When a publicly funded asset or piece of major infrastructure is privatized how is this offset to provide equity back to the public? Take a major public asset, let’s call it Sydney Harbor Bridge. This was designed, built and paid for with taxpayers money and then operated by the government for the people who funded it so they can use it. The government then wish to raise money do they privatize it by selling it to a private company for millions of dollars. The private company now charge a toll fee for everyone who now drives across it making millions of dollars and turning it into a good business. So now, how is the public reimbursed for the costs that their tax dollars were spent on? Given the public paid for it to be constructed and now pays to use it with a toll fee, do they get an equivalent tax cut or similar mechanism out of fairness? Seriously asking how this works, so serious answers only please.
In: Economics
Privatizing public assets like bridges can feel unfair since taxpayers funded them. Usually, the government might negotiate for revenue-sharing or use toll fees to invest back in public services, but it’s not always straightforward.
>The government then wish to raise money do they privatize it by selling it to a private company for millions of dollars … So now, how is the public reimbursed for the costs that their tax dollars were spent on?
You’ve basically answered your own question there. The government gets money from the sale. They can use that money to do whatever they want to do (or the public want them to do).
There are variations of course. There could be a revenue or profit share agreement, so the initial sale price is lower but there’s an ongoing stream of revenue. That’s a different risk profile for both parties. There may be something in place that kicks in if the assets prove to have been drastically undervalued and the company starts making massive profits (or overvalued, because there are problems if a company operating infrastructure goes bust).
There are many ways to achieve some degree of privatization, certain things work better with certain methods and it has to be fairly specific. Some broad methods:
1) “Operate only”. The government funds and builds the infrastructure. Then it basically outsources the operations to a private company. The agreement might be that the operator recovers the operational costs plus profits and the balance goes to the government. Government retains ownership of the infrastructure.
2) “Build and operate”. The government tenders a project. Example: build a new bridge with tollway. Private companies bid for the project and, if they win the bid, the private company funds the construction and then has the right to collect tolls/fees for some period of time and also to maintain the construction. After some time (might be decades), the bridge is handed back to the government. Government can give out many tenders – eg it can license many power generating firms at the same time to stimulate competition.
3) “Cost sharing”. This is a blend between (1) and (2) above. Things like universities etc. Government provides the land.
4) “Sell and operate”. Usually for pre-existing operations and infrastructure. Eg railways, airports. Government puts up the infrastructure for sale and operation. The buyer pays the government and agrees to operate it under certain requirements. The requirements may be to expand coverage, maintain service levels, maintain certain pricing levels or not to exceed profits.
>So now, how is the public reimbursed for the costs that their tax dollars were spent on?
You’ve already answered the question yourself:
>The government then wish to raise money do they privatize it by selling it to a private company for millions of dollars.
Those millions of dollars is how the public is reimbursed. You can argue whether the price is fair or not, but that’s a separate issue.
> This was designed, built and paid for with taxpayers money and then operated by the government for the people who funded it so they can use it. The government then wish to raise money do they privatize it by selling it to a private company for millions of dollars.
So the city is in profit? They got their money back on sale.
> The private company now charge a toll fee for everyone who now drives across it making millions of dollars and turning it into a good business.
They are also responsible for maintaining this bridge
The privatization is a scam where rich people have infiltrated to the political system convince everyone that privatization saves money. Then they purchase the property build with public money and monopolize it.
It happened with Finnish health care system and now with the electric grid.
“Instead of paying for cost of hiring doctors, nurses and the building maintenance, how about you pay for the cost of hiring doctors, nurses, the building maintenance and feed the endless maw of capital investors! Think of the savings!”
They’re almost always either a graft by private actors working along with corrupt governments or a desperate ploy to keep finances afloat to avoid a credit score downgrade from major banks. Yes, nations have a credit score.
It’s sold to us as a capital generating opportunity, but we as the public almost never get back as much as we gave. Whether it’s Canada privcatizing railroads because “we can’t afford to maintain them anymore so we’ll switch to automotive centric planning” only to see our road infrastructure explode by more than what we “save”; or a bridge sold only for people to pay a toll on it to the ones who sold it. Another example is the UK selling critical railroad infrastructure right before an election the Torries know they will lose to tank the economic results and recovery opportunities of the next party coming after them.
Behind privatization, there’s always an elected official with some rich new friend looking to make profit on public infrastructure. Let’s also not forget that the private’s profits are also a huge form of inefficiency as well.
Latest Answers