The collapse of the Morandi bridge in Genoa on August 14 could have been foreseen, and was predicted by some engineers. The bridge was supported by concrete rather than the steel cables used in most bridges, due to some combination of cost cutting by the government that commissioned the bridge and the hubris or stupidity of the engineer who designed it. Poorly built or aging structures need continual inspection and maintenance. Such care can prolong the life of a structure and give early enough notice of when repair no longer can ensure safety.
Maintenance for the Morandi bridge, and for most bridges and highways in Italy, has been outsourced to private companies. Morandi was controlled by Autostrade per l’Italia, an Italian company that also runs highways in the U.S. and is controlled by the Benetton family, which owns more than a third of its shares. Outsourcing is designed to save governments money. Private firms charge tolls to users of highways and bridges to cover their costs and generate profits. The justification for outsourcing is that private firms are more efficient than governments and so the tolls they charge will be less than the tax money that otherwise would pay for infrastructure. In theory, business is so efficient that their costs plus profit margin are less than what a government agency would spend.
Supposedly left and liberal governments have championed privatization as much as rightwing ones. Tony Blair and Bill Clinton both pushed the sale or contracting out of government services and facilities to private firms, and the Morandi bridge was turned over to Autostrade per l’Italia in 1999 by the center-left government headed by Massimo d’Alema. The cost savings have not appeared in most cases, and when private firms spend less they do so not through the miracle of capitalist efficiency but by delivering shoddier goods or less service. The Morandi bridge was, as we learned too late, not inspected enough and not repaired sufficiently. The privatization of British Rail has been a disaster. The buyers sharply reduced spending on repairs and rebuilding. As a result, British trains breakdown, get stuck behind broken signals, and end up in accidents.
Much privatization is really financial engineering. Governments give up tasks and then can the claim they have reduced spending. Fees then cover the costs of services. Ordinary citizens still pay, and often pay much more, but in ways that appear to have nothing to do with government. Politicians hope that citizens won’t notice or, if they do, that they will blame the corporation rather than the politicians who approved the contract that allowed for drastic increases in tolls, train fares, water rates, etc. Tolls on the Morandi bridge went up when it was privatized. Drivers had to pay more to cross an ever less safe bridge. Forty of them paid with their lives.
It appears that the Italian government has the legal right to cancel its contract with Autostrade per l’Italia after this disaster. Other governments lock themselves in to very long term or even permanent privatization. One notorious example comes from Chicago. Richard M. Daley, then the mayor, was facing a large budget gap that would have required either tax increases or service cutbacks. Instead, he agreed to lease the city’s parking meters and publicly owned garages to a consortium of private investors for a little more than $1 billion up front. That solved the immediate budget problem but created a bonanza for the investors, the largest group of whom comes from Abu Dhabi. The private firm has more than doubled the cost of parking, which is a tax by another name for Chicagoans. The investors already have earned back $927 million from the deal, and will recoup their entire investment by 2021. They then will still have 62 years of pure profit to enjoy.
In essence the Chicago parking deal is a very high interest loan from the investors to the city. This deal also makes it impossible for Chicago to reduce traffic in the city since the government would have to reimburse the private company for any parking spaces it eliminates.
Other privatization deals also serve to restrict governmental powers. When President Clinton created a government owned corporation to takeover the Department of Energy’s role in buying and reprocessing highly enriched uranium from decommissioned Soviet weapons and then privatized it, he in essence ceded the decisions of whether and how much uranium to transfer from Russia to the US away from public officials guided by diplomatic and military considerations to capitalists who increased or decreased uranium purchases depending on market prices. The investors, understandably, wanted to maximize their profits and were unwilling to incur losses or even reduced profits to further US strategic interests. The end result was that the private firm so sharply reduced uranium purchases that less highly enriched uranium was processed than either the US or Russian government wanted. The US government made little money from the sale of the government owned firm, and what it made was tiny compared to the costs of preventing nuclear proliferation.
Why does privatization continue? In some countries, government officials receive bribes or kickbacks from buyers of government property or receivers of government contracts. However, that is rarely the case in the US or Britain, or even in Italy. Instead, governments of the right and moderate left still subscribe to the belief that private is better than public, and that markets and capitalist enterprises are more efficient than government bureaucracies. It would be nice to believe that the Morandi bridge disaster will encourage politicians of all stripes, or at least those who see themselves as on the left or progressive, to rethink their faith in privatization. More likely, they will try to find ways in which Autostrade per l’Italia was uniquely incompetent or greedy and use their punishment of that firm to justify other privatization plans. Unfortunately, it will take many more disasters before the fundamental problems with letting private, for-profit firms deliver public goods is apparent to those with the power to end this ill-considered project.