Indiana Toll Road Takeover: Triumph of Ideology over Economics

An AB reader sent me a delightful email after reading this and an article suggesting that Governor Daniels thinks Indiana voters are not that bright when it comes to economics. William O’Rourke writing for the South Bend Tribune:

Now that the former Eli Lilly executive has put most of the state on Eastern Standard Time’s daylight-saving time (Eli Lilly time!), and Hoosier parents experience the fun of trying to put their children to bed while it’s still light out, Daniels gets to boast to the readers of The New York Times how he was able to privatize the Toll Road despite the misguided objections of more than half of his fellow citizens: “public sentiment” ran “almost two to one against the deal,” Daniels wrote. He goes on to say, “… the animosity in Indiana was as genuinely grassroots as it gets. Many Hoosiers convinced themselves either that our proposal borrowed from the future, or that it gave away a part of America to ‘foreigners.’ But Mitch showed the benighted the way, while not taking too much offense at the mob’s obtuseness: “Their hearts were in the right place, but not their logic.” Daniels extols the wonders of privatization: “The economic case is ironclad: Indiana has scored a multibillion-dollar financial gain.” He does admit, humbly, that he should have done more to educate the uneducated: “As governor, I should have done much more than I did to walk Indiana through, in advance, both the business case and the realities of today’s global economic competition.”

Given that I had concerns similar to these Indiana residents, is Mitch Daniels questioning my knowledge of economics as well? William O’Rourke continues:

But what is “ironclad” is that the Toll Road takeover is a triumph of ideology over economics. The money behind the Spanish-Australian consortium Cintra-Macquarie’s purchase came from some of the same capital sources as a lot of American capital: from workers’ pension funds, in this case the Australians. But Daniels wouldn’t let the Indiana Public Employees Retirement Fund buy the Toll Road – however sound a deal it would be. It would still involve government and the people as owner if he had. Privatizers see profit, whereas the public sees taxes. Not raising the tolls on the Toll Road, as Daniels talks about in his op-ed piece, came about “because it was run by politicians, who are rarely businesslike and deathly afraid to annoy anyone.” Now, Daniels is certainly businesslike and not afraid to annoy people, so why didn’t he have the courage to present a sensible schedule of toll increases? Well, not because he is a politician, but because he is an evangelizer for privatization. As Daniels notes in his Times piece, “As clear as the business case was, politics intruded; in fact, Indiana very nearly tore up its equivalent of a Powerball check. …” It’s an apt comparison, echoing the casino capitalism Daniels is so proud of. Some make good bets, others make bad ones. The short term brings big money to Indiana, but not just to the state. As in the stock market era of irrational exuberance, those who are in on the IPO, the beginning of things, profit mightily. There are large transaction profits to be spread around to the financiers who arrange the deal, all friends of the governor, or soon-to-be friends of the governor. This sort of casino capitalism has winners and losers. And Daniels was certainly a winner in 2001 when he sold his $1.45 million in Indiana Power & Light Company stock just before the stock tanked. The business case that is so ironclad is the same one that has seen the salaries of CEOs balloon so obscenely over the last decade. Many copy it. In fact, Daniels couldn’t have railroaded through the privatizing of the Toll Road if Chicago’s Mayor Richard Daley hadn’t sold off the Skyway to the same foreign capital consortium. If a toll road is a public good, an example of public wealth, the responsibility for it remains with the people. When public goods become the source of private wealth the nature of society changes. It’s a change Daniels desires. In the old days plutocrats like Andrew Carnegie used to give the public libraries, museums and other benefits; these days the transfer goes the other way: The rich sell what the people own for their personal benefit and that of their friends.

Interesting – Mr. O’Rourke seemingly suggests that Governor Daniels is pulling a financial fraud on Indiana taxpayers.

Update: I should say thank you to Patrick R. Sullivan aka Roland Patrick for this:

Daley secured a landmark $1.8 billion lease of the Chicago Skyway in late 2004, and now he’s considering handing control of Midway Airport over to private operators. Likewise, state officials soon could be presented with an offer to privatize the Illinois tollway they simply can’t refuse.

Some would argue these deals are based on efficiency gains where the private firms and taxpayers both win. Others – like yours truly – wonder if they may be some political favoritism going on where taxpayer assets are being sold below their true value. I know this is Daley the Junior but when a Republican is asked about political corruption in the Democratic Party, the name Richard Daley is always on the tips of their tongues.