Minimize Political Influence, Maximize Wealth?
A new book explores if putting public assets under professional management leads to greater government wealth.
Forget, for just a moment, about the politics surrounding the privatization of government services. Imagine instead, that government commercial assets, such as airports and railroads, could be independent of political influence and, as a result, could generate more profits for governments. Those profits, in turn, could save governments from having to make many tough political decisions.
That's the idea behind Dag Detter and Stefan Fölster's book, The Public Wealth of Nations, which looks at the financial opportunities governments may be missing with their commercial assets. The authors define "public commercial assets" as things that generate an income, such as toll roads, real estate, transportation hubs and utilities -- not parks or historical buildings. Detter and Fölster take a global view, estimating that the world's pool of public commercial assets is worth $75 trillion or about twice the world's total pension savings.
In an interview with Governing, Detter estimated that the United States likely accounts for a major portion of those assets. Typically, they're are managed by government entities. The book argues that better, more professional management of these assets could yield 2 to 3 percentage points more in profit a year. That's more than $3 trillion globally. "The gap in yield between a publicly owned company and its private competitor," the authors wrote, "is really a loss of income to taxpayers."
Detter and Fölster aren't necessarily talking about privatization. The argument about who is better at running things has resulted in what the authors call a "phony war" between nationalizers and privatizers. "The result from such a trench warfare," Detter said, "is that these assets have been left underutilized and in the dark."
Take Amtrak, for example. The rail service's long-haul routes are deeply unprofitable. But Detter and Fölster estimate that if the losing routes were canceled, Amtrak would make money. Yes, it would have to cut the states it serves in half to 23, but it would be able to improve service in those states. Of course, Amtrak, which receives funding from Congress, couldn't make that change and still keep the support of lawmakers in the states where services were cut for its subsidy.
Removing assets like railroads and airports from political influence requires putting them in a holding corporation with a professional manager, said Detter. "These professionals will be tasked with generating money from all these properties," he said, "so that we can lower taxes, fund infrastructure, fund better schools or prevent pensions from being cut."
States and localities in the U.S. already do this to some extent in the form of land banks, trusts and authorities, said Bruce Katz of the Brookings Institution. The I-195 Redevelopment District Commission in Rhode Island, for example, oversees the sale, marketing and oversight of land now opening up in downtown Providence as a result of the interstate's relocation. But such entities are still tied down by politics in the sense that their boards are usually made up of political appointees.
Katz, founding director of Brookings' Metropolitan Policy Program, said Detter's ultimate proposal of creating something like a national wealth bank that manages thousands of assets may be a stretch for the U.S. But he could see a large city or even a state pooling all its similar assets into professionally managed pools. To do that, he said, requires a shrewd accounting of all commercial assets under a government's purview and a realistic assessment of their value. "It requires us to have an inventory of public assets," he said. "I don't think anybody's ever done that with an eye toward, 'How do you gain from this?'"