South Australia sold its state owned electricity grid to Chinese owners for 200 years. Every time people say our high power prices are due to renewables think critically. A "conservative" government granted the right to tax our entire population and our businesses for multiple human lifetimes, longer than our state has existed for a short term windfall that disappeared in the blink of an eye. Call it corruption, or call it mismanagement, probably neither given Australia's harsh defamation laws but privatization should be viewed with extreme suspicion. Services can often be run more efficiently in private hands but the opportunities for corruption in the sale of public assets is massive and there is rarely any accountability.
> Services can often be run more efficiently in private hands
Hard disagree. Business optimized for the value it can capture in the short term. It will be more efficient at that.
Services such as electricity benefit from long-term investment, and create much hard to capture value. In theory, a government will be efficient at allocating resources for that.
We HAVE to stop thinking that business is always more efficient at everything. Business is great, I've started a few and see what they've done to lift people out of poverty-- but it is built on the back of responsible government.
Imagine a train line that allows commuters to get to work. Trains are expensive to run, so the actual cost to get a commuter to work and back is £100. The commuters are paid (say) £150 a day, after tax. Is this train worth 2/3 of their post-tax income? Probably not, so they won't use it, and the company can't get workers if there's no other practical way to commute. Workers can take less good jobs near home, earn less, but take home more. Or even no job at all. However, a worker generates substantially more than their post-tax salary in value to the economy as a whole, so subsidy of the train fare creates value by getting them to work and generating that value, even though the train cannot actually turn a profit itself by charging the commuters out of their income.
Even if you say "well the company should just pay more if they've made that value", not all that value manifests directly on the company's bottom line, it includes downstream value, as well as intangible things like worker skills that are more of an abstract societal benefit.
In the same way, roads produce massively more value than people would be willing to pay individually: all the food deliveries in a week might be worth, at retail, about £4 billion, say. If those deliveries can't be made, what will be the cost? £4 billion? Or more because the whole country will become a much less effective economy when everyone is starving and looking for food? And the universal-delivery postal system. Healthcare, childcare, energy, etc etc.
I wish every single HN post regarding business efficiency explained this concept to people. It's such a basic economic concept, but I've come to learn so many people on HN just parrot "unregulated markets are more efficient therefor markets are best" without understanding at all what's going on. It's become such a basic error with pattern matching. Please understand the situation and don't just say "markets".
Regardless of the specific case here, businesses do a horrible job of accounting for the externalities of their decisions. This shows up in two ways:
1. Negative externalities - there is a large cost to society of my company doing this, but I'm not the one paying the cost. As a result I can still make money off of it so I will do it. Even though it is a net negative for society. Dumping toxic pollution into a river is a great example. You need an external force (government) to step in to ensure they account for that. Either through things like laws to make it illegal (and actual enforcement of those laws).
2. Positive externalities - there are larger benefits to society of performing the action, but the company itself doesn't get that value as a result they don't do the action. Subsidizing things like the US interstate project is a great example of this. Again markets fail to capture this so don't do it. Or if they do it's in a way that's a net negative for society and becomes a defacto tax on all economic activity making other useful businesses unprofitable. Again an example would be if all interstates were privatized and drivers were charged maximal rates. It would drastically reduce economic activity.
There are absolutely situations where markets are not the right solution to the situation and government intervention is, and they usually fall in where there are significant negative or positive externalities.
I’d say it boils down to the following:
- humans can be selfish, or not
- humans are powering businesses and gouvernement bodies controlling them, so both can think long-term, global benefits or short term, own-benefits
- hence the need for control and/or transparency on decision making, whether it is a private company or a government body
- we all know the fiduciary duty of a CEO ; I’m wondering whether some kind of « long-term good » duty also exists for CEO or political deciders, making them accountable of the long-term consequences of their choices.
Our economy and politics are indeed favoring short-term gains by design and that is « simply » what should be controlled to a certain extent. Not easy as this should be a global move, otherwise the long-term advocates are likely to be outperformed by their short-term competitors and not have the time to implement fully their strategies.
Yes, but, the actual math matters. There are a lot of banal public infrastructure projects that cost much more than the value they create, and there are also theoretically productive public investments that are double-dipping into the same “surplus value.” To illustrate there are many roads that were built in hopes of spurring development and development never occurred, but the roads are maintained anyway at a substantial loss of taxes. And to make a simple hypothetical as you did, suppose the train subsidy creates some surplus, but then the city also runs a bus and a ferry and installs bike lanes all on the same route and all of these are gloriously uncrowded… at this point we’ve probably eaten up all the surplus value and then some.
This is hopefully obvious, and yet the excess road building problem is ubiquitous in the US and costing us fortunes.[1]
So we can’t just hand-wave and suggest that all infrastructure and all subsidies always create more value than they cost, we have to be critical and especially careful not to pretend that non-financial benefits can pay for real financial costs.
I agree, and I would love to see more state managed, long term thinking enterprise. The problem I have seen first hand though is that we've somehow established that state worker = impossible to fire. I've seen teachers literally hit students and not be fired. I've seen unions in state owned transport companies prevent truck drivers from changing a lightbulb by themselves, forcing a truck offline for a whole day and missing all deliveries. I've seen employees prevented from lifting a modest box to their own desk, having to wait for a "trained porter". This is the main reason so many politicians are wary of public enterprise. If we could tackle the worst abuses of unions then we would be in a much better position to have stronger public enterprise.
Meanwhile we all know corporate workers who produce zero or negative value for the enterprise, yet are not fired.
The main reason politicians are anti-public enterprise is because they are entwined in the profits of private enterprise. "Lazy union workers" is a handy cover, though.
Yeah, I hope you didn't read to much into my comments. I am in favor of state run utilities... Just pointing out some problems I've seen... For sure the private sector are in bed with government and have their own problems with bad staff and short term thinking.
While what you are saying can be true, it can also be true (and often is true) that the kind of subsidies you are talking about create large negative costs or have much cheaper alternatives that the subsidy negates consideration of. You have to actually do a reasonable analysis of each individual situation to come to any sort of conclusion and it is very dangerous to assume one way or the other.
Pretty much all of your examples can be rewritten to reflect the above. One example would be: what if it is only marginally more expensive for the company to build the workplace nearer the workers, making the train unnecessary? If the subsidy exists they will capture the value of avoiding that cost while foisting the cost of the train subsidy on tax payers, which is a net negative.
It is possible that the train lines can be built in insufficiently dense areas to make it worth using, and it can be possible that the roads are designed too wide/too numerous/etc.
Just because a government builds it does not mean it is worth it for society. And if it was worth it at time X, it does not mean it will be worth it at time X+1.
See the multitude of comments and threads about living in communities with work and play in the same community, as opposed to driving 30min each way from a suburb to a work area and back.
>Even if you say "well the company should just pay more if they've made that value", not all that value manifests directly on the company's bottom line, it includes downstream value, as well as intangible things like worker skills that are more of an abstract societal benefit.
This bears emphasizing.
The main benefit a company provides is the goods they produce. The money is a measure of how much people value the goods at the time, but the main benefit is in the actual goods themselves.
Eg the electric grid is more beneficial than what people pay for it. If the cost of electricity doubled everyone would still keep using a fridge. If the cost of fridges doubled everyone would still keep using a fridge.
And that's the success of modern society - all the beneficial stuff we have access to that make our lives a little bit better.
If the workers really are producing "substantially more" value for the economy, they are probably underpaid in the first place, or the specific train line/project is a bad investment (too expensive).
Workers always earn less than the value they make for a useful business under capitalism (and that's before taxes, which don't necessarily require or imply capitalism). There's always a point where a cost to a worker exceeds the value to that worker, but doesn't exceed the value to society of facilitating that worker's labour.
There are edge cases, but in general inhibiting the ability of workers to work (e.g. by making it expensive to get there, or expensive live near enough to the work, fail to allow them to be healthy enough to do the work, make it hard to take care of children while working, restrict access to or quality of education etc) is not good for a society built on work.
Your argument assumes good faith on behalf of the buyer, and that said long-term investment is actually coming.
But I can show you PGE and SDGE as examples of privatization WITHOUT any of that good-faith investment, and then when the situation went critical (massive wildfires a few years back due to bad electricity infra), electricity consumers being forced to foot the bill. Where I live, my utilities bill has quadrupled in the past three years (from ~$100 to ~$450 a month for literally identical usage, I checked my statements), rate regulation (the CPUC) is seemingly toothless, and my utilities company sends me these insultingly understated letters about how they can't control energy pricing and have to pass on rates to consumers.
Except they won't tell you that they are owned by the company they buy their energy from, and that THAT company happily will set prices to whatever they want if it means sucking off their pathetic little shareholders just a little bit more. Sempra Energy has been doing gangbusters on their quarterly earnings reports!
The liability problem PG&E faces is pretty damn bad - their underinvestment and faulty equipment may cause the fires, but they have little to no control over weather and climate patterns, nor the forest management practices, that have greatly amplified the consequences. Legally they are liable for all the damages, despite the factors outside their control amplifying that liability.
We have and have had sufficiently advanced climate modeling to inform whatever decisionmaking they may have needed when they had the best opportunities to invest and maintain infrastructure. Our forest management policies have not changed in forever and California faced seemingly annual firestorms in the years leading up to PGE's disaster. People have been sounding the alarm on climate change for YEARS and YEARS. The current predicament is no excuse.
Forest fires have nothing to do with global warming and everything to do with changed and/or insufficient forest management policies.
You want less forest fires? Fucking remove all the overgrown underbrush and older trees that have overstayed their welcome. The Native American Indians of the area would be happy to tell you this, something that worked for millenia before westerners came along, said "MUH CUTE TREEZ", and refused to take care of the environment.
Places like Yosemite National Park even refuse to put out naturally occuring forest fires anymore, because guess what: You need periodic forest fires to avoid disasterous forest fires.
Global warming has nothing to do with leaving a hook holding a power line in place for nearly 100 years without inspecting it and a culture of running things until failure. The evidence in the Camp Fire was pretty damning.
My point is that we have understood the properties of our stagnant forest management practices for some time. Global warming does indeed have everything to do with the effects of forest management, what do you think creates these ridiculous once-in-100-year rainstorms that cause a surge in undergrowth that accelerates these massive wildfires?
It is a vicious cycle and feedback loop. Weather patterns the previous year create a tinderbox for the next. And then we aggressively suppress the inevitable fires that spring up, leaving even MORE unchecked undergrowth and denying the forest bed the nutritional products of burned foliage, which just worsens its health and creates even BIGGER fires when they eventually roll around.
While it's true is a combination of several factors, they have metal that's been wearing for close to a hundred years physically supporting transmission infrastructure. It fails, and when it does wires fall. This is PG&E's direct fault.
It's almost like being a public company vs being a government run entity isn't the major decider of effectiveness / optimal outcomes for end users.
Instead, it seems to be "is this company (etc) run by self-interested arseholes trying to enrich themselves at the expense of others?"
If it is, then the structure isn't going to matter. End users are going to have a bad time, regardless of the PR/bullshit said company puts out to say otherwise.
Likewise, if the company (regardless of structure) is run by clueful people dedicated to actually providing the required service, end users are going to be in a decent position.
Unless of course they get screwed over by above mentioned arsehole types. eg starved of budget if they're a gov org, have activist investors cause trouble if they're a public company
The unobvious reality is that majority the world population:
1. Don't think of themselves as self-interested arseholes.
2. They are in fact self-interested arseholes.
We have no methodology that allows us to put "good people" in power. And even if we had, power corrupts. So the best we can do is to build a system that works even when all actors are self-serving.
If a system has bugs, is it fair to say it's not working?
Typically you just fix a bug, though of course some systems reach a point where a rewrite (either incremental or from scratch) is the only option. I see absolutely no evidence that we reached that point, all arguments are just emotional factoids. I also see no attempts for an incremental rewrite, all people want is to burn the system and hope that something good rises from the ashes.
I think business is actually better at long term planning than most people give it credit for. There is a lot of discussion about "next quarter" thinking but in my experience working in bizdev, I haven't really seen that. There are always long term directional strategies in play.
But politics, (at least democracy) has the double edged sword of election cycles. This heavily incentivizes short term thinking.
Ex. Should the mayor pour millions into sewer system maintenance or millions in flashy projects and waste?
If the sewer maintainance is done right, none of the electorate notices. But the electorate will see the flashy spending and vapid superficial projects. And who cares if we defer sewer maintainance, that will only cause issues 20 years from now.
The unpopular answer to this is bureaucratic organizations. The sewer management office at your local government should be staffed with people capable and incentivized to care about issues in the future.
But we’ve spent 45 years hollowing out those organizations in the US.
One of the reasons I appreciate for business long-term planning success is that businesses are allowed to die. When a (typical) business fails badly enough for long enough, it dies, its pieces are sold for scrap, and other businesses come in to take its place. Successful long-term planning happens organically, as successful businesses grow and prosper while weak businesses fail and shrink.
bureaucracies that are not allowed to die do not face this evolutionary mechanism of creative destruction- this includes governments but also a lot of business edge cases like PG&E for example.
By pretty much any measure you can find, businesses are great at long term planning.
Look at price/earnings ratios. They have crept up from the 80s which means investors are willing to pay more for each dollar of future earnings. Look at individual companies like Amazon that was extremely valuable while losing money for years and even now its very thin. Look at all the VC companies throwing money at companies with just an idea. How about private industry, like billions of trees being planted every year by private businesses just so they can harvest them in a few decades.
Chicago has a highly successful multi-billion dollar sewer megaproject that has been going on since the 70s, which would seem to be a powerful argument against your post.
Other cities like Jackson, Mississippi have sludge coming out of the faucets, and I don't even need to bring up Flint, Michigan.
My point wasn't that all governments fail at sewer maintenance but that governments aren't automatically superior at long term planning, and in many ways have structural problems that can inhibit long term planning, whereas a private sector company may not have those same mal-incentives.
Furthermore, private companies can fail, be sold for scrap and parts to competitors, and go nonexistent whereas governments don't. If pets.com loses too much money, they can go get a little more and extend the runway, but eventually they go out of business and other companies get their market share. If my government loses too much money, greater amounts are borrowed, taxes are raised, and the money furnace continues to be fed.
> Hard disagree. Business optimized for the value it can capture in the short term. It will be more efficient at that.
Not necessarily true, many power generation projects are built knowing that they won’t be profitable for many decades and are happily funded by pension companies that treat them like bonds. Many government projects don’t get done because their payoffs won’t be seen within the election cycle.
Are they really? As far as I know, really big power projects (like nuclear plants) usually need government funding or guarantees to get built. Renewables get built by pension funds, but they pay off after 7-10 years in most cases.
I think that business is most often more efficient, but efficiency doesn’t need to be the goal for everything and those are the areas where government is needed. This is assuming that the people running the government aren’t just as corrupt and greedy as their corporate brethren.
The problem is, the goal of a business is not efficiency—it is to make money. There are many ways to make money, and they don’t all come from effiency of service.
(Of course, the goal of government is not efficiency either)
In a regulated industry there can be a perverse incentive for operators to be less efficient. The practice is called Gold Plating. The regulator allows the operator profits in part based on their network investment so an operator has an incentive to over invest in maintenance and upgrades and inflate the costs. That is one of the ways they can make super profits in what is supposed to be a regulated market. Consumers pay for the overspending and the profits on top for no benefit which is worse than just paying for higher profit margins.
Do you see the irony arguing that businesses optimize for the short term while government is efficient at allocating for the long term while talking about a story in which the government sold the rights to long term cashflows to private hands for a short term windfall?
It looks like the business optimized for the long term while government optimized for short term
Living in a 3rd world country the experience is the polar opposite. Everything the government touches fails here and quite dramatically.
You mention business efficiency being built on the back of a responsible government, but I've often heard here where I live (South Africa), if you want to know where to deploy capital look for companies doing something the gov should be doing...because it's easy to compete (port management, electricity, rail, air lines, mines, refuse management)
Americas railways are not bad because of privatization, isn’t it the case that people who profit from cars have lobbied so strong against governments allowing any expansion.
Wouldn’t even call what you have a rail network at all, let alone a bad private rail network. Like what you have doesn’t even make sense privatized
Not really. Most are nominally private (although both the big Tokyo subways aren't - Toei, the clue is in the name), but have both a large proportion of their shares owned by governments (local and national), and deep ties to a large conglomerate (keiretsu) that in turn owns a lot of businesses in the relevant area and has deep ties into the political system.
Yeah, the way "private"-ly owned infrastructure here is probably rather different than just selling stuff to foreign companies. I was just reading about the private toll roads in Japan, but it seems they're only operated and maintained by private companies, while the ownership is retained by corporations that are owned by the government (sort of like MTA in NYC).
From what I've heard, the American freight rail system is actually excellent? It's just that passenger service isn't prioritized, so the quality isn't great?
US passenger service is theoretically and legally supposed to be prioritized over freight. Unfortunately this requires Amtrak to sue to enforce their rights, and that seems politically a non-starter.
I've heard it is a dissolving house of cards that barely functions, absolutely refuses to make long term investments in things like electrification, and it focuses on scraping out every short term gain possible regardless of long term consequences. And yeah also passenger service gets absolutely ruined by their policies. All around it sounds like a dumpster fire from what I have heard. Perhaps I am misinformed.
The grandparent commenter is correct in saying 99.99% of US rail is designed entirely around moving freight. And I’d usually agree it does it well, but the system seems to be breaking down fairly publicly of late. Regardless, it’s essentially an apples to oranges comparison vs European/Asian passenger rail - a (very poor) reverse analogy would be to fault hyper regional business airports for not facilitating giant cargo planes.
Everything else you mentioned is basically correct but a large portion of the dysfunction is due to the specific need to lay new rail to get around the freight priority system that dominates essentially all of our existing rail lines. States are trying to roll out modern dedicated passenger lines but the projects keep getting derailed (pun intended) by politicians.
The Acela dedicated passenger line in the Northeast is (possibly) the only place in the country where you can make a reasonable comparison to the rest of the world.
And having ridden both Acela Express and Eurostar in the past decade, my opinion is that Eurostar is a very clear winner but not quite as obscenely as most people would expect.
Eg: The Amtrak cars are MUCH comfier but the train runs at approximately half the speed of Eurostar (Acela is supposedly capable of 135mph but it only hit 125ish when I rode - I clocked an avg ~90mph vs avg ~180mph on Eurostar iirc). No freight priority issues, etc. Still extremely last gen feeling, but more in a “this can be fixed” way and less in the “well this is utterly hopeless” like the rest of the country.
> Business optimized for the value it can capture in the short term
As opposed to government? The reason every government is so bureaucratic is precisely because it's incentives are structured to optimize for the short term. At least private business pays with blood for it's mistakes.
> In theory, a government will be efficient at allocating resources for that
In theory dictatorship is more efficient that any other form of government. In practice, humans are more flawed than we like to admit.
> We HAVE to stop thinking that business is always more efficient at everything
Nobody thinks business is always more efficient. But it turns out to be way more efficient on average.
> it is built on the back of responsible government
The beauty of capitalism is that it allows society to thrive even when all actors are irresponsible. Which we, humans, are.
Violin or not, OP's post was regarding corporate efficiency. Reading any headline over the last few weeks will show you that corporations over-hired and are laying off workers. I guess blood is blood, regardless of who's it is.
Sure, occasionally private businesses will screw up and hurt their employees. Nobody is denying that. But what's the alternative? Some kind of magical government that doesn't screw up?
Government rarely has incentives to be efficient. It's mistakes are always covered by taxpayer money, effectively punishing those who are efficient.
Why are we always comparing real thing that has downsides with magical thing that's perfect? I don't disagree, magical thing is indeed perfect. The only issue is that it doesn't exist.
> It's mistakes are always covered by taxpayer money, effectively punishing those who are efficient.
The government also covers bailouts for banks using taxpayer money, effectively punishing everyone.
> Why are we always comparing real thing that has downsides with magical thing that's perfect? I don't disagree, magical thing is indeed perfect. The only issue is that it doesn't exist.
Again, the original claims were 1) that corporations pay for their mistakes with blood and 2) that the beauty of capitalism allows for a thriving society with an entirely irresponsible set of actors.
All that's being said here is that 1) private business do not in fact pay for their mistakes in blood and 2) capitalism doesn't allow a society to thrive when all actors are irresponsible, in fact, you only need to have a select few actors to be irresponsible in order to degrade the state of society.
> The government also covers bailouts for banks using taxpayer money, effectively punishing everyone.
What's the alternative? Other than more scrutiny and harsher punishments for banks, which very few people are against.
> private business do not in fact pay for their mistakes in blood
Just because 0.1% of businesses gets bailouts, you're going to ignore 99.9%? Are you the type of person that says vaccines don't work because people still get sick?
> capitalism doesn't allow a society to thrive when all actors are irresponsible, in fact, you only need to have a select few actors to be irresponsible in order to degrade the state of society.
The "degraded state of society" is still orders of magnitude better than the alternatives I heard of. I'd say it still fits whatever the definition of thriving you can come up with.
Nothing is perfect, it's quite easy to criticize anything. But if you're criticizing without offering any alternatives, your criticism isn't worth much.
So I'll ask again, what is alternative that you're offering?
> What's the alternative? Other than more scrutiny and harsher punishments for banks, which very few people are against.
Few people are against it, yet we didn't hear about too many bankers getting sent to the locker, did we?
> Just because 0.1% of businesses gets bailouts, you're going to ignore 99.9%? Are you the type of person that says vaccines don't work because people still get sick?
Not sure where you're getting the 0.1% figure but "privatizing gains and socializing losses" is hardly a new idea.
> Nothing is perfect, it's quite easy to criticize anything. But if you're criticizing without offering any alternatives, your criticism isn't worth much.
I think we're some ways apart from being close to perfect, no one is asking for perfection just that things not be awesome for 1% of the population at the expense of the rest.
> So I'll ask again, what is alternative that you're offering?
I won't give you a primer on different economic models, at the risk of bringing too much taboo magic into the discussion, just know that not all models depend on the exploitation of workers, labour pressure via unemployment, and minimum wages that require government subsidized food stamps in order to allow workers to live while working multiple part time jobs with no benefits.
edit: In the spirit of hn guidelines and for the curious, I think some of the discussions with B. Sanders may be appealing to some.
> "privatizing gains and socializing losses" is hardly a new idea.
Privatizing gains and socializing losses is what happens when governments are corrupt. That isn't a private sector problem, that is a public sector problem, if your politicians is giving away your tax money to corporations then the solution isn't to give those politicians even more money or power.
> if your politicians is giving away your tax money to corporations then the solution isn't to give those politicians even more money or power
Please.
Lobbying + gerrymandering >
deregulation >
look ma, government inefficient let's reduce spending >
reduced government capacity >
look ma, government inefficient let's reduce spending >
reduced government capacity >
..
Ever heard of the revolving door or regulatory capture?
Who is served by a reduction in government spending? In what world is "let's cut government spending and further provide privatized corporations with the means by which to provide the necessities of life for the population" a sound objective when the stated goal of corporations is to maximize profits and provide infinite growth?
Just this week: Eli Lilly announced [1] that it would cap insulin prices at $35. Why is that? In order to maximize profits.
California announced [2] that it would start producing it's own insulin. Tell me why, in an efficient market, the government would need to step in and start it's own production [2] or even mandate [1] price caps? What does this say about the state of competition prior? Did EL just recently find efficiencies that allows it to _still_ profitably produce and sell a vial of insulin, which costs $10 to produce, at a reduced price of $35 (from "over $300")? Of course not!
Free market at work. It only took the inefficient guberment to step in for _competition_ to materialize.
> Free market at work. It only took the inefficient guberment to step in for competition to materialize.
Your lack of knowledge on the matter mixed with self-righteousness is astounding. I suggest you to research beyond newspaper headlines.
Insulin that's being sold today is very different from insulin that was invented a century ago. The reason it's so different is precisely because private businesses had incentives to innovate, which resulted in prolonged patient lives.
You know what slows down modern insulin from becoming cheap in the US, even after patents have expired? A government agency called FDA. By the time you can get your generic insulin to the market, it might become obsolete. Competition isn't materialized, it is artificially limited by the bureaucratic government.
(not to mention that patents themselves are also enforced by the government, but that's a much more complex topic)
In order to get cheaper insulin you need less government, not more. Evidently, that's why insulin is cheaper in India, China, or Mexico.
> Tell me why, in an efficient market, the government would need to step in and start it's own production [2] or even mandate [1] price caps?
Californian local production of insulin is an attempt, we've yet to see the results. It is quite possible that those funds would be better off spent on directly buying insulin instead of producing it.
Oh and by the way, you know how California plans to "produce" the insulin in the first years of the program? By outsourcing it to private companies. Isn't it convenient that those exist?
And, as illustrated earlier, price caps are a government "crutch" to cover a bigger government (FDA) inefficiency.
That is corporate efficiency. Manufacturing efficiencies increased by just in time processes. Hiring and firing people who are only seen as “resources” when needed is efficient from a business point of view.
Before anyone accuses me of being a heartless business owner or executive, I’ve never in my 27 year professional career been in a position to fire anyone.
> Hiring and firing people who are only seen as "resources" when needed is efficient from a business point of view.
1) To entertain this point, maybe? If your optics of the situation was efficiency for the company, but why would you not look at efficiency as a whole and for whom?
As a society, don't you think we should be structuring things such that they are efficient? Is the company that doesn't end up paying for large ecological disasters "efficient" because it offloaded the cost of the cleanup onto the people/government? Sure? But I think society as a whole would benefit from adding resources to maintain infrastructure to prevent these types of ecological problems.
> Hiring and firing people who are only seen as "resources" when needed is efficient from a business point of view.
2) If the companies involved in the current layoffs are, by your definition, "efficient", what would you make of Apple [1] in this situation? Super really efficient? What's their secret sauce? Are the in/efficient because they didn't overly take advantage of the hiring craze? What are the costs associated with engineering layoffs and how are those costs manifested in society?
Line items like headcount on a spreadsheet are easy to quantify, organizational knowledge loss, loss of trust/moral, impacts of layoffs on mental/communal health, are harder to quantify.
> If the companies involved in the current layoffs are, by your definition, "efficient", what would you make of Apple [1] in this situation? Super really efficient?
I’m going to first answer that question by speaking about the $BigTech company I know best because I work their and my RSUs are worth half their all time highs - Amazon - and the industry I know best - cloud - because I work at AWS.
Amazon Retail thought that the Covid induced online shopping was going to be the new normal and over hired.
Google has so many useless money losing products and the attention span of a crack addled flea. No one ever accused Google of being well managed. I can’t speak about GCP.
Apple outsources most of the people who build its products. While Apple hasn’t laid off people, the contractors who create its phones who work for Apple for all intents and purposes have laid off people.
Facebook now is down to its employment level of a couple of years ago.
My moral would be fine if I was working for Facebook [1] for a couple of years at FB salaries. I would have saved more than I already do.
And many 2nd tier tech companies aren’t profitable. The easy money ran out.
[1] I don’t hate myself enough to work for Facebook.
In government or union heavy industry they’d still be forced to pay them.
Let’s keep that in mind as we see Twitter still running completely fine months later after firing so many.
Not everyone has inherent value, many are being paid but not actually creating value the other side of the transaction and it’s silly to pretend that’s fine.
I wonder what would happen if you could somehow decouple businesses running critical infrastructure from the stock market. For example, make it so shares must be held for at least 3 years before they are sold if you don't want to pay a massive extra tax on them, and you can't borrow/lend against these shares.
I generally agree with you, but it looks like there cases where governments like the City of Chicago and Australia do a terrible job of balancing short term versus long term economics.
some things are better handled by local governments. There's nothing worse than private companies that can do things like force civil fines. Local government is more accountable to the people.
The biggest issue is "responsible government". The closest this ever implemented in world history is Singapore with the government largely stuffed with PhDs and graduates - heck their PM can even solve sudoku in C++. In most cases, government would be closer to American form running by incompetent or less educated leaders of semi democratic with fraud and excessive spending (Sri Lanka, Japan, Germany, etc). I recalled one of German leaders even plagiarised their master/dr thesis yeara ago. In this situation, private enterprises especially lots of it competiting fiercely would be way more efficient. Chicago and Australia privatisations are really just government monopolies relegated to private monopolies. So efficiency of private enterprise will not that readily available in short-medium term. In long term, we dont know - economics theory a lot doenst match up reality. Malaysia has gone through this during their 4th PM and today result is pretty mixed with a lot of corruptions.
> Services can often be run more efficiently in private hands
I’m not sure I’ve ever seen an example where “efficiency” wasn’t just giving up on social obligations (either by screwing employees, or screwing customers, often both).
I’m looking around and see postal services (it still breaks me that “going postal” means what it means), roads, railways, energy production. I don’t see any of them having gotten meaningfully cheaper or providing better service or handling their employees better through privatization.
As an hybrid, splitting into nationalized infra management and privatized customer facing service potentially worked for ISPs. That’s the only mildly positive example I can come up with.
One example is the privatization of telecommunication sector in India. They now have some of the cheapest data in the world and have brought on tens of millions of new users in recent years. Competition has been a force for good.
An additional one that comes to mind is following the privatization of airlines in many countries, air travel got much cheaper. India is also a glaring example, there are instances in Europe as well. (The US was never a monopoly but it was highly regulated up until the Carter admin in the 1970s. Deregulation produced a similar positive result)
Going further back there are numerous academic examples. The classic figure is that private farms in the soviet union worked only 3% of the total sown land, but produced 66% of the eggs, 64% of the potatoes, 40% of the meat, and 39% of the milk. China had similar figures.
In general I think privatization works best where that force of competition can influence things. I'm not sure exactly how Chicago parking meters companies could compete with each other or improve 'service', but for industries prone to competition, privatization makes a lot of sense to me over government monopoly.
I don’t know much about India, from a quick it looked to me like they refused to privatize the low level (cable lying) infra for a long time, and are now in the process of looking into it: https://www.business-standard.com/article/companies/telecom-...
I must be missing something
> airlines
There was competition happening before the privatization though ? I only followed the european ones, but the quality of service and reliability mostly went down after the privatizations. The more interesting part to me is how much this industry resisted unleaded gas because of the costs associated. Could gov regulation be an answer to force a better direction when it makes no economic sense ?
> competition
100% agree on not keeping blocking competition for non critical, lifeline services. I think gov managed infra is inherently prone to bloat and corruption, but that’s a price we pay to keep that infra working (postal service costing 20% more is better to me than 20% of the country losing access to postal service). That calculus doesn’t make sense when it comes to fields were other players are thriving and/or lower service quality isn’t life or death issues.
> brought on tens of millions of new users in recent years. Competition has been a force for good.
This is the problem, your example is too new. Give it a decade or two for amalgamation to occur and let's see where things are once 2-3 companies own the market.
I can't speak for India, but having seen the effect of telecom in multiple Asian and African countries, I think you underestimate how incompetent/corrupt the government can be.
Waiting years to get a phone line was the norm for most people I knew there. I've known several folks where the wait list for getting a land line was over a decade - and we're not talking some remote rural village. If we project how long it would take to get the country connected at the pace they were going vs the progress private companies made with cell phones, it is several orders of magnitude. The number of people in the former category who would have died before having a chance at merely having a phone is in the millions.
The reverse exists in spades where after decades the private ISP make no network improvements and the town has to foot the bill to get decent internet.
It comes down to who can get away with what: do you have more leverage on your officials or on your local conpanies? If your local companies are monopolies that benefit more from not serving you, you'll be in the same situation as you descibre.
> The reverse exists in spades where after decades the private ISP make no network improvements and the town has to foot the bill to get decent internet.
As opposed to simply not having the service for all those decades, and continuing to not have it?
Keep in mind that these governments have a longer history of not delivering, and not maintaining existing infrastructure than most of these private companies. By a margin of decades. There is more data on their inability to deliver than there is on the private companies' malfeasance.
> do you have more leverage on your officials or on your local conpanies? If your local companies are monopolies that benefit more from not serving you, you'll be in the same situation as you descibre.
The difference being local monopolies still provide service to those with resources to pay, whereas the local governments wouldn't.
If there is a market, they will continue to provide service. If they leave, another company will take its place.
I'm not a believer in the free market. But this is one of the classic examples where in corrupt countries international private companies really were way, way better. When the lowly street vendor can afford a cell phone, everyone's life is way better.
Then don’t allow the amalgamation. Governments can veto mergers and takeovers.
Telecoms used to be a natural monopoly when it was based on land lines to every house. It made no sense to lay competing infrastructure for that. Now with mobile networks the infrastructure is a fraction of the cost and competing networks can coexist seamlessly, so a competitive marketplace for services makes sense.
This. I literally can't think of a single time where something public was privatized and it got better. Usually, it just gets more expensive and a bit worse.
They privatize the registry services (driving, business, birth certificates) in Alberta, Canada.
It went from a US DMV experience - shitty attitudes, bankers hours, two locations in the city
To…
Dozens of small businesses around the city, hours that cater to people that work, lower prices (they all competed with each other) and good attitudes (because you could always go somewhere else).
A massive jump in quality of services that took it from time wasting drudgery to a simple, easy process that was cheaper.
None of the private couriers will come within 50 km of my parents house, only the government AusPost delivers. Private couriers want them to pick the packages up at a distribution center 100 km, in a pinch they'll leave the packages at some random convenience store (not even an official pickup point) 50km away.
It is? I thought it was owned by the Australian Government, similar to the ABC or the Australian Rail Track Corporation.
Australia Post is wholly owned by the Australian Government represented by two Shareholder Ministers, the Minister for Finance and the Minister for Communications, Urban Infrastructure, Cities and the Arts.[1]
My dad talks about how the wait to get a new phone line put in went from a month to the next day, virtually overnight, when privatisation happened, since the company now had a profit motive to get you using your phone as fast as possible. But I haven't seen anything like that personally.
Pass a law and fix it. Australia is a sovereign state. I know it sounds simple and it is, but the politicians might not actually represent their voters.
Set a maximum power rate, service level agreement, and mandatory renewable generation. Drive them into bankruptcy and have the court offer it to a new operator when they can't comply. Eminent domain to prevent power outages, before they can even shut things down.
If Sri Lanka (or Africa) didn't need more money from China (eg US, India, etc.) they could take back their port tomorrow by passing a law.
There will be be repercussions from both China and global trade organizations as applicable - although that may indeed be worth it in the end. In addition the country will lose a bit of credibility with investors putting at risk investment in other areas where the government might "change its mind" like natural resources. This is hard to quantify but has an impact in aggregate.
Ontario, Canada sold one of the countries most important highways back in the 90's to investors for 100 years but at least the owners were still Canadians.
It depends on how they do it. If they simply renegotiate or go through various arbitration/adjudication processes, then the impact can be small. (Of course if they don't accept the outcome of these processes, then it'll be worse.)
That said, on this level it's almost 100% politics. There are many ways to get out of these unfair deals made in times of desperation, the question is - like you said - are they worth it or not.
Trade agreements (eg: ChAFTA in this case) typically contain clauses which restrict the ability to pass laws that directly harm the interests of one countries investments in the other.
But in any case, transmission grid operators are natural monopolies that are usually heavily regulated and can’t simply charge whatever they want. I’m sure South Australia’s grid is no different.
Trade agreements usually contain provisions for dispute resolution. Back before 2016 the big boogeyman was ISDS (investor-state dispute settlement).
If a state made a bad deal they can either renegotiate it (eg. negotiate in a fee to cancel the whole contract) or try for arbitration (and the tribunal might set a fee for cancellation), or assert their sovereignty.
Of course with China everything that reaches political circles becomes a power-play, but at least in the first two cases they are less motivated to respond in kind (ie. levy tariffs or fuck with the business of Australian companies in China).
Sure, but there's no dispute here that I'm aware of.
Turns out the South Australia grid isn't really owned by China anyway - they have a 46.6% stake, with the other 53.4% controlling interest now held by Australian Utilities, a consortium of Australian infrastructure and pension funds.
Well, based on that every utility should be sold off to a foreign country since only then are you prevented global trade laws and treaties from passing laws (or even failing to enforce civil fines?) that harm their interests.
Frankly, I'm doubtful this is a case of actual enforcement of global trade rules, it's pure economic power. That works until it doesn't, and even the purchasers of these profitable "rights" know this. That's why they want to get their money out quickly, but once the local government has turned against you it's rarely worth fighting even for the largest funds.
The opportunity for corruption in the sale of state assets is always there. You are right.
But it's also an ever constant presence when the assets are state run. In my (LatAm) country, privatization has generally been a great success where it's happened because when the companies are run by the government, there's constant grift going on. The privatization of the mines in particular was wildly successful. Production went up, costs went down, and the state still collects profits in the form of mineral taxes. The mines were a black hole of public money when the government was in charge of them.
my point is about corruption, not the mine. Keeping things in the governments control doesn't stop or prevent corruption from occurring, so it's odd to me that a criticism of privatization is the chance for corruption to take place.
There are many similar stories around the world. A government, usually a center-right one, sells some critical public infrastructure for relatively little money. The new owners then raise prices as much as they can and make major profits. I believe the reason is more likely ideology than corruption.
Certain kinds of pro-business politicians tend to think that privately run services are morally superior to government services. Because this is an ideological argument, they are unwilling to listen to empirical counterpoints. As politicians they are also prone to teleological thinking: because the purpose of privatization is to benefit the public, it will benefit the public. Hence they care less about the details of the privatization deal than they should.
The government that signed this deal was in fact a centrist government (the Richard M. Daley administration), if not a center-right one. Chicago is a Democratic stronghold, but that history dates back to the old 4-party system when we had liberal Republicans and conservative Democrats. Daley was one of the last vestiges of that system.
> the old 4-party system when we had liberal Republicans and conservative Democrats.
A two-party system with misalignment between the axis between the parties and the main axis of political variation (as often happens for a short time during realignment periods, and happened for an unusually extended time in the US from about 1932 to about 1994) is not a four party system, its just a two-party system with ideologically incoherent parties.
A comment further down says the sale price was 3.5 billion dollars, revenue of the company is $600 million. If the profit margin is 10% (not unreasonable for a regulated utility) that works out to an interest rate of 1.7%. So basically a $3.5 billion loan at a 1.7% rate locked in for 200 years. Sweet deal.
In theory - and as has happened in history - governments can repatriate (nationalize) critical assets. So as long as a nationstate has meaningful independence, even the threat of that emergency lever can prevent the worst abuse.
If such meaningful independence doesn’t exist, it arguably doesn’t make much of a difference who’s name plate is on the ownership?
39% all goods exported from Australia in 2019-20 were to China. Of that 39%, over half of that was iron ore. Australian iron ore production is valued at $136 billion a year to the economy.
Unfortunately, Australia really doesn't have much leverage in this space, and forcibly re-nationalizing an asset like that, would cause major diplomatic problems, like the harsh trade sanctions imposed by China over the last few years due to Australia backing a COVID inquiry.
Flipside, in the event of diplomatic breakdowns with China towards conflict, it becomes easy and profitable to re-nationalize for national security reasons.
I wonder how much of that 36% gets turned into metals and then shipped right back to australia. Maybe its time that Australia start doing the ore processing in-country and cut out the middle man.
Good question and it’s an interesting rabbit hole to dive into. Chinese steel exports to Australia are a rounding error. Australia has a relatively small population.
Australia doesn’t have much in the way of domestic manufacturing need for steel, so there’s little internal base demand to support production. Australian labour costs more, so as a steel producer it would have trouble competing with China on export markets.
The US and Japan do have domestic steel production, but they both have steel hungry manufacturing sectors, and anyway they specialise in high quality specialist steel products. Those take expensive specialist facilities and highly skilled workers, but there’s no real way for Australia to develop such specialist facilities and skills from scratch.
I can't tell for scale, but I rememer BHP billiton spinning out bluescope steel as a company which at that time was creating something like 5 milion tonnes of steel a year. I have a feeling that there is capability, but I'm not sure that its the right capability (as this is not my area).
I'm just confused how it would be cheaper to ship the unprocessed ore across the ocean at a cheaper cost than processing it locally and shipping the finished product.
When we give a monopoly to a private company that is really bad… when we allow private companies to fight for every little bit of market share that is usually pretty good… subtle differences and agreed corruption tends to lead to monopolies that is bad
There are a lot of responses to this comment along the lines of 'privatisation leads to more/less efficiency'. I'd like to point out that although 'efficiency' is usually the stated reason for privatisation, in reality it is often simply a distraction from the more significant (and fundamentally more ideological) consideration - providing those with capital with more investment opportunities.
Edit:
Unfortunately, because of the nature of much of what is privatised, these investment opportunities are often rent-seeking opportunities.
> South Australia sold its state owned electricity grid to Chinese owners for 200 years. Every time people say our high power prices are due to renewables think critically.
With electrical rates above $0.35/kWh, that's the point where I would get a loan to install a massive off grid solar system with LiFePo4 batteries and probably have a ROI period of under 7 years. And then leave a basic meter and panel connected to the grid with nothing on it.
I live in Texas where we have an “efficient” system. It efficiently transfers wealth from the many to the few while providing unlimited anxiety.
When my power was off for multiple days in subzero temps and i seriously considered one morning we might just not wake up I had a realization. Another way to look at “inefficiency” is: “redundancy”. And I sure as heck wish our grid had a little more redundancy.
Just take it back, pay compensation. People r so scared to set a bad precedent for future business deals and yet businesses repeatedly don’t care about leveraging every advantage they have for profit over people.
Contracts are only as good as the enforcement mechanism and in this case, the fact that it’s critical infrastructure only works in their favor. Just nationalize it, pay the existing owners some “fair value” amount for their trouble and resign to fighting a WTO lawsuit.
Over 40% of homes have rooftop solar PV as do many businesses. It is harder for renters and low income earners. Going off grid completely is difficult and generally impractical for most people as the return on investment with storage is still questionable and the costs are high. While they can offset some costs with their own generation they, their children and grandchildren are still going to be taxed for their grid connection. Overbuilding the electricity grid would be a ridiculously inefficient and expensive task and is unlikely to save anyone money. It is a natural monopoly.
The grid was originally bought by the state from private operators to support the state's industrialization and economic growth as foreign investors didn't want to help grow our economy. That was decades ago under an old-school conservative leadership that was pro-business and the interests of all and not just looking after their mates and themselves. I think we need to rethink our conception of political parties and who they represent because I question how many truly represent me.
> Services can often be run more efficiently in private hands but ...
It's not because it's private. It's because it's forced to compete. You can't just transfer ownership of a monopoly into private hands and call it privatisation. You need to split it first, sell parts to adversarial entities and prevent them from buying each other.
> the most expensive building[1] ever built in Australia, and the most expensive hospital[2] ever built anywhere in the world, at US$2.44 billion in construction and equipment costs.
How could it not be corruption? If it weren't corruption it would almost make the situation worse. That somebody who got elected thinks that would be a good idea, genuinely...
Why would Chinese owners want to buy that? It seems unlikely that Australia will hold its bargain for the whole 200 years given current political climate.
They bought it for $3.5B, but the annual revenue of SA Power Networks is around $600M. I don't know the profit margin, but they won't have to wait for 200 years to get their investment back.
Obviously this is assuming that the energy prices will be stable in the next decades. The AER decided that SA Power Networks can have a total of $3914.2 million from its customers from 1 July 2020 to 30 June 2025, which is already higher than the $600M/year figure above.
Regarding your 10% assumption: In June 2014, the Adelaide Advertiser reported that SA Power Networks made after-tax profits of $420 a year from each customer compared with $92 for another Li Ka-shing-owned utility in Britain. I don't believe the average customer paid $4,200 for energy in 2014, so their profit margin must be much higher than 10%.
That was 14 years later. The initial privatisation was in 1999 and retail went to AGL and power distribution was sold to Cheung Kong Infrastructure from Hong Kong. They retain majority ownership. State Grid of China is a much more recent investment in transmission and not as controversial as the original privatization of the entire public utility. Australia isn't against foreign investment or Chinese investment in particular. I added China more or less as clickbait but the real problem was the lack of public interest and the impact it has had on livability and the economy. I believe the SA grid operator has the highest profit per customer in the country which probably means they are some of the highest per customer in the world.
The 200 year lease was mentioned as it is unusually long and there was some misrepresentation over the length of the lease to people who voted for it and the public.
The question of sovereign interests is real. The original nationalisation in the 50s or 60s was I think due to issues the state government had with the British owners interests not aligning with the state's ambitions. But at the time of sale tensions with China were not the same and the problem was that it was a terrible deal for the state that led to a subsequent explosion in power prices.
The "electricity grid" is composed of many parts both in South Australia and elsewhere. The components are generation, transmission, distribution and retail suppliers. Cheung Kong Infrastructure aka CKI's current position is only 23% of
the distribution network.[1]
The distribution side, the poles and wires that supply power to homes and businesses is entirely supplied by SA Power Networks in this state. They are the sole distributor and 51% is owned by CKI and just as disturbingly in my opinion the other 49% is owned by Spark who got bought out and are now also foreign owned by a group led by private equity firm KKR. This segment of the power business is a natural monopoly unlike retail and generation which are both competitive markets and while it is regulated, the regulations can and reportedly are gamed. SA pays outrageous power prices which are well documented.
Neoliberal economic policy is an ideology that only needs to work out for the first generations of neoliberals. After that they've 'got their's' and everyone else gets' to deal with the consequences. Example: See the state of the world at the moment.
I generally agree but just a thought exercise: Public government is what got us in this mess in the first place and isn't 'run efficiently'. What if all government functions were privatized?
So much to unpack.
City selling things cheaply to sovereign funds.
Price hikes when bought by VC for no reason (other than profit)
Capture of car-centric infrastructure, which makes it less likely to turn towards zero-carbon or multi-modal space - you can park 20 bikes in 1 car space.
and more....
I really wonder if there is any way to change the structure of government so that politicians are forced to reckon with some of the longer term impacts of their decisions, as opposed to "I'll be out in a couple years, that'll be future mayor's problem".
Right now Austin is trying some very dubious eminent domain measures (which were pretty drastically clobbered in court) to get out of a long term lease they signed just a few years ago to have a private operator run a small separate terminal at the airport. I think it was especially braindead for Austin to ever sign that lease - we were (and still are) growing like crazy, it didn't take much foresight to think Austin would eventually need to seriously expand the airport.
Of course, hardly anyone involved with the original bad decision is still on city council, so it became someone else's problem.
This is around the same time that PA tried to lease their turnpike, and cities all over the US were facing a post-boom hangover when projected revenues from permits and property taxes didn't align with budget realities.
I'm not defending the decision, but it was far more shortsightedness than corruption.
But Chicago did lease the parking garage underneath Millennium Park to the same parking meter investor group. And that deal went bankrupt with the lease going back to the lender (who set up a new consortium which is also on the verge of bankruptcy).
So basically the two parking deals have just now broken even ;)
> Amid a legal skirmish with the city over the underground parking garages, the venture is in talks to relinquish them to banking giant Societe Generale S.A., which provided a $403 million loan to finance the 2006 deal, sources said. It's a sign that the investment has lost so much value with little prospect of a turnaround that the venture no longer sees a reason to own it.
> Chicago CFO Gene Saffold said the Midway Investment and Development Company, the group that successfully bid on the 99-year airport lease in September, was unable to secure financing, leading to the deal’s demise.
People are often trying to implement and shorten term limits. But it amplifies this problem, and it gives lawmakers an incentive to line up their next job in the private sector while in office.
It was done at the end of the reign of someone who had been mayor for 22 years, whose father had been mayor for 21 years. There aren't really any laws against corruption in Illinois unless you get both sides of a clearly stated quid pro quo on tape, and physical proof of the action and the compensation actually having occurred. It's also illegal to tape people unless they consent.
> The City Of Chicago retains control over pay station parking rates. CPM does not – and never has – set pay station parking rates. The City retains exclusive authority to determine and establish rates, set hours of operation, and place, add or remove metered spaces. The initial five‐year rate schedule, which ended in 2013, was approved by the City Council to align with rates comparable with other large U.S. cities. Prior to the agreement, parking rates in Chicago were much lower than the national average. Seventy percent of meters had not seen an increase in 20 years.
This should be the opposite: Sell the rights. Then abolish most of the parking and replace it with bike paths. No drop in city revenue. Sorry "investors", you SOL.
That city has a tiny fraction of the population density, commercial activity, and industrial transport of Chicago, they're really not comparable. Transporting people and goods over large distances by bicycle doesn't scale very well.
throwaway5959 mentioned travelling to their grocery store. I'm going to guess that their grocery store is not on the other side of Chicago from where they live. How big the city is that contains the grocery store doesn't seem directly relevant to that or does it ?
What I don't understand: If the city really needed short-term money, why couldn't they take out a loan against the parking-meter-system? It's extremely low-risk and in the long run the city could have keept it. This has to be corruption, doesn't it?
Mayor Daley was on his way out and only cared about the short term boost. This was his MO for years though, he took several pension holidays which the subsequent mayors have been trying to grapple with, and yet people remember the Daley years fondly because of it.
People often don't associate the bad things with the people that caused them. They associate the bad things with the person cleaning up the mess.
Daley didn't raise their taxes. The meters didn't skyrocket in price under his tenure. People rarely look for causes to things. Ah, so he didn't fund pensions so now my taxes are going up? No, it's the newer mayors who are the ones raising my taxes!
Yes, if you look at the situation, he might have caused those problems, but during his tenure people probably felt better. They had more money in their pocket and weren't being told bad news.
Why can't things be like they used to be? Well, turns out it was never sustainable for things to be like that and when you mortgage your future the bill eventually comes due.
The parking deal happened because of corruption, not because it was the only way to raise money. It was rammed through the city council in a day after being negotiated behind closed doors.
I hate that argument because it absolves the council from doing their job of reviewing the laws they are signing.
Nobody could honestly think a $1B windfall appearing from nowhere was worth signing without significant review. Every person involved understood the significance of the deal.
On the corruption point, it depends on if it was an open bidding process (there are many laws and protocols governing the sale of public property). The city has probably borrowed against the meters in some form many times over so they may have transferred certain debts to the new owner as an additional way to reduce debt and raise liquidity (I don’t know the details of this transaction specifically however)
Do you still have to pay it? If it’s a private meter my first thought is that non-payment becomes a civil matter and in that case you likely can get away without paying.
I get “civil speeding tickets” (traffic cameras) all the time in my state. I simply throw them away without repercussion because the cost of suing to collect from every individual who hasn’t paid just isn’t worth it. Not sure if it applies in this case but in my state these also cannot legally be reported to credit agencies or insurance companies.
If this is not the case and the city is criminally prosecuting people (with taxpayer resources) to enforce private debts owed to the meter company, there’s a good chance a court would find the practice to be illegal. At least I hope that’s how it would turn out…
I can't find a reference now, but when I visited in January there was a story on the news where a tow truck was starting to tow a legally parked car, the owner showed up and tried to stop them, so a tow company employee pulled a gun and left with the car. The police came and basically said they couldn't do anything and suggested paying the fine to get the car back, or something to that effect.
Typically laws get passed along with them allowing for an (insane) increase in fees associated with this. So the $0.75 toll might not be worth collecting, but on the Dallas tollway, every single one of those unpaid incurs a $75 charge on top. It very quickly becomes worth collecting.
$75 is not enough to pay a lawyer for 1 hour to prove the company’s right to collect $75, and they have to file a new suit for each person who didn’t pay. Not to mention there is a chance of losing and having to pay legal fees for both parties after years fighting in court. It’s far more profitable for them to pocket the money from those who do pay and forget about the rest.
In my case, the tickets I get are usually $150 to $350 per and there isn’t a single instance of someone being sued for non-payment.
They tack that $75 on per unpaid toll. So you drive the length of the tollway and pick up 9 of them, that's 9x$75 or $675. Then you drive back in the evening. Do that for a couple weeks before the mail arrives.
> criminally prosecuting people (with taxpayer resources) to enforce private debts owed to the meter company, there’s a good chance a court would find the practice to be illegal.
The deal structure is as follows:
- if the city fails to prosecute a parking violation, the city pays to the parking company anyways.
- so your debt is to the city: fee for a parking violation, not a debt to the private company.
- the city can immobilize / tow your car if it has an unpaid ticket. That’s very expensive.
This is only tracking revenue. The numbers are meaningless without expenses. I'm sure they make a sizable profit margin, but conflating revenue with profit is sensationalism.
In 2021, Chicago Parking Meters LLC had $136M revenue minus $50M of various expenses, leaving $86M of net operating income.
But of that $50M, $15M is "amortization of intangible asset", and I think "intangible asset" refers to the right to operate the meters. So it's effectively only $35M of "running-the-business" expenses, leaving $101M of effective profit.
um this one is printing money. this is a monopoly. if they are not "showing" profits, it would be because they are trying to be shady or they are so inefficiently run
> CPM does not – and never has – set pay station parking rates. The City retains exclusive authority to determine and establish rates, set hours of operation, and place, add or remove metered spaces. The initial five‐year rate schedule, which ended in 2013, was approved by the City Council to align with rates comparable with other large U.S. cities. Prior to the agreement, parking rates in Chicago were much lower than the national average. Seventy percent of meters had not seen an increase in 20 years.
Doesn’t the word “recouped” imply the profit was at least enough to recover the investment cost (and millions more in this case), or am I missing something?
The word “recouped” was written by a journalist. The same journalist uses the word “revenues” as the source of recouping, not “profits”. They also use such strange constructions as:
> private investors have already extracted $2.1 billion from the deal, in part by refinancing three times.
What’s strange about that? The owners boost cash flow by jacking up parking rates, create a higher value for their asset, and take out a new loan against it. The original loan gets paid off and the owners get to take out the new equity based on the higher valuation.
Well, they might have to grease the wheels more than once. There's nothing to stop the city from setting a maximum rate on parking, or tickets, or recovery in court or during vehicle registration. Changing a city, county, or state ordinance/law or simply not enforcing rules is the purview of the state and mostly the executive.
I guess what I'm saying is that these are long term grifts and the city could deal with it (the fleecing of their voters), but chooses not to, because they know where their bread gets buttered.
They replaced all the meters with the boxes and made an app. They also pay for all the meter maids even though the ticket revenue goes to the city. So there are definitely some expenses, but yea margins are surely crazy.
I haven’t checked, but I suspect the return is less than they would have gotten just sticking the money in an S&P 500 index fund over the same 14 years. Still, the risk is lower.
Even if true today, very unlikely to be true in the long run. From the numbers provided in the title, this deal is like an effectively risk free 16% yielding bond, except the revenues will also grow with inflation.
And it's definitely not true on a risk adjusted or cash flow basis. Also these deals can be (and probably was) levered to levels which equity investments cannot. Borrow at SOFR+x% and earn on the spread between that value and 16%. Extremely profitable and uncommon carry trade
If everyone invested in the S&P 500 we would all be rich. Companies should raise capital just to buy S&P 500 index fund so we can finally have universal prosperity.
Except the profit can also be reinvested. That kind of free cash flow is pretty insane - and will help dollar cost average any equity investments during down markets, compared to just lump sum investing $1.5B and letting it ride.
Yeah. And the system that's used to track the parking tickets by the city, CANVAS (IBM), cost the city over 100 million dollars alone. Currently suing for the system's database schema and our oral arguments are being brought to the IL supreme court later this month.
Would you mind sharing the docket number or anything similar that would allow me to follow this case? I work in government and have had similar concerns about software vendors being very restrictive with data that's paid for with public/taxpayer funds.
Selling something with long-term value for a short-term lump sum is the kind of thing a politician would do. He or she isn't going to be around later, so why not get reelected now?
On the other side, Richie Daley didn't have the acumen of David Bowie, who did the same thing:
Just think: who knew that parking meters would continue to throw off money? what happens when self-driving cars are cruising around and no one needs to park anymore?
In the 80's, some western governments did that. People were unhappy but those economies did great. Eg. UK (Thatcher), and New Zealand (Rob Muldoon). Some of these businesses were just weird to be government owned - like a print shop.
Some businesses are best owned by government and some privately. It's not just a blanket good thing that governments should ratchet their way towards communism. Natural monopolies and public goods can be better owned by government because the private sector needs competition to be efficient.
Highway 407 in Ontario is high on the list of nice deal badboys:
"SNC-Lavalin Group Inc. will sell 10.01 per cent of its stake in 407 International Inc., the private consortium that controls the profitable tolled highway in north Toronto, for an expected $3.25 billion, the company announced Friday.
That’s more than a billion than what the government earned 20 years ago – for selling the leasing rights to the entire highway.
In 1999, the Ontario government leased Highway 407 for the next 99-years for $3.1 billion, or $4.4 billion in today’s dollars.
At the time, it was the largest privatization of a public asset in Canadian history. But in hindsight, it may be considered one of Ontario’s biggest financial missteps, considering the SNC-Lavalin sale pegs the value of the highway at at least $30 billion.
The company running the 407 reported revenues of $1.4 billion in 2018"
...they sold the 10% to... Ontario's pension fund...
Came here looking for the highway 407 comment! Speaking of privatization, how's it going with Hydro One? And you must be so excited for the upcoming privatized surgeries...
It's "weird" because it should be straight up illegal.
Anything developed with public money or eminent domain should be off the table for selling to a private entity. If private investment wants to own parking spots or highways, it can pay to create them itself. Private investment should result in development, not rent seeking on things that were already developed.
Law should be fully mutable and not subject to privately owned restrictions. Any terms that have been written in to keep the city from doing things like lowering parking rates should be considered unenforceable. And since the city is no longer getting revenue from the meters, citizens should vote to eliminate the parking fees.
Furthermore, most long term debts or contracts that a government could enter into should be repudiatable due to the principle agent problem - specifically the corrupt incentive of politicians to favor short term benefits and ignore long term liabilities. There should be very limited exceptions such as purely financial bonds that are voted on directly, and even those should have time limits of a few decades.
I laid out rough guidelines starting from basic concepts. Applied to this case, the right to the revenue is being sold (as per the title). This interest is indeed part of what has been created with public funds.
In general we should want capital to stay distributed throughout many different actors, especially our governments, rather than them being hollowed out and the assets centralized into the financial markets. For example, all throughout this thread there are people pointing out the newly created difficulties of implementing specific policies (for example bike lanes), due to the inflexibility created by divestment.
There are significant risks on some of those deals, as, if the toll highway doesn't get enough traffic, governments will lack the political will to let the road decay, and often will end up buying back the highway, and paying for the repairs.
So if the highway goes well, the company makes money hand over fist, and it all looks like a giant scam. If it goes really badly, the government takes a bath, and it all looks like a bunch of waste. So ultimately it's very difficult to set up a deal that lasts very long and doesn't seem like a regulatory mistake, one way or the other.
Also note that this isn't purely a US situation: Some form of privatization of toll roads happens all over the world, and success rates are also not all that great
In Texas the state government does not want the toll roads to become public because the revenue collected from gasoline taxes and vehicle registration is not enough to pay for their upkeep.
I’m not quite following your argument. If the gasoline taxes and vehicle registration aren’t enough to pay for the upkeep of newly public roads, why wouldn’t they continue to be funded as they currently are? There’s nothing to say that public roads must be toll-free roads. The tolls could even be lowered from their current values, receiving from the maximum drivers are willing to pay to minimum required for upkeep.
I'm not arguing for anything in particular, just relaying what I've heard about the situation. One of the compromises that allowed for the construction of several major toll roads decades ago was that they would eventually become public and toll-free. But, this can be delayed by implementing continual capital improvements and making sure the road is never fully paid off.
Same with national parks, the federal government sold recreation.gov to Booz-Allen and now they get to collect lottery application fees and processing fees for their mediocre website from millions of people every year forever.
For the past 20 years or so, Colorado has raised taxes in order to pay for a commuter train from Denver <-> Boulder. After the funds were collected, they decided to use it to build a toll/HoV lane on the highway between those two cities(US-36) and offer an occasional bus service. And then sell the rights to some Australian company.
Well they generated a lot less before price hikes. Ideally the city would have kept it and hiked prices, but unfortunately, high prices for street parking is politically unfavorable, even if socially optimal.
Right I think privatizing parking revenue makes a ton of sense because of this political problem of people disliking the optimal parking price.
That being said this deal was absolutely horrible for Chicago. My least favorite part is that now the city has to pay millions every time they get rid of a paid parking spot, so they couldn’t close streets during the pandemic.
This is a really interesting counterpoint that I hadn’t considered. The fair value would be roughly somewhere between a 3x multiple of what the city could make by operating the meters (low value), and a 3x multiple of what a private operator could make (much, much more with higher prices). That is a huge range and the city wasn’t in much of a position to negotiate
This kind of thing is basically looting: public officials making sweetheart deals, often to companies that have made generous campaign contributions, and selling public assets for far less than they're worth, allowing private companies to collect rent forever. And then the residents are stuck with some unaccountable company.
Pretty dumb move. They got screwed on the terms. They should have said "$3.6 billion or 75 years, whichever comes first." A 200% return should be enough to get investors on board.
What does it mean to buy the rights to parking meters? Are they buying the physical meters along with the right to collect and enforce fees on them? If the city passes a law that says "no more parking meters, we use drone enforcement now", what happens? What happens if parts of Chicago become car free zones, do the investors get to sue the city? This seems so dumb. So, so dumb.
It’s kind of amazing in a sick way.. cities are allowed to make such an uneducated and horrific decision without the input of their citizens in the name of short term cash, and VCs are able to basically purchase a money printing machine that relies on the city to enforce :)
Who employs the parking enforcement officials?
Does this company have a say in zoning and permitting changes and decisions?
Do they have easement rights on both preexisting meters and future meters?
The parking enforcers are employed by the company but the city gets the ticket revenue. They enforce the city’s laws though so my idea has been to make the ticket some negligible amount like $1 so that everyone stops paying the meter in order to force the company to renegotiate. Lawyers probably thought of that though and made the contract iron tight. Here’s the contract https://www.chicago.gov/content/dam/city/depts/fin/supp_info...
Yes, the details of the arrangement is the part I’m interested in.
If the parking enforcement officials work for the city, what is their incentive for diligence?
Does the city need company approval to add a loading zone or driveway, or do street work?
Wow only 6 YEARS of revenue for the total sale price?
How much does it cost to upkeep the network?
Do they expect demand for parking in Chicago to somehow decrease over time…?
If this was a sale of music royalties (a “security” that loses value over time as songs get played less) the multiple for the sales price would still be much higher.
Either the Chicago government is stupid or deliberately lowballing the sale in a brazen act of corruption
$200M/$1.2B = 16.67% annual return on investment. It's not that simple, since there are costs associated with collection, enforcement, etc. -- but if those costs are $80 million annually (which seems absurdly high) the return is still 10%, which is stupid good for a guaranteed investment.
What a great deal for the investors with connections to the local political 'mafia'. If profit is 70% after taking away expenses, that is about $140M. $140M * 7 = $980 (7 multiples). Where can one find such a profitable business for 7 multiples?
Is it something that can get corrected, by passing a ballot measure that makes it much profitable. Like for example, limit towing and surcharge or service fee pricing?
The french did the same with their highway system.
It’s the same, but slightly nicer and considerably more expensive. And we payed for it in the fist place.
