It used to be only suckers that thought they could buy public infrastructure like the Brooklyn Bridge. Not so anymore. According to this article in Business Week, private financial giants like Goldman Sachs, Morgan Stanley and The Carlysle Group are buying up public infrastructure in unprecedented numbers.
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 ).
Simply put, this is a very bad idea. Providing public infrastructure is one of the basic functions of government. Putting it into private hands is to invited monopolistic pricing. The firm that leases the Pennsylvania turnpike will be interested in turning a profit, not the public interest. Iraq reconstruction ought to be all the evidence we need that privatization results in no accountability which is an invitation to corruption and incompetence.