Congratulations Adrian!

Firefighters Unions Holding Taxpayers Hostage in Nevada

leonard.gilroy@reason.org (Leonard Gilroy) — Fri, 03 Jul 2009 12:33:00 EDT

Our friends over at the Nevada Policy Research Institute are ruffling some firefighter union feathers in that state by daring to suggest that taxpayers may be being held hostage by fat and bloated contracts and union demands for ever-increasing pay. Per the Las Vegas Sun (emphasis mine):

There's no question that firefighters work hard, and the summer heat doesn't make anything easier. But when they cash their checks, they get paid quite well -- some more than $200,000 a year, much of that in overtime.

One local think tank says that's simply too much and the union won't talk about it. The same union that wants to keep raises when everyone else in the state is taking pay cuts.

The Nevada Policy Research Institute, a libertarian research group, compiled salaries for county workers and found firefighters rank at nearly all the top spots. The department routinely used high overtime and remote pay in places like Laughlin as sorts of incentives to keep veterans happy.

NPRI's fiscal analyst Geoff Lawrence finds this ongoing squabble over pay increases frustrating. He is bothered that both the police and public employee unions deferred pay raises. Meanwhile, the firefighters union plays tough, holding on despite the county and state's economic downturn.

"I think taxpayers are really getting the shaft here. They're getting ripped off and exploited by the firefighters union, which is basically holding an essential service hostage from them unless they pay more and more every year to get that service," he said.

The Clark County Fire Department still says they're not hiring right now. The easiest way to reduce overtime is to hire more personnel. Taxpayers are left with little choice in the matter. Massive contract negotiations are slow-moving affairs and firefighting is a monopoly.

Unfortunately this scenario repeats itself over and over across the country.

Look—teachers, police and firefighters do noble work. No one disputes that. But that should not immunize them from the same budget cuts, pay restrictions, etc. that other government employees experience, and it should not prevent policymakers and taxpayers from standing up and calling a spade a spade when taxpayers are being bilked like this.

Chinese Performing Arts Groups Thrive With Private Funding

sam.staley@reason.org (Samuel Staley) — Wed, 24 Jun 2009 15:29:00 EDT

In another sign that China is continuing its decades-long march toward a more open and market economy, the world famous Chinese opera troupes have thrived since they were allowed to find private funding. The number of performances went up 9.8% after the market reforms and revenues increased 18.7% from 2006 to 2007.

For long, State-owned performance groups like the Peking Opera Company used to be subsidized by the Chinese government.

But, since 2004, many of them have carried out reforms in line with government policies that encouraged cultural units to tap market resources and cut their dependence on State funds.

"It's really different from three years ago when we used to get fiscal support and subsidies from the government," said Wu Jiang, president of the Peking Opera Company, which also owns an experimental theater, Changheyuan, that performs a modern-style Peking Opera as well as classic arias at comparatively lower rates for cost-conscious audiences.

Other State-owned performance troupes, including the China Children's Art Troupe, China Puppet Art Troupe, China Arts and Entertainment Group, Jilin Opera and Dance Performance Co, Shanghai City Entertainment Co Ltd and Jiangsu Opera and Dance Group, have also followed in Peking Opera's wake.

The groups have found private partners and investors, upgrading facilities, and focused on meeting the desires of their customers. As a result, sold-out performances are boosting the budgets of the troupes and allowing them to be more competitive in the market place for key actors and performers.

"This kind of project-oriented cooperation would have been unimaginable before the market-oriented reform process," said Hu Huiling, a Shanghai Jiaotong University professor who specializes in China's cultural industry.

"Now (after reform) we have got the right to design products independently; but since we cannot get fiscal support anymore, we are forced to make every effort to cater to the audience and become competitive in terms of products, services and business operations," Zhang Yu, the general manager of China Arts and Entertainment Group, said during a recent interview to CCTV.

Wang Hongbo said raising funds from the market meant that the company was free to devise a long-term development strategy instead of coping with short-term issues like balancing its meager budget.

To all intents and purposes, the move out of the government's shadow seems to be paying off.

Another key result of the reforms was moving toward a more market-based salary structure to increase the quality of the performances:

"In the past, the salary was fixed under a system formulated by the government; the market mechanism has made the payment system disparate, resulting in competition within the industry," Hu said.

"But management of actors, who are usually emotional people, is not easy. In addition to money, more chances to perform, encouragement and open communication should be fostered," Hu said.

Wang Ying, the general manager of China Children's Arts Troupe, said her company has adopted a flexible salary system in line with performance metrics and a top artiste at her company can earn more than 10,000 yuan per month, compared to a monthly income of 2,000 to 3,000 yuan under the State-subsidy regime.

The annual salary and insurance expenses for its 100-plus employees surged from 2 million yuan in 2003, a year prior to the market reform, to more than 7.5 million yuan last year.

China Opens Doors to Private Investment as U.S. Closes Them

sam.staley@reason.org (Samuel Staley) — Tue, 23 Jun 2009 14:54:00 EDT

I was struck by a recent story in the China Daily reporting on the Chinese government's relaxation of rules limiting foreign investment in real estate and other sectors. Meanwhile, in the transportation arena, Congressmen James Obserstar and John Mica have included recommendations in their transportation reauthorization bill that would reduce private sector opportunities to invest in our underfunded transportation system.

More specificaly, the Chinese recognize that foreign direct investment (FDI) is crucial to meeting its economic growth goals.

     "One of the biggest changes is loosening regulation on foreign investment in the property sector.
     "Other suggestions include giving foreign investors access to the high-tech industry and relaxing checks on individual foreign investment.
     "FDI dropped 17.8 percent last month from a year earlier to $6.38 billion, the eighth straight monthly decline amid the global economic downturn. But the drop was less steep than in April, when inflows fell 22.5 percent on a yearly basis.
     "In the first five months, FDI fell 20.4 percent to $34.05 billion.
     "The ministry's proposal is important to maintain growth in investment, one of the three drivers of economic growth, in the second half of the year," said Li Jianfeng, macro-economic and trade analyst with Shanghai Securities.
      "As government-led investment cannot maintain momentum in the next six months, stimulating investment from the private sector, including FDI, is critical to ensure GDP growth, Li added.

While the U.S. is not limiting foreign investment in many of the industries that are restricted in China, I found it intriguing that the Chinese recognize the value of private capital in leveraging domestric resources to spur economic growth. Indeed, the restrictions on private investment were established to slow economic growth during the "overheated" economy of 2006 and 2007. Moreover, private investment has been crucial to building Chinese transportation infastructure, particularly roads and ports.

The same insight is applicable to the U.S. We are faced with a significant shortfall in funding for critical transportation infrastructure. Private capital has been crucial to stepping to adding new roads and managing them in a more sustainable way in Chicago, Texas, Indiana, California, Florida, and other places. Yet, the Obserstar/Mica proposal would dramatically limit private sector participation by eliminating state flexibility to use public-private partnerships and requiring federal approval of these projects through a newly created Office of Public Benefits.

No wonder China can accomplish more in less time. It's not just the laws. It's also the attitude.

Do the Economics of Piracy Demand the Privatization of the Sea?

vdereugy@gmu.edu (Veronique de Rugy) — Tue, 16 Jun 2009 15:26:00 EDT

Reason magazine

At the beginning of April, after a vessel was captured off the Somali coast, the military liberated the crew by storming the boat and killing two of the pirates. While the crew was saved, the ship’s captain was killed in the attack, leaving behind a wife and a 3-year old son.

That’s not the story you heard? That’s because you’re not French. While the story of the Maersk Alabama and the Navy SEAL operation that freed its captain were gripping American attention, the French were focused on the drama unfolding upon the Tanit, a 40-foot sailboat on an around-the-world voyage. When it became clear that negotiations for the crew’s release had come to an impasse, French commandos moved in.

The French government had warned the skipper not to proceed into the Gulf of Aden, where piracy has increased dramatically during the last four years. But the captain chose to ignore the advice. He apparently was chasing a dream to drop out of commercial society and would not be dissuaded.

Most piracy, by contrast, stems from very material dreams, on the part of both the pirates and the plundered. All affected parties are looking to make a living and constantly calculating the most efficient means to do so.

While tourists occasionally have fallen victim to piracy, most hostages are crew members on commercial ships. This is no surprise. According to a 2008 RAND study, the main factor behind the re-emergence of old-style piracy has been a massive increase in commercial maritime traffic. Combined with the large number of ports around the world, this growth has provided pirates with a wide range of tempting, high-payoff targets. And as more seaborne commercial traffic passes through narrow and congested maritime chokepoints, the ships must reduce their speed to ensure safe passage, heightening their exposure to interception and attack.

No one has bested the 18th-century pirate Bartholomew Roberts’ pithy summation of why piracy exists: “In an honest Service, there is thin Commons, low Wages, and hard Labour; in this, Plenty and Satiety, Pleasure and Ease, Liberty and Power; and who would not balance Creditor on this Side, when all the Hazard that is run for it, at worst, is only a sower Look or two at choaking. No, a merry Life and a short one shall be my Motto.”

The time and place may have changed, but Roberts’ reasoning still holds true. Like Roberts in the 18th century, Somali pirates have little to lose in the 21st. Their country is wracked by chaos and poverty. It is also adjacent to one of the most heavily traveled shipping lanes in the world; 20,000 ships a year pass through the Gulf of Aden. Ransoms for crews can be as high as $3 million. The International Maritime Bureau counted 111 pirate attacks off Somalia in 2008, a threefold increase over the previous year.

For Somalia, piracy is an economic boon, benefiting both the pirates and the economies of the areas in which they live. Somali pirates made an estimated $30 million to $150 million in ransom in 2008 alone. Through purchases of homes, cars, clothes, food, and other amenities, this money ends up boosting the regional economy as well. Just as certain Caribbean ports of call catered to the needs of 17th- and 18th-century pirates, so do certain spots in Somalia cater to the needs of contemporary pirates. The port of Eyl, the Tortuga of Somalia, is booming. It’s even rumored to have restaurants dedicated to feeding hostages.

While it’s pretty clear why some Somalis would become pirates, it might not be as obvious why shipping companies respond the way they do to the pirate threat. Despite increased piracy, the shippers seem to carry on heedless of the danger and without exploring alternative possibilities.

For instance, commercial ships don’t have to go through the Gulf of Aden and around the Horn of Africa. They could avoid the area entirely by going round the Cape of Good Hope. But this route adds 20 days to the trip and brings on many new expenses, which are particularly problematic if competitors keep taking the old short cut.

Even in known pirate waters, commercial crews are rarely armed. Some say the reason is that the varying port laws make it difficult to carry weapons aboard ships. Others argue that pirates are more merciful to unarmed crews than they would be to those packing heat. There’s some truth to both arguments, but the chief rationale for remaining unarmed appears to be more economic than legal.

Overall, the International Maritime Bureau estimates the cost of piracy to the shipping industry to be anywhere from $1 billion to $16 billion per year. That is hardly prohibitive when measured against the annual value of maritime commerce, which in 2005 (the most recent year for which we have reliable figures) totaled $7.8 trillion.

Interestingly, as piracy has become more profitable in recent years, its overall lethality has dropped. That too makes economic sense. George Mason University economist Peter Leeson, author of The Invisible Hook: The Hidden Economics of Piracy, explains in an email: “Since wantonly brutalizing captives would have undermined their ability to make profits, 18th-century pirates typically refrained from doing so. Some crews went as far as to enshrine rules prohibiting prisoner mistreatment in their articles. The Somali pirates seem to have realized the benefits of such rules for their bottom line as well. At least one Somali pirate ‘code’ regulating the treatment of prisoners has been found, and several Somali pirates have claimed that it’s a universal rule among them not to harm innocent sailors they overtake.”

So while piracy may be on the rise, it still falls under the standard costs of doing business that have existed since man first started shipping goods by water. The world’s navies have effectively been tasked with protecting cargo and rescuing crew members.

But should the world’s navies be responsible for protecting shipping? It’s not clear they even can. As Michael Mullen, the chairman of the Joint Chiefs of Staff, told Good Morning America in April, “There are actually 16 nations who have naval vessels out there, and it is a tough area. It’s a tough problem. It’s a big area, over 1.1 million square miles, four times the size of the state of Texas. And it’s a going business for the pirates.”

There are deeper reasons why companies should secure their own ships. After all, their boats, their crews, and their profits are at stake.

In an ideal world, we would leave protection up to the owner of the water in question. But today no one really owns the waters where pirates operate. And if no one owns them, no one protects them. Usually governments exercise an implicit ownership of the waters off their coast, but the absence of credible government in Somalia bars that possibility. What’s more, today’s pirates also operate far from any coasts, in water that nobody claims.

If possible, it would be productive to find ways to privatize those pirate-infested seas. There are obvious difficulties, though not insurmountable ones, in the Somali case, where there’s no central government capable of conducting an auction. The alternative, a bottom-up homesteading approach, might end up granting the waters to the pirates themselves, but the best way to pacify the pirates may be to allow them formal ownership rights. In the long run, privately controlled waters would generate new solutions to the piracy problems. Former pirates, for example, could serve as escorts to commercial ships, not unlike the way retired hackers often emerge as computer security consultants.

No matter what solution emerges, shipping companies, not taxpayers, would bear the costs of their own protection. That in itself is enough reason to start thinking creatively about privatization.

Veronique De Rugy (vdereugy@gmu.edu) is a senior research fellow at the Mercatus Center atGeorge Mason University. This column first appeared in Reason magazine.

China Invites Private Capital to Jump Start Growth and Competitiveness

sam.staley@reason.org (Samuel Staley) — Fri, 05 Jun 2009 18:09:00 EDT

After several months of retrenchment, the Chinese government seems to be opening itself back up to foreign investment. The move appears to be prodded by lower economic growth, according to the China Post.

"China says it may encourage private investment in state-controlled industries such as railways, oil and power generation in an effort to boost the efficiency of the world's third-largest economy.

"The announcement Monday by China's top planning agency comes as Beijing tries to boost growth and combat the impact of the global downturn. It would affect areas deemed strategically important and key to national security.

"The government will “speed up research into encouraging private investment” in oil, power generation, telecommunications and other fields, the National Development and Reform Commission statement said."

This appears to be a bit of a turnaround. After a wave of private financing of core infrastructure, the nation seemed to be backing off as a result of public-private partnership agreements that didn't turn out as well as they had hoped.

Yet, the government recognizes that private capital and business expertise is important to promoting economic growth and competitiveness among Chinese firms.

"Beijing has been building up elite government-owned companies to dominate domestic industries such as oil, telecommunications and finance. But officials acknowledge such companies are so far much less competitive than their private counterparts elsewhere.

"China has sharply reduced the government's role in the economy since the launch of reforms in 1979. But economists says it has to push ahead with more sweeping changes if it hopes to continue economic growth and boost incomes."

Financial Crisis and Bailout Coverage

Sat, 30 May 2009 00:00:00 EDT

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Obama's Double-Talk
While the President talkes sobriety, his policies take America on an economic bender.
Matt Welch
May 2009 Print Edition

Obama's Losing Bet on Detroit
Nationalization won't save General Motors
Steve Chapman
April 2, 2009

Economic Forecast
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April 2009 Print Edition

Briefly Noted: Marketplace of Ideas
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April 2009 Print Edition

Gimme Some Sugar
Pepsi and Pizza Hut go au naturel, but sill make you fat
Anthony Randazzo
March 27, 2009

Whitewashing FDR
A New Deal apologia arrives just in time for Barack Obama.
Daniel Rothschild
April 2009 Print Edition

Does Nature Have Economic Value?
Ecological economists know the price of everything--and the value of nothing.
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March 24, 2009

Goodbye Chang, So Long Singh
America's real immigration problem will soon be returing emigres.
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March 23, 2009

All the President's Newsmen
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March 23, 2009

The Power to Destroy
Is it legal for Congress to target the AIG bonuses?
Steve Chapman
March 23, 2009

You Will Be Stimulated!
Why the states should refuse the stimulus
Brian Doherty
March 20, 2009

Snake Oil Economics
Why Jon Stewart and Jim Cramer are both wrong about short-selling
John Berlau
March 20, 2009

The End of Financial Privacy
Why Switzerland, Luxembourg, and Austria caved on protecting its foreign investors.
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March 20, 2009

Obama's Unkeepable AIG Promise
President vows "never" again on bailouts, yet his policy remains too big to fail
Matt Welch
March 19, 2009

'We Have a Lot of Work to Do'
ABC's John Stossel on defending the market from within the liberal media
Ted Balaker
April 2009 Print Edition

Punitive Damage
Congress is in a lynching mood over bailouts and bonuses
Steve Chapman
March 19, 2009

Buyer's Remorse
The government's phony outrage over the AIG bonuses
David Harsanyi
March 18, 2009

Stimulating Ourselves to Death
They might sound great, but do stimulus packages work?
Veronique de Rugy
April 2009 Print Edition

Divide and Conquer
The American Federation of Labor's shameful record on race
Damon W. Root
March 13, 2009

Now You Own It, Mr. President
Obama's policies have made the recession worse
David Harsanyi
March 11, 2009

Nick Gillespie: Why You're Living in the Libertarian Moment
And what you can do to keep and expand your freedom
Nick Gillespie
March 10, 2009

Are We Socialists Now?
It depends on what the meaning of "socialism" is.
Cathy Young
March 5, 2009

Why I Miss Bill Clinton,
And why the Democrats will, too
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March 5, 2009

Obama's Charitable Taking,
When tax increases are "savings," reach for your wallet.
Jacob Sullum
March 4, 2009

How Big Government Infrastructure Projects Go Wrong,
Lessons from the Tennessee Valley Authority
Jim Powell
March 2, 2009

The Liberaltarian Jacalope,
The liberal-libertarian rapprochement is probably dead on arrival.
Matt Welch
April 2009 Print Edition

The Era of Even Bigger Government,
There is very little to be happy about in Obama's first budget
Jacob Sullum
February 27, 2009

The Two Faces of Barack Obama,
A president contradicts himself all night long
Matt Welch
February 25, 2009

Detroit as the Prodigal Son,
Why is the government rewarding failure?
Steve Chapman
February 23, 2009

Here's What $800 Billion Buys Today,
The final stimulus package is the final insult to taxpayers
Veronique de Rugy
February 13, 2009

Why the Stimulus Plan Won't Work,
And several ideas that might
Veronique de Rugy
February 13, 2009

Corporate Welfare,
Wall Street's bailout comes with strings attached
Jesse Walker
February 11, 2009

The Reason.com Stimulus Symposium
February 11, 2009

Fear Is His Friend
Obama takes a page from Bush's crisis management book,
Jacob Sullum
February 11, 2009

800 Billion Reasons To Be Worried
The Senate stimulus bill should only stimulate taxpayer anger,
Veronique de Rugy
February 10, 2009

'I Think the SEC Was Distracted'
Outgoing Securities and Exchange Commissioner Paul Atkins talks about
bailouts, hedge funds, and what he thinks the SEC should have been
regulating,
Nick Gillespie and Matt Welch
March 2009 Print Edition

Losing Our Religion
Do more than light a candle for the patron saint of capitalism,
Ken Kurson
February 9, 2009

Dissatisfaction Guaranteed
The federal government should stop guaranteeing loans,
Veronique de Rugy
March 2009 Print Edition

Economic Change We Can Believe in
To improve the economy, eliminate the corporate income tax,
Jeffrey A. Miron
February 6, 2009

No New Deals
Let entrepreneurs and innovation stimulate the economy,
Shikha Dalmia
February 4, 2009

The New Era of Irresponsibility
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Jacob Sullum
February 4, 2009

What's So Smart About Investing in the Smart Grid?
It makes no sense to throw $4.5 billion at electric power infrastructure,
Ronald Bailey
February 3, 2009

No Hope for Bad Debtors?
Why nobody's cramming for the great mortgage test,
Tim Cavanaugh
February 3, 2009

Your Money or Your Democracy
It's the most privileged industries that demand protection,
Matt Welch
March 2009 Print Edition

Stimulus Won't Change the Education System's Status Quo
Throwing money at failing schools won't boost test scores or graduation rates,
Lisa Snell
January 29, 2009

How to Sell a Mess
What "stimulus" advocates learned from the push for war with Iraq,
Jesse Walker
January 29, 2009

Obama's Green Snake Oil
The President continues to ignore the cost of his global warming plan,
Jacob Sullum
January 28, 2009

Bush Was a Big-Government Disaster
He expanded the state, and the idea that the state is incompetent
Nick Gillespie
January 26, 2009

Repeating Our Economic Woes
It's time to stop the cycle of spending
Steve Chapman
January 22, 2009

Show Me the Money
Obama should push for online stimulus transparency
Anthony Randazzo
January 21, 2009

The Reversals of Market Wisdom
And vice versa
Jacob Sullum
February 2009

Practical Reasons Why Stimulus Spending Doesn't Work
Tas cuts are the best way to stimulate economic growth Anthony Randazzo
January 12, 2009

The Empty Case for More Regulation The Madoff scandal shows why bigger government isn't the answer Steve Chapman
January 8, 2009

The TARP That Covers Everything The GMAC bailout highlights the lawlessness of the Bush administration
Jacob Sullum
January 7, 2009

Why 2009 Will be Worse than 2008 We are not out of the woods yet
Jeff Taylor
January 2, 2009

Recessionary Politics Why is democracy in retreat around the world?
Steve Chapman
December 29, 2009

Sarbanes-Oxley Revisited
Brian Doherty
January 2009 Print Edition

Artifact: Transparency in Action: Secrets of the Bailout
Radley Balko
January 2009 Print Edition

Anatomy of a Breakdown: Concerted government policy helped trigger the financial meltdown-and will almost certainly extend it.
Mike Flynn
January 2009 Print Edition

Better Than a Bailout: Four steps policy makers could take to help financial markets.
Philippe Lacoude and Veronique de Rugy
January 2009 Print Edition

Is Deregulation to Blame?: The new Washington consensus says "yes." The facts on the ground say something different.
Katherine Mangu-Ward
January 2009 Print Edition

Houses of Pain: When did declining home prices become politically intolerable?
Tim Cavanaugh
January 2009 Print Edition

Lessons From the Great Inflation: Paul Volcker and Ronald Reagan's forgotten miracle created a quarter century of prosperity-and a dangerous bubble of complacency.
Robert J. Samuelson
January 2009 Print Edition

The Fed's Binge: How the Federal Reserve engineered the most dramatic peacetime experiment in monetary and fiscal stimulus in U.S. history without anyone noticing.
Jeffrey Rogers Hummel
January 2009 Print Edition

Illegal Lending Practices: Bush's plan to help carmakers is not authorized by law
Jacob Sullum,
December 17, 2008

"You know, this used to be a helluva good country" Reflections on a post-NPSM America
Nick Gillespie,
December 11, 2008

False Cures for the Recession
Why the bailout won't work
Steve Chapman,
December 4, 2008

It's 65 Million B.C. for the Detroit Three
Shikha Dalmia,
December 2, 2008

"Socialism" is Not the Problem
Steve Chapman
November 24, 2008

Financial Reversals
Jacob Sullum
November 19, 2008

Green Herring
Jacob Sullum,
November 5, 2008

Obama's Economic Mythology
Steve Chapman,
October 30, 2008

Obama's Job Fetish
Jacob Sullum
October 22, 2008

The End of Libertarianism and Other Adventures in Financial Policy Fantasy
Jeffrey A. Miron,
October 21, 2008

The Rise of Disaster Socialism,
Michael C. Moynihan
October 20, 2008

The Three Major Memes of the Great Bailout Bonanza
Nick Gillespie
October 15, 2008

Either a Borrower or a Lender Be
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October 15, 2008

California is Headed for a Real Fiscal Train Wreck
Shikha Dalmia
October 14, 2008

Not as Bad as You Thought
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October 13, 2008

Rescue or Waste?
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October 9, 2008

Building a Better Bailout
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October 8, 2008

Pick Your Populism
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October 8, 2008

Christmas in October
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October 2, 2008

What Would Mises Do?
Matt Kibbe
October 2, 2008

Economy in the Balance
Anthony Randazzo
October 2, 2008

The Roots of the Crisis
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October 1, 2008

Does It Take a Panic to Stop a Panic?
Jacob Sullum,
October 1, 2008

An Expert-Induced Bubble
David M. Levy and Sandra J. Peart
September 30, 2008

Why Paulson is Wrong
Luigi Zingales
September 29, 2008

Beg, Borrow, or Steal
Steve Chapman
September 29, 2008

Five Questions About the Short-Selling Ban
Brian Doherty
September 26, 2008

Defaming Milton Friedman
Johan Norberg
October 2008 Print Edition

The Great Bailout Brouhaha,
September 25, 2008

Bailout Bums
David Weigel
September 25, 2008

Hank Paulson's Countdown to Armageddon
Tim Cavanaugh
September 25, 2008

The Case Against the Bailout,
Steve Chapman,
September 25, 2008

Corporatism, Not Capitalism
Radley Balko
September 24, 2008

No More Bailouts!
Anthony Randazzo
September 23, 2008

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Reason.tv Videos

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March 10, 2009

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The Reason.tv Talk Show, Episode 10, Featuring Reason's Nick Gillespie and Michael C. Moynihan with guests Julie Stewart and Mark Hemingway
February 23, 2009

Slumdog Thousandaire, What the celebrated film can teach America about economic stimulus,
February 20, 2009

Bailing Out the Big Three, Why reward Detroit (and punish taxpayers) for making unprofitable cars?,
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Because All Economies Have Performance Issues,
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Robert Poole on Obama's Transportation Policy,
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December 24, 2008

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Peter Wallison: The Roots of the Financial Crisis--how government caused economic turmoil
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December 4, 2008

Where's Sock Puppet's Bailout?
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Robert L. Bradley, Jr.
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November 21, 2008

Russell Roberts
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A rescue plan for the rest of us.
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Economist Lee Ohanian
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Reason on the Bailout
What you need to know. And fear.
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Russell Roberts
What You Need to Know about the Bailout
October 8, 2008

Bert Dohmen
A financial advisor talks about the bailout
October 2, 2008

The Big Bailout
September 26, 2008

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Reason.org Studies and Commentaries

GM Should Run To Bankruptcy Court
By avoiding bankruptcy, GM only risks trading union demands for federal tyranny
Shikha Dalmia
April 2, 2009

India's Faulty Exceptionalism
India isn't suffering during this global slowdown, but needs more openness to trade
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April 1, 2009

Rolling Out TARP II
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March 27, 2009

Government Officials Say Sweeping Financial Overhaul Is Coming
New financial regulations could make things worse if Congress isn't careful
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March 23, 2009

Making Sure the Broadband Stimulus Money Isn't Wasted
How to find the areas not being served, and unlikely to get high-speed Internet services
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March 20, 2009

Even During the Recession Private Companies Are Investing In Ports
Private sector is driving modernization efforts
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March 19, 2009

Fear Is the Economy's Biggest Problem Right Now
Obama has followed Bush and Paulson's lead using fear to push bailouts and policies
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March 6, 2009

The Benefits of Tax Cuts and Alternatives to Stimulus Spending
Seven steps Congress should take to end the recession and jumpstart the economy
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February 4, 2009

Government Intervention Might Delay the Economic Recovery
Every recession contains the seeds of its own regeneration
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February 4, 2009

The Fallacy of "Fiscal Stimulus"
Stimulus during the Great Depression delivered an unemployment rate of 25 percent
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February 2, 2009

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Throwing money at failing schools won't boost test scores or graduation rates
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January 27, 2009

Transportation Spending Won't Stimulate Economy
Infrastructure projects aren't really ready-to-go and using private sector financing could save taxpayers hundreds of billions
Shirley Ybarra and Anthony Randazzo
January 27, 2009

Obama Needs to Push for Online Stimulus Transparency
Government may have already spent $8.4 trillion in bailouts and stimulus, where did it all go?
Anthony Randazzo
January 21, 2009

Practical Reasons Why Stimulus Spending Doesn't Work
Tax cuts are much preferable way to stimulate economic growth
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January 8, 2009

Making Sure Infrastructure Stimulus Isn't a Pork Parade
There were 6,371 earmarks in the last highway bill
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January 7, 2009

How Unions Stop the Cars
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December 12, 2008

With Bailouts, Stimulus Politicians Look Only at the Short-term
Quick-fixes to the economy only prop up status quo, make problems worse
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December 11, 2008

Stimulus Shouldn't Be an Excuse for Pork
The nation's mayors have presented a revealing wish list to Washington
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December 10, 2008

All Infrastructure Spending Is Not Created Equally
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Sam Staley and Adrian Moore
December 5, 2008

Economic Downturn Didn't Cause State Budget Deficits
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Leonard Gilroy
November 26, 2008

Congress Shouldn't Bailout Big Three
Taxpayer money won't save dying Detroit
Anthony Randazzo
November 18, 2008

Too Big To Fail
Government should send the message that no more bailouts are coming
Anthony Randazzo
October 28, 2008

"Perfect Storm" Could Accelerate Privatization Trends
MuniNet Guide Inverview with Reason's Leonard Gilroy
October 24, 2008

Just Say 'No' to More Bond Debt
Voters have to supply the fiscal restraint Sacramento lacks
Adam Summers
October 23, 2008

Don't Count the Private Sector Out in Infrastructure
Infrastructure PPPs remain an attractive investment in the capital "flight to quality"
Leonard Gilroy
October 21, 2008

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The French Patient

shikha.dalmia@reason.org (Shikha Dalmia) — Mon, 06 Apr 2009 21:59:00 EDT

The French health care system is the pride and joy of proponents of national health care. Unlike the horror that is the British National Health Care Service, it is claimed, the French have figured out a way to do it right. Their government, that can control neither its unemployment rate nor its (chronically striking) employed, is somehow still able to provide excellent care without waiting lines in a cost-effective way and without back-breaking taxes.

But if that sounds too good to be true, that's because it is. In today's Globe and Mail, Claire de Oliveria of the C.D. Howe Institute reveals that more than 92% of French residents supplement their stellar, government-provided health care with private insurance. "In fact, private insurance makes up 12.7 per cent of all health-care spending in France, a percentage exceeded only by the Netherlands and the United States." Why do the French have to turn to the rapacious private sector for help? Because most public health services require co-payments ranging from 10 to 40 per cent of the cost that, if patients had to cover solely out-of-pocket, they would likely get financially wiped out.

And despite this substantial infusion of private dollars, Oliveria notes, the French health care system has still been running deficits the past few years. "Indeed, the health system is the single largest factor driving France's overall budget deficit," he writes. "The impact will surely begin to affect the amount and quality of services provided."

So much for the French model!

Whole thing here.

The Great Union Debate

shikha.dalmia@reason.org (Shikha Dalmia) — Fri, 06 Feb 2009 16:28:00 EST

Los Angeles Times Dust-Up

How much is the United Auto Workers at fault for Detroit's problems? With U.S. manufacturing jobs on the decline, what will labor unions look like in the future? Reason Foundation senior analyst Shikha Dalmia and the Center for American Progress' David Madland discuss the state and future of American labor unions. The debate is online here at LATimes.com.

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.

Consensus on the stimulus plan? What consensus?

sam.staley@reason.org (Samuel Staley) — Mon, 02 Feb 2009 10:29:50 EST

The Cato Institute has published a list of 323 economists (and counting) that disagree with the current stimulus plan to focus on government spending to stimulate the economy. The economists represent dozens of colleges and universities, including faculty from Harvard, Cornell, Carnegie Mellon, George Mason University, Duke University, Northwestern University, UCLA, New York University, University of Chicago, Ohio State, Ohio University, and others. Names include such prominent scholars as Nobel Prize winner Vernon Smith, Barry Chiswick, Deirdre McCloskey, Michale Marlow, Kenneth Elzinga, Barry Poulson, Willliam Shugart and William Poole. Each has signed on to the following statement:

Notwithstanding reports that all economists are now Keynesians and that we all support a big increase in the burden of government, we do not believe that more government spending is a way to improve economic performance. More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. More government spending did not solve Japan's "lost decade" in the 1990s. As such, it is a triumph of hope over experience to believe that more government spending will help the U.S. today. To improve the economy, policy makers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.

Stimulus Plan Expands Government More Than It Stimulates

info@reason.org (Katie Hooks) — Mon, 02 Feb 2009 07:10:47 EST

In a new column, Reason Foundation's Anthony Randazzo writes:

President Barack Obama has long stated that a top priority for his administration would be fiscal responsibility and an end to government waste-but his support of the current stimulus plan suggests this might be just rhetoric. The $819 billion ($1.1 trillion if you include the interest payments) American Recovery and Reinvestment Act (ARRA) not only proposes to spend massive amounts of taxpayer dollars, but also to grow the size of government to a large degree. The House stimulus bill includes funding for 31 new programs or agencies, costing over $136 billion over the next few years. Ironically, the number one item on the president's fiscal agenda, as presented on the White House website, is to restore fiscal disciple by "enforcing pay-as-you-go (PAYGO) budgeting rules which require new spending commitments or tax changes to be paid for by cuts to others or new revenue." Yet, the current stimulus bill spends hundreds of billions and plans to pay it off with a loan that will accumulate $350 billion in interest charges. As part of the president's strategy to increase government efficiency, Mr. Obama has appointed Nancy Killefer as the nation's first "chief performance officer," charged with scouring the government to eliminate ineffective programs and enhance the ones that work. It's a great idea. Yet, the current stimulus bill provides funding for many untested programs that could significantly add to government waste. The president has oft repeated a promise that the stimulus will not contain lawmakers' pet projects, earmarks, and entitlements, and the House plan even says so in the opening. But, the stimulus bill would fund a "comparative effectiveness research program" long desired by new Health and Human Services Secretary Tom Daschle and provide $45 million for ATV trail maintenance. Here is a list of the stimulus bill's newly proposed or previously unfunded programs and their cost: New Program ($ Amount Funded by ARRA) * Grants to replace State reductions in school funding ($39 Billion) * Grants to replace State reductions in local government services ($25 Billion) * Bonus grants for local schools meeting specific education goals ($15 Billion) * School construction for K-12 institutions ($14 Billion) * Dept. of Energy innovative technology research program ($8 Billion) * School Construction for higher education institutions ($6 Billion) * Electricity delivery and energy reliability smart grid program ($4.5 Billion) * Energy efficiency and conservation block grants ($3.5 Billion) * Prevention and Wellness Fund ($3 Billion) * Wireless and broadband deployment ($2.825 Billion) * Energy retrofit grants for elderly, disability, and Sec. 8 housing ($2.5 Billion) * Health information technology ($2 Billion) * Youth summer jobs program ($1.2 Billion) * Dept. of HHS comparative effectiveness research ($1.1 Billion) * Grants to institutions for energy sustainability and efficiency ($1 Billion) * Advanced battery loan guarantee program ($1 Billion) * Advanced battery manufacturing ($1 Billion) * Green jobs and emerging industry training ($750 Million) * Neighborhood stabilization grants for non-profits ($750 Million) * After school feeding program ($726 Million) * Federal government vehicle fleet replacement ($600 Million) * Dept. of Energy institutional loan guarantee program ($500 Million) * Waste energy recovery incentive program ($500 Million) * Small Business Association direct and guaranteed loans ($426 Million) * Department of Energy Advanced Research Project Agency ($400 Million) * Alternative fueled vehicles pilot program ($400 Million) * Broadband data and deployment ($350 Million) * Transportation electrification recovery program ($200 Million) * National Science Foundation advanced research facilities modernization ($200 Million) * Impact Aid School construction ($100 Million) * Charter school construction ($25 Million) Total Spending: $136,552,000,000 The proposed stimulus plan does not make government more efficient or fiscally responsible; it only adds to the bureaucracy. President Obama has said he wants to create three million jobs, but 600,000 of those would be new government employees, according to his January 3, 2009 weekly address. If the president wants to make government more efficient, the first step is not hiring over half a million new workers.

Go here to read the whole column. An archive of Randazzo's work is available here.

The Fallacy of "Fiscal Stimulus"

info@reason.org (Katie Hooks) — Mon, 02 Feb 2009 07:01:26 EST

In a new column, Reason Foundation's Adam Summers writes:

The trouble with conventional wisdom is that it is not always wise. The recent calls for government bailouts and an "economic stimulus" package-by which advocates mean pouring hundreds of billions, or even trillions, of dollars into failing industries and into public works projects-is an excellent case in point. Congress has already authorized enormous bailouts for banks, insurance companies, mortgage companies, the 'Big Three' U.S. automakers, and so on. These actions have enriched those in failing businesses at the expense of more productive businesses and everyone who pays taxes. Now state and local governments are asking the federal government for a bailout of their own. Last month, the National Governors Association estimated that the states have $136 billion in infrastructure projects ready to go. Gov. Arnold Schwarzenegger's office has said that California has $28 billion in projects the federal government could fund during President Barack Obama's first 120 days in office (ignoring the fact that the state's voters approved $42 billion in infrastructure bonds just two years ago). Not to be outdone, the United States Conference of Mayors recently presented its own wish list of 11,391 "shovel ready" pork-er, "infrastructure"-projects totaling more than $73 billion. The list of projects includes such critical infrastructure needs as sports complexes, museums, tennis courts, bike paths, and median landscaping. But when Uncle Sam has racked up so much debt that the fiscal house of cards inevitably collapses, who will bail out the American taxpayer? The truth is that the idea that government spending can somehow cure economic ills does not work. It didn't work during Japan's "Lost Decade" of the 1990s, it didn't work during the Great Depression, and it will not work today.

Read the rest of the column here. An archive of Summers' work is available here.

Problems With "Buy American" Clause

anthony.randazzo@reason.org (Anthony Randazzo) — Mon, 02 Feb 2009 06:40:15 EST

Last month, leaders from the U.S. steal, iron, and manufacturing industries lobbied for--and easily got--a "Buy American" clause to be placed in the stimulus. Essentially, the clause forbids money from being spent on materials that are produced outside the United States. While it might seem patriotic, it really just reflects the lack of economic understanding in Congress today. Here is the exact wording:

None of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States. (Senate version, S.336 [S.1])

There are several problems with this. Beyond the free trade issue, why do these industries feel they need a guarantee clause from the government? If they are the best, and can offer the most competitive price, why want the clause? Unless they aren't offering the best price or best service, in which case this "Buy American" clause is implicitly wasting tax dollars. Yes, the bill is trying to stimulate the economy by providing work for businesses--but with how villified "big business" is today, its surprising that Congress would care enough to put this exclusivity clause in and help American firms monopolize their market. If this was done out of concern for the businesses then just give them tax breaks, not cash. (Oh, and what if a firm is owned outside the US but the stuff is manufactured in the US, does that count? Is that an American company?) This clause also has made our allies upset. We are in effect, saying "we don't want to trade with you" in certain things. What about when European stimulus packages prescribe building a bridge (like France's infrastructure spending plan), don't we want American firms to be able to compete to offer services? Why, when it comes time to stimulus spend, would countries suddenly become protectionist? Especially in a world that was made as wealthy as it is by globalization! Now, to be fair the Senate version does include this clause: "Subsection (a) shall not apply in any case in which the head of the Federal department or agency involved finds that– (1) applying subsection (a) would be inconsistent with the public interest." How "the public interest" is defined is unclear and politicians may point to this as a way to say they won't waste taxpayer dollars. But this line also seems to negate the whole clause if it means to say that tax dollars won't be wasted on high bidders. The bill basically says: Buy American in all cases, except when American stuff is more expensive. Why not just say: buy the most competitively priced stuff. Or better yet, why can't we just assume that the government will be as frugal as possible with tax dollars? Oh, right, how silly of me to think such a thing.