Are infrastructure privatizations qualitatively different from normal private-sector
debt-financed investment? A couple of comments on yesterday’s
post on the subject suggests that they are.
Both Gari N Corp and Matthew suggest that there are security implications to
selling off toll-roads and the like, especially as regards disaster management.
I don’t see it. Government can always force a toll-road operator to subordinate
its profit motive to the greater good, if there’s any conflict – and in
fact I doubt that there would be any conflict anyway. If citizens are being
forced to evacuate a city, I have a feeling that the question of tolls is going
to be the least of anybody’s worries.
Gari also I think gets the role of bondholders in such situations wrong:
If your Equity Office LBO defaults, the result could be empty offices. What
happens when the owner of your city’s main toll road defaults? Current wisdom
says "it gets handed back to the government". That’s probably too
Why on earth would a default by EOP result in empty offices? The main result
of a default by EOP will be losses incurred by its new owners, as well as losses
incurred by EOP bondholders. Tenants in EOP properties would probably not notice
anything unless and until a new owner decided to change the way it managed the
properties. And if empty offices caused the EOP default, then maybe
a new owner might come up with a better way of filling those offices.
Similarly, if a toll-road operator defaults, that affects its creditors, but
it doesn’t have any immediate effect on drivers or the government. If the operator
goes out of business entirely, then the road will simply end up being managed
by someone else – either the government, or whoever takes over possession
of the operator’s assets.
Matthew, meanwhile, brings up the prospect of privatizing Amtrak. That is
a very bad idea. I happen to know rather more about rail privatization than
is really healthy, and I can assure you that selling a loss-making passenger
railroad is a recipe for disaster. (Let’s just say I’m English, and leave it
Privatizing Amtrak would be especially difficult because of the fact that Amtrak
passenger trains use the same railroads that the enormous US freight-train industry
uses. There’s so much money in freight rail that passengers simply don’t have
priority – something which leads to endemic delays. The problem with US
passenger rail here is structural, and can’t be solved with privatization.