Trump's plans for mass
privatization are a colossal giveaway to the 1%—and Democrats helped pave the
way.
July 19, 2017 | July issue
Nostalgia for the New Deal is not
typically the provenance of the Right, but in a November interview with the Hollywood
Reporter, right-wing news exec-turned-Trump strategist Steve Bannon suggested
the new president’s trillion-dollar infrastructure plan would recreate the
heady days of the Works Progress Administration:
“With negative interest rates
throughout the world, it’s the greatest opportunity to rebuild everything. Ship
yards, iron works, get them all jacked up. We’re just going to throw it up
against the wall and see if it sticks. It will be as exciting as the 1930s,
greater than the Reagan revolution—conservatives, plus populists, in an
economic nationalist movement.”
One might be tempted to
dismiss this bizarre pitch as, say, the product of a late-night game of
ideological Mad Libs. But Trump and Bannon’s apparent rejection of neoliberal
orthodoxies, including fiscal austerity and free trade, inspired hope that
progressives might actually be able to negotiate with Trump on a small number
of economic issues—if they could avoid collaborating in an otherwise racist,
reactionary agenda. Infrastructure, in particular, was an area where the new
administration implied it might break with conventional wisdom and endorse
massive federal spending. For decades, governing Republicans and Democrats have
neglected this sector in the name of fiscal responsibility. As a result, our
bridges, levees, water treatment systems and other infrastructure require
trillions of dollars in repairs, according to the American Society of Civil
Engineers—not to mention the new investments in transit and renewable energy we
urgently need to curb climate change.
Fast forward to Trump’s
“infrastructure week” in June, however, and it’s clear that neoliberalism is
alive and well under his administration. In a flashy White House ceremony on
June 5—timed, it seemed, to distract the public from the Comey hearings—the
president announced a “great new era in American aviation,” meaning he was
asking Congress to privatize the air-traffic control system. In place of actual
federal investment, Trump has signalled that he plans to ramp up federal tax
incentives for public-private partnerships that hand control of our
infrastructure to Wall Street firms, which are ready and willing to manage it
in exchange for hefty fees. That’s a strategy pioneered, in part, by Wall
Street-backed Democrats such as Chicago Mayor Rahm Emanuel and New York Gov.
Andrew Cuomo. Their slow-burn privatization of local assets appears to have
laid the groundwork for a scorched-earth campaign by Wall Street to buy up our
infrastructure under Trump.
If you want a vision of that
future, to borrow from George Orwell, imagine a human hand scrounging up coins
to feed the meter—forever. Our highways, airports, sanitation systems,
utilities and water systems might start to look a lot more like the parking
meters Chicago privatized in an infamous 2008 deal that gave investors,
including Morgan Stanley, the right to collect all revenues for 75 years in
exchange for an upfront payment to the city. After hiking rates, the new
private owners are on track to make their investment back by 2020, not to
mention the $41 million and counting in fees for “lost revenue” they receive
from the city every time a road closes.
These sorts of deals are more
than just a headache for drivers. A 2014 study by Roosevelt University
sociologist Stephanie Farmer found that Chicago’s parking-meter deal also tied
the hands of city planners in building equitable, environmentally sustainable
transit, because the city was contractually obligated to pay Morgan Stanley for
each parking spot replaced by a bike or bus lane. That points to perhaps the
biggest threat posed by
Trump’s plan: By wresting
control of key policy decisions from elected government and locking in deals
for periods that often exceed human lifetimes, privatization hobbles our
collective power to address some of the most pressing challenges we face, from
fighting climate change to dismantling racial and economic inequality.
IT CAME FROM THE LAND DOWN
UNDER
The White House has yet to
release a formal proposal on infrastructure, but there are plenty of
indications of the tack it wants to take. Trump’s 2018 budget blueprint
actually cuts existing sources of public funding for highways and endorses
privatization of publicly owned power grids and highway rest stops. A White
House fact sheet released in June suggests the allocation of an additional $200
billion for infrastructure, without specifying whether this would come from
direct spending or tax breaks for private developers. The remaining $800
billion, it seems, would be generated through some sort of private-sector
alchemy.
In a June op-ed in the Guardian,
former Clinton labor secretary Robert Reich noted that, in one such scenario,
“for every dollar developers put into a project, they’d actually pay only 18
cents—after tax credits—and taxpayers would contribute the other 82 cents
through their tax dollars.”
To be fair, however, Trump’s
infrastructure agenda is already creating jobs—or at least, one job: the
special assistant to the president for infrastructure policy. In February, that
post was awarded to DJ Gribbin, a close family friend of former Vice President
Dick Cheney. Gribbin was, until 2015, the managing director and head of
government advisory at the financial services firm Macquarie Capital, where he
specialized in designing public-private partnerships. This isn’t Gribbin’s
first spin through the revolving door. Prior to signing on with Macquarie, he
was an official with the Federal Highway Administration in the George W. Bush
administration. Before that, Gribbin spent six years as the director of public-sector
business development for Koch Industries. According to a June report by the
Checks & Balances Project, a full 70 percent of senior Trump administration
officials have worked for various arms of the Koch advocacy network.
Nicknamed “the vampire kangaroo”
for its insatiable thirst for public assets worldwide, Australia-based
Macquarie is on a short list of firms that could benefit enormously from a
sell-off of U.S. infrastructure. In particular, In These Times identified at
least six people (including Gribbin) working on infrastructure and
transportation policy for the Trump administration who have direct ties to
financial and consulting firms that stand to profit from infrastructure
privatization.
Gary Cohn assumed the helm of
Trump’s economic council fresh from the presidency of Goldman Sachs, which has
discussed in regulatory filings dating back to 2008 its intent to buy and
operate U.S. infrastructure, as the International Business Times reported in
May. (Cohn has said he plans to recuse himself from any matters directly
related to Goldman.) Meanwhile, Blackstone Group CEO Stephen Schwarzman is
reportedly advising Trump on infrastructure as the head of his Strategic and
Policy Forum, an unofficial cabinet of business advisers. Schwarzman’s firm recently
launched a new investment fund it hopes will eventually provide $100 billion of
purchasing power for infrastructure projects, primarily in the United States,
according to Bloomberg.
Why do some of the world’s
biggest banks and private-equity firms want to become toll collectors? For one
thing, investments in highways, airports and public utilities are generally
considered low-risk, given the likelihood that people will continue driving,
flying and using electricity. They also have the potential for high return if
the new owners can raise tolls, slash operating costs (mostly from the
pocketbooks of workers) or introduce creative new user fees.
A global wave of privatization
by cash-strapped governments in the 1990s opened the door for financiers to
purchase and manage infrastructure en masse. Macquarie pioneered a new approach
when the firm realized that it could purchase the right to manage a public
asset, then spin out ownership to investors, collecting fees at every stage of
the process. If things went off the rails, the investors—often pension funds or
individual retirees—would be the ones left holding the bag. The “Macquarie
model” caught fire on Wall Street. Private investment in infrastructure rose to
a record $413 billion last year, according to the data firm Prequin.
HIGHWAY EVANGELISM
For the past decade, Macquarie
and Goldman Sachs have been instrumental in pushing this model in U.S. cities
and states, often with the assistance of local Democratic officials. Macquarie
was part of a consortium of investors that pulled off the first privatization
of a U.S. public toll road in 2005, when then-Chicago Mayor Richard Daley sold
the Chicago Skyway for $1.8 billion, giving investors rights to the road for 99
years; the tolls have since doubled while wages for toll collectors were
slashed. (A 2006 review of the lease agreement by the NW Financial Group, an
advisory firm, concluded that the public sector could have generated just as
much revenue, asking, “If road users are willing to pay higher tolls, why not
capture those funds for the public good?”)
Goldman, meanwhile, took home
$9 million in fees for its services advising the city of Chicago on the sale.
Speaking to Mother Jones in 2007, Mark Florian, then-chief operating officer of
Goldman’s municipal finance division, said that this was an “eye-opening”
experience. Flooded with calls from eager investors, Goldman realized it could
effectively get away with highway robbery by working both ends of road
privatization deals: advising local governments for a tidy fee, while also
offering its investors a way to cash in. Goldman quickly launched a $6.5
billion dollar infrastructure investment fund, and Florian proceeded to visit
more than 35 statehouses to “help spur the market.” He told Mother Jones, “I at
times tell my colleagues that I kind of feel like a missionary—out trying to
sell the religion.” Among the new converts was then-New Jersey Gov. Jon
Corzine, himself a former Goldman Sachs CEO, who tried to sell the New Jersey
Turnpike in 2007. (He withdrew the plan after public outcry.)
In May 2006, Florian and a new
Macquarie hire, DJ Gribbin, testified before Congress to champion this new
mechanism of highway financing. Gribbin lauded the potential to “liberate” dead
capital by handing it to the private sector, but called on the federal
government to address “the length and the challenges of going through the
environmental [review] process.” (Incidentally, Trump is promising to do just
that.)
Macquarie also flexed its
muscles to influence state and local politics as a member of the Koch-backed
American Legislative Exchange Council (ALEC). For decades, the ALEC agenda has
helped set the stage for infrastructure privatization by “depriving the
government of key revenue,” says Lisa Graves, executive director of the Center
for Media and Democracy, which runs the website ALEC Exposed. “If you make it
harder for governments to raise taxes, you create a situation where the
government has to resort to public-private partnerships.”
That’s not all. In 2011, as
chair of ALEC’s subcommittee on transportation and infrastructure, Macquarie
senior vice president Geoff Segal introduced a model bill that promoted
privatization by establishing a state “office of public-private partnerships.”
At least five states and cities have established such offices, most recently
Washington, D.C. More than 30 states have passed legislation enabling some form
of public-private infrastructure partnerships.
While many of these laws have
pertained to privatization of transportation, financiers have their eyes on
other public assets as well. In 2006, Macquarie bought Thames Water, Britain’s
biggest water company. Rates rose steeply, yet quality suffered. In 2011, the
company was fined £204,000 over a series of incidents where “untreated sewage
burst from a sewer the company had failed to repair into streets and gardens”
in a London borough, according to a report in the Guardian.
A handful of U.S. cities have
already handed over management of their water systems to Wall Street firms,
with dubious results. A December 2016 New York Times investigation found that
water rates in Bayonne, N.J., had risen nearly 28 percent since 2012, when the
Wall Street-structured privatization deal took effect. Some residents of the
working-class city have fallen so behind on water bills that the city has
placed liens on their homes, putting them at risk of foreclosure. To quell
public opposition to the deal, city officials initially promised residents a
four-year rate freeze—one that never materialized, the Times found, because the
privatization contract guaranteed a minimum revenue stream.
Such constraints underscore
that the problem with such deals isn’t merely financial, says Donald Cohen,
executive director of the anti-privatization group In the Public Interest.
“It’s the issue of control. You’re giving a corporation contractual power over
the stuff that we count on every day. You’re reducing the flexibility of
elected officials to do their job for all of us.”
THE ART OF A NEW DEAL
If Wall Street is looking
toward the infrastructure market as its next big cash cow, it faces a major
challenge: There are only so many projects available to invest in. The United
States is an attractive market, but local projects have typically been financed
through the municipal bond market, which provides relatively meager returns.
The prospect of a slew of new
public-private partnerships under Trump, therefore, has both Wall Street and
private operators salivating. Among the industry groups that have lobbied the
administration and Congress on an infrastructure overhaul so far this year,
according to federal lobbying disclosures, are BlackRock, the world’s largest
investment management company; the Securities Industry and Financial Markets
Association, a Wall Street trade group; American Water, a private water
company; two private tolling companies; and free-market proselytizer Heritage
Action for America.
On the final day of Trump’s
infrastructure week, a group of two dozen New Yorkers gathered for an
unsanctioned rechristening of Penn Station, which the state is considering
selling. The new name that community activists announced in a mock
ribbon-cutting, “Blackstone Station,” was part protest, part portent. New York
Communities for Change (NYCC), the group that organized the action, sought to
highlight Trump’s ties to the Blackstone Group, which already invests in
railways.
But equally concerning, says
NYCC Executive Director Jonathan Westin, are Gov. Andrew Cuomo’s ties to the
firm. One of his top advisers previously earned millions as a Blackstone exec
and retains a financial interest in the firm, according to a 2015 financial
disclosure. Cuomo proposed privatizing the station earlier this year, and it’s
not hard to imagine the state selling it to a firm like Blackstone, with a
blessing—and perhaps tax credits—from the federal government.
“There’s potential for a very
dangerous coalition between Donald Trump and Wall Street-backed Democrats,”
says Westin.
In November 2016, top
Congressional Democrats, including House and Senate minority leaders Nancy
Pelosi and Chuck Schumer, signaled their willingness to work with Trump on
infrastructure. They soured on the idea as more details emerged and now vow to
oppose “nationwide Trump tolls.” But advocates like Westin worry that when push
comes to shove, paving the way for infrastructure privatization will prove a
bipartisan issue. Schumer, in particular, isn’t known for his resolve when it
comes to Wall Street. Goldman Sachs has donated more than $575,000 to Schumer’s
campaigns; Blackstone has given nearly $220,000 and was Schumer’s third largest
donor in the 2016 elections. As a member of the Senate finance and banking
committees, he voted for the repeal of the Glass-Steagall Act, helped design
the 2008 bank bailout and opposed efforts in his own party to raise taxes on
private equity and hedge funds.
At the local level, where most
infrastructure projects must be approved, politicians, unions and community
groups could easily be “seduced” by Trump’s faux-populist rhetoric and the
promise of jobs, warns Mark Griffith, executive director of the Brooklyn
Movement and co-director of the nationwide Millions of Jobs coalition, which
includes NYCC, Indivisible, AFSCME, Communications Workers of America, and
other labor and progressive groups. The coalition hopes to make it more
difficult for Trump to sell his plan. When the president spoke at a private
marina in Cincinnati, flanked by private developers as part of infrastructure
week, Millions of Jobs helped mobilize a nearby protest where demonstrators
held signs reading, “Cincinnati is Not for Sale.” The coalition is also
lobbying local officials to sign on to a set of 10 principles that any
infrastructure plan should adhere to, including direct public investment and
prioritization of racial and gender equity, environmental justice and worker
protections. Nearly 50 local and state leaders have signed on thus far,
including Indianapolis Councilmember Jared Evans, whose district is home to the
closing Carrier and Rexnord factories that made headlines during the 2016
elections.
In the long run, Millions of
Jobs hopes to push for something akin to the alternative infrastructure plan
introduced by the Congressional Progressive Caucus on May 25, which would be
funded by a Wall Street transaction tax and closure of the tax deferral
loophole. The $2 trillion plan, called a “21st century New Deal,” promises to
“employ 2.5 million Americans in its first year, to rebuild our transportation,
water, energy and information systems, while massively overhauling our
country’s unsafe and inefficient schools, homes and public buildings.”
Winning any such new deal will
require mass mobilization, a tough prospect when some segments of the labor
movement are under Trump’s sway and many vulnerable communities are busy
putting out daily fires. While infrastructure isn’t the “sexiest” issue, “it’s
important for women, for neighborhoods of color, for rural areas to be centered
and understand that their interests are at stake,” says Griffith. “It’s in the
interest of the Trump administration to really paper over those equity
conversations. We need to make sure that when we talk about infrastructure, we
talk about community broadband, about water systems that don’t poison us, about
climate change and heat vulnerability.”
That’s particularly important
given that a massive infrastructure giveaway to Wall Street could help lock in
its dominance of our economy and politics for a generation, further stacking
the deck against real populist movements. “When these deals go through, they
can last a lifetime,” says the Center for Media and Democracy’s Graves. “If
there is not careful attention paid to what is transpiring, this could be an
albatross that we’re saddled with long after Trump himself is gone.”
Rebecca Burns is an In These
Times associate editor. Her writing on labor, housing and education has also
appeared in Al Jazeera America, The Chicago Reader, Dissent, Jacobin and other
outlets. She can be reached at rebecca[at]inthesetimes.com. Follow her on
Twitter @rejburns.
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