Prudent privatization.

• Author: Goldsmith, Stephen
• Position: Commentary

Too often, political rhetoric overshadows careful analysis.

Local and state officials across the country now face urgent questions concerning how to fund infrastructure deficits and gaping budget holes. Last year, for example, New York Governor David Paterson surprised many with his announcement that he would consider leasing state assets (such as bridges and highways) to private contractors to fix the budget. This has triggered a round of arguments for and against the idea of privatization.

Most of the voices in the debate focus on the wrong issue--public ownership --while ignoring the real issue: public value.

The privatization debate is consumed by political rhetoric taking the place of careful analysis. Some on the right argue that private ownership is always more efficient (i.e., a more efficient monopoly), and some on the left claim that corporations are corrupt and that it is somehow un-American for companies to make a profit delivering public services, even if they do it better, faster, and cheaper than government.

In fact, determining whether to sell or lease a public asset should depend on the terms of the deal itself and the uses of the proceeds. But these nuanced and difficult questions rarely surface in the public debate. This is partly because few governments, including at the federal level, have a distinct capital budget, reducing the incentive for long-term investments and encouraging financial sleight-of-hand. Furthermore, many cases show that asset sales are last-ditch attempts to fill budget gaps rather than principled efforts to provide public goods at a better price.

This motivation is understandable. City, county, and state budgets across the country are structurally out of balance as they face falling tax revenues and promises for public services that far exceed what taxpayers or the economy can bear. Over the last 10 years, state spending on education, health care, welfare, corrections, and trust-fund benefits increased 100 percent, and many states are on track to double again between 2000 and 2010. Crisis requires action, and it may be better to sell an asset than to allow a government to renege on promises or lapse into bankruptcy

However, despite these tough conditions--or perhaps because of them--glossing over the problem by selling assets delays disaster rather than preventing it. Those who favor privatization should not support monetizing a physical asset to fill a budget hole without dealing with the...