Out of Control

Reason’s Foundation’s Adam Summers details job licensing regulations in Arizona, writing, "In Arizona, if you want to be an acupuncturist, a hunting or fishing guide, landscape architect, pre-arranged funeral salesperson, or even a well driller you'll need a license. There is even government registration required to be a geologist…More and more often, if you want to work or start a business, you have to seek permission from the government, pass arbitrary requirements, and pay fees to the state. More than 1,000 occupations are currently regulated by the states, and many others are regulated at the federal and municipal levels. According to a recent Reason Foundation study, Arizona requires licenses for 72 jobs, below the national average of 92 and similar to neighboring Colorado (69) and Utah (84). California topped the list with a whopping 177 licensed occupations."

The good news on the farm bill front is that the anti-privatization provisions have been stripped. The provisions would have prevented states from privatizing welfare eligibility and processing functions a la Texas and Indiana:

A move in Congress to limit the role of private firms in doling out food stamps is dead for now, allowing Texas to move forward with its privatization plans.

U.S. House and Senate negotiators voted late last week against including a privatization ban in a $300 billion farm bill that lawmakers hope to finish this week. The ban would have prevented states from allowing employees of private companies to interact with people who are applying for food stamps or to decide someone's eligibility.

The House included the ban in a farm bill last year in response to problems in Texas, where some families were improperly denied food stamps, Medicaid and cash assistance during a 2006 privatization test in the Austin area.

But the Senate did not put the ban in its version of the farm legislation, and negotiators from the two chambers voted to keep it out of the final bill.

More in the Austin American-Statesman.

The bad news is...there's still a farm bill coming, and it doesn't look like we're going to see any major reforms of our Depression-era farm program.

I've been among the voices calling for more competitive sourcing in Atlanta as it struggles to close a major budget gap (estimates have ranged from $90 to 140 million). Looks like the message is starting to get though:

Atlanta is scheduled to accept bids Wednesday from companies that want to run the city's parking ticket and meter collection operation, now done by the Public Works Department.

As the city grapples with a $140 million projected shortfall for the fiscal year that starts July 1, some officials say Atlanta should privatize some services.

Leonard Gilroy, director of government reform for the Reason Foundation, a California-based nonprofit group that supports free markets, believes privatization is cost-effective.

He thinks Atlanta should invite companies to compete against city departments to run services such as trash collection and maintaining city-owned vehicles. Other cities, such as Charlotte, Indianapolis, Phoenix and San Diego, outsource some services under a concept called "managed competition."

"If managed competition were applied in a comprehensive, enterprisewide manner, Atlanta would likely be able to completely close its current budget gap," argued Gilroy, adjunct scholar at the Georgia Public Policy Foundation, an Atlanta-based think tank.

They should consider the model being pioneered right now by Mayor Daley in Chicago--applying the long term concession model (like that being applied to public-private partnership toll roads) to parking services. His administration also entered into a concession last year for the Millenium Parking Garage. Both follow the blockbuster $1.8 billion, 99-year concession for the Chicago Skyway in 2005.

More thoughts on using managed competition to solve Atlanta's budget crunch here.

Don't miss this profile of a modern day founding father--Oliver Porter--in yesterday's Atlanta Journal Constitution. Oliver was one of the primary architects of the new city of Sandy Springs--the first new city in Georgia in 50 years, and the state's first contract city (only a handful of city employees, with all non-safety services contracted out to a private sector provider).

Sandy Springs' incorporation in 2005 spawned three more new cities--John's Creek, Milton, Chatahoochie Hill Country, all run on essentially the same model as Sandy Springs--and Oliver is currently helping in the effort get the new city of Dunwoody (directly adjacent to Sandy Springs in Dekalb County) up and running. If the Dunwoody effort is successful, then over 200,000 taxpayers in Fulton and Dekalb Counties will be benefitting from higher quality services delivered at a far lower costs through municipal privatization. This provides a great model for existing cities and counties, which should seriously consider the merits of contracting out for the bulk of, or at least large bundles of, government services.

Here's Oliver in his own words:

"I'm in favor of bringing local government as close to the people as you can," he said. "In a huge local county [like Fulton and DeKalb], the services have moved too far away from the people. A community of over 40,000 people [like Dunwoody] is certainly able to support local government."

Dunwoody cityhood critics suggest that to pay for services, residents will have to bear higher taxes. Porter doesn't buy it.

"At least at this point, I'm quite confident Dunwoody can be started without tax increases," he said. More to the point, a city of Dunwoody would offer "a superior model of local government tailored to Dunwoody's needs," he said.

More on Oliver and Sandy Springs here, here, and here. And Reason's privatization polcy work is here.

A new paper from Cambridge University looks at what happens when national oil companies are privatized. Privatising National Oil Companies: Assessing the Impact on Firm Performance, the abstract says it well:

This study empirically investigates the impact of privatisation on firm performance in the global oil and gas industry, where questions of resource control have regained widespread attention. Using a dataset of 60 public share offerings by 28 National Oil Companies it is shown that privatisation is associated with comprehensive and sustained improvements in performance and efficiency. Over the seven-year period around the initial privatisation offering, return on sales increases by 3.6 percentage points, total output by 40%, capital expenditure by 47%, and employment intensity drops by 35%. Many of our observed performance improvements are already realised in anticipation of the initial privatisation date, accrue over time, and level off after the initial ownership change rather than accelerate. Details of residual government ownership, control transfer, and size and timing of follow-on offerings provide limited incremental explanatory power for firm performance, except for employment intensity. Based on these results partial privatisations in the oil sector might be seen to capture a significant part of the performance improvement associated with private capital markets without the selling government having to cede majority control.

Ken Orski at Innovation Briefs wrote this interesting essay on the future of investment in US ports infrastructure.
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Until now, most of the debate about the need to expand public infrastructure has centered on highways– partly because growing congestion on the nation’s highways has highlighted the need to increase road capacity, and partly because a highly publicized event – the collapse of the I-35 bridge in Minneapolis– has focused public attention on the need to reconstruct many of our aging roads and bridges.
A December 3-5 conference in Coral Gables, Florida, organized by Infocast, has thrown a spotlight on another class of infrastructure assets, namely ports and intermodal facilities. Judging by the large number of senior executives from port authorities, shipping concerns and the financial community taking part in the conference, the challenge of expanding port and intermodal infrastructure is resonating strongly with operators, shippers and investors alike. A keynote address by former Transportation Secretary Norman Mineta and the presence of senior officials from U.S. DOT underscored the importance which the public policy community attaches to the ports issue.

The conference took place against a background of forecasts that predict a veritable "tsunami" of maritime cargo swamping U.S. port facilities in the years ahead. In the past 5 years container trade in North America has increased at an annual rate of 6.8%. As a consequence of the rapidly expanding global trade, maritime cargo is predicted to soar by 50% by 2015, from 48 million TEUs in 2005 to 72 million in 2015. (TEU stands for "twenty-foot equivalent unit," a standard measure of container capacity). By 2020 North American ports and their associated intermodal systems will be severely congested, with demand exceeding current capacity by as much as 200% assuming current productivity and growth levels, predicts John Vickerman, a well-known and respected expert in the planning and design of port, intermodal and freight logistics facilities.

How should U.S. ports respond to this challenge? Some observers suggest that the capacity problem could be alleviated if port authorities placed operations on a 24/7 basis, as many foreign ports do. But there are good reasons why that would be impractical in the case of U.S. ports, claims Brooks Royster, former director of the Port of Baltimore. These constraints include local regulation and work rules limiting hours of operation, inadequate labor pool of longshoremen, and the need for some slack time to perform routine maintenance. Only Asian ports (notably Singapore and Hong Kong) exceed the productivity of our own ports, Royster contends, and then only because many of them are transshipment ports that do not have to move containers "through the gate" as is the case with destination ports like ours.

Another fire season has resulted in tragedy in Southern California and, once again, the federal, state, and local governments have shown that they still haven't learned how to deal with the threat. By now, you have probably heard about a lot of the bureaucratic bungling and red tape that impeded response efforts. As a San Diego resident, I had a front-row seat to the ineptitude. For example, despite the fact that the city is surrounded by three military bases, military assets went unutilized or underutilized. State rules require each federal helicopter to carry a licensed "fire spotter" from the California Department of Forestry and Fire Protection (Cal Fire). Unfortunately, Cal Fire didn't have spotters available, so nearly two dozen Marine, Navy, and California National Guard helicopters remained on the ground. In addition, two of the National Guard's C-130 cargo planes were unable to help because they still have not been fitted with tanks to carry thousands of gallons of water or fire retardant, despite promises to do so four years ago after the Cedar and Paradise fires ravaged the area. (For more details, see this Associated Press story.) Meanwhile, government officials from the president to the governor to the mayor to the County Board of Supervisors to spokesman from various government agencies constantly held press conferences where they stood around and congratulated each other on what a great job they were doing.

Some may say that the problems in responding to the fires in San Diego and elsewhere were just a matter of poor leadership. While this is true to some extent, I think there are problems with allowing government to handle such issues in the first place, problems that no change in leadership can fully address. The problem can be illustrated in the difference between public and private property and the different incentives of public land managers and private property owners. Government land management tends to be reactive, while private property management is proactive. Why is it that we never hear about the government clearing overgrown brush, creating fire breaks, or conducting controlled burns throughout the year, rather than responding only after there is a crisis and throwing money at the problem when it is too late?

Fire prevention is essentially about risk management and property protection, two of the things that free markets handle best! Author and columnist Lew Rockwell recently wrote an article on this issue. According to Rockwell,

Are we under the impression that private markets can't handle risk management? Private markets specialize in protection of property, particularly against natural risks. If the land were privately owned, it would be protected against burning through better management. If it had to be burned, the burning would be controlled. Unexpected events like droughts and winds would be calculated into management decisions.

What's more, there would be serious liability issues. Any owner of property who let fires rage would be directly responsible for imposing fires on others. This is the way markets work. If my bathtub overflows, floods my house, and then the waters flood my neighbor's house, I am responsible via my insurance policy. So, yes, there would be a price to pay for fires on your land that harm others' property.

What do we have today? We have fires that are no one's responsibility.

Perhaps it is time to rethink allowing government to manage our fire prevention efforts.

USA Today is reporting that covert tesitng at Chicago O'Hare, LAX, and San Franisco airports found 60% of fake bombs got through the TSA screeners. But, it's worse than that. More than three quarters of the fake bombs and bomb parts got through screeners at LAX. Just 20% got through at San Francisco. Guess what? The SF screeners are private contractors!

"The failure rates at Los Angeles and Chicago stunned security experts," USA Today reported.

Twenty percent is still a lot, but its a lot better than the government screeners. Perhaps it has something to do with accountaibility? The private contractors lose their jobs. Government screeners are sent to retraining workshops.

Also, the 20% rate for the private contractor is lower than the rate when TSA took over security screening. So, performance has fallen since the government takeover.

USA Today reports:

A report on covert tests in 2002 found screeners failed to find fake bombs, dynamite and guns 24% of the time. The TSA ran those tests shortly after it took over checkpoint screening from security companies.

Tests earlier in 2002 showed screeners missing 60% of fake bombs. In the late 1990s, tests showed that screeners missed about 40% of fake bombs, according to a separate report by the Government Accountability Office, the investigative arm of Congress.

The recent TSA report says San Francisco screeners face constant covert tests and are "more suspicious."

Suprise, surprise.

Bill Leonard, on CA's Board of Equalization writes:

The Governor is proposing to sell off two California government departments because they are really businesses. That is, they make money on their own, and whatever services they perform the public can choose whether to use them. Both the Ed-Fund, which is a bank making loans to college students, and the State Lottery, which is a government run casino, are the kind of entities government should not be running

I propose another that meets these same standards and should thus be privatized: the University of California. UC is also a business that competes with the private sector (USC, Stanford) and it makes tons of money with its high tuition charges and patents on its inventions, as well as Federal contracts (like Halliburton and Blackwater). Certainly with a mandate to only admit the top 12% of the high school class it does not serve even a majority of Californians. Given the recent headlines of corruption, mismanagement, lack of oversight and violations of academic freedom, UC really should be reconstituted away from state government. As a charitable educational institution it would then be subject to Franchise Tax Board audits just like the private college and universities are now.

We could save millions of taxpayer dollars by this privatization and if someone really wanted to buy the headache, we the people might be able to break even.

Given the title and subhead of this blog, here’s something that fits right in.

In Trends in Telecommunication Reform 2007: The Road to Next-Generation Networks, The International Telecommunication Union reports that since 1990, 123 ITU member countries had a private or privatized national incumbent, and several other countries have announced their intention to privatize.

Count this as one of the legacies of the late Milton Friedman. Just 25 years ago, the conventional wisdom was that telephone service was a natural monopoly. Even in Western European democracies, governments ran the phone company. In the U.S., AT&T operated for profit, but it operations were heavily regulated and its monopoly was largely preserved by policy. Long distance competition was just opening up back in 1980, when I was a cub reporter, but competition with a local telephone incumbent was still unimaginable.

The graph below, taken from the report, shows the percentage of ITU countries that have competition for various services.

The gradual introduction of long distance and wireless competition in the U.S., coming at a time when Friedman’s free market ideas were being sparked worldwide via the Reagan and Thatcher policies, showed the world the innovation and growth that could occur when government steps aside. Ironically, the latest political fad has been to re-nationalize: witness Hugo Chavez, current darling of the progressive set, whose government took over Venezuela’s CANTV after more than a decade of success in private hands. Guess it will be back to the days of five-year waits for phone lines.

For its part, the ITU report credits much of the expansion of next generation telecom services to privatization and competition.

“The objectives of privatization are to improve efficiency, productivity, and service quality, as well as to raise capital, improve management expertise and further develop the network,” the report states. “In addition, many countries have found that competition is often more fair when the state avoids being both a market player (as owner or part-owner of the incumbent) and a referee at the same time. Privatization sends the signal that policy decisions and regulations will be fair to all players.”

The entire report is available for SF 100 ($84). The executive summary and a sample chapter can be found here.

Market failure – two words heard when discussing the spread of broadband to small cities and less densely populated areas.

Market failure – the chief reason municipal broadband activists give when citing the need for government to fund infrastructure projects like Utah’s UTOPIA. There are some areas of the country, they say, where private investment won’t go. There are some areas of the country, they say, that offer no profitability to attract enterprises. The government, dammit, must step in.

Oh, really?

In catching up with my e-mail alerts, I came across “Zayo Plans Broadband Success in the Boonies” by Carol Wilson in Telephony OnLine. Seems like one entrepreneurial start-up sees opportunity in small markets.

Zayo Bandwidth is getting its start with the acquisition of a series of regional fiber networks, and founders Dan Caruso and John Scarano have lined up $225 million in funding from major venture capital firms, including Battery Ventures, Centennial Ventures, Columbia Capital, M/C Venture Partners and Oak Investment Partners. Caruso and Scarano are both veterans of ICG Communications and Level 3 Communications and are strategically positioning their new company to cover areas they believe are not well-served today.

The initial two acquisitions are PPL Telcom, an Allentown, Penn., company that serves the Northeast via a 4600-route-mile fiber network and Memphis Networx, a 200-route-mile fiber network serving that metro area. In addition, Zayo has definitive agreements in place to buy Indianapolis, Ind.-based Indiana Fiber Works (IFW) and Minneapolis, Minn.-based Onvoy.

“Our strategy is to acquire unique fiber-rich assets throughout the country to create a company that provides large bandwidth responsibly, quickly and reliably,” Scarano said in an interview. “We are being selective in the markets we invest in. Where we are buying the assets, there is limited deep metro competition. We generally do not have assets in NFL cities, but mostly in Tier 2 and Tier 3 cities that have ties to NFL cities. By investing in those areas where incumbents have not invested and where other competitive carriers have largely not invested, we will be able to keep up with the bandwidth demands of businesses in those areas.”

For those who have followed the muni broadband controversy, the fact that one of Zayo’s first investments was in Pennsylvania, where state legislators passed legislation preventing municipal government from setting up competitive broadband operations, is particularly significant. And in Tennessee, municipalities face stern tests and voting requirements before they can set up broadband operations. Opponents said these laws would lead to entire regions missing the digital era. Free marketers said laws like these, in keeping governments out of the market, would make states more attractive to a new generation of broadband investors.

Let me know when Zayo hits Utah.

I appeared on CNBC's Kudlow & Company today discussing the role of the private sector in America's infrastructure. If you're familiar with Reason you've read about the Indiana toll road lease and the debate in Pennsylvania. Check out all of Reason's transportation work here, our Annual Privatization Report here, and some commentaries on the subject matter:

Indiana: One Year Later -- and one on Pennsylvania.

Following yesterday's horrible tragedy in Minneapolis there has been non-stop coverage of America's infrastructure needs. Our roads, bridges, airports, ports and water infrastructure all need significant investment -- its true. For some, the answer is easy -- a massive federal spending program. Even my colleague at Reason magazine fell for the trap in connecting the two (federal spending and infrastructure) in a recent blog post; suggesting that money currently spent in Iraq could be redirected to funding infrastructure. Problem solved, right?

Wrong. A federal bailout and/or spending program is not the answer and frankly runs counter to more than 30 years of policy research conducted by my colleagues at Reason Foundation. For example, the recently published 21st Annual Privatization Report includes a lengthy sections on transportation, water and airports (to name a few) demonstrate how the private sector can play a significant role in infrastructure development in the US. In just a short time private companies have raised a significant amount of capital and they certainly have the expertise and willingness to invest in our infrastructure -- more efficiently and effectively to boot. While a role for the government will always remain, a massive federal bailout is not the solution -- even Wall Street sees it.

This is part of a larger trend -- a bipartisan one where the doors to private capital and expertise are increasingly being opened. Former Colorado Governor Bill Owens, a Republican, discussed it in our recent Innovators in Action as did Indiana Governor Mitch Daniels in last year's edition. Even Pennsylvania Governor Ed Rendell, a Democrat, acknowledged an increased role for the private sector to play in financing, developing, and managing our nations' infrastructure. Despite recently signing a bill in Pennsylvania that would not privatize the Pennsylvania Turnpike, Rendell admitted on national television that privatization would have generated significantly more money than the plan the general assembly and he ultimately supported. Its true that Rendell also called for a 1% national income tax increase to fund a "Federal Capital Budget" so he's not entirely sold but at least he didn't play politics with the war.

Frank Smith of the Private Corrections Institute in Kansas wrote a letter to the editor of the Idaho Mountain Express - his letter was in response to an editorial the IME published a few days earlier. Sadly an inmate in a private facility committed suicide because of poor living conditions and Smith used that as an opportunity to attack private prisons.

Without argument no one should be treated poorly or inhumanely. Smith, however, suggests the problem lies in the nature of the facility itself. The inmate who committed suicide was in a private facility (if you were to visit Smith's website you'd think that government run prisons were the Hyatt or Hilton...there's never any problems there) and Smith suggests that the profit motive is what led to poor conditions and ultimately the suicide. He suggests that "doing a bad job increases those profits." Smith fails to understand the nature of incentives. Private companies have stronger incentives to do a good job in order to win more contracts and earn more money. If they continually underperform or produce terrible results governments will be forced to send their business elsewhere or build their own facilities. The profit motive actually acts as a push toward good service, not a pull away from it.

Smith claims to have "examined monitoring and oversight all around the country...billion-dollar corporations such as GEO and its competitor CCA have frustrated the efforts of those attempting to represent the interests of taxpayers and insure humane conditions." While he may have reviewed monitoring programs he's letting ideology and philisophy drive his argument. Private prison operators collectively spend less money lobbying in the entire U.S. than does the public-employee union in California.

Regardless, the government remains responsible for ensuring that prisoners' rights are protected even if they send them to a private prison. Smith fails to note that exploiting or abusing prisoners can occur in both government and private prisons. We hear terrible stories all too frequently: of "gladiator" fights between inmates orchestrated by correctional officers, sexual assaults by correctional officers, and other individual and systematic abuses -- in public facilities. Our goal should be to prevent this in any institutional setting.

Arguably, abuse and violations of rights should be easier to prevent in private prisons than in government prisons. Due process is not only implicit in the law of the land; it is usually explicit in private prison contracts. Prisoners have more legal options against private prison officials than against government officials. Private prisons are monitored by state inspectors, and the state is liable for abuses committed by employees of the private firm, so they have an incentive to monitor their conduct. Government correctional departments police themselves, with obvious conflict of interest.

In addition, private prisons offer public officials two powerful tools to ensure good conduct. First, a well-written, performance-based contract will reward the private firm for providing the kind of care public officials require. Tying compensation to measurable outcomes in public safety and prisoner treatment puts the private operating firm in the business of serving the public interest. Second, private firms find that mistreating inmates only creates resentment and hostility, which makes managing the prison more difficult and costly. They find that a softer touch can make long-run management more effective, such as in Florida, where private prisons' management style has led to much lower levels of violence than in the state-run prisons. A number of studies have shown similar comparisons in other states.

Indeed, contracts with private prisons give public officials a great deal of control. Elected officials control government prisons through budgets, legislative requirements, and their power to appoint heads of correctional departments. With a private prison, public officials have these same tools of control, and more. The contract process lets them control the price paid for services and determine who is going to run the prison. And legislation regarding correctional polices can be applied to private prisons as well. In addition, contracts provide for termination for failure to perform, while no such measure can be used with a government prison. Finally, contracts with private prisons introduce an additional level of accountability through the monitoring process. Government corrections departments are largely self-policing, while private prisons are continuously monitored by an outside agency to assure compliance with the law and the terms of the contract.

Of course, this implies a greater responsibility on the part of public officials. If they enter into incomplete contracts, fail to monitor compliance, or allow contracts to become noncompetitive, then a private firm may take advantage. The history of private prisons is not without blemishes, and failure by public officials to practice due diligence can create problems. However, experience clearly shows that well-written contracts, proper monitoring, and a competitive industry can ensure successful public-private partnerships—where both sides get what they want from the relationship.

Smith is also concerned about "for-profits have[ing] a vested interest in maintaining the status quo, increasing the numbers of prisoners by helping craft ever more draconian legislation, pushing for "more market and more market share." Unfortunately, there is little evidence of this kind of lobbying. Do private garbage collectors lobby against recycling? Do day-care centers lobby against birth control? In fact, unions representing government prison correctional officers give vastly larger sums to politicians than do private prison operating companies. In California alone, correctional officers gave $1 million to Pete Wilson when he ran for governor in 1990, and another $500,000 to his 1994 reelection campaign. In contrast, the two largest private prison firms' total political contributions nationwide in 1995- 96 was less than $150,000. (Note: Smiths' organization receives support from among others, AFSCME - the largest union representing state, county, and municipal employees).

It is unlikely that private prison firms are going to sway policy in favor of greater incarceration when such polices are obviously already very popular with the general population. Moreover, prisons these days are so crowded that the private operating firms almost always find their prisons full as it is.

This is not to say that private firms are not capable of the kind of lobbying critics fear. In the past, large industries have used their influence to sway the political process against the public interest. But the private prison industry is not large. It manages only 3 to 4 percent of the nation's prison population.

Concerns about private firms acting to prevent inmates from getting parole are equally unfounded. For one thing, revoking "good time" is a punishment used in only about 10 percent of cases. The government retains control of parole decisions and the authority to take away good time, which accrues automatically unless revoked by proper authorities. It is true that the authorities have to rely to some extent on the information provided by the prison regarding an inmate's behavior. However, competent monitoring and inspections, as well as the threat of inmate lawsuits, minimize any temptation by private firms to abuse their power. Denying earned time would create costly hostility between inmates and staff, and for little gain: there are usually more inmates entering the system.

Meanwhile, there are ways to mitigate the potential problem before it begins. One method is for contracts to move toward a performance basis, basing a firm's payments on performance measures and not just on keeping a full house. We also must recognize that even if we decide as a society to put more effort into dealing with criminals by means other than incarceration, there will continue to be a need for some prisons, and the private sector can run them well and at lower cost.

See our 2002 policy study comparing the costs and quality of private corrections here.

There's usually plenty in the farm bill to complain about -- subsidies come to mind. However, this year is extra special. A provision was tucked into bill that would prohibit states from privatizing some welfare services, such as the distribution of food stamps.

If it passes it would dismantle a massive modernization program in Indiana, which by most measures was the worst in the nation. The paper intensive process often led to multiple trips and a lack of consistency that drove error rates to unacceptable levels-leading to $100 million in misspent funds each year. Under the contract with IBM will make systematic changes and upgrades quickly. This will bring about better, more accurate services to customers, faster, at massive savings (some estimates put it at $100 million a year). Indiana FSSA Secretary Mitch Roob wrote about the project and its importance in our recent Innovators in Action (see page 24).

According to the Wall Street Journal the move will also harm "21 other states that have privatized administration of their food stamp programs to some extent, and five more that are considering it. Already, Governors from Minnesota, Florida, Texas, Washington, Connecticut and Rhode Island have objected to the provision."

Several amendments to the bill have been offered up - including one by Texas Congressman Pete Sessions that would have provided waivers to the ban. It failed on a party line vote. Seems likely that the WSJ was right - this is more about union memberships than delivering services. Its true that the Indiana modernization led to fewer AFSCME members, however, despite AFSCME's predictions the employees are winners too (assuming that working for the private sector isn't evil). With more than 99% of them transferring to the private partner, at equal pay and benefits, employees are now able to focus on helping those who need help rather than pushing paper.

All is not lost, yet. The Senate still has to take up the bill and Sen. Lugar has suggested he'd work to remove the provision. Further, while the President has threatened a veto, its because of other language in the bill and not the anti-privatization measure.

According to Physorg.com, "French doctors are puzzling over the case of 44-year-old civil servant who has led a quite normal life -- but with an extraordinarily tiny brain."

This one was just too ironic not to mention! It is amazing that this man survived his condition but, the fact that he worked for the government as a civil servant, the French at that, and no one ever noticed an inefficiency, a slow turn around time, or unproductive work habits doesn't surprise me.

Dr. Lionel Feuillet reported to Fox News "The brain itself, meaning the grey matter and white matter, was completely crushed against the sides of the skull. The images were most unusual... the brain was virtually absent."

After undergoing further neuropsychological testing, it was discovered that the man had an IQ of 75. Most people in society have at least an IQ score of 85. However, the article made it very clear that this didn't hinder the man from working as a civil servant.

We need to send the Frenchies our Annual Privatization Report and encourage them to form public-private partnerships. That way they might end up with two tiny French brains instead of just one :)

I've often heard this turn of phase to refer to municipal operations of golf courses i.e., the only time middle class Americans receive anything from government is on the golf course. The issue raised its ugly head in Jackson, Mississippi yesterday where the mayor nixed a plan to privatize two local golf courses.

Seems the courses were a major drain on resources - losing about $300,000 annually. The private operator had offered to pay the city $10,000 a year to run the course and give the city 5 percent of profits. City officials estimated that the contract would have saved the city about $105,000 annually -- even though to me it seems like a savings of $300k in losses and a gain of at least $10k in new revenues.

Eitherway it was golfers who stood in the way of privatization....what always confuses me is why is government in this business to begin with? Perhaps even more unsetteling is that I wrote about this back in 2003 and its still happening!

Lisa Snell wrote a great study on golf course privatization a few years back -- check it out here.

Just not here. Despite promises, and attempts, of reform and an overhaul of the current system the door to real reform remains closed. We're forced to accept rising prices (a second consecutive increase this year) and poor service.

We're behind the times here. Take Japan, for example, who will begin privatizing its postal services in under three months - despite strong political opposition.

We covered the issue in our 2005 Annual Privatization Report, highlighting some of the other countries that have privatized their postal services -- including, Germany, France, and New Zealand.

If you're familiar with Reason you're most likely familiar with Indiana Governor Mitch Daniels and his quest for efficient government. In the first three years of his first term Daniels has leased the Indiana Toll Road, entered into a massive welfare modernization that will save the state $100 million a year, pushed performance based management programs, and initiated enterprise wide competitive sourcing. For all of that he's usually beat up in the press and given little or no chance at winning reelection, usually because of these positions. that is, until now.

After all, how can a guy win a second term when he has:

-- Leased the Indiana Toll Road to a bunch of foreigners. Never mind that the state got $3.8 billion -- as a cash advance -- it otherwise never would have seen.
-- Privatized some parts of state government. Never mind that it resulted in a savings to the state.

-- Tried unsuccessfully to privatize the Hoosier Lottery.

-- Angered a bunch of folks by closing several state vehicle license bureau branches. Never mind that it resulted in a savings that brought greater efficiency to the other branches.

-- Pushed local government to become more efficient and reduce reliance on property taxes.

Here's hoping that Daniels can show that being bold, innovative, and willing to privatize won't cost him an election.

Last May, Congressmen James Oberstar and Peter DeFazio wrote a letter to all governors and their state transportation department heads, threatening them with undoing public private partnerships they didn't like. Reason Foundation responded strongly, with a commentary by Sam Staley published in the Washington Examiner, commentary by Geoff Segal , and a lenger response by Bob Poole and Peter Samuel. Now, the nations governor's are weighing in.

Gov. Rick Perry in Texas doesn't pull punches in his letter when criticizing Congressional meddling in state affairs:

As governor, I will not sit by and allow gridlock to consumer our state's roads. With the support of local and state leaders, we have created a new approach to transportation funding. We are empowering regional leaders to solve their own problems, and we are engaging the private sector to help us meet these transportation challenges.

"We are already seeing the impact of market forces that are driving down the cost of transportation projects and expediting their completion for the driving public," Gov. Perry continues. "We cannot turn back now; congestion doesn't wait for Congress to make up its mind." (emphasis added)

The National Governors Association has also weighed in with a letter to the Congressmen:

We believe that, in pursuing innovative financing and project delivery methods with the private sector, states have been careful and prudent in their analysis, negotiation, and oversight to ensure adequate protections for the public interest.

Stay tuned for the next round....

Several weeks ago the U.S. Supreme Court ruled that local governments can compel private waste haulers to use municipal owned facilities. In the case of United Haulers Association v. Oneida-Herkimer Solid Waste Management Authority (05-1345), the justices voted 6-3 to uphold so-called "flow control" laws or ordinances that municipalities have used to assure a steady waste and revenue stream into publicly financed waste facilities.

The ruling partially overturns an earlier finding in Carbone reached back in 1994. There, the Court ruled that trash was subject to the Commerce Clause of the Constitution and therefore protected. The ruling in Oneida skirts this because the facility in question is publically owned. Given this, its likely to encourage other municipalities to introduce flow control -- indeed, its already happening.

Not only will prices get jacked up (absent competition, local governments can raise rates significantly -- in the case the local fee was three times the out of state charge, and more than $20/ton more than the weighted average of facilities within a 100 miles) but incentives for private investment/operation of landfills will be threatened.

Do you recall the "garbage crisis" of the 1980’s, when the forlorn garbage barge, full of New York city’s trash, cruised up and down the East Coast looking for somewhere to dump its load. While it littered the headlines a decade ago, you hardly hear about it anymore. In fact, the "crisis" of insufficient landfills went away, almost unnoticed, and the nation now has more landfill space than ever before. Thanks to a government program? Nope. It was privatization that made a difference -- largely spurred by the USSC rulling against flow control in Carbone.

Advocates on all sides of the U.S. health care issue have come out with guns blazing, and the silver screen is the scene of most of the contemporary battles. The most well-known documentary on the issue is the recently premiered Michael Moore film, SiCKO, there are other documentaries and fictional films that have been produced and contrast the health care systems in the U.S. and other countries such as Canada. Thursday morning, Cato Institute hosted a panel discussion with Stuart Browning (Fellow, Moving Picture Institute), Michael F. Cannon (Director of Health Policy Studies, Cato Institute) and Ezra Klein (Writing Fellow, American Prospect) that focused on Moore’s new film and other examples of health care in film as the starting point of discussion with clips from three films: SiCKO, Brain Surgery, and Barbarian Invasions.

What was unique about this event and deserves added attention was its focus not solely on health care, but the portrayal of health care in film (the title of the event was “Health Care on Film: Clips from SiCKO and Its Competitors”). There has been a rising trend in the use of documentaries to “expose” problems with the status quo or to raise awareness on a pressing social issue with prominent films such as Super Size Me, Bowling for Columbine, and others leading the way. Film in general is considered a medium that is able to reach a wide and varied audience to convey political messages whether through fiction or documentation. While films may serve as a starting point for discussion and debate over the issues they present, which happened at the event, there is reason to worry that an over-reliance on film may lead us away from rational discourse and emphasize emotional appeals and fallacious groupthink.

This occurred to me when I noticed a common theme in SiCKO: laughter. In many of the interviews Moore conducts, the interviewees respond with laughter, as though even asking the question is absurd. In the UK, Moore’s question of how much a patient paid is met with laughter and a “we don’t pay here.” At Guantanamo Bay, an U.S. soldier laughs as she says that the detainees there receive better treatment than she has ever had. This is important because this kind of laughter subverts the logical analysis of argumentation. When we see others laughing, it is a natural tendency to laugh as well. Laughing makes us happy. When we laugh with others, we are bonded with them in a way that makes us feel comfortable rather than isolated from an intellectual disconnection. When someone laughs on screen at the concept of paying medical bills, the suggestion is that such a concept is an absurdity. It is as if to say, “there is no way anyone can actually think that” or “that situation is so far-out there it doesn’t deserve consideration.” More so, film allows many of these “laughable” interviews to be collected, condensed into a short segment and then played before an audience as though there is almost no one who does not think of this as absurd. Through film, the threat of groupthink caused by a minutely sized group is not only present, but significant.

This analysis is not revolutionary and much of it has been said before. However, it raises an issue that deserves consideration and recognition. As we use film more and more to convey information and bring information to light, how far should we be willing to accept the medium? And to what extent can we use the medium for purposes of debate and rational discussion when it lends itself to tactics that excite the senses and requires the audience and on-screen individuals to ‘connect’?

As a filmmaker, Moore is brilliant at constructing a story that the audience can easily follow and brings them into the film. I am not faulting Moore in any way for employing this strategy in his filmmaking role because it is so effective. I am not faulting the technique itself even because it is merely a tool to reach a purpose. I am merely commenting on the nature of this documentary quality for the sake of understanding it so the average viewer can consider the reason why clips of people laughing are included in persuasive pieces so often. Is there a way for film to balance its emotional biases with substantive information that is conducive to meaningful debate? Or should we interpret film merely as a tool to hook an audience into a message and debate the issues elsewhere? If nothing else, we must recognize that films are not meant solely to present the issues and discourse, but connect with us through senses and influence us in ways that are not traditionally “rational”. While debates help delineate what is good and what is bad we are now faced with a more ambiguous position: the sicko.

Anyone who has taken a labor economics class can tell you that unions have two priorities. Those are protecting their membership and getting more of them. So its not too surprising to hear Teamsters in Pennsylvania say that their "members come first" and that they're "interested in keeping our jobs for our members."

The issue is whether Pennsylvania can lease the turnpike and raise a projected $18 billion for new transportation investments throughout the state. Several Pennsylvania communities suffer from congestion, which is only going to get worse without significant investment. A truly viable alternative to leasing the turnpike has yet to be discovered (with the exception of raising a host of taxes and fees), yet it seems that the Teamsters have put their members needs over the rest of the Commonwealth. Some 2,000 jobs -- most of which would still exist under a privatized operation (the toll takers would likely be phased out as technology can replace them over time).

Much has been written on the plan in Pennsylvania -- Reason also recently published a response to some critics of the plan.

All of Reason's work on transportation can be found here.

Of states talking about leasing assets -- e.g., turnpike, lottery -- former Mass Governor William Weld has been hitting the capital hard, talking to anyone who will listen about the merits of privatization. Weld was a staunch supporter of privatization while Governor, privatizing some 36 functions saving taxpayers more than $273 million in just two years.

Like many states, Mass is cash strapped and they're looking for new ways to fund needed infrastructure. At this stage its too early to know if privatization has a chance in Mass. Further, its not clear if the states' onerous privatization process, the Pacheco law (see pg 13), will apply to leasing assets. If it does, privatization isn't likely to go anywhere. Since its inception, the requirements of the Pacheco Law have discouraged private firms from seeking contracts in Massachusetts—and the cumbersome process has created a disincentive for agencies to attempt privatization.

An editorial in today's Herald-Dispatch (Huntington, WV) discusses privatization. It makes a couple pretty good points -- the need for performance measures and strong contract oversight and management.

However, one quote really got my attention: "Private sector contractors are in business to earn a profit -- a reasonable and legal goal in most instances." Since when did we have to quality profit as "reasonable" and "legal"? And in what instances does making a profit not legal? When did profit become such an ugly word that we have to start qualifying it?

Digging deeper though, the author shows his misunderstanding of the profit motive that companies have. He starts by suggesting that privatization could lead to lower service because of profit. Companies have an incentive to keep customers happy -- thus, they can't skimp on service. Afterall, if they lose the contract (which they would for poor service) they don't make anything. Further, in most cases, the profit motive also pushes the contractor to become a good corporate neighbor and lend a hand when a hand is needed.

The author then lists a series of risks from privatization -- corruption, low-ball bids, and disqualifiying other bidders -- however, smart companies in the privatization arena don't do what the author suggests could happen. Put simply before someone privatizes they generally look at company history and past performance. Again, the profit motive keeps companies from conducting business this way. If they develop a reputation for these shenanigans they won't win new business.

Sadly this skeptism and critical misunderstanding of profit is all over.

PS - I wonder if the author realized that every critique he had about privatization has been a union tactic or result for decades? (poor service, corruption, using political power, asking for more and higher pay/benefits, strong arming a city, etc.)

A Pennsylvania State Senator is continuing his crusade to privatize the state's liquor stores -- or at least sell of 51% of the system to investors to "wring out inefficiencies."

Republican Sen. Rob Wonderling of Montgomery County argued that "Inevitably, free market competition always results in better quality at the best possible price for the consumer, and it does so exceedingly better than a public monopoly." Here, here.

Of course there will be opposition from the usual suspects -- the liquor control board itself (they don't want to lose control), the employees, and MADD who has historically not been in favor of privatization. MADD argues that the state has been more responsible to selling and distributing liquor than the private sector has (I guess regulating that beer can only be sold by the case, rather than in groups of 6 or 12 represents responsible).

Read more about privatizing state' liquor monopolies here.

On Tuesday Reason’s Bob Poole appeared on “Lou Dobbs Tonight” to discuss tollroad privatization. Being the self-styled champion of pitchfork-populism that he is, Lou doesn’t much care for things that might benefit corporate fat cats or--for the love of apple pie--foreigners. So it's no surprise that he misrepresented Bob's comments and mangled the whole issue.

Here Peter Samuel, editor of the excellent resource TOLLROADSnews, provides the CNN transcripts peppered with his own clever rebuttals to the many distortions in the segment.

The intro:

DOBBS: Coming up next, critically important parts of our national infrastructure are being sold.

SAMUEL COMMENT: Wrong. Sold means legal title is being transferred in perpetuity. Turned over unconditionally. Under the toll concessions legal title is being retained by the states. Private investors are being selected in return for concession fees to get longterm concessions to run the tollroads at their risk under the detailed terms of control of a concession contract. Those contracts give the state a continuing say in many aspects of how the road is operated and they usually contain caps on toll rates.

Another bit:

DOBBS: And incredibly, [privatization is] being done with the federal government's encouragement. The Bush administration likes this idea.

SAMUEL COMMENT: For a good reason. Tax funds are limited and totally insufficient to fund the construction needed to avert growing congestion on the roads. Hence it would be irresponsible for the federal government NOT to favor tapping private investment funds.

DOBBS: Some of the leading bidders: Foreign investors.

SAMUEL COMMENT: Of course, because the international groups have experience operating tollroads, whereas the US has not until now been hospitable to private investment in tollroads. The location of shareholders is irrelevant. Their conduct of the roads will be governed by US written contracts and US law. If they mess up the roads revert to the states. The investors can't roll up the roads and take them to Madrid or Sydney.

Then again, Samuel would say that. He is, after all, (DUM, DUM, DUM) a foreigner!

Related: Lou vs. Communist China

Related: Lou ignores the robot threat

In February's Reason I wrote a was one of a group of writers who offered predictions about "What to expect from the long-awaited, much-anticipated return of gridlock." My comments focused on what would happen under the new Congress to competition and privatization, predicting we will see it cut back.

This week Rep. Tom Davis, ranking member of the Oversight and Government Reform Committee, told the Consumer Electronics Show:

“We think this is a reasonable program to inject competition into the government and to spur along competition,” Davis said at the show’s government conference. “But unfortunately this has turned into a very partisan issue. It has really bogged down over the last two years. And I think it is likely to get worse under the new Congress as you have many federal employee organizations that don’t like this program at all.”

Competing interests will likely lead to the demise of the program, Davis said.

“One person’s efficiency and one person’s inefficiency is another person’s profit,” he said. “So we get into this game on Capitol Hill where you get very parochial, and I think A-76 could be one of the first casualties of the new Congress.”

Amid all the hubbub about immigration there are many calls for Mexico to right itself so that fewer folks will want to flee the nation. But when talk turns to what Mexico should actually do, the discussion often gets bogged down in vague references to “fighting corruption.”

How nice it is to when someone points to specifics. Jorge G. Castañeda, a former Mexican official, points to various obstacles that stand in the way of Mexico’s success.

Take monopolies:

The oil (Pemex) and electric power (Federal Electricity Commission) firms owned by the state are untainted by competition; the private virtual monopolies in telecommunications (Telmex), television networks (Televisa), cement (Cemex), bread and tortilla manufacturing (Bimbo and Maseca, respectively) and banking (Banamex/Citigroup and Bancomer/Banco de Bilbao) face only tepid competition at home, thanks to their cozy relationship with the state. Prices, supply, service and quality suffer as a consequence, and today these monopolies are stronger than ever.

Another obstacle:

the unions that have controlled the Mexican labor movement since the 1930s. They were granted immense leverage in workplaces, tremendous resources and political power. The power of such organizations as the teachers union (the largest in Latin America), the oil workers union (the richest in Latin America) and the Social Security employees union (that has thwarted any attempt at pension or health reform for years) remains largely unchecked to this day. These unions obtained all their perks in exchange for 70 years of support for the PRI. They retain those perks, though they no longer owe any support to the government.

I’d also put land reform near the top of the to-do list.

More here.

Related: How Mexico scores on Heritage’s Index of Economic Freedom

As historian David Beito points out, America used to have all sorts of mutual aid societies. But with our turn to the welfare state many of those organizations have been crowded out.

Perhaps government action (or the expectation of it) crowds out other kinds of voluntarism:

In Who Really Cares: The Surprising Truth About Compassionate Conservatism (Basic Books), Arthur C. Brooks finds that religious conservatives are far more charitable than secular liberals, and that those who support the idea that government should redistribute income are among the least likely to dig into their own wallets to help others.

More here.

Or at least it would have had a county executive not "prohibited the county from privatizing a jail" -- now residents faces a 1 mill tax increase, says Beaver County (PA) Commissioners Chairman Dan Donatella. That equates to slightly more than $2 million -- "That's exactly what we lost from privatization, and it's all based on the judge's opinion and ruling," said Donatella. "It's a sad day for the taxpayers of this county."

After decades of squabbling between Detroit and its suburbs over water rates, a court-appointed lawyer has been looking into a possible solution that is sure to stir controversy: the prospect of the city selling off the third-largest water system in the country.

F. Thomas Lewand was brought in to work with a group of businessmen, academics and former politicians who have come together to try to solve the long battle between the city and the suburbs. He recently submitted more than $155,000 in legal bills to the court overseer of the Detroit Water and Sewerage Department, noting that he was researching a sale of the system's assets.

No formal recommendations are expected until spring. But any talk of selling off the system, privatizing it or putting it under the control of a regional authority is certain to generate heated debate.

More here.

Related: More than 25,000 private water systems in U.S.

Does a public transit agency exist to provide a service or to provide jobs?

If DC’s Metro exists to provide a transportation service, then it might consider outsourcing instead of hiring $40,000/yr window washers and $100,000/yr mechanics and bus riders.

Then it might have enough dough to cater to customers by, say, fixing escalators:

Riders who are sick of dealing with Metro's broken escalators may have a new option: walking up a flight of stairs.

The transit agency's latest idea on how to reduce costs and cut down on wear and tear of its chronically broken escalators is to rip out the shortest ones and replace them with a set of low-tech, low-maintenance steps.

More here.

Thanks to Brad Hutchings for passing this along:

Future passengers aboard Virgin Galactic spaceliners can look forward to cushioned reclining seats and lots of windows during suborbital flights aboard SpaceShipTwo, a concept interior of which was unveiled by British entrepreneur Sir Richard Branson Thursday.

More here.

Related: An Investor’s Business Daily piece by me on space entrepreneurs

As we mark the first anniversary of Hurricane Katrina's devastating landfall today, it is fitting that we look at the progress that has been made in rebuilding the region--and the lack of progress. As Harry Mount explains in a recent article for the UK's Daily Telegraph, there have been stark differences in the rebuilding effort between the public and private sectors:

[W]hile private business has flourished, public works have failed miserably. Schools are only just opening. University departments have been closed for good. Courtrooms don't have enough judges to deal with the renaissance of America's murder capital.

Mount continues:

This mismatch between private and public has nothing to do with shortage of public money; after Katrina, President Bush promised £58 billion ($110 billion) in federal aid for the victims. New Orleans and its crooked ways are partly to blame. Only this weekend, a pair of Bobcat excavators worth £50,000 ($95,000) were stolen from the Lower Ninth Ward, one of the hardest-hit areas of the city, where they were being used to build a memorial to the victims of Katrina.

But the chief culprit is a federal government clogged with bureaucracy and indecision, incapable of spending money even when it's got tons of the stuff.

The American government can just about arrange an orgy in a brothel -- fraudulent applications for Katrina aid were spent on champagne and prostitutes -- but it is hopeless when it comes to large-scale federal construction projects.

This paralyzing bureaucracy is not limited to Katrina recovery efforts, either. As Mount notes, the same maladies have impaired rebuilding efforts at the World Trade Center site as well.

In the five years since September 11, one building, 7 World Trade Centre, the third and least-known skyscraper to collapse that day, is the only one to have been rebuilt.

At 7 WTC, the site's leaseholder, Larry Silverstein, worked unencumbered by the attentions of government. As a result, the £350 million ($665 million), 52-storey tower went up this May without a hitch.

A couple of hundred yards from 7 WTC, Ground Zero is still a great big empty concrete tub.

Mr Silverstein owns the lease to the Ground Zero pit and the rights to rebuild all the space lost within it. But, while 7 World Trade Centre is outside the pit and entirely under his control, construction inside the pit is run by government, principally George Pataki, the outgoing governor of New York State.

We should take these lessons to heart when we consider options for rebuilding of the Gulf Coast, the World Trade Center site, and future disaster areas. It is not government planning, but market forces, that allow for the quickest, most appropriate, and most economical recovery of disaster areas. People and businesses will seek opportunities to invest their resources and offer their services where they are most needed--if only government will get out of the way and let them do it.

Today we're proud to announce the release of Reason's Annual Privatization Report 2006. For the past 20 years, APR has chronicled and analyzed the most important developments in privatization, outsourcing, and government reform.

This year's 20th anniversary edition of APR recognizes the tremendous advances in government reform over the last two decades and features special contributions by several pioneering policymakers and researchers at the forefront of privatization and government reform, including Margaret Thatcher, Indiana Governor Mitch Daniels, South Carolina Governor Mark Sanford, former Indianapolis Mayor Stephen Goldsmith, and Reason founder Robert Poole, Jr.

The full report is available for download at reason.org/apr2006.

A special excerpt featuring the articles from Margaret Thatcher, Gov. Daniels, Gov. Sanford, Robert Poole, and many other notables is available here.

With most of the recent news from Iran revolving around the nuclear standoff, it makes sense that news like this falls under the radar:

TEHRAN, July 3 (MNA) -- Supreme Leader of the Islamic Revolution Ayatollah Seyyed Ali Khamenei on Sunday issued an executive order for privatization of state companies as envisaged by Article 44 of the Constitution.

The plan aims to privatize state industries, excluding companies in the oil sector.

Tehran Stock Exchange Director Ali Salehabadi announced that the organization is prepared to sell off the shares of state-run companies through the stock market.

. . . .

Former deputy minister of economic affairs and finance Mohsen Safaii Farahani called the move a “major and strategic step” to clear the path for the entry of private sector companies into activities which had previously been prohibited for them.

“A competitive atmosphere should be created for the activities of the private sector. For example, there is no ban on signing deals with the private sector but, in the last seven or eight months, the major contracts in the country have been signed with institutions other than the private sector,” Safaii Farahani noted.

According to the Fourth Development Plan (2005-2010), the government or government institutions should participate in activities that the private sector shows no interest in or is unable to perform, he said.

Minister of Economic Affairs and Finance Davud Danesh-Jafari told reporters on Monday that the plan would create a great reform in the country’s economy. He said the purpose behind the plan is to “prevent monopolization by the government or the private sector.”

Through such a plan, the government will delegate a major part of its activities to the private and cooperatives sectors, he added.

The size of the government will be reduced by selling 80 percent of the large state companies, he said, noting, “Generally, such policies will have a determining effect on the country’s development.”

On Monday, Judiciary Chief Mahmud Hashemi Shahrudi called on Judiciary officials to heed the Leader’s privatization order, calling the move the savior of the country’s economy.

More on this from Lebanon's Daily Star:

Iran's supreme leader has unveiled plans for a major privatization of state industries apart from companies in oil and other critical sectors, press reports said Monday. The government plans to sell off 80 percent of its stake in a range of state-run industrial companies in the banking, media, transportation and mineral sectors under an order issued by Ayatollah Ali Khamenei.

The move is likely to lead to a major upheaval in the economy, which is currently about 80 percent state-controlled.

Some interesting musings on privatization from Gary Becker.

Thanks to Max for the tip.

The WB (not the TV network, the slightly less entertaining international institution) has released a report on why and how countries should be doing performance-based contracting for highway maintenance.

Amazingly, we are stil baby-stepping on this here in the U.S., despite some established successes and plenty of evidence of benefits, as seen in the how-to guide Geoff and I did with Sam McCarthy back in '03.

Rep. Henry Waxman has released a report on the extent of contracting by the federal government and slams the practice as wasteful and mismanaged. See the report here and the LA Times article here Waxman has long been a fan of government employees and opponent of most anything the private sector does, so take it with a grain of salt, but the report makes some good points.

The report "reveals an 86% increase in contracts with private businesses, from $203 billion in 2000 to $377.5 billion a year in 2005 — a growth rate nearly double that of federal spending as a whole. At the same time, federal payrolls also have grown: The government now has about 1,874,000 civilian employees, up from 1,738,000 five years ago."

Aside: Ain't it great to have the "party of small government" running Congress? I think I am with Ron Bailey that we need a Democrat president now just to get some gridlock.

Cribbing from the LA Times article, the report argues that:

Poor contract planning and weak oversight have led to government overspending and corruption by companies that have padded their invoices, charged for services not provided and received award fees for jobs that were completed late.

In many cases the types and terms of the contracts have made them ripe for abuse:

• Spending on cost-plus contracts — under which the government bears the risk of cost overruns — has increased from $62 billion in 2000 to $110 billion in 2005.

• Spending on no-bid contracts — those granted without competition from other companies — rose 110%, to $97.8 billion, during the same period.

• Spending on monopoly contracts, which allow the government to buy goods and services without defining them in advance, nearly doubled, to $15.3 billion.

At the same time, the report ignores some key things. Repeated independent studies of federal contracting in the last six years have found a great deal of cost savings have resulted--so the inept or corrupt contracts are a minority. And higher risk contracts like cost plus or no bid make perfect sense under some narrow circumstances, and the Waxman report makes no attempt to distinguish them, just lumps them all together as bad.

We should walk away acknowledging that there needs to be a lot more accountability and better management in the federal contracting process. That means we also have to recognize that the Bush Administration and the Congress share blame here.

The Administration has been bullish on contracting, but almost utterly uninterested in oversight and policy management--key OMB positions overseeing contracting sat vacant for an eternity. And as federal agencies have shifted to ever more contracting, the issue of how to manage this radically different federal government never rose to the Cabinet level discussions it should have. No Cabinet member has got out front on pushing for a lot more contract management expertise and career path reward and integration into decision making in their agency.

And Congress is just as bad. They have seen repeated reports about this transformation in the way agencies are doing business, but as whole Congress hasn't cared about it much, overseen it much, and certainly has not appropriated for a transformed workforce that has to manage a lot more contracts.

The best accountability for contracts is that they are results based--easy to measure if you get what you are paying for. But federal agencies can hardly do results based contracts when they don't measure their own results. The Administration has, to its credit, pushed a management agenda to become more results based, but Congress has been uninterested in that as well.

Bottom line--lots of bad stuff goes on with contacts. But you are kidding yourself if you think it is any worse that what goes on in federal agencies themselves. Contracting most often helps get the job done and manage costs. We don't need to start by addressing symptoms, but need to get at the root of the problem. As long as there is no performance accountability in the system and no attempt to narrow the focus of agencies on to core missions and goals, there will be plenty of nonsense.

Rep. Henry Waxman has released a report on the extent of contracting by the federal government and slams the practice as wasteful and mismanaged. See the report here and the LA Times article here Waxman has long been a fan of government employees and opponent of most anything the private sector does, so take it with a grain of salt, but the report makes some good points.

The report "reveals an 86% increase in contracts with private businesses, from $203 billion in 2000 to $377.5 billion a year in 2005 — a growth rate nearly double that of federal spending as a whole. At the same time, federal payrolls also have grown: The government now has about 1,874,000 civilian employees, up from 1,738,000 five years ago."

Aside: Ain't it great to have the "party of small government" running Congress? I think I am with Ron Bailey that we need a Democrat president now just to get some gridlock.

Cribbing from the LA Times article, the report argues that:

Poor contract planning and weak oversight have led to government overspending and corruption by companies that have padded their invoices, charged for services not provided and received award fees for jobs that were completed late.

In many cases the types and terms of the contracts have made them ripe for abuse:

• Spending on cost-plus contracts — under which the government bears the risk of cost overruns — has increased from $62 billion in 2000 to $110 billion in 2005.

• Spending on no-bid contracts — those granted without competition from other companies — rose 110%, to $97.8 billion, during the same period.

• Spending on monopoly contracts, which allow the government to buy goods and services without defining them in advance, nearly doubled, to $15.3 billion.

At the same time, the report ignores some key things. Repeated independent studies of federal contracting in the last six years have found a great deal of cost savings have resulted--so the inept or corrupt contracts are a minority. And higher risk contracts like cost plus or no bid make perfect sense under some narrow circumstances, and the Waxman report makes no attempt to distinguish them, just lumps them all together as bad.

We should walk away acknowledging that there needs to be a lot more accountability and better management in the federal contracting process. That means we also have to recognize that the Bush Administration and the Congress share blame here.

The Administration has been bullish on contracting, but almost utterly uninterested in oversight and policy management--key OMB positions overseeing contracting sat vacant for an eternity. And as federal agencies have shifted to ever more contracting, the issue of how to manage this radically different federal government never rose to the Cabinet level discussions it should have. No Cabinet member has got out front on pushing for a lot more contract management expertise and career path reward and integration into decision making in their agency.

And Congress is just as bad. They have seen repeated reports about this transformation in the way agencies are doing business, but as whole Congress hasn't cared about it much, overseen it much, and certainly has not appropriated for a transformed workforce that has to manage a lot more contracts.

The best accountability for contracts is that they are results based--easy to measure if you get what you are paying for. But federal agencies can hardly do results based contracts when they don't measure their own results. The Administration has, to its credit, pushed a management agenda to become more results based, but Congress has been uninterested in that as well.

Bottom line--lots of bad stuff goes on with contacts. But you are kidding yourself if you think it is any worse that what goes on in federal agencies themselves. Contracting most often helps get the job done and manage costs. We don't need to start by addressing symptoms, but need to get at the root of the problem. As long as there is no performance accountability in the system and no attempt to narrow the focus of agencies on to core missions and goals, there will be plenty of nonsense.

This article says it all:

"A quiet milestone in the movement to privatize government services and activities was marked this week when America’s oldest and most well-known national laboratory, Los Alamos, the birthplace of the atomic bomb, was turned over to a new contractor."

The article further adds, "while it’s far too early to tell whether management at the lab will improve under the new arrangement, the fact that one of the nation’s most important national security facilities can be handed off to a private contractor (albeit, one that takes its marching orders from the Department of Energy) is a significance step forward in the privatization movement. If we can successfully contract out the job of building nuclear weapons and managing the nuclear stockpile, we can certainly contract out many far less critical government functions."

As privatization plans for Chicago's Midway Airport get into gear, companies like BAA PLC and Macquarie are already expressing interest:

Some of the world’s biggest infrastructure investors are buzzing Midway Airport as the city of Chicago moves ahead with plans to privatize the southwest-side facility.

BAA PLC, a U.K.-based airports operator, and Australia’s Macquarie Infrastructure Group are among the players that have already expressed interest in taking control of Midway, sources say.

Macquarie, a financial institution with assets of $80.56 billion under management, recently teamed with Spain’s Cintra SA in deals to take control of the Chicago Skyway for $1.83 billion and Indiana’s toll road for $3.85 billion.

BAA is a leading airport operator, managing seven airports in the United Kingdom as well as Indianapolis International Airport in the U.S.

Plans to privatize Midway are in the very early stages. The City of Chicago hasn’t yet appointed a financial manager for the project or issued a request for qualifications to identify interested parties. Once it does so, the airport is expected to spark a bidding war.

“Midway should be one of the most attractive privatization candidates in the country,” says Matt Andersson, CEO of Aviation Development Holdings, a civil aviation investment and development company based in Chicago. “It’s limited only by its ability to expand its footprint.”

The airport serves as a major operations center for Southwest Airlines, which accounts for about 75% of its capacity, drawing passengers from as far as Iowa and Indiana. Also attractive to developers: much of Midway and surrounding property falls within a zone that makes new projects eligible for incentives from the city of Chicago.

State lawmakers in Illinois are holding hearings this week on privatizing the state's toll road system:

Last week, Gov. Rod Blagojevich suggested a sale or lease of the Illinois Lottery to put more money into the classroom. This week, a Senate committee will begin holding statewide hearings into privatizing Illinois' 274-miles of toll roads.

The deal could raise $14 billion for various state services ranging from repairing roads and bridges to shoring up the state's employee pension system.

"Through this innovative and increasingly common strategy, Illinois will undoubtedly be able to move forward to construct and rebuild roads and bridges and shore up our mass transit and passenger and freight systems," said state Sen. Jeff Schoenberg, D-Evanston, in a prepared statement. He will lead the hearings.

Full article here.

Not to worry; we're not succumbing to the Paris Hilton lexicon.

HOT refers to the ingenious transportation policy of converting High Occupancy Vehicle (HOV) lanes into High Occupancy Toll (HOT) lanes, a change that is happily catching on across the nation.

Cathy Proctor of The Denver Business Journal reported yesterday on the progress of HOT lanes in Colorado:

In the space of 48 hours in early June, the Denver metro area will observe the 15th anniversary of the opening of the E-470 toll road -- and the expected opening of toll lanes on Interstate 25 between downtown and U.S. 36.

June 1, E-470 will celebrate the 15th anniversary of operations.

The next day, CDOT expects to open so-called "express lanes" on I-25, completing a $9 million conversion of the existing HOV carpool lanes between downtown and U.S. 36. Carpools and buses still would be allowed to freely bypass I-25 traffic during the morning and evening rush hours on the HOV lanes, but solo drivers also would be allowed to cruise through -- as long as they have an electronic transponder to pay the sliding-scale toll to access the lanes.

"There's a broad acceptance of tolling; you see that in the numbers we have," said Ed DeLozier, executive director of the highway authority, which operates and maintains E-470.

About 70 percent of E-470 drivers use electronic transponders to pay the tolls, DeLozier said, as opposed to pulling through a toll booth to hand over cash.

DeLozier credits E-470's success to customers' willingness to pay to drive a clear road.

"We're selling services and alternatives," he said. "People wouldn't be using the road except they look at the alternatives and say they don't want to sit in the traffic jam, they want to go around it."

For more on what's HOT and what's not in transportation policy, be sure to check this out.

Sad news to report. Canada's only private prison is being 'insourced' - despite the glowing success of the private facility. In fact, according to the Ministry of Community Safety and Correctional Services the private facility saved taxpayers $23 million in the first 5 years of operation and was set to save at least another $11 million over the next five (note: union labor rules that the private contractor had no control over led to the decrease in potential savings). "It costs an average of $162.32 a day to keep a prisoner in a provincial jail in Ontario. At CNCC, that was being done for $79.45."

So despite saving taxpayers at least $34 million the provencial government is yanking the contract. Why? Ideology and politics. The unions don't want to compete and the government bowed to their pressure and anti-privatization activists...well they just don't like privatization.

The private facility had excelled in providing quality programming and developed educational opportunities for inmates. By all measures the facility was "safe and secure" providing the same or better inmate care as other public facilities...at a significant cost savings!

With an eye toward results the contractor sought innovative community partnerships and developed relationships with the Simcoe County District School Board for high school learning as well as launching a very successful inmate bricklaying apprenticeship program in partnership with the School Board and Universal Workers Union Local
183. In the past two years the facility graduated over 50 inmates with Grade 12 diplomas and 30 apprentice stone masons.

Further, the private facility's medical unit was so efficient and effective that the Ministry had routinely transferred patients from other public facilities who required a higher level of care.

Ultimately taxpayers stand to lose when ideology is put ahead of sound policy analysis. Given the available data that can be the only explanation.

A healthy suborbital space travel industry, complete with space hotels and trips to the moon and beyond, is possible if only government will restrain from stifling creativity and innovation with burdensome regulations. So said Burt Rutan, leader of the SpaceShipOne team that became the first to launch a privately-funded human spaceflight in 2004, at the 25th International Space Development Conference in Los Angeles recently.

According to a space.com article:

Rutan said that he remains worried about the Federal Aviation Administration (FAA) commercial space transportation regulations, tagging it a dilemma. There remain several sticky, red tape rules that may well cripple experimental research and development of passenger-carrying space planes.

Such rules are inhibiting the prospect that a sustainable suborbital space travel industry can be established, Rutan argued.

Rutan also criticized NASA's Crew Exploration Vehicle program and plans to revisit the Moon, likening NASA's efforts to archeology. Said Rutan, They are forcing the program to be done with technology that we already know works. They are not creating an environment where it is possible to have a breakthrough. . . . If we copy what we had it won't be affordable enough or safe enough.

Rutan has thus hit upon the critical difference between efforts driven by market forces and those driven by political decisions and ambitions. Market entrepreneurship encourages risk and demands results. Political entrepreneurship only seeks to further political goals and careers—even when those efforts contradict the laws of economics and cannot be held accountable.

Rutan continues to put his money where his mouth is. He and his Scaled Composites company are busy developing a fleet of suborbital spaceliners and two giant carrier planes for Sir Richard Branson's Virgin Gallactic venture.

...especially if you're the government and you're asking the private sector to provide some much needed expertise and efficiency.

GCN reports today:

The Transportation Department is looking to the private sector for help with certain financial-management support functions.

In a recent notice, DOT said the winning bidder will provide a host of financial-management support services, including asset management, computer and financial-management systems hosting, telephony, network infrastructure and monitoring, and data center operations.

Read more about how public-private partnerships can help improve government transportation operations and relieve those ever increasing traf