# How is privatization supposed to save money?
**URL:** https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648
**Category:** Factual Questions
**Created:** [July 11, 2009, 4:37am UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648 "2009-07-11T04:37:14Z")
**Posts on this page:** 7
**Page:** 4
### Author:  [@The\_Tao\_s\_Revenge](https://boards.straightdope.com/u/The_Tao_s_Revenge)
#### Post date: [July 12, 2009, 8:32pm UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648/61 "2009-07-12T20:32:10Z")
> [@Crafter\_Man](#):
>
> The problem was government rules, pressure from the government, and government involvement. If AIG could operate in the free, competitive market, and be free from government rules and regulations, then an AIG manager making $20M/year is worth $20M/year.
I assume you have a reputable cite for this.
> [@](#):
>
> The freedom of a company to pay its workers whatever it wants.
>
> This is a GD, BTW. It should not be continued in GQ.
There is no freedom to pay it’s workers whatever they want, nor any real belief in one outside a few conservative wet dreams.
There is, however, a belief a full time worker is entitled to a basic livable wage for their labor, as shown by labor laws.
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### Author:  [@gonzomax](https://boards.straightdope.com/u/gonzomax)
#### Post date: [July 13, 2009, 12:21am UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648/62 "2009-07-13T00:21:22Z")
> [@Crafter\_Man](#):
>
> My guess is that it was an opinion. I also share the same opinion.
>
> I have a, um… friend, who has worked for a government contractor throughout his professional life. He’s an engineer. He said that, when a government manager asks one of his government engineers to do something, there is a good chance it won’t get done. If it does get done, it will be extremely late, and there will likely be major cost overruns. There is no incentive for the government engineer to be responsive or efficient. When the same government manager asks my, um, friend to do something, he is _right on it_. Because he knows that, if he does a bad job, there’s a strong chance his company will not win the contract during the next RFP.
No engineering job has ever been done on time or under budget. Maybe civil.
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### Author:  [@Aji\_de\_Gallina](https://boards.straightdope.com/u/Aji_de_Gallina)
#### Post date: [July 13, 2009, 12:45am UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648/63 "2009-07-13T00:45:37Z")
In Peru we used to have a state-run phone company for the whole country. Telephone calls were ridiculously cheap, but there was a catch. If you wanted a phoneline you had to way for years, 10 or 12 were common. You’d see adds selling telephone numbers. Few people outside big cities had access to a phone. Politically it was important to get the price as low as possible.
In the early 1990s it was privatised. Now phone coverage is very high, there are cell phones even in very poor places and towns with 100 people get internet.
Benefit for everyone.
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### Author:  [@Crafter\_Man](https://boards.straightdope.com/u/Crafter_Man)
#### Post date: [July 13, 2009, 1:21am UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648/64 "2009-07-13T01:21:37Z")
> [@The\_Tao\_s\_Revenge](#):
>
> There is no freedom to pay it’s workers whatever they want
There is no upper limit. But there is a lower limit based on supply and demand.
Let’s say I own a garage and I need to hire a car mechanic. I am free to pay any wage I want, down to a certain point. If I advertise the position, and I say I will pay $100/hour, I will get a ton of responses. Too many, in fact. So $100/hour is much too high. If I advertise the position and I say I will pay $25/hour, I will still get a lot of responses. So $25/hour is probably too high. If I say I will pay $10/hour, and no competent mechanic applies for the job, then $10/hour is too low. I discover that $15/hour is the lowest price a competent mechanic is willing to work for, hence the wage should be $15/hour.
A wage is nothing more than a price, and it should be determined solely by supply and demand. It’s a beautiful system.
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### Author:  [@Kent\_Clark](https://boards.straightdope.com/u/Kent_Clark)
#### Post date: [July 13, 2009, 1:35am UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648/65 "2009-07-13T01:35:19Z")
May we step away from the idelogical posturing for a moment and get back to the original question?
I suggest everyone check out the annual report for [Cintra](http://www.cintra.es/recursos/doc/Accionistas_e_Inversores/Informe_Anual/12971_2742742009155340.pdf). It’s the Spanish-based company that runs the Chicago Skyway, Indiana Toll Road, M4 in England and several other well-known ventures.
Leaving aside that 2008 was a bad year for the company, financially speaking, Cintra does give some hints on how it expects to make money, including the rapid conversion of the road to using EZ-Pass or other electronic collection systems, and at least in the case of the Chicago Skyway, increasing tolls each year (even though traffic on the Skyway actually dropped in 2008.)
> [@](#):
>
> Although traffic declined in many of our concessions – because of the slump in private travel and falling freight traffic – consolidated turnover rose 3.1% during the year, principally
> thanks to increased toll rates on a number of different highways.
So, it’s not that they are that much more efficient, it’s just that they don’t hesitate to raise tolls to make a profit.
As to how they make money in general while your typically highway is a money-sucking pit, Cintra’s pretty upfront about that, too.
> [@](#):
>
> Cintra has consistently achieved a low risk profi le and high growth potential given it only invests in projects that are backed by the provision of public services provided within a system of limited competition, with steady, predictable revenues and expenses and with long concession periods that compensate for any uncertainties produced by economic cycles.
In other words, they aren’t saying they can outcompete, rather than they know how to make money with limited competition and a long-term investment/payback. A couple of paragraphs later, the company explains it will “rotate assets” that fall short of expectations. In other words, they’ll walk away – something a state Department of Highways can’t normally do.
What does Florida (or anywhere else, for that matter) get out of the deal? Immediate cash infusion. Chciago got $1.83 billion and Indiana got $3.8 billion (upfront) for handing over their operations.
Not every highway department is looking to privatization. Ohio has resisted efforts to privatize its turnpike operations, which continue to return a modest surplus each year.
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### Author:  [@SmashTheState](https://boards.straightdope.com/u/SmashTheState)
#### Post date: [July 13, 2009, 1:41am UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648/66 "2009-07-13T01:41:58Z")
> [@Crafter\_Man](#):
>
> A wage is nothing more than a price, and it should be determined solely by supply and demand. It’s a beautiful system.
I doubt you’re a boss; bosses don’t waste time chatting on Internet message boards with the hoi polloi. In the Wobblies the term we use for folks like you is “scissorbill.” I will leave it to you to discover why.
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### Author:  [@Indistinguishable](https://boards.straightdope.com/u/Indistinguishable)
#### Post date: [July 13, 2009, 2:52am UTC](https://boards.straightdope.com/t/how-is-privatization-supposed-to-save-money/502648/67 "2009-07-13T02:52:17Z")
Yeah, people who pay wages are strange, alien creatures, living apart from the masses of decent humanity; neither **Crafter\_Man** nor any of the rest of us could ever possibly be in such a situation as to own a garage and set out to hire a mechanic for a certain price, as in the given example.
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