Privatization or Not, Governments' Responsibilities Never End

A bridge collapse in Italy shows the complexity that arises when private companies manage public assets.
November 2018
The privately owned Morandi Bridge in Genoa, Italy, collapsed in August in part because of deferred maintenance. (Shutterstock)
By Nicole Gelinas  |  Columnist
A senior fellow at the Manhattan Institute

While President Trump’s infrastructure proposal released in February promised $1.5 trillion over a decade, it called for just $200 billion in federal spending. Much of the rest would come from the private sector. Already, several investment groups -- Blackstone, Brookfield, I Squared and KKR, among them -- have put together billions in possible funding for such projects. And as it is, private capital is playing a larger and larger role in public works. But as a recent disaster illustrates, government can never abdicate its responsibility to provide reliable infrastructure.

America’s Interstate Highway System is a key target for private investment. Crucial parts of the network, including Interstate 95 in Connecticut and I-65 in Indiana, have fallen into disrepair, and tax dollars haven’t been sufficient to keep up with the wear and tear on a system that’s more than half a century old and seeing record use.

In a recent book, Rethinking America’s Highways, the Reason Foundation’s Robert W. Poole Jr. suggests that America do what much of Europe and Asia are doing: invite private capital to take over more of the responsibility of building, maintaining and operating major highways in exchange for toll revenues. In some circumstances -- particularly for the new high-toll express lanes in affluent, rapidly expanding areas -- this model can work well.

Ironically, though, the broader success of such a financial model depends just as much on government competence and honesty as the traditional, publicly funded model does.

Consider this summer’s calamity in Italy. In August, 43 people died when a highway bridge in Genoa collapsed onto the neighborhood below. To Americans, it was a familiar tale. The Morandi Bridge opened in 1967, just like the I-35 bridge that collapsed in Minneapolis 11 years ago. In both cases, decades of wear and tear, overuse and deferred maintenance exacerbated the effect of a design flaw.

But there is a twist here: A private company, not a government, was in charge of the Genoa bridge. A group controlled by the Benetton family (yes, that Benetton family, famous for its ’80s-era T-shirts) owns Autostrade per l’Italia, the Italian highway operator that was privatized nearly two decades ago. Back then, the group purchased what the Financial Times called a “natural monopoly,” with the right to raise tolls by more than the rate of inflation to maintain and operate key routes.

That doesn’t necessarily mean that Autostrade is to blame for the bridge collapse. A key point of dispute now is whether Autostrade adequately warned the government about maintenance deficiencies and whether, in turn, the government delayed approving a nearby road to relieve pressure on the bridge.

The Morandi collapse may be a rare tragedy, but it points to some more common pitfalls. It should have been a warning sign, for example, that back in the late ’90s Autostrade was the only bidder for the road assets, suggesting not true market competition but crony capitalism.

Then there is the issue of who is to blame when infrastructure fails. It’s a bigger problem for aging infrastructure. A bidder who purchases a 50-year-old highway is going to pay a much lower price to account for unknown risks, such as hidden corrosion that may have contributed to the Morandi collapse.

On new construction, though, another set of questions arises: What, and where, to build? These questions should remain more in the political and policy planning arena than in the market. A community, not a company in pursuit of revenue, must decide, for example, whether it wants dense apartments served by a transit system or single-family sprawl served by ever-expanding highways. In a healthy democracy, the private sector doesn’t lead these public decisions. It follows them.