Here's a fun Newsweek article I missed by none other than LSE IDEAS' own Niall Ferguson. Yes, the same Newsweek sold for $1--a once-great American institution fallen under hard times like so many others. While I suspect that I may be writing more about shutting down American government for a prolonged period of time in the next few days--something I want to do, mind you--here's some food for thought in the meantime.
There are a number of things obvious about the modern-day United States. It's mind-bogglingly broke at the federal level. Many states and cities there are no better off, either. At the same time, though, Americans are reluctant to given in to the natural solution of selling off valuable assets. Say, corporations at the sharp end of the innovation league tables due to "security" concerns. If you thought that solution was pretty severe, Professor Ferguson has come up with something that should raise a true patriot's hackles even more. For, he says that the US should get real and sell off its vast holdings to help raise revenue. In America? Getouttahere! Given characteristic US inability to balance the books (what's that?), it's certainly something they should consider, though:
Yet there is another fiscal option that neither party seems to be considering. The U.S. needs to do exactly what it would if it were a severely indebted company: sell off assets to balance its books...The mystery is why freedom-loving Americans are so averse to privatization—a policy that has been a huge success nearly everywhere it’s been tried. From Margaret Thatcher’s Britain, where the word “privatization” was coined, to present-day China, selling off government-owned industries has not only improved the fiscal position of governments; it has usually enhanced the efficiency with which the sold assets are managed...
So let’s get down to business...the U.S. government currently has about $233 billion worth of nondefense “property, plant, and equipment,” according to the Treasury’s Financial Management Service. That is almost certainly an understatement. The government owns somewhere between 600 million and 700 million acres of land, or about 30 percent of the country’s land surface, much of it in the Western states, where as much as half the land is federally owned.Washington could also sell its stakes in the Southeastern Power Administration and related assets as well as the Tennessee Valley Authority’s electric-power assets. There’s Amtrak (which runs at a loss) and the extensive hydroelectric empire of the U.S. Army Corps of Engineers.And then there are the assets that have the potential to be among the most lucrative of all: America’s highways. Plenty of other countries—Japan, Turkey, and even China, to name just three—have already privatized substantial parts of their transportation infrastructure, leaving private companies to manage both revenues and maintenance.
American highways sold to foreign investors? It may sound unthinkable, but it’s already happening. Indiana recently leased the operation of the state’s principal 157-mile highway to a consortium led by the Spanish company Cintra and the Australian investment bank Macquarie. For the next 75 years, the consortium will collect the tolls from motorists. Indiana got $3.85 billion upfront. The city of Chicago has done a similar deal, leasing out its Skyway toll bridge for $1.83 billion. A few other state governments have been moving hesitantly down this same path, usually by setting up public-private partnerships to manage stretches of highway.
But there’s so much more that could be done. California’s government has an estimated $103 billion in assets, including state highways with a book value of $59 billion. Are you telling me a sovereign wealth fund from, say, Singapore couldn’t do a better job of running those choked and often potholed roads? Yet one of Gov. Jerry Brown’s first acts since returning to office was to cancel a planned privatization of state-owned office buildings.
From sea to shining sea, American politicians are running scared from the only credible solution to the country’s fiscal crisis. Rather than publishing honest balance sheets with meaningful valuations of both their assets and liabilities, they’d rather maintain the fiction that it’s their job to invest billions in high-speed railroads and the like.Let’s face it: if you want to see serious investment in America’s infrastructure—and the American Society of Civil Engineers estimates that a full upgrade would cost $1.3 trillion—it isn’t going to come from the likes of Governor Brown, much less President Obama. They’re broke, folks [Amen to that].There are, remember, two kinds of economies in this world: those with guns and those who dig—those with piles of cash and those with mountains of debt. Sure, the debtors can keep on borrowing until their creditors revolt, or they can try to dig their way out with austerity budgets. But a better idea would be to get smart and start inviting bidders to what could be the sale of the century.
I am thoroughly in agreement with this. Having encouraged the Chinese to run US K-12 schools, I also think broke public American universities (alike the much-vaunted but now struggling for survival UC system) should be sold to foreigners too. To tweak my colleagues at IPE@UNC, their highly reputable but down-at-the-tar-heels institution could probably be sold to LSE IDEAS' partner institution, Peking University! I can see it now: the Tar Heels, property of the PRC.
Fire sale America: it's long overdue. To be fair, however, Niall Ferguson may have overlooked resistance here in the UK against similar plans. Although the UK isn't nearly as broke as the US, Environment Secretary Caroline Spelman recently had to withdraw the idea of selling 258,000 hectares of state-owned woodlands over alleged environmental grounds:
Controversial plans to sell 258,000 hectares of state-owned woodland in England have been abandoned. Environment Secretary Caroline Spelman told MPs the government had "got this one wrong", as she announced the current consultation was being halted. Instead, it is understood a new panel of experts will be set up to look at public access and biodiversity within the publicly owned woodland. Labour said it showed the government was "incompetent" and "out of touch". The plans were intended to give the private sector, community and charitable groups greater involvement in woodlands by encouraging a "mixed model" of ownership.I doubt whether the Yanks will long be able to afford to make similar excuses. Moreover, $233 billion worth of non-defence plant, property and equipment by Niall Ferguson's calculations is a drop in the bucket compared to trillion-dollar plus deficits the US has run and will continue to run. What happen after the US has fully unloaded the family silver? Then again, desperate times call for desperate measures.
But critics argued it could threaten public access, biodiversity and result in forests being used for unsuitable purposes. The public outcry over the plans led to half a million people reportedly signing a petition against the sell-off.
In a statement to MPs, Mrs Spelman announced the policy was being removed from the Public Bodies Bill currently going through Parliament. She said: Ms Spelman said: "I would first like to say that I take full responsibility for the situation that brings me before the House today. "Let me make it clear that we have always placed the highest priority on preserving access and protecting our forests...But the forestry clauses in the Public Bodies Bill, published well before we launched the consultation, gave the wrong impression as to the government's intentions."
