Chicago: Private Firms Cashing In on the Common Good

Rick Perlstein’s new piece, How to Sell Off a City, paints the landscape of the privatized metropolis.  Privatization is, of course, much broader—wars conducted by what used to be called Blackwater and by Kellogg, Brown & Root—prisons kept packed with folks on long sentences to build the profits of the Corrections Corporation of America —but Perlstein’s panorama is local.

“For over a decade now, Chicago has been the epicenter of the fashionable trend of ‘privatization’—the transfer of the ownership or operation of resources that belong to all of us, like schools, roads and government services, to companies that use them to turn a profit.  Chicago’s privatization mania began during Mayor Richard M. Daley’s administration, which ran from 1989 to 2011.  Under his successor, Rahm Emanuel, the trend has continued apace.  For Rahm’s investment banker buddies, the trend has been a boon.  For citizens?  Not so much.”

Chicago is a microcosm of our privatizing society.

  • Chicago was a big winner of a federal competitive “Hope VI” grant that “aimed to replace public-housing high-rises with mixed-income houses, duplexes and row houses built and managed by private firms.”  According to Perlstein, it hasn’t all quite worked out: “Meanwhile, the $1.6 billion Plan for Transformation drags on, six years past deadline and still 2,500 units from completion while thousands of families languish on the Chicago Housing Authority’s waitlist.”
  • There’s the deal that turned parking meters over to Chicago Parking Meters in an arrangement that, Perlstein’s sources estimate, has underpaid the city “by a factor of 10.”
  • Then there’s the deal by which the Chicago Skyway was leased for 99 years to an Australian firm. The city reaped $1.8 billion in immediate cash, but drivers using the road are now paying $4.50 in tolls, when it is estimated $2.50 would be the likely toll rate if the highway were still public.
  • Chicago Transit Authority now has a privatized Ventra “smart card” through an arrangement with a San Diego defense contractor, Cubic.  Cubic is making added profits because “the transit cards can double as debit cards.”  “But dig the customer fees… $1.50 every time customers withdraw cash from an ATM, $2.95 every time they add money to their online debit account… $2 for every call with a service representative…”  and so on.

Of course Chicago has also been one of the big laboratories for privatization of public education.  Perlstein reminds us that when President Barack Obama chose a member of the mayoral-appointed Chicago board of education, Penny Pritzker (the Hyatt Hotel heiress) to be Secretary of Commerce: “In June of 2013, Chicago Mayor Rahm Emanuel made a new appointment…. The appointee, Deborah H. Quazzo, is a founder of an investment firm called GSV Advisors, a business whose goal… is to drum up venture capital for ‘an education revolution in which public schools outsource to private vendors such critical tasks as teaching math, educating disabled students, even writing report cards.'”  Perlstein wonders, “Given the work her firm does in education, did she anticipate recusing herself from school board decisions that presented a conflict of interest?”  Instead, “Some of her companies that had preexisting contracts with CPS cut their prices after Quazzo joined the school board so their bills would fall under the threshold that would require review by district bureaucrats.  One of those bills came to precisely $24,999.  The threshold for review? $25,000, naturally.”

Then there has been the privatization of janitorial services for Chicago Public Schools, something principals have continued to decry as disastrous because, they have complained, the schools have become filthy.  Even as principals and teachers despaired about the conditions in their buildings, Aramark, the recipient of the $260 million, three year contract, laid off 470 school janitors, a 20 percent reduction.

Chicago has also been in the forefront of the movement to replace public schools, where teachers and other staff are protected by unions, with privately managed charters. “Of course, another thing that elites like about privatization is that it lets them lay off public employees—especially unionized ones.  In Chicago, privately run charter schools that replace traditional public schools are not covered by Chicago Teachers Union contracts, and most are not unionized…”  “All told, since 2009, the city has cut 5,000 jobs, in addition to laying off 1,700 public-school employees.”

Perlstein concludes: “Most privatization deals fail every public policy test.  There’s little record of successful competition between concessionaires to deliver service more efficiently. The very logic is faulty, because most government services are what economists call a ‘natural monopoly’—which turns out to be what makes it so attractive to capitalists in the first place: ‘Infrastructure is ultra-low-risk because competition is limited by a host of forces that make it difficult to build, say, a rival toll road,’ as Businessweek explained way back in 2007. ‘With captive customers, the cash flows are virtually guaranteed.'”

Perlstein quotes one Illinois politician, captivated by the seduction of the the rhetoric of competition, who commented: “The developers were thinking in market terms and operating under the rules of the marketplace.  But at the same time, we had government supporting and subsidizing those efforts.”  “The fan,” writes Perlstein, “was Barack Obama, then a young state senator.”

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