A 2×2 Grid to Understanding Some of the Ideological Concerns of Privatization, Especially as it Pertains to Parking

LA Magazine has a big profile of Donald Shoup, the economist who has been writing about the pricing and allocation of parking spaces.  Matt Yglesias summarizes Shoup’s approach, and Peter Frase has sharp, additional comments about pricing parking for the left and left neoliberals to consider.

I took a copy of Shoup’s The High Cost of Free Parking out from the New York Occupy Wall Street library a week before Bloomberg raided and destroyed the library, so it looks like I’ll have the time to really dig into it in 2012.  But there’s interesting implications about Shoup’s experiment for privatization and the allocation of government services we should discuss now.  I have a longer essay on privatization that’ll eventually see the light of day, but for now I want to contrast two different parking space pricing regimes and turn them into a grid that can help us understand the issues at play.

(In addition to the normal graphs and charts, Rortybomb 2012 is going to feature a lot more grids.)

Here’s what Shoup’s plan does:

This spring the DOT plans to introduce an $18.5 million smart wireless meter system based on Shoup’s theories. Called ExpressPark, the 6,000-meter array will be installed on downtown streets and lots, along with sensors buried in the pavement of every parking spot to detect the presence of cars and price accordingly, from as little as 50 cents an hour to $6. Street parking, like pork bellies, will be open to market forces. As blocks fill, prices will rise; when occupancy drops, so will rates. In an area like downtown, ideal for Shoup’s progressive pricing, people will park based on how much they’re willing to pay versus how far they are willing to walk to a destination.

Frase notes that this plan isn’t simple privatization, but instead public control with market forces.  The government still sets the quota of parking, and then uses market forces to dictate the optimal price. Frase: “The ExpressPark experiment…is an exemplary case of central planning. The city begins by decreeing a production target, which in this case is maintaining one empty parking space on each street. The complex system of sensors and pricing algorithms is then used to create price signals that will meet the target.”

Since I’m in Chicago, I want to contrast the ExpressPark experiment with what has been going on with Chicago’s parking privatization.  Chicago sold off a 75 year lease for its parking meter revenues in a sweetheart deal for JP Morgan Morgan Stanley and faceless fronts of international capital with no public debate, bids or scrunity.  The plan has no emphasis on competition and market pricing either between spaces or between firms owning the resources – all public meters are owned by a single, private entity.  Though they theoretically compete with other parking solutions (and the option of not driving), the 36,000 meters that populate all streets were leased to a single private entity, which maintains control and gains the profits.

We now have two ways to distinguish changes in the provisioning of government services.  On one axis, there’s who controls the provisoning and the residual – is it in public hands or private hands?  On the second axis there’s how much competition and market reforms are driving the reform versus how much there’s monopolies and single firms dictating the allocation and the real reform comes through private ownership itself.  Graphing these for the parking debate:

I actually came across these two distinctions from Paul Starr’s excellent 1988 paper, The Meaning of Privatization.  From his paper (my bold):

Privatization should not automatically be equated with increased competition. Two related processes, privatization and liberalization, need to be carefully distinguished. By liberalization one generally means a reduction of government control; in this context, it refers to the opening up of an industry to competitive pressures. Entry deregulation of public monopolies is a form of privatization that is also liberalizing. However, it is entirely possible to privatize without liberalizing. When the Thatcher government sold shares of British Telecom and British Gas, it substituted private monopolies for public ones and introduced new regulatory agencies to perform some of the functions previously undertaken through public ownership. The option of putting liberalization first–that is, encouraging greater competition–was expressly rejected, perhaps for fear that it would reduce the share price of the companies. Conversely, it is also possible to liberalize without privatizing–that is, to introduce competition into the public sector without transferring ownership. For example, governments may allocate funds to schools according to student enrollments where families are free to choose among competing public schools; or they may require public enterprises or operating agencies to compete for capital or contracts from higher level authorities. Indeed, it is even possible to nationalize and liberalize at the same time, as the French socialists demonstrated in the early 1980s when they first nationalized banks and later liberalized financial markets…

Private ownership and competitive markets are normally thought to go hand in hand, but the two issues of ownership and market structure are often separate. For the economist devoted to both, the question then arises as to which object of affection is more beloved: private ownership or competition…Those who believe that efficient performance depends on private ownership per se favor privatization, even in cases generally regarded as natural monopolies. Conversely, those who see competition as the critical spur to efficiency are more skeptical about the benefits of privatizing monopolies and often put more emphasis on other policies, such as deregulation.

When it comes to the allocation of a good there are different values associated with each corner of the grid.  For those that think of a good as being a merit good, where the good should be assigned on the basis of citizenship, according to need or in the situation of public goods where it is difficult to discriminate among consumers, then there’s less of an emphasis on market pricing.

Market pricing replaces the subject as citizen with the subject as consumer, and switches the limitations of democracy with the limitations of the market.  Frase notes the complications that go with market reforms:  “In just three words, ‘willing to pay’, we have swept away the inequality of wealth and power that any attempt to turn market mechanisms toward planned ends must confront…It follows that asking an extra dollar for parking hurts the well-being of the poor far more than the rich, and systematically privileges those who don’t need to think twice about paying six dollars for a parking space.”

But what to make of the public or private distinction?  The benefits of publicness involve scale, time horizons and compulsion, among many other benefits.  The benefits of privatization without market competition usually are made by those who think the lack of property rights themselves inevitably lead to major problems, from “tragedy of the common” style overconsumption to various corruptions and a lack of efficient internal allocations that Public Choice theorists use as a critique of the State and public ownership generally.

But people react strongly against privatization without market competition, and there’s three good reasons why they should.  There’s the matter of who ultimately controls the residual, so if there are rents captured they go to private agents as opposed to the public.  If monopolists provide too little of a good at too high a price, that surplus goes to private agents, instead of recycling to taxpayers.  This has huge implications for whether the initial price tag is set right, for whether the government will get too little because of crony practices or because they are liquidity-constrained, and what mechanisms are in place for reevaluating the deal at points in the future.  Chances are these will all be problems, as they were in Chicago.

Often, since the logic of the market isn’t appropriate for certain situation, there are significant regulations of these allocations.  This seemingly defeats the purposes of introducing the privatization reforms itself.  For instance, private prisons have extensive regulations associated with them, because the baseline of what should be done to prisoners shouldn’t be left to market forces.  This can lead to an increase in the importance of regulations, because monitoring of private agents can become quite costly.  Lobbying by private firms to change the policy and regulations of these goods can often increase the Public Choice style corruption that privatization was meant to combat.

Finally, it makes it harder for the democratic process to play a part in the allocation, and puts elements of democracy and the public in conflict with private ownership.  For many goods associated with infrastructure and government services, these will be at odds.  In the Chicago parking meter example, when there are block parties or art fairs that block meters the public has to compensate the private owners.  Private investors need to approve or get paid for there to be public gatherings on Chicago streets.  People find this inherently offensive, as well they should.

The next two years will feature some brutal and important battles over the privatization and selling of state assets, battles even beyond the ones waged in the past two years.  It’ll be important for us to have a language and theory for how to understand and critique these arrangements.  What would you add to this?

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18 Responses to A 2×2 Grid to Understanding Some of the Ideological Concerns of Privatization, Especially as it Pertains to Parking

  1. JoyfulA says:

    What happens to people who actually need parking because they physically can’t walk X blocks? This is all set up as if all parkers are healthy young well-to-do men: How much are they willing to pay for the convenience of avoiding an easily managed walk?

    Should anyone frail, disabled, or very pregnant just stay home and stop complicating matters?

  2. Agog says:

    Thanks for the link to that Starr paper. It looks very helpful. My three good reasons have always been Distribution, Distribution, and Distribution – similar to the first of yours (and discussed quite fair-mindedly by Prof. Starr, it seems to me).

    As someone who was a teenager in the UK in the 90s, the claims made by proponents of privatization about efficiency always seemed very hollow. So I figured that I was just being told the cover story, not what the real motivations were. Later on I guessed it was mostly about the distribution of profits and rents. Very broadly we can define the public portion of an economy as the parts belonging equally to each citizen, and the private portion as the parts belonging mostly to the rich. That’s assuming an unequal society like ours; and not trying to be emotive – the definition of ‘the rich’ is basically ‘those who own most of the valuable stuff’. And anything transferred into private hands, if perceived to be valuable and if left to market forces, will tend inexorably get bought up by those who can most easily afford it.

    None of which of course is a strong argument against any particular privatization scheme, which might have some entirely laudable justification and be of benefit to all sections of society. Your other reasons have given some further food for thought…

  3. hhoran says:

    As good as this blog normally is, this post is a serious disappointment. It admits no actual knowledge of Shoup-type critiques of how parking has been provided, It improperly conflates cases the whole Shoup-based approach with extreme (but real) rent-seeking cases of public service privatization (i.e the Chicago example) . Parking in large metro areas is currently provided on a pure top-down command-and-control basis. This leads to massive distortions, huge subsidies for favored groups, and people thinking that a zero-cost parking space right in front of wherever they want to drive is a civic right that must be provided regardless of cost. Saying that parking must be evaluated in economic terms isn’t an ideological laisssez-faire argument, it is just saying that costs and benefits must be identified and weighed in light of different users/stakeholders (local business, people using roads for transport, people using roads as parking lots) and parking costs/revenues need to be considered as part of the overall urban transit (and city financial) picture. Considering drivers and shopkeepers as “consumers” of parking services is no different than considering bus riders or DMV patrons as “consumers” to some extent–it doesn’t in any way mean these aren’t fundamentally public sector services.

  4. Dan Keshet says:

    JoyfulA: Laws give placard holders the right to park for free in metered spaces. Here in Texas, for example: Law 681.006 (http://law.onecle.com/texas/transportation/681.006.00.html) says:

    “The owner of a vehicle [displaying a handicapped permit] is exempt from the payment of a fee or penalty imposed by a governmental unit for parking at a meter”

    Market pricing should make life more convenient for placard-holders, as all spaces will be priced to better encourage turnover, thus making it more likely they will find a convenient space.

  5. Dan Keshet says:

    I think there’s a good case for a municipally-owned, separately-operated parking agency, on the model of municipally-owned utilities. To change electricity rates, the city-owned electric company usually must go through rate-hearing meetings at city-appointed boards, and then get the proposal passed by council. Any profits the company makes are remitted to the city. The rates are still under political control, but the arms-length nature of it gives more freedom to the electric company bureaucrats to make a case based on what’s good for the company and put that case to council in a way that normal city staff wouldn’t do.

  6. LosGatosCA says:

    Excellent post. Excellent format. The grid makes the options clear and differentiates the factors well. Of course, it can only go so far. It can’t nor should it account for every corner case/exception.

    It seems to me that the block party, handicap exceptions can easily be addressed as more experience is accumulated, a loss rate (like a bad debt ratio) is factored into the valuation of any contract and then monitored over time. The biggest issue, as with any change, is adoption. Does the parking constituency see the change as fair, even beneficial, or do they view the impact of the change as arbitrary (why bother?) or even discriminatory (you stole my right to have a chance to get lucky and find a great free/low cost space). I’m not a great believer in rational actors so I’ll be interested to see the outcomes.

  7. Tomm says:

    Here in San Francisco, SF MTA rolled out the SFPark program about 9 months ago, which uses wireless vehicle sensors to determine vacancy rates, and then adjusts parking costs based on the data no more than once a month.
    The most recent update from SFMTA was just last week:
    http://sfist.com/2011/12/15/sf_drivers_dont_know_where_the_chea.php

    Also, I believe the SF program straddles both the Competitive Market squares in your 2×2 matrix. One of the primary goals of SFPark is to reduce congestion (and corresponding emissions) after surveys showed that, in some areas of town at some times of the day, the _majority_ of cars on the road were drivers looking for cheap on-street parking. Increasing the on-street parking rates should make it more likely these drivers will simply park in off-street parking lots, which are, for the most part, privately owned, though San Francisco does own a few large off-street parking lots.

  8. I think the grid can benefit from a third dimension: Something like “Managerial Competence.” Privatizations tend to go very well when they are focused on assets that are already operated successfully by the private sector, and where a private operator will generally operate more efficiently and creatively. Sticking with Chicago parking, contrast the Millennium Park garages privatization with the parking meters: The garages transaction, with a similar cast of financial partners, went much more smoothly, because it brought in an established operator, who was charged with applying known best practices. For the meters, there were no prototypes to follow, and the implementation was rougher.

    • Rob says:

      I have to respectively disagree that Managerial Competence adds anything to the issue being addressed here. I believe the point being addressed in this post is the typical conflation in our society of privatization with increased competition. Both the private and public sectors can have an abundance of managerial competence and not have it lead to increased pricing competition. One could easily argue that, given a monopoly, managerial competence within the private sector would lead to sub-optimal pricing from the perspective of society at large.

  9. Leo says:

    Just a wonkish comment: Starr writes “By liberalization one generally means a reduction of government control”. Here he’s actually mixing up the two concepts that he tries to define precisely. The “reduction of government” control is exactly what defines privatization, in contrast to liberalization what is defined as infusion of competition no matter if it takes place under public or private control.

  10. Ryon Lancaster says:

    Being another Chicagoan, the parking deal sucked. It was part of Mayor Daley selling off a huge chunks of the city as he left office. The deal totally sucks, and screws the public at large.

    That said, the deal allowed parking prices to increase, and increased enforcement, especially of the time limits. Street parking was super cheap before the deal, and on the whole it isn’t that expensive now, at least in the neighborhoods, but there is suddenly a lot more parking available. I don’t think that any increase could have happened without the privatization (it doesn’t mean that it should have been handled the way it was).

    Also, now with better enforcement, workers aren’t taking up all of the spots on busy commercial streets, so now there is parking for customers, which I think is a good thing, being one of those customers.

    Totally agree with you on the deal, but there have been some important positive changes that are at least worth mentioning in the discussion.

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  12. rentseekercreator says:

    The Shoup premise seems to rest on a faulty assumption to me, that local govt. essentially mandates free parking by requiring parking minimums. Market urbanists like Yglesias love Shoup, but in the real world, what do you think would really happen if local governments got rid of parking minimums? Exactly, developers would all claim their projects are critical to a community’s quality of life, economic development, etc., and lobby for the public to build the parking that they were previously required to under the current ‘inefficient’ regime. Thus concentrating even more financial power among fewer and fewer Too Big To Fail SimonPropertyGroupCitiBankofAmerica’s.

    Dystopian? What do you think?

  13. Mike Sax says:

    Thanks a lot for a very informative post. The parking issue has been on my mind for awhile. You take a different gloss on it than I have which is good as it gives me a better idea of the competing issues.

    My gloss was basically what Shoup observies-I checked him out briefly at Amazon-that people obviously have to park somewhere and they don’t want to pay for it. To be sure Shoup’s title is provocative from my standpoint as he seems to be suggesting that somehow society “can’t afford frree parlking.”

    This claim I must admit, I am skeptical about. My thinking on it is that overall the tremendous aounts that people have to pay in tickets every year is a tremendous misaollcation of resources that especially in a douwnturn like now could be much better spent on consumption or even paying down bills.

    I say this as I come from the parking ticket capital of the country, New York City. Just try finding a palrking spot in NYC that isn’t in some way in violation of some parlking law or something. There are always a hodgepodge of signs on every street that warn that the spot your parlking is good at every time in the week except the 2 hours on a Wednesday morning or Friday afternoon you happen to be there.

    To find a legitimate parking spot that you won’t get a ticket on is a gift I certainly don’t have.

    For more on my proposal on some sort of moratorium on parking tickets-maybe on all written prior to 2011, maybe halving all current outstanding fines-along with other ideas like cutting the state sales tax-please see here

    http://diaryofarepublicanhater.blogspot.com/2011/12/modern-monetary-theory-are-we-overtaxed.html

    My trouble with parking tickets is that they are just another consimption tax which hits the rich much harder than the nonrich as you quote Frase above.

  14. In Chicago, the parking meter “privatization” is a joke. Rather than “privatize” the business, Daley handed the franchise over to a monopoly – for a loss. Chicago got the bum end of that deal – thanks to Mayor Daley’s stewardship of the agreement – http://bit.ly/Atw0BX. But then again, a Wall Street bank is involved, so screwing the consumers is “business as usual.”

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  16. Hmmm … pardon my ambivalence, being reflexively anti-automobile, desiring their elimination from this earth before they exterminate us … I can’t help but to support what are the most aggressive and egregious forms of charges to auto ‘users’. This so as to provide incentives to put autos in grinders and destroy them. Whatever the conventional ‘parking rates’ are they will be too low (and a subsidy for auto users).

    Starting overseas in Greece is the de-automobilization of Europe: an altogether good thing. Europe can function after a fashion without metal boxes running like rats over the entire landscape: this is beside the point.

    The overall public includes those dissatisfied with the public space being entirely given over to machines and their selfish operators. The marginal costs to users of the machines do not match the costs imposed on the community as a whole BY the machines. The assumption is that everyone has a car and is therefore willing impose the same auto-related costs on other auto users. This is a false assumption: by this means the public is required to subsidize an industry sector. The cost of public use of space must be set by the highest bidder not by the most efficient one.

    A food cart might pay in New York City $100,000 per year for a space permit (or much more if in front of the Metropolitan Museum). Any space should be priced accordingly: $100,000 per year or $11.40/hr for a single parking space x 24, divided by said algorithms so that amount can be collected over the course of a day (some periods might cost $50/hour and others $5/hr), If the price cannot be met the space must be kept free of cars for the entire 24 hour period. In other words, the cars must pay $274 per day for use of any particular parking space on the street or the cars lose access to that space for the day. Given enough days and access is denied permanently as there is no ‘demand’ for the space.

    Pricing spaces @ $11.40/hr would have many more vacant spaces which would become consolidated into car-free lanes on NY streets which would be removed from auto use and turned over to pedestrians or set aside for streetcars and bicycles. The idea is for autos to use only what they can pay for. The public already owns the streets, car drivers have been getting a free ride.

    The assumption that certain public spaces must automatically be subsidized auto storage is spam from the auto industry..

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