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Friday, July 9, 2010

Jersey Drivers Fear Privatization Costs (or, Christie's Monopoly)

In New York you can go to a gas station and get your emissions sticker in ten minutes. In New Jersey, drivers have to go to a handful of emissions centers, often in the middle of nowhere, and risk losing half a day of work waiting hours for substandard, surly service that makes us pine for the DMV.

New Jersey Governor Chris Christie is considering a task force's proposal for the privatization of numerous state services. Drivers beware! 

Many conservatives endorse the theory behind privatization. That theory posits that government spending is wasteful and inefficient and that such spending, if made by a private company, is automatically more beneficial. But the practice is often something else entirely.

Democrats are criticizing the proposal. (There's a surprise!). They claim that Christie will be replacing government services (theoretically reducing costs) with services provided by private entities which can charge all sorts of fees. But there's more.

In New Jersey, car owners remember the disaster from privatization of emissions testing. It resulted in long delays and malfunctions from testing computers run by a private company not as accountable as the state is to the people. That's because the private company is essentially a state-licensed monopoly. Therein lies the danger.

As a for-profit entity its mandate is not to serve the public. Its mandate is to serve its shareholders -- that is, to make a profit!

Nothing wrong there. But then remember that the company will not be in the free market, where supply and demand tend to regulate prices and quality. This company will be a state-selected monopoly, in which case it will be shielded from free market checks and balances...and drivers will be the worse for it.

The combination of monopoly power with the profit motive has been recognized by our federal government as harmful ever since the Sherman Antitrust Act was enacted in 1890. The savings to the taxpayer are illusory, as taxes are replaced by even higher fees and services which, combined with less or no accountability to the public (taking advantage of its monopoly status), are destined to be substandard.

One wonders if the proponents of privatization, in practice, realize that Christie-style capitalism boils down to a few principles, as follows:

Payments you are required by law to make to government are called taxes and are bad; however, payments you are required by law to make, in order to drive your car, are not taxes because they go to a private company with government-granted monopoly power, so they're called "fees" and "retail prices."

A slavish adherence to conservative orthodoxy will have Republicans sanctifying these privatization proposals as something akin to sacraments. Never mind that drivers will pay more and have less.

Whether you have overt taxes or taxes in drag, the people are subject to mandates to make payments in order to drive. Fees imposed pursuant to government mandate and collected by private entities, who win government-awarded contracts, are taxes in all but name. The only difference is in the choice of how the payment is characterized. This use of the English language to deceive is worthy and reminiscent of the Clintons.

There may be a bright side. Payments to the state-chosen monopoly can be rationalized away as consumer spending that is stimulating the economy. But I digress.

If you want to discover the real reason this privatization is being pushed, just follow the money. The owners of the private companies will make money through protected monopoly status. That is the real objective here.

The higher costs to the driving public in both increased fees (a tax by any other name, also reducing real discretionary net income) and likely inferior service (thus costing us time) do not factor into the concerns here. To the extent costs are cut, those costs will be passed on -- if not increased on the way -- to the driving public.

This set-up is not capitalism. It is a cost-shifting, government-endorsed monopoly that will transfer wealth from drivers to company owners. It smells like crony capitalism, where government power is being used to compel private citizens to give their money to selected companies.

Sound familiar? Christie has shown us this crony capitalism before...with his selections as U.S. Attorney of connected law firms to act as special monitors for wayward public companies. That practice -- and Christie specifically -- were soundly criticized by Congress and even the Justice Department.  


That's the same practice by which U.S. Attorney Chris Christie selected as a corporate monitor the former U.S. Attorney in the Southern District of New York, the same office which investigated and declined to prosecute Todd Christie (yes, Chris' older brother) while bringing criminal charges against a long stream of other defendants in a major market manipulation case (all of whom were either acquitted, had their convictions tossed on appeal or had their cases dropped before trial). 

None of this is to say that Todd Christie did anything wrong; in fact, the ultimate dispositions strongly indicate that criminal conduct was not involved and that the legal theory behind the decision to even investigate these people was defective and should not have engendered any prosecutions.  (Not the first time someone at the Justice Department has tried to show off how smart they are with a new novel theory.)  But Christie went to two people -- one a fellow U.S. Attorney turned private practice lawyer, the other (John Ashcroft) the former U.S. Attorney General -- to appoint their firms as corporate monitors on multi-million dollar contracts.  There is -- at the very least -- a strong appearance of favoritism, of back-scratching, of the New Jersey quid pro quo which a certain former federal prosecutor used to go after with abandon.  (This practice will now be diminished with the recent Supreme Court cases sharply limiting the scope of the "honest services" fraud statute.)

What does prior practice say about what we can expect with future practice?  It says that Christie-style favoritism may be a new way to give favors to a whole bunch of politically-connected hacks in private industry.  It may be a Supersized form of pay-to-play.  And here's the best/worst part: once the money hits the private coffers, we won't be able to tell where it's going.  Private industry is not subject to the transparency and "sunshine" laws that government agencies must abide by. 

If these concerns are realized, Christie's privatization could be a way to reward a group of favored private-sector insiders, shielding the details from the public, and sticking the public with higher fees and worse service.

Drivers beware. It may not be a "tax," but your wallets and purses will be lighter nonetheless.  At least the tax-spend-and-borrow-us-into-oblivion Democrats are honest about that.

Eric Dixon is a New York lawyer and New Jersey driver.

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