This
study has described an array of federal businesses and assets that should be
privatized. But there are many others. The government should sell financial
assets and businesses, such as its portfolio of student loans and the mortgage
giants Fannie Mae and Freddie Mac. It should sell some of the 260 million
ounces of gold that it holds at Fort Knox and elsewhere. At a price of
about $1,200 an ounce, the gold stockpile is worth more than $300 billion.
The
government should sell its stockpile of about 700 million barrels of crude oil
in the Strategic Petroleum Reserve (SPR). Our oil security rests on market
forces and a diversity of supplies in the global economy, not the SPR. At
about $40 a barrel, the SPR is worth roughly $28 billion. Taxpayers would also
save annual SPR operating costs of more than $200 million.
Congress
should also remove federal barriers to state and local privatization. State and
local governments own highways, bridges, seaports, airports, and other
infrastructure. Much of that infrastructure can be financed, built, and
operated by the private sector. It can be fully privatized in some cases, or
partly privatized through public-private partnerships. Such partnerships
shift elements of building, financing, management, operations, and project
risks to the private sector.
The
United States lags countries such as Australia, the United Kingdom, and Canada
on infrastructure privatization and public-private partnerships. One reason is
that the federal income tax exemption for state and local bond interest allows
governments to finance infrastructure at a lower cost than private businesses
can. Congress should repeal this tax break and level the playing field between
government and private infrastructure projects.
Federal
spending subsidies also stack the deck against state and local privatization.
The federal government provides grants for government-owned airports and urban
transit but not private airports and urban transit.
Those
federal subsidies should be repealed. Also, federal rules that require state
and local governments to repay past aid if facilities are privatized should be
repealed. Politicians love to tout the economic benefits of public
infrastructure, but if they leveled the playing field, the private sector would
provide much more of it.
Conclusions
A
study by Jonathan Karpoff provided a unique comparison between government and
private enterprise. He looked at 92 missions of discovery to the Arctic and the
North Pole during the 19th century, some of which were private and some
government. Karpoff found that the private missions, on average, performed
substantially better than the government ones, even though the latter were
better funded. Private missions made more discoveries, and they lost fewer
expedition members and ships. The study illustrated the importance of
institutional structures on incentives. Unlike governments, private entrepreneurs
face strong incentives to generate value, pursue innovations, and achieve their
stated goals.
Margaret
Thatcher believed that the 20th-century takeover of industries by governments
was a mistake and that decentralized efforts by private businesses are superior
to state efforts. The results of three decades of privatization around the
world have proven her right. Thousands of government businesses have been
privatized, and very few have been renationalized. The revolution begun by
Thatcher has been sustained because leaders of all political stripes have
recognized that privatization simply works.
Privatization
increases economic efficiency, spurs entrepreneurship, creates greater
transparency, and benefits the environment. Private-sector organizations make
many mistakes, but they are also constantly fixing them. They have to innovate
to keep up with the changing needs of society. By contrast, federal
organizations, such as Amtrak, the USPS, and the FAA, follow failed and
obsolete approaches decade after decade.
The
next president should work with Congress to line up the best candidates for
privatization, explain the benefits of reform to the public, and move ahead
with legislation. With many activities, such as postal services and air traffic
control, we can look to the extensive experience from abroad about how to
structure reforms.
It
is true that reforms would face political hurdles, as interest groups defended
the status quo. A British expert noted that "nearly every U.K.
privatization was a struggle." But the world is always changing, and
that creates fresh opportunities for reform-minded leaders. Margaret Thatcher
dared not privatize the Royal Mail, but current Prime Minister David Cameron
recently did so because it had become clear that a snail-mail monopoly has no
place in an email world.
America
is still the dominant economy in the world, but the privatization revolution
shows that we have a lot to learn about economic reforms from abroad. In many
countries, politicians have let entrepreneurs take a crack at long-sheltered
government fiefdoms. American leaders should show the same boldness and let
entrepreneurs replace federal bureaucracies wherever they can.
Norb
Leahy, Dunwoody GA Tea Party Leader
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