Will Obama Privatize Public Assets To Pay For “Economic Recovery”?
Obama’s old school economic team is on record as favoring privatizations of public resources in principle. Unless Obama is willing to significantly cut the military budget or tax the rich, neither of which seems very likely, the only way to pay for even a reasonably large jobs and recovery program is to kill other jobs through a wave of Chicago-style privatizations. And privatizations are always bad for democracy.
Dr. Michael Hudson is an economist, a professor at the University of Kansas, and a really smart guy. During the presidential campaign he was
chief economic advisor to Democrat Dennis Kucinich. By April of this year, Hudson was predicting an imminent financial meltdown.
Foreign banks, he said, were beginning to wake up to the fact that the balance sheets of their U.S. counterparts were full of wholly imaginary earnings, wildly overvalued assets and unpayable loans. Before summer Hudson claimed that U.S. banks had ceased daily reconciliation of their interbank transfers at the end of each day because they lacked the cash to pay them. Months in advance, Hudson forecast with reasonable accuracy the character of the bipartisan bailout—that some institutions would go under, but that government would try to rescue investors and shareholders while leaving homeowners and consumer creditors—ordinary people—under a mountain of unpayable debt. Foreign bankers, he predicted, would gradually begin to withdraw from funding the U.S. economy.
Hudson is not one of the financial geniuses that gave us the present mess. Perhaps for that reason, he hasn’t been invited to join Barack Obama’s economic transition team, which looks a lot like the speed dial list on former Goldman & Sachs CEO Robert Rubin’s cell phone. Still, even if Barack Obama isn’t listening to Hudson, maybe we should.
The president-elect has made the welcome promise of an ambitious jobs and public works program, with emphases on infrastructure improvements and repair, which will begin laying the basis for transition to a post-petroleum economy. With a month to go before his term starts, it will be a while before anybody sees what the legislation and rule changes to make this happen will look like. We do know it won’t come cheap. What we don’t know is how an Obama administration intends to pay for any jobs and infrastructure programs. Michael Hudson, an economist who predicted the mess and the bailout, thinks he knows how that will go down.
Paraphrasing him a little, he says that there are four ways to pay for an ambitious jobs and infrastructure program.
The first way is to borrow the money from foreigners, the same as we do for everything else, including the U.S. military budget, which now dwarfs all the money spent on things military by the other 95 percent of humanity. This may prove difficult, as our creditors in Europe and China are increasingly certain they will never be repaid all that they are owed already.
The second way to pay for an ambitious New Deal style jobs and work program is to tax the rich. When income taxes were introduced at the beginning of the twentieth century, they did just that. If the income tax laws of 90 years ago were applied today, nobody who made in today’s money, under $30,000 a year, paid any income tax at all. But in the last 90 years, income tax laws have been rigged to exclude most of the income of the wealthy. Taxes have become something that “little people” must pay, and that wealthy people can avoid. Hudson thinks that an Obama administration will increase taxes on the rich, but only marginally, not enough to relieve them on the rest of us, not enough to fund any New Deal, and certainly not enough to hurt his standing among the Wall Street insider types his administration is already filling up with. Hudson’s predictions are already being borne out by Obama’s recent announcement that Bush’s infamous tax cuts for the rich, rather than being repealed as he promised during the campaign, will be allowed to persist for one more year. Tellingly, Obama has also renounced a campaign promise of a windfall profits tax on oil companies.
The third way to pay for an ambitious jobs program is to cut the military budget, and use those funds to pay for jobs, education, health care, infrastructure and the conversion to a green economy. That won’t happen either. Obama’s entire foreign policy team is drawn from old-schoolers from the Clinton era, and his Department of War, is headed by Robert Gates, formerly deputy director at CIA for most of the Reagan and the first Bush administration. Obama says he will increase the military budget and he pledges to be able to fight multiple foreign wars simultaneously. Just as the Vietnam War sank Lyndon Johnson’s Great Society, the Pentagon budget will severely curtail domestic expenditures for human needs. So this is not in the plans of the Obama administration either.
The last way to pay for an ambitious jobs program is to give away the last scraps of public resources and public power to the wealthy corporate actors who have already driven the U.S. economy into the ground. Obama can privatize whatever public assets still exist, leasing or giving them outright to multinational corporations for an up front fee. Once the money is spent, of course, the public assets are no longer public at all.
Despite being a bad and profoundly anti-democratic notion, the privatization of public assets, euphemistically called “public-private partnerships” have become a favorite tactic of Republicans and Democrats alike. There may be a time and place where privatization is a good idea, but we haven’t seen it.
The Clinton administration, whose hacks have filled up Obama’s transition team, started the privatization ball rolling in a big way with its “Reinventing Government” initiative. Clintonistas decreed that every federal government function had to be analyzed with a view to what could be spun off to a private vendor, and whatever could be privatized must be. They next declared that in order to get federal funds, state and local governments would have to do the same, thus creating from nothing a multibillion dollar industry of contractors that did prisons, prison medical care, fleet operations, government payroll, child support enforcement, handed out birth certificates, parking tickets, in short every single function of government.
The pirates of the Bush administration substituted their cronies for those of the Democrats, and carried the mania for privatization even further, into the military and intelligence establishments, something else an Obama administration will have to address, but that’s another story.
Privatization has long been a mania among the kinds of unimaginative establishment Democrats who make up the Obama transition team and his cabinet so far. Obama’s adopted home-town of Chicago is a great example.
In the last year or so, Chicago’s Mayor Daley has sold off major public assets to well connected corporate insiders, including
• The Chicago Skyway Bridge (Interstate 90 from the Indiana state line into the south side)
• Midway Airport, just after billions in public money had been spent to refurbish it
• The Grant Park Underground Garages which park just under 10,000 cars on the edge of the Loop
• The entire city’s parking meters and parking meter enforcement for the next 75 years.
Fran Spielman of the Chicago Sun-Times points out that the city got a one-time payment of $6 billion for all this, and that the city loses another half-billion a year in property taxes to other wealthy and well-connected insiders through its special taxing districts, or TIFs, which have become a standard feature in U.S. cities everywhere. As a result the city is rolling in cash for a moment, but faces a bleak future in which subsequent mayors and city councils will have few resources to dispose of on behalf of the people that elect them, and multinational corporations can funnel contributions to politicians to keep their control of public resources indefinitely.
Chicago is not unique. Gwinnett County in suburban Atlanta just turned the express lanes of Interstate 85 into toll lanes and leased them to a well-connected contractor. Atlanta’s previous mayor even privatized the city’s water and sewer operations, a disastrous move that had to be undone by the current mayor Shirley Franklin. An enthusiastic fan of privatization herself, Franklin’s mayoral transition report, the Bain Report called for “opportunistic” privatization of the city’s parks, garbage collection and more, but the water privatization fiasco made those “opportunistic” privatizations politically impossible. Texas has been turning public roads into private toll roads for some time. This, to the kind of Democrats that surround Barack Obama, is what progress and prosperity look like.
For the big time corporate bosses, large scale privatization of government services and the public sector is a necessity because of their declining rates of domestic profit. Aside from consumer debt and military expenditures, privatization is the only industry where profits are expected to grow and remain secure, even in hard times.
But for the rest of us, the widespread privatization of public resources are bad news indeed. Privatizations are bad for democracy; bad for everybody except the contractors who get paid, and the politicians who get paid off.
Privatizations remove workplaces, their budgets, policy making and decision implementation out of spaces where public accountability is possible, and into private boardrooms immune from oversight. When the fleet operations of your county or city are privatized, for example, repair and maintenance schedules and procedures, which were once open to democratic public scrutiny, become proprietary information, so nobody can question any longer how public monies are being spent.
When government operations are privatized, wages and benefits fall through the floor, and the possibility of democracy in workplaces disappears. Privatizations remove large resources built and developed with generations of public funding from even the possibility of democratic control, and place them under irresponsible corporate shareholders and managers whose only goal is profit. Often, as was the case with the Chicago Skyway and Midway Airport, privatizations only occur after a major public investment to improve the asset. Private managers typically rape the asset, extracting as much profit as quickly as they can while providing as little service as possible and reinvesting next to nothing. When the asset fails to perform because of their refusal to reinvest in it, they go back to the same politicians who signed the deal (and to whom they have contributed generously) for an infusion of cash, to renegotiate the terms of the deal, or sometimes to hand the asset back after they’ve milked it dry.
Historically, a large proportion of African Americans who can afford to live modestly well have been government employees of one sort or another. Their livelihoods are the first ones threatened by privatizations. Obama and his economic team are smart people. They know all of this. If they are, as Michael Hudson believes, counting on a Chicago-style wave of privatizations to pay for a jobs and clean energy program, they’ll need some fancy footwork and a smokescreen of lies.
In the black community, Obama’s presidency is frankly billed as “the fulfillment of Dr. King’s Dream.” But the real Dr. King and the Freedom Movement opposed the war in Vietnam, the U.S. military budget and the worldwide U.S. empire of their day, as fiercely as they did racial discrimination, both because it consumed the resources to be used for human needs and because the work of empire is inevitably genocide and war. The real Freedom Movement and the real Dr. King fought against economic injustice at home as boldly and tenaciously as they did Jim Crow. Dr. King died in Memphis, in the midst of a near general strike situation, with the city’s high schools and some (not that many) churches in the streets over the wages and benefits paid to the city’s black sanitation workers.
To sell a phony program of economic recovery through privatization, an Obama administration will have to deploy the remanufactured and sanitized ghost of Dr. King against the man’s historical work, and against the tens of millions who voted for Barack Obama because they wanted change. Wholesale privatizations of this kind are also the toxic “medicine” the IMF and World Bank (and some of Obama’s advisors) have historically provided for third world countries in economic distress. It didn’t help them. It won’t help us.
If we take the advice of Dr. Hudson seriously, we ought to insist that the Obama economic recovery program be funded by a wholesale restructuring of the U.S. tax system, so that the wealthy, however their income is derived, are taxed more than the incomes of people who depend upon wages. We ought to insist on debt relief for consumers and homeowners, not bonus and salary relief for bank execs and shareholders, which is all the Wall Street bailout seems to have accomplished. It’s not too early for us to think and talk, not only about what we expect from an Obama administration, but how we demand that it unfold.
Given the old-school makeup of Obama’s cabinet, his economic and foreign policy advisors, the hedge funders, the Wall Street wise guys and corporate interests of all sorts already have both his ears. It’s not at all too early for the people to begin grabbing his lapels, and giving him some other input.
Bruce Dixon is managing editor at Black Agenda Report. He can be reached at bruce.Dixon@blackagendareport.com
—Black Agenda Report, December 10, 2008