Is privatization really better than government providing benefits?

Ed Wallace is an expert on history of the automotive industry, has his own radio show and writes a regular weekly article on the automotive industry. Hus articles are also published in Business Week, but I get them in the Fort Worth Star-Telegram. Much of what he writes is history. One of the things Ed has come across is how Chicago sold off 36,000 of the city's parking meters to Morgan Stanley Bank for 75 years for a mere $1.2 billion dollars in a one-time payment.

Morgan Stanley eventually took majority ownership of the city's parking meters for 75 years, in exchange for a one-time payment to Chicago of just under $1.2 billion. According to Chicago Sun Times political columnist Carol Marin, almost immediately the cost of using a parking meter inside the Loop jumped to 28 quarters ($7) for a two-hour period.

In the meantime, most cases of privatizing public services are blatant theft of public tax money.

But quickly increasing the cost of parking wasn't the only pain inflicted by the new owners. Many parking meters couldn't handle that much loose change in one day, and once full the meters would accept no more change; anyone who parked by one was doing so illegally. Yes, the number of parking tickets jumped so much they had to stop writing them while new meters that would accept credit cards were installed. Even more interesting is that LAZ Parking - also owned by Morgan Stanley - was responsible for collecting the coins out of the meters and issuing the parking tickets.

The meters were set to demand payment 24 hours a day and seven days a week, ending the free parking that enticed many families to downtown Chicago on Sundays.

Chicago's Inspector General analyzed the deal only after it was done; and on June 1, 2009, his report on the sale said officially that Chicago had gotten the short end of the stick. The report faulted William Blair's calculations of the 36,000 parking meters' present and future value: they were worth not a mere $1.2 billion, but more in the neighborhood of $2 billion. Seems Blair wrote the entire report from the investors' perspective, not from that of the real owners, the people of Chicago. The Inspector General concluded that the entire deal was "dubious."

It should be noted that Daley's friend Blair wasn't the only one who profited by suggesting and promoting this deal. The Mayor's former spokeswoman, Avis LaVelle, emerged from it with a new job - spokeswoman for Morgan Stanley's parking meter entity.

Is this more efficient than government? Or is it a secret deal by politicians to make the politicians and Morgan Stanley rich? I know which one I believe. But Ed also points out another case.

ABC News did a story about Florida's privatizing its food stamp operations to J.P Morgan - which in turn contracted a call center in India to process the claims. Imagine that. Florida gives taxpayers' money to J.P. Morgan, which to make a greater profit uses that money to hire people in India, putting Floridians out of a job. Then out-of-work Floridians have to call India to get approved for food stamps.

OK. Frequently private business does provide products and services to customers at a lower cost than government can. But it depends on who the customers are!

A private business has the privilege of selecting what market it will serve. They ignore all other people. Government does not have that privilege! Government is responsible for everyone who is within its jurisdiction. Private enterprise businesses lower their costs by limiting who they have to provide products and services to.

Anyone who does not fall into their market is ignored or abandoned. Government, on the other hand, deals with the people private enterprise drops. Consider New Orleans and Katrina. No private insurance company covered Katrina damage. Government had to step in and deal with the damage that private enterprise could not handle. So government has expenses that private businesses simply will not pay. Hurricanes, Tornadoes, war, crime, accidents - government is going to send people in to deal with those things when private business does not because it cannot.

As Ed Wallace says, "'privatization' is code for 'profitization' and the public gets none of the profits." Private business is not more efficient than government. It just serves different (and profitable) markets while leaving the unprofitable business that has to be done to government.