deregulation – Hank Kalet

Contrary viewpoints — Part 1 On Sen. Edward M. Kennedy

I have some links to pass along today, progressives/liberals taking a slightly different approach to some of the issues in the news:

Part 1 on Ted Kennedy, in which Doug Henwood, editor of the Left Business Observer, takes on the Kennedy myth and reminds us that deregulation was a very bipartisan affair

Henwood, in his blog, stands as the scold in the room, taking on Kennedy from the left in a way that was all too absent during the week’s coverage of his death. Kennedy was an interesting character — personal flaws, old-fashioned liberalism, etc., and the occasional contradiction. Kennedy — “soul” of the Democrats, friend of the common man, Liberal Lion (and yes I know I trafficked in some of this last week) — was also a significant player in the late-1970s push for deregulation.

Often, we talk about the Reagan years when discussion deregulation but the reality is that Carter and the Democrats got the ball rolling.

Once upon a time, working for an airline or driving a truck was a pretty good way to make a living without an advanced degree: union jobs with high pay and decent benefits. A major reason for that is that both industries were federally regulated, with competition kept to a minimum. Starting in the early 1970s, an odd coalition of right-wingers, mainstream economists, liberals, and consumer advocates (including Ralph Nader) began agitating for the deregulation of these industries. All agreed that competition would bring down prices and improve service.

Among the leading agitators was Teddy Kennedy. The right has been noting this in their memorials for “The Lion,” but not the weepy left.

Why was Kennedy such a passionate deregulator? Greg Tarpinian, former director of the Labor Research Association who went on to work for Baby Jimmy Hoffa, once speculated to me that it was because merchant capital always wants to reduce transport costs—the merchant in question being Teddy’s father,
Bootlegger Joe. Maybe.

In any case, Kennedy surrounded himself with aides who worked on drafting the deregulatory legislation. Many of them subsequently went on to work for Frank Lorenzo, the ghoulish executive who busted unions at Continental and Eastern airlines in the early 1980s. (Kennedy’s long-time ad agency also did PR work for Lorenzo.)

And what was the result of all this deregulation? Massive downward mobility for workers.

I’d forgotten this connection (not the Democrats’ role, just the Kennedy role) and I suspect — given Nader’s involvement — that the issues were actually the Teamsters, the antipathy that both the New Left and the Kennedy family had for Hoffa and his union, and the growing consumer advocacy movement.

The federal takeover of the Teamsters, I think, shows that they were right to be wary of the union’s power. But the focus on consumers to the exclusion of nearly all else was foolish, as history shows; the assumption that opening these industries to an unfettered market would lower prices and cause no pain was not based in reality. Someone ultimately had to pay the cost of those lowered prices — otherwise the lost revenue would have resulted in lost profit. And it was obvious that it wasn’t going to be the CEOs.

Leases take their tolls

This week’s cover story in Business Week offers a primer on the benefits and extensive pitfalls of leasing out public infrastructure — a primer that should give Gov. Jon Corzine and the state Legislature more than pause as they wade into the deep end of the pool on the issue.

In the past year, banks and private investment firms have fallen in love with public infrastructure. They’re smitten by the rich cash flows that roads, bridges, airports, parking garages, and shipping ports generate—and the monopolistic advantages that keep those cash flows as steady as a beating heart. Firms are so enamored, in fact, that they’re beginning to consider infrastructure a brand new asset class in itself.

With state and local leaders scrambling for cash to solve short-term fiscal problems, the conditions are ripe for an unprecedented burst of buying and selling. All told, some $100 billion worth of public property could change hands in the next two years, up from less than $7 billion over the past two years; a lease for the Pennsylvania Turnpike could go for more than $30 billion all by itself. “There’s a lot of value trapped in these assets,” says Mark Florian, head of North American infrastructure banking at Goldman, Sachs & Co (GS ).

There are some advantages to private control of roads, utilities, lotteries, parking garages, water systems, airports, and other properties. To pay for upkeep, private firms can raise rates at the tollbooth without fear of being penalized in the voting booth. Privateers are also freer to experiment with ideas like peak pricing, a market-based approach to relieving traffic jams. And governments are making use of the cash they’re pulling in—balancing budgets, retiring debt, investing in social programs, and on and on.

But are investors getting an even better deal? It’s a question with major policy implications as governments relinquish control of major public assets for years to come. The aggressive toll hikes embedded in deals all but guarantee pain for lower-income citizens—and enormous profits for the buyers. For example, the investors in the $3.8 billion deal for the Indiana Toll Road, struck in 2006, could break even in year 15 of the 75-year lease, on the way to reaping as much as $21 billion in profits, estimates Merrill Lynch & Co. (MER ) What’s more, some public interest groups complain that the revenue from the higher tolls inflicted on all citizens will benefit only a handful of private investors, not the commonweal (see BusinessWeek.com, 4/27/07, “A Golden Gate for Investors”).

There’s also reason to worry about the quality of service on deals that can span 100 years. The newly private toll roads are being managed well now, but owners could sell them to other parties that might not operate them as capably in the future. Already, the experience outside of toll roads has been mixed: The Atlanta city water system, for example, was so poorly managed by private owners that the government reclaimed it.

The issue is far from settled, though it seems foolish of supporters (like Philadelphia mayoral candidate Chaka Fattah this morning on WHYY radio) to crow about the benefits without acknowledging the potential problems.

The thing that strikes me about the discussion is that privatization is being pitched as a creative solution to public financing problem and that so-called liberals like Fattah and Gov. Corzine seem willing to play the game. The problems they are hoping to address — broken budgets and a lack of money for social programs — are very real, of course, but the solution is shortsighted and does not address the root causes of the problem.

In fact, privatizing only exacerbates it because the chief problem is and has been privatization and the demonization of government. We have been engaged in a decades-long downward spiral in which the word taxes and the notion of government as protector of the citizenry has been denigrated. This has led to a starvation of public resources and a group of weak-kneed elected officials at the state level unwilling to raise taxes or talk straight about service levels and who rely on borrowing to pay for what is offered.

Add to this the inability or unwillingness of Congress to fund what is needed (either directly, or through grants to states and local governments) and you have a mess.

“Asset monetarization,” to use Corzine’s term, will remain an attractive approach for governors and legislators around the country until we repair the damage done over the last three decades.

South Brunswick Post, The Cranbury Press
The Blog of South Brunswick
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The failure of energy deregulation

Read this lead sentence from Tom Johnson’s piece in today’s Star-Ledger and tell me that New Jersey’s energy deregulation program is operating as advertised:

For the second consecutive year, New Jersey consumers will see double-digit increases in their electricity bills come June.

The numbers look like this:

Jersey Central Power & Light customers will see their bills jump by 14 percent, or $13.30 a month, pushing the average monthly bill to $106.72. Customers of Public Service Electric & Gas, the state’s largest utility, will be hit with an 11.7 percent increase, or $10.86 more a month, increasing the average monthly tab to $103.65.

The Asbury Park Press reports that the increase will fall under the microscope of state Public Advocate Ronald Chen:

State Public Advocate Ronald K. Chen said his office is commited to examining
the state’s system for buying electricity.

The “announcement by the Board of Public Utilities that there is yet another substantial increase in the cost of electricity in New Jersey is going to hit families and business hard,” Chen said in a statement.

The issue, at base, is whether the deregulation plan crafted several years ago is the boon to consumers that its sponsors claimed at the time.

That was the question I raised nearly four years ago in a Dispatches column, and it remains the questions today. My utility bills have jumped by about 50 percent over the last half dozen years, driven partly by the steep increase in natural gas, but also by the end of electricty rate caps.

New Jersey’s approach has been a disaster for the collective pocketbook of consumers. The debate needs to be reopened and reregulation placed back on the table. A deregulated marketplace might be the best approach — though I doubt it — but the system we are working with now certainly is not.

South Brunswick Post , The Cranbury Press
The Blog of South Brunswick