NCPA - National Center for Policy Analysis

Benefits of Private Infrastructure

May 7, 2012

Around the world, governments are responding to elevated need-based spending and below average tax revenues by selling government assets.  Services and products that have been staples of federal governments are quickly finding private ownership as hedge funds and investment groups see unprecedented opportunities to enter growing industries, says Stephen L Carter, a professor of law at Yale University.

This is particularly true in the infrastructure sector, where private funds interested in investment have been estimated at $180 billion.  Highways, railways and bridges are all auction-worthy assets that can bring much-needed funds to state and local governments.  And the benefits would not only be budgetary: private ownership would create a more efficient payment system.

  • In the status quo, user fees collected via tolls are far below the level necessary to maintain the nation's roadways.
  • Over the past 60 years, the amount spent on roads has exceeded the user fees by more than $600 billion (in 2005 dollars).
  • The difference is made up by indiscriminate taxation of the state or local community, levying funds from citizens who have never driven on a given roadway or don't drive at all.
  • Private funds would respond by raising tolls so that roadways pay for themselves: this would ensure that those people who benefit from the service are the same people who pay for it.

The benefits of this system are not illusionary -- state and local governments are already engaging private investors in infrastructure projects rather than expend scarce government resources.

Progressives continue to decry the privatization of the nation's infrastructure, yet their criticisms fail to produce the cash necessary to maintain these government services.  Indeed, this form of opposition is on the wrong side of history and fails to recognize that the trend of privatization already has substantial momentum.

  • Private primary and secondary education is heavily preferred by those who can afford it.
  • FedEx and UPS were significantly undercutting the U.S. Postal Service's monopoly long before the Internet made most of the rest of the mail obsolete.
  • Not even the fabled monopoly on the legitimate use of force has survived, as police are now greatly outnumbered by private guards in the United States.

Source: Stephen L. Carter, "Buy, Sell or Hold: How Can Governments Decide?" Bloomberg, April 26, 2012.

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