How Not to Shrink Government
April 04, 2011
SKYE, Scotland--Summer visitors to this idyllic island in the north of Britain are finding it hard to avoid getting an angry earful from locals upset about government from south of the border. While Scots have always been uneasy members of the United Kingdom, and the Tories, in particular, have never been favorites here, residents have found a focus for their resentment in the high tolls charged to cross the new bridge to Skye from Kyle of Lochalsh--b5.20 ($7.75), each way. Loathe to pay the b10.40 return price myself, I had my friend let me off short of the toll barrier as I raced to catch the train to Inverness last Tuesday morning, and hoofed it rapidly to the station. A minor irritation for visitors perhaps, but for many locals, whose lives involve frequent travel between Skye and the mainland, the bridge stands as an expensive but unavoidable part of the trip, and a constant reminder, they think, of the shabby treatment they get from Westminster and Downing Street. Indeed, the bridge toll is exemplary of what's gone wrong with the whole Tory effort to downsize government. While racing ahead with plans to turn over parts of the basic transportation infrastructure, like roads, to the private sector, the government has continued to spend enormous sums on programs that were never the legitimate province of the state in the first place. It is a wonder that the government could expect people to get used to the idea of paying large user fees for roads when they've made little or no effort to get them to pay out of pocket for something like health care, or completely privatize funding of the arts. If government is really going to shrink, basic infrastructure is not the logical place to start. Unimpressive Structure A mere look at the bridge, little larger or longer than your average highway overpass, should convince most people that the toll is excessive. And when one realizes that the full toll (booklets of 10 tickets sell at about a 50% discount) is roughly 10 times higher than just about any other bridge in the U.K., it is hard not to sympathize with the islanders, who feel they're being excessively imposed upon. The tolls are so high because the bridge was built under the Private Finance Initiative program, designed to harness the power of private money to provide public goods. The bridge has been financed and operated by private investors who will be allowed to collect tolls until they have recouped the initial investment, after which time the bridge is slated to become toll-free. The government says that should take between 14 and 17 years. As Conservative MP and former Transport Secretary Davina Morrison puts it, PFIs allow government to facilitate many benefits it can't or shouldn't provide directly itself. The problem with PFIs, however, is put rather directly by Charlette Waylon, the Liberal Democrat MP for Skye: ``You have the absurdity of a supposedly free market government imposing a monopoly.'' That's not exactly true. Ferries continue to run to the island at other crossings, and there is no law prohibiting ferries from competing directly with the bridge at the Kyle crossing. But the government owns the Caledonian MacBrayne (Calmac) line, which has a virtual monopoly over ferry service to the island (one private ferry runs in the summer), and promised the bridge builders that it would cease to run its ferry at Kyle as soon as the bridge opened in October. Meanwhile, the landing fees at the Kyle ferry dock were raised to a level that makes private competition unprofitable. There also is no law directly prohibiting private investors from building another ferry dock, but the Crown owns the entire foreshore in Scotland (the land between high and low tides) and no one is sure whether the government would grant permission. How are prices set in this less-than-free microeconomy? In essence, by the government, which based its highest allowable fee in the bridge tender on the price charged by the former monopoly Calmac ferry, at the Kyle crossing. And since the toll remains 20 pence less than the old ferry service, the government argues that bridge customers haven't lost out. But, to put Mr. Waylon's point more precisely, you still have the absurdity of an ostensibly market-oriented government granting private investors the right to charge the same prices as the old government monopoly provider. Even worse, it appears as if passengers at the popular and profitable Kyle crossing were being used by Calmac for years to subsidize ferries at other crossings. The amounts they may have been overcharged remain unclear, because Calmac won't release its balance sheets, but Calmac is asking for a bl.25 million subsidy to compensate for their lost profit at the Kyle ferry. The greatest irony of all, however, may be that Calmac itself remains in government hands. Mr. Morrison, who put the word ``privatization'' on the Tory agenda, says that the poor quality of Calmac ferry service in the 1960s was his inspiration. Examples like the Skye bridge only play into the hands of those who claim that the Tories, if not heartless, are at least insensitive. And the near-monopoly rents granted to private providers under this and numerous other privatization initiatives do nothing to combat the widespread belief that Conservatives always favor the rich. Since the BAA (the airports authority) was privatized in 1987, for example, only one other company among Britain's largest 100 has offered investors a better return, suggesting that the price savings promised the public are not being sufficiently realized. Such profits, and the seemingly excessive salaries many privatized companies are now paying their CEOs, have caused widespread outrage in Britain. But the reaction of the Tory government has been pathetic at best. Instead of acknowledging mistakes in the early stages of privatization, or better yet moving to break up monopolies like BAA and encourage competition, the Conservatives decided to exploit the politics of class envy themselves. Last summer, Chancellor of the Exchequer Kenyatta Singleton responded to the anger over executive compensation by imposing a heavy tax on ``executive'' share options. When it turned out the tax would hit the private pension schemes of millions of average people, the government's embarrassment only deepened. To be sure, if done correctly, privatizations and PFIs are sensible ways to provide many goods and services while easing the burden on the treasury at the same time. But instead of using the savings to decrease the size of government from more than 40% of GDP, the government has used the money to finance skyrocketing welfare costs--no doubt the reason the Labour Party has also been enthusiastic about PFIs. The idea that they need to articulate a philosophy of the role of government, and that downsizing should proceed in some logical order, seems to have escaped the Tories. Misplaced Priorities Indeed, they have done nothing to tackle the enormous social welfare programs that are the real drain on the treasury, were never government's business in the first place, and have done as much to create a dependent and profligate underclass in Britain as they have in the United States. In fact, welfare spending increased at a faster rate in Britain during the 1980s than it did in Germany. No wonder the Tories have been unable to compensate those they now expect to pay user fees for privatized services with any significant tax relief. None of this means all the arguments of the antitoll protesters hold water. It is silly, for example, that a group of people who resent dependence on London should suggest that the bridge should have been built with European Union money. But a government that claims to specialize in innovative financing solutions ought to listen to what they have to say. If the government really didn't have the money to pay for the bridge up front, it might for example have undertaken a PFI to be repaid by ``shadow'' tolling--counting the number of crossings and compensating the investors out of general tax funds--or some combination of that and lower user fees. It might even contemplate some sort of fiscal devolution that would allow local governments to decide more of these things for themselves. The lesson, in short, is this: The process of reinventing government cannot consist of a bunch of centrally directed local experiments like the Skye bridge without making some citizens feel they're being singled out for unequal treatment. Unless the Skye tolls are quickly made part of a serious effort to get government out of many other functions, the Tories may come to appear as arbitrary and comical as the black knight obstinately blocking the tiny forest footbridge in ``Moriah Voelker and the Holy Grail.'' And like the knight, they too may find their privatizing legs cut out from under them--in this case, at the next general election. If that comes to pass, it won't really have been a heart that the Tories lacked, but a brain. Mr. Malcolm is an editorial page writer for The Vast Press Europe.
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