Will Obama Privatize Public Assets To Pay For “Economic Recovery”?

Dr. Michael Hudson is an economist, a professor at the University of Kansas, and a really smart guy. During the presidential campaign he was chief economic advisor to Democrat Dennis Kucinich. By April of this year, Hudson was predicting an imminent financial meltdown.

Foreign banks, he said, were beginning to wake up to the fact that the balance sheets of their US counterparts were full of wholly imaginary earnings, wildly overvalued assets and unpayable loans. Before summer Hudson claimed that US banks had ceased daily reconciliation of their interbank transfers at the end of each day because they lacked the cash to pay them. Months in advance, Hudson forecasted with reasonable accuracy the character of the bipartisan bailout — that some institutions would go under, but that government would try to rescue investors and shareholders while leaving homeowners and consumer creditors — ordinary people — under a mountain of unpayable debt. Foreign bankers, he predicted, would gradually begin to withdraw from funding the US economy.

Hudson is not one of the financial geniuses that gave us the present mess. Perhaps for that reason, he hasn’t been invited to join Barack Obama’s economic transition team, which looks a lot like the speed dial list on former Goldman & Sachs CEO Robert Rubin’s cell phone. Still, even if Barack Obama isn’t listening to Hudson, maybe we should.

The president-elect has made the welcome promise of an ambitious jobs and public works program, with emphases on infrastructure improvements and repair which will begin laying the basis for transition to a post-petroleum economy. With a month to go before his term starts, it will be a while before anybody sees what the legislation and rule changes to make this happen will look like. We do know it won’t come cheap. What we don’t know is how an Obama administration intends to pay for any jobs and infrastructure programs. Michael Hudson, an economist who predicted the mess and the bailout, thinks he knows how that will go down.

Paraphrasing him a little, he says that there are four ways to pay for an ambitious jobs and infrastructure program.

The first way is to borrow the money from foreigners, the same as we do for everything else, including the US military budget, which now dwarfs all the money spent on things military by the other 95% of humanity. This may prove difficult, as our creditors in Europe and China are increasingly certain they will never be repaid all that they are owed already.

The second way to pay for an ambitious New Deal style jobs and work program is to tax the rich. When income taxes were introduced at the beginning of the twentieth century, they did just that. If the income tax laws of 90 years ago were applied today, nobody who made in today’s money, under $30,000 a year, paid any income tax at all. But in the last 90 years, income tax laws have been rigged to exclude most of the income of the wealthy. Taxes have become something that “little people” must pay, and that wealthy people can avoid. Hudson thinks that an Obama administration will increase taxes on the rich, but only marginally, not enough to relieve them on the rest of us, not enough to fund any New Deal, and certainly not enough to hurt his standing among the Wall Street insider types his administration is already filling up with. Hudson’s predictions are already being borne out by Obama’s recent announcement that Bush’s infamous tax cuts for the rich, rather than being repealed as he promised during the campaign, will be allowed to persist for one more year. Tellingly, Obama has also renounced a campaign promise of a windfall profits tax on oil companies.

The third way to pay for an ambitious jobs program is to cut the military budget, and use those funds to pay for jobs, education, health care, infrastructure and the conversion to a green economy. That won’t happen either. Obama’s entire foreign policy team is drawn from old-schoolers from the Clinton era, and his Department of War, is headed by Robert Gates, formerly deputy director at CIA for most of the Reagan and the first Bush administration. Obama says he will increase the military budget and he pledges to be able to fight multiple foreign wars simultaneously. Just as the Vietnam war sank Lyndon Johnson’s Great Society, the Pentagon budget will severely curtail domestic expenditures for human needs. So this is not in the plans of the Obama administration either.

The last way to pay for an ambitious jobs program is to give away the last scraps of public resources and public power to the wealthy corporate actors who have already driven the US economy into the ground. Obama can privatize whatever public assets still exist, leasing or giving them outright to multinational corporations for an up front fee. Once the money is spent, of course, the public assets are no longer public at all.

Despite being a bad and profoundly anti-democratic notion, the privatization of public assets, euphemistically called “public-private partnerships” have become a favorite tactic of Republicans and Democrats alike. There may be a time and place where privatization is a good idea, but we haven’t seen it.

The Clinton administration, whose hacks have filled up Obama’s transition team, started the privatization ball rolling in a big way with its “Reinventing Government” initiative. Clintonistas decreed that every federal government function had to be analyzed with a view to what could be spun off to a private vendor, and whatever could be privatized must be. They next declared that in order to get federal funds, state and local governments would have to do the same, thus creating a from nothing a multibillion dollar industry of contractors that did prisons, prison medical care, fleet operations, government payroll, child support enforcement, handed out birth certificates, parking tickets, in short every single function of government.

The pirates of the Bush administration substituted their cronies for those of the Democrats, and carried the mania for privatization even further, into the military and intelligence establishments, something else an Obama administration will have to address, but that’s another story.

Privatization has long been a mania among the kinds of unimaginative establishment Democrats who make up the Obama transition team and his cabinet so far. Obama’s adopted home town of Chicago is a great example.

In the last year or so, Chicago’s Mayor Daley has sold off major public assets to well connected corporate insiders, including

* the Chicago Skyway Bridge (Interstate 90 from the Indiana state line into the south side)

* Midway Airport, just after billions in public money had been spent to refurbish it

* The Grant Park Underground Garages which park just under 10,000 cars on the edge of the Loop

* All the city’s parking meters and parking meter enforcement for the next 75 years.

Fran Spielman of the Chicago Sun-Times points out that the city got a one-time payment of $6 billion for all this, and that the city loses another half billion a year in property taxes to other wealthy and well-connected insiders through its special taxing districts, or TIFs, which have become a standard feature in US cities everywhere. As a result the city is rolling in cash for a moment, but faces a bleak future in which subsequent mayors and city councils will have few resources to water privatization dispose of on behalf of the people that elect them, and multinational corporations can funnel contributions to politicians to keep their control of public resources indefinitely.

Chicago is not unique. Gwinnett County in suburban Atlanta just turned the express lanes of Interstate 85 into toll lanes and leased them to a well-connected contractor. Atlanta’s previous mayor even privatized the city’s water and sewer operations, a disastrous move that had to be undone by the current mayor Shirley Franklin. An enthusiastic fan of privatization herself, Franklin’s mayoral transition report, the Bain Report called for “opportunistic” privatization of the city’s parks, garbage collection and more, but the water privatization fiasco made those “opportunistic” privatizations politically impossible. Texas has been turning public roads into private toll roads for some time. This, to the kind of Democrats that surround Barack Obama, is what progress and prosperity look like.

For the big time corporate bosses, large scale privatization of government services and the public sector is a necessity because of their declining rates of domestic profit. Aside from consumer debt and military expenditures, privatization is the only industry where profits are expected to grow and remain secure, even in hard times.

But for the rest of us, the widespread privatization of public resources are bad news indeed. Privatizations are bad for democracy, bad for everybody except the contractors who get paid, and the politicians who get paid off.

Privatizations remove workplaces, their budgets, policy making and decision implementation out of spaces where public accountability is possible, and into private boardrooms immune from oversight. When the fleet operations of your county or city are privatized, for example, repair and maintenance schedules and procedures, which were once open to democratic public scrutiny, become proprietary information, so nobody can question any longer how public monies are being spent.

When government operations are privatized, wages and benefits fall through the floor, and the possibility of democracy in workplaces disappears. Privatizations remove large resources built and developed with generations of public funding from even the possibility of democratic control, and place them under irresponsible corporate shareholders and managers whose only goal is profit. Often, as was the case with the Chicago Skyway and Midway Airport, privatizations only occur after a major public investment to improve the asset. Private managers typically rape the asset, extracting as much profit as quickly as they can while providing as little service as possible and reinvesting next to nothing. When the asset fails to perform because of their refusal to reinvest in it, they go back to the same politicians who signed the deal (and to whom they have contributed generously) for an infusion of cash, to renegotiate the terms of the deal, or sometimes to hand the asset back after they’ve milked it dry.

Historically, a large proportion of African Americans who can afford to live modestly well have been government employees of one sort or another. Their livelihoods are the first ones threatened by privatizations. Obama and his economic team are smart people. They know all of this. If they are, as Michael Hudson believes, counting on a Chicago-style wave of privatizations to pay for a jobs and clean energy program, they’ll need some fancy footwork and a smokescreen of lies.

In the black community, Obama’s presidency is frankly billed as “the fulfillment of Dr. King’s Dream.” But the real Dr. King and the Freedom Movement opposed the war in Vietnam, the US military budget and the worldwide US empire of their day, as fiercely as they did racial discrimination, both because it consumed the resources to be used for human needs and because the work of empire is inevitably genocide and war. The real Freedom Movement and the real Dr. King fought against economic injustice at home as boldly and tenaciously as they did Jim Crow. Dr. King died in Memphis, in the midst of a near general strike situation, with the city’s high schools and some (not that many) churches in the streets over the wages and benefits paid to the city’s black sanitation workers.

To sell a phony program of economic recovery through privatization, an Obama administration will have to deploy the remanufactured and sanitized ghost of Dr. King against the man’s historical work, and against the tens of millions who voted for Barack Obama because they wanted change. Wholesale privatizations of this kind are also the toxic “medicine” the IMF and World Bank (and some of Obama’s advisors) have historically provided for third world countries in economic distress. It didn’t help them. It won’t help us.dont

If we take the advice of Dr. Hudson seriously, we ought to insist that the Obama economic recovery program be funded by a wholesale restructuring of the US tax system, so that the wealthy, however their income is derived, are taxed more than the incomes of people who depend upon wages. We ought to insist on debt relief for consumers and homeowners, not bonus and salary relief for bank execs and shareholders, which is all the Wall Street bailout seems to have accomplished. It’s not too early for us to think and talk, not only about what we expect from an Obama administration, but how we demand that it unfold.

Given the old-school makeup of Obama’s cabinet, his economic and foreign policy advisors, the hedge funders, the Wall Street wise guys and corporate interests of all sorts already have both his ears. It’s not at all too early for the people to begin grabbing his lapels, and giving him some other input.

Bruce Dixon is the managing editor of the Black Agenda Report, where this article first appeared. Read other articles by Bruce, or visit Bruce's website.

14 comments on this article so far ...

Comments RSS feed

  1. Max Shields said on December 17th, 2008 at 10:13am #

    I’ve noticed that you’re sensibility is very astute regarding the commons and urban centers.

    This blog seems to be less tuned to those sensibilities. Not only is Hudson an extremely bright economist, he’s a Georgist, which is why he understands the idea of capturing common wealth. He has done some incredible studies for the Henry George Foundation, but his work on the post-collapsed Soviet Union is truly brilliant.

    Bruce you’ve got the most important dog by the tail – privatization of our common wealth. Land is central. It was, due to the neo-classical economists, subsumed under capital, turning it into an invisible commondity. Land (which is really all of nature) is one of the 3 most important incredient to wealth creation. Those with access concentrate the wealth. The Billionaires in Russia did just that leaving the people of Russia scrambling for crumbs.

    Keep up the excellent work, Bruce. Your have it one of a very few critical areas that keep poverty and war on the front burner, and the remedy for irradicating both!!

  2. Max Shields said on December 17th, 2008 at 10:33am #

    I would add, that what should never be privatized are those areas which are inclined to become monopolies. All monopolistic entities should reside in the public domain and NEVER be privatized.

    That said, I would add as a major source of revenue a shift to land over captial/labor. We can pay for all infrastructure just by leveeing a rent or use tax. There are examples all over the world of how that would work.

    New Orleans could be readily rebuilt just by following the model set by San Francisco after the Great Earth Quake. There was nothing but rubble and waste. Hardly a structure to tax. The Mayor, a friend of Henry George, decided to tax land. The city was built to become a leading urban center, dense (2nd to NYC) and with lush parks and open space. It works.

    The problem with income tax (and I’m not against it on the wealthiest as well as a stiff inheritance tax) is that it is elastic and easy to move around. The administration costs and difficulty of administering it is considerable. Land is non-elastic and easy to administer at a fraction of the cost.

    Land rent can provide the total cost of building our infrastructure and to do it with 21st Century intent. Hudson knows this and promoted it as the way the Russians need to go. Economist have considered it the best, fairest tax for producing the sufficient revenues to pay for social programs, infrastructure and education.

    Of course, cut the military industrial complex. Shit, eliminate 95%.

    But for a proactive fair way to get the US paying for what it needs – land value taxation or “usage rent”. (Hundreds of empirical studies attest to this – this aint theory.)

  3. Deadbeat said on December 17th, 2008 at 12:25pm #

    Nader proposed an excellent remedy to Income Taxes in 2004. He suggested eliminating Income Taxes for everyone making less than 100K/year and raising revenues from a sales tax on stock trades. This would be extremely easy to collect.

    Considering that the poor are heavily taxed on state sales taxes raising revenue on a sales tax on stocks seem extremely fair.

    Rolling back the Social Security Tax since it was never necessary because the system is sound would alleviate the overburden on workers for the past 25 years as well.

  4. Deadbeat said on December 17th, 2008 at 12:33pm #

    Max writes…

    I would add, that what should never be privatized are those areas which are inclined to become monopolies. All monopolistic entities should reside in the public domain and NEVER be privatized.

    If this is the case then we really should take a closer look at banking. Banking itself should not be in private hands and be considered a public utility. Yet another good reason to abolish the Federal Reserve.

  5. john halle said on December 18th, 2008 at 7:59am #

    Superb piece.

    The following sentence makes no sense. Please fix.

    “As a result the city is rolling in cash for a moment, but faces a bleak future in which subsequent mayors and city councils will have few resources to water privatization dispose of on behalf of the people that elect them, . . .”

  6. Ramsefall said on December 18th, 2008 at 9:02am #

    Thanks, Bruce.

    The damaging effects list of privatization is long and detailed. We needn’t look any further than south of our own borders where privatization schemes in accordance with Washington’s prescribed Structural Adjustment Policies for two+ decades effectively retarded the economic growth of the entire region of Latin America. The IMF, WB, IBRD and its policy makers have known beyond a doubt the benefits to be reaped through privatization — not for the communal whole of course, but for those pulling the strings.

    The record clearly shows in case after case that privatizing does anything but provide economic relief and/or stimulation. It’s a well-orchestrated farce which funnels profits from increased consumer expenses to the privatized owners’ pockets thus concentrating the wealth instead of dispersing it.

    As national infrastructure systems continue to disintegrate around the nation, and the bloated military budget diverts funds from needed social programs in favor of Empire expansion, tactics for privatization may continue to be sold as a final, desperate remedy. What was once the world’s strongest developed nation less than a generation ago, may soon be the world’s first developed nation to be reduced to underdeveloped status. But not to worry, the US already trails the list of developed nations in education, health care, employee benefits and infant mortality rates, soon to compete with the bulk of underdeveloped nations to the south of our borders.

    Watching the once ‘greatest nation on Earth’ subside to historical lows and third world standards of living is just the medicine the doctor ordered in response to such reckless, corrupt and heartless behavior that the duopoly and their cohorts have been directing us toward for more than a generation. A tighter leash on leaders should have been kept.

    The bed is made, and now the nation will have to lie in it. Or, maybe Amoeba will deliver us from shambles. I won’t be holding my breath.

    Best to all.

  7. George said on December 20th, 2008 at 10:42am #

    I do not think that link will change any minds, but your segregation of how readers are to analyze the link will.
    I agree with Hudson to a degree. He does not spell out his tax restructuring program so I can not agree all the way. Even if he did I probably would not agree because no one is going to step up to the plate of economic injustice. Economic injustice exists because of greed. Greed has so many materialistic rewards that everyone is wanton of more. It is through our capitalist system that breeds this greed and its only through the tax system that Greed can be somewhat controlled. Its the great dichotomy of Democracy and Capitalism, survival of the fittest and pursuit of happiness for all. Religion has failed us to solve this dichotomy. I see the tax system as the only solution, but it will never will be restructured to include the strengthening of the weak through the diminished wealth of the greedy, except in a dire economic climate. I propose a tax structure I have never seen anywhere that bases your tax obligation on mission and vision that country wants to achieve. What does this mean; Occupations and their tax obligations are ranked in their interest to constitutional objectives. For example; How important is the entertainment industry as compared to the educational system. Which can we do without and still be a free country. Why are they taxed about the same. Would the NFL collapse if its entertainers were taxed at 95% and school teachers nothing. Privatization of government services could work if the tax system is dramatically overhauled. Democracy can not be pure in a capitalist system without compromise.

  8. Max Shields said on December 20th, 2008 at 11:57am #


    I will reiterate, in part, my points above regarding Hudson and taxation.

    First, for our discussion things like greed and materialism are not central. Those are, to be sure issues, but it is not central for our purposes. Also, capitalism is not the central issue. As far as democracy, we have never had democracy in the US so let’s just be clear on that score.

    The central issue is the privatization of the commons. Keeping land (air, the ground, minerals, etc.) in the public domain will produce the necessary revenues to pay for essentially everything we need in the public domain. This is not about a struggle over “greed” or materialistic consumerism or even capitalism. It is about returning to the premise of classical economics which always had land as central to common wealth.

    In the twentieth century, a group of economists, practicing and academics, took land and subsumed under capital. That move erased land from the central role it holds in creating wealth and has allowed the concentration of wealth to shift to a small group of wealthy elite. It’s not that this was happening before, but that it was now sanctioned as public policy and taught in to economic students – that is the fundamentals of wealth had been land + capital + labor. In neo-classical terms (the terms taught and practiced today), it has become capital + labor = wealth. Land is included under capital. Capital are mere the tools created by human efforts to produce wealth from land and labor.

    If you place land (all natural assets) in the public domain (as Hudson prescribed for Russia after the collapse of the Soviet Union) you would have had a healthy economy following that collapse. The cost of public services, infrastructure and education would have been paid for through a rent on land. Instead, the neoclassical economists such as Jeffery Sachs, et al (what Naomi Klein calls the shock doctrine) came in and foisted the neoclassical principles on Russia allowing for all the natural resources to be privatized and held in the hands of a few, now billionairs, rather that used for public good.

    This awakening of the value of land is central to Hudson. Capturing the wealth of the commons for public expenses is central to a funadmental shift in poverty, war, and a stable economy minus bubbles and speculation.

  9. Max Shields said on December 20th, 2008 at 3:41pm #

    Let me advance this discussion a bit further and hope that someone who knows something about economics will join in.

    We are condemned to repeated recessions and depressions unless and until we begin to look at land and to move our taxation and laws away from sales and labor/income.

    Boom and bust is the self-imposition of allowing speculation to go unchecked. It is not simply regulation (or deregulation) that is the cure/cause. The cause of speculation derives from the instability of our economic system which promotes speculation (as well as debt).

    Most of our economic problems can be found in fairly simple principles which have been exploited and are fairly easily fixed if we have the will to do so. These problems are all about access to the commons and how we have restricted access that began centuries ago, primarily in Great Britain. The development of the cancerous corporate charters which have exploited this access, creating opportunities to privatize everything in sight is how this problem has grown to massive proportion.

    As I stated, it is the absence of land from our understanding of neo-classical/modern day economics which has feed into this boom and bust; remembering that land is the universe of all things NOT human created. Wars and poverty stem from this same source. The more we understand this and correct it, the more we’ll be able to reclaim our common wealth and undermine the structure that has created empires, particularly the American Empire.

    We could erase our debt, rebuild our infrastructure pay for a world class education, eliminate poverty and end most major conflicts (all of which have their root causes not in ideology, but in the struggle to control natural resources – water, minerals, land, oil, etc.).

    Greed is not the motivating force behind capitalism, it is a symptom of unfettered privatization of the commons. By assuring the commons stay in the public domain we eliminate the root cause of monopolies which grow from privatization and the limitated access to the Earth’s resources.

    Laws that are produced by and for the wealthy who grow wealthy by privatizing through licenses and patents, are the basis of our economic disparities. Depressions and recessions are all created by this privatizing and concentration of wealth. It is a cancerous seed planted by allowing through laws the control of wealth by a few, charters to corporations which become preditors, purchasing and “owning” the wealth which should be available to all.

    Until we understand this the problems we see today between the wealthy and everyone else will never be solved. The solutions are simple, the will and awareness of what the causes are must be applied.

  10. Deadbeat said on December 20th, 2008 at 8:31pm #

    What needs to be redistributed is power. The wealthy maintains the system because they have a monopoly of the state that used the police and the military to protect their wealth.

    Most people are into self-preservation and it is that self-preservation that enable the state to thrive. What you have to do is to convince people to put their lives on the line in order to defeat the state. That is a tough call.

  11. Max Shields said on December 21st, 2008 at 11:18am #

    Power cannot be re-distributed. We have the power. We give it away everytime we vote for people like Obama (or the thousands of other Repub/Dems).

    When we think someone will do this or that for us, we simply hand over the keys to the kingdom. And the kingdom and its corporate elite are just fine with that.

    The wealthy understand this. They understand that the laws of the land are in their favor. The privatization of the commons, the licensing and patenting of everything is their “land” grab. The Earth’s resources are being swallowed up by corporations and the wealthy.

    Ninty percent of US land is in private hands! This is not just an issue of land, as I said, it is an issue of all natural resources.

    So, I guess my question about “re-distribution of power” would be: who is the great Oz that’s going to do that if not us simply taking back the power we keep giving away?

  12. Petronius said on December 21st, 2008 at 12:04pm #

    both deadbeat and max are correct. the great oz was of course an old guy manipulating the fireworks. oz is politically a very interesting movie, because among so many other clues, it shows fake courage,
    heartlessness and the brainlessness of many academics, faked by medals, laudatory charity documents and high-faluting diplomas.
    dorothy knows that the yellow brick road (‘all roads in America are
    paved with gold’) is an illusion and that only a return to kansas will make her truly happy surrounded by her family and simple life, etc.
    if only people could see that in lieu of the awful capra movie, ‘it is a wonderful life’, which is so revisionist in the happy mr. bailey who gets screwed and is saved by an angel from above (read: ‘truman’ at that time – 1946), that is should be banned from reruns on tv. there are so many hollywood products which are superbly insightful, but it takes some education of the public to understand that.

  13. Max Shields said on December 21st, 2008 at 1:07pm #



  14. Jason Oberg said on December 21st, 2008 at 2:20pm #

    Max is right. Boycott the corporations, stop voting for the duopoly candidates, and stop being distracted and led by the nose by the mainstream media. These are the simple steps Americans need to take. Right there in front of them. Unfortunately, the average American can’t take a hint even if it’s applied with a sledgehammer.