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 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 it, 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.

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 simply about privatization, but instead public control with market forces. The government still sets the quota of parking, but 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. The benefits of privatization without market competition usually come down to the idea that the lack of property rights themselves inevitably lead to major problems, from “tragedy of the common” style overconsumption to corruption to a lack of efficient internal allocations, arguments emphasized by Public Choice theorists against public ownership.

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.