America's New Watchword: If It Moves, Privatize ItEric Schine
American Water Works Co. is waging a $300 million hostile takeover bid--but it's not the usual corporate raid. The Voorhees (N.J.) water-supply company is fighting for control of the Santa Margarita Water District, a public entity that serves homes across Orange County, Calif. American Water helped organize a voter-petition drive to dissolve the district and turn control over to the company. It vows to take on the district's debt and cut costs.
American Water is one of dozens of companies seeking to tap into voters' disgust with government. Rural/Metro Co. in Scottsdale, Ariz., is snapping up contracts to run fire departments and emergency medical services. Corrections Corp. of America in Nashville and California Private Transportation Co. in Anaheim, Calif., are building prisons and toll roads. "We work our people with business goals in mind," says Mark E. Liebner, Rural/Metro's chief financial officer. "We know how to be efficient."
Now, with the Republican landslide complete, more privatization is looming as politicians from Syracuse, N.Y., to San Juan Capistrano, Calif., fall all over themselves to shrink government. "We've been trying to drive down the cost of doing business," says Indianapolis Mayor Stephen Goldsmith, who has privatized the city's water-treatment facilities and is attempting to do the same with the local airport. Now, says Goldsmith, the need to slim down is more urgent than ever.
DEAD ZEPPELIN. The federal government won't be exempt. There's talk of reorganizing the House Government Operations Committee to include a new subcommittee on privatization that would seek to hand over to private companies everything from air traffic control towers to government printing shops. Proponents are busy dusting off the 1988 Reagan Administration report to "The President's Commission on Privatization" to give impetus to their drive. "It's as intellectually vibrant as ever," says Christopher Cox (R-Calif.).
What will the GOP target? One obvious clunker is the national helium reserve, a government-run operation originally set up in the 1920s to ensure a secure helium supply for wartime dirigibles. Now, it supplies NASA and the Pentagon--and has piled up more than $1 billion in debt, according to the Office of Management and Budget. The Republicans also may consider such long-standing edifices to bipartisan pork as the Bonneville Power Administration in Oregon and the Tennessee Valley Authority.
Down the road, Republicans have set their sights higher. One key goal: allowing package-carriers such as Federal Express Corp. and United Parcel Service of America Inc. to compete with the U.S. Postal Service for first-class mail delivery. Many experts agree such steps could reap savings of about 25%. "It's not a matter of private vs. public," says Emanuel Savas, professor of public affairs at Baruch College in New York. "It's a matter of competition vs. monopoly."
Such thinking is driving change around the globe. Chile, Argentina, Colombia, and Peru now allow workers to invest their social security payroll deductions into privately managed funds. Earlier this year, the Netherlands held an initial public offering for 25% of the Dutch postal and telephone system. And France, long a bastion of nationalized industry, has sold off $10.3 billion in state companies this year, including oil producer Elf Aquitaine, the nation's biggest company. All told, European countries plan to privatize some $250 billion of assets over the next decade.
Washington Republicans, though, can derive inspiration much closer to home. Massachusetts' Transportation Dept. has slashed its budget by one-third, to $77 million, by bidding out road maintenance to private companies. In Michigan, Governor John Engler has agreed to sell the state's workers' compensation fund to Blue Cross Blue Shield of Michigan for $291 million. Mayors from Philadelphia to Los Angeles are fighting to allow private companies to compete for trash collection, public golf courses, even zoos.
For privatization proponents, the logic driving such deals is irrefutable: Government should get out of businesses they're not much good at. By focusing on the bottom line, says Rural/Metro's Liebner, his company provides better service at a fraction of the cost of traditional government-run services. In Scottsdale, fire losses have dropped by 84% since 1985, the year Rural/Metro first required homeowners to install in-home sprinklers. Such efforts aren't a magic wand for efficient government--but they're not a bad start.