There has been a lot of news coverage about various politicians and political appointees conspiring against the public by closing lanes on the George Washington Bridge. None of the articles have addressed the question of whether it makes sense for this bridge to be government-owned. A private company surely would not voluntarily cut its own revenue by closing lanes unnecessarily. When was the last time that you went to a McDonald’s restaurant and had to sacrifice your health by ordering a salad because they weren’t selling Bacon Habanero Ranch Quarter Pounders due to a personal grudge among politicians?
There are probably a lot of governments worldwide that could operate a bridge competently and efficiently, but New York and New Jersey do not seem likely candidates. The Tax Foundation says that New York and New Jersey are the two least efficient states in the United States, in terms of the percentage of state income that they spend to fund state and local government. The Port Authority is one of the world’s most wasteful entities (see this July 2010 posting about them spending $15,500 per flight hour to accomplish a $400 per hour helicopter mission) and now we’ve learned that Port Authority properties are playthings for capricious rulers.
Why should an already-built bridge continue to be owned by this entity? There are no unusual capital or permitting requirements associated with its continued maintenance. If you are a fan of expanding the government’s role in our economy, the proceeds from selling the bridge could be used to build additional infrastructure to be managed by the Port Authority. If you’re a fan of arithmetic, you could note that New York and New Jersey are both insolvent if pension obligations are lined up against pension funds invested in financial instruments that exist in the market (i.e., not fictitious ones that return 8 percent per year). The money from selling the bridge could be used to reduce the pension funding gap.
Private companies own and operate some of the world’s busiest airports, e.g., Heathrow Airport. Maintaining a single bridge has to be simpler than managing Heathrow.
Given the scarcity of bridges across the Hudson in the New York City area it would probably make sense to require that whoever buys the G.W. bridge can’t charge more in tolls than the current price, adjusted for inflation (the current price is already close to the highest in the world so this restriction should not prevent a sale).
Why not put the bridge out for bid and see what it is worth?
Why have toll booths in the first place? I haven’t paid once in Germany to use any road. And somehow it works.
Philip,
I’m not convinced that privately owned bridges too work either. There’s not much evidence either way, but, I do know of one example.
The Ambassador Bridge is a privately owned bridge which connects Detroit to Windsor, Canada (and it was not originally privately owned). I believe it’s the only privately owned international bridge crossing in all of North America. It’s owned my a billionaire fat cat named Matty Maroun. The bridge is very poorly managed (I just don’t think Maroun has any incentive to maintain it well—he has a virtual monopoly since, although there’s also a tunnel crossing, most of the truck traffic has to go above ground). Two years ago the state had an deal in the works with Canada to build another bridge crossing (there’s definitely demand for it), but Maroun, seeing that his business interest was threatened, successfully lobbied the legislature to kill the deal (Canada would have financed the building costs with Michigan paying back Canada with toll money after some number of years).
Privatizing state assets isn’t all sunshine and rainbows. When living in a Canadian province I saw the effects of privatization, both good and bad. The good: department of motor vehicles was replaced with hundreds of small private businesses that renew drivers licences, etc; it reduced hour long waits to just a few minutes. The bad: selling publicly owned electric generation and transmission assets resulted in electricity prices going from the cheapest in North America to the most expensive in North America (the competition and new investment promised by private owners never materialized).
Privatizing government-owned entities is catching on in other countries and my state (Virginia) has several public-private partnership opportunities in highway construction.
However, it seems like there is some sort of strange sentiment against private parties owning and operating well-known, public-owned domain in the U.S.
Who cares who owns a bridge, as long as its safe and reasonably priced for usage?
I am all for whatever gets the taxpayer the best deal. If we could sell the bridge and get a great return, GO!
PS
The government certainly does sell what’s convenient! For example, the FCC auction of spectrums. I guess it’s ok for us to sell stuff that we can’t see.
Or how about the Bureau of Land selling off oil and gas lease rights? I guess it’s ok for us to sell what we can burn?
http://www.washingtonpost.com/local/1-million-bus-stop-opens-in-arlington/2013/03/24/49e5c47e-917c-11e2-9abd-e4c5c9dc5e90_story.html
Selling infrastructure off to private companies (either wholesale, or through operating franchises) is something that has been tried many times around the world. The UK has been quite keen on it for the last 3 decades. It is no panacea, for a number of reasons:
Lack of competition: Taking bridges as an example, users of a bridge will tend to have limited choice in how to cross a body of water. And it’s hard for another private company to come along and build a competing bridge. So once a key piece of infrastructure is in private hands, it will be operated as a cash cow. Operating costs will be kept as low as possible. For example, in the case of the toll bridge, a private company might choose to allow long queues to develop at the toll gates rather than operating more toll gates or investing in an electronic toll system. Users of the bridge have little recourse.
Externalities: The operation of key infrastructure has wider economic consequences that will not be reflected in the incentives of a private operator. For example, when a bridge requires maintenance, it might be much cheaper to close the bridge entirely for a period than to perform the necessary work while leaving some lanes open. Closing the bridge entirely might impact the local economy. But the bridge owner will not care unless they reckon that the economic impact would be so severe as to reduce the long-term revenues from the bridge. This point also encompasses the inefficiencies of toll collection: It might be more efficient for the overall economy if government pays for operation of bridges from tax revenues, so that it is not necessary to pay tolls.
Moral hazard. As a bank may be “too big to fail”, a key piece of infrastructure may be “too important to fail”. If a key piece of infrastructure is operated poorly enough by a private company, public outcry may cause government to step in and rescue the situation. And a private company that finds that its financial projections were wrong and that it is making a loss might demand a subsidy from government funds to continue operation, threatening to shut the bridge of whatever down.
Strategic planning: Infrastructure planning and investment is a difficult and long-term project that is seen as a function of government. It becomes more difficult if pieces of existing infrastructure is in private hands, and even more difficult if an integrated system such as a transport system is balkanized among many companies.
Historically (going back to the 19th century and earlier in Britain), infrastructure projects such as bridges were often built by private companies. But these passed into public hands in the 19th and 20th century, as the issues with private ownership and broader importance of infrastructure became apparent. The reversal of this trend in the late 20th century might come to be seen as a retrograde step.
I am not arguing that there is no role for private companies in infrastructure. It might be best for government to contract out many day-to-day functions to the private sector. But the idea that privatization allows government to relieve itself of responsibilities of public interest, particularly in contexts where competitive markets cannot arise, is naive. The UK has suffered through many privatizations, and they tend to end up leading to huge unexpected expenses for the government, while at the same time resulting a poor service to the public.
If your government / form of government is not competent to manage infrastructure, then the solution is a new government / form of government.
David: I woiuldn’t say that worldwide privatization is a panacea. But NY, NJ, and the Port Authority represent a special case of spectacular waste. So there is an opportunity there that wouldn’t exist in New Hampshire or Texas.
“whoever buys the G.W. bridge can’t charge more in tolls than the current price, adjusted for inflation”
Shouldn’t the price of anything be set by the free market? Allow the government to set the price of something and you’ll have all sorts of surprises (see Venezuela, for a recent example).
Alex: Classical “free market” economics does not apply when there is a natural monopoly such as a bridge across a big river (it isn’t practical for two companies each to build bridges at the same spot and it may be that from an engineering point of view there aren’t close-by alternative locations. So you can’t just sell a presumptively greedy (“profit-maximizing” in the jargon of dreary economics professors) company or person the bridge and the right to charge whatever they want. You might be able to do that on the East River where there are a lot of alternative crossings. And arguably you could do that if there were a lot of great alternatives to crossing at all, e.g., ubiquitous super high-def video conferencing. But “free market economics” does not suggest that it would be optimum to just let one company have a bridge and then charge whatever they want.
The Tappan Zee is being replaced, how’s about a private entity take on the project and privately fund it and they can charge whatever they like with a cap on tolls. Let’s see how that works out.
Lot’s of unintended consequences in these deals and the private sector guys are almost always smarter then the public sector people doing the deal.
http://thelede.blogs.nytimes.com/2009/04/01/going-down-the-private-road-route/?_r=0
” A private company surely would not voluntarily cut its own revenue by closing lanes unnecessarily.”
Gentlemen, we want that bond measure to pass that would grant us a $1B zero interest loan for bridge expansion. In the run up to the election I want traffic on that bridge snarled.
Gentlemen, our subsidiary TaxiCo believes multiple fare rides is the way to its prosperity, but is facing huge opposition in City Hall from Uber. In the run up to the election I want traffic on our bridge snarled.
Gentlemen, our owner ATTComcast is looking to expand into NYC with home tele-conferencing, VPNs, and other telecommuting serivces. In the next six weeks, prior to their ad campaign, I want traffic on my bridge snarled.
Doc: Thanks for the New York Times link. I don’t read the article the same way that you do. It says that companies have recovered their investment “in less than 20 years” and that is supposedly bad. That’s about a 5 percent annual rate of return. Do they imagine that investors would be lining up to accept a 1 percent rate of return?
Suppose that you’d invested in a highway in Detroit 15 years ago (Sorry, John Klein, for continuing to use Detroit as an example of failure, but the city’s bankruptcy is an example of a risk that few investors would have foreseen). How good would you then feel about having relied on the Detroit economy being robust for 30 years and then starting to give you an actual profit?
Jerry: I guess you could posit a company that was simultaneously evil and politically influential and that it would be therefore be worse than the current system. But I don’t think the power of a company that owned a single bridge would be unlimited, due to the tunnels. Furthermore, we have the example of electric utilities that are regulated monopolies. They are kind of wasteful compared to companies that face competition but they don’t have anywhere near the waste of the NY and NJ state governments and, as far as I know, none have rendered themselves insolvent via unfunded pension commitments. And certainly I have never heard of an electric utility shutting off power in order to make a political point.
Enron used to shut off power from utilities they owned in California (by taking lines out for ‘maintenance’, to bring the spot prices up or something like that).
You guys make a powerful case that the government should own and operate all businesses!
USPS = Government owned, and losing money
FedEx, UPS, DHS, etc. != Government owned, and they are making money
The job of the government is to protect the country, its citizens, and give everyone equal opportunity, not run it.
@george: USPS has a service level mandate that the others do not, and is not free to change postage pricing as the market dictates. Terrible example. Cf. Amtrak.