Of Public-Private Partnerships and Public Corruption

One of the popular phrases in Washington that makes me cringe every time that I hear it is public-private partnership.   This is a foreign concept, alien to the Declaration of Independence and the Constitution.  The Founders fled from the institution.  It had a rich history in Europe, and our Founders hated it, because it tended toward abuse (as it does today).  They had been methodically abused by it.

One example, the infamous British East India Company was a public-private partnership that engaged in colonization in America and elsewhere (perhaps most notably, India), harnessing the colonies with oppressive collars of monopolies that forced the colonists to do business only through the Company that enjoyed the privileges and powers of the Crown.  Those privileges were used to underpay the colonists for what they produced and sold and overcharge them for what they bought.  Fortunately for America, the Founders became champion smugglers, taking advantage of a land with an extensive seacoast and rich with usable harbors.  The smuggling was fortunate also for Britain, for without it the new British colonies in America would have been strangled in their cribs.

The Boston Tea Party was a colonial revolt against monopoly powers exercised in the name of the British Government by the East India Company.  That this revolt took place in Boston was not unusual, as the power and influence of the Crown-endorsed Companies were stronger in Virginia and other places to the south than they were in New England.  The New Englanders were less accustomed to it and therefore felt its oppressions more keenly.  Crown companies had much less of a role (but were not unknown) in lands settled by freedom-seeking Puritans and Pilgrims.  The Jamestown Colonies were from the beginning Company expeditions.  But the Virginians and many other Americans grew increasingly weary of those public-private partnerships and the corruptions that they fomented.  The wide lands of North America encouraged a freedom that the public-private partnership of Crown and Companies was not able to stifle.

It took royal favor to create the public-private partnerships, and the maintenance of royal favor to continue them.  No surprise, then, that such favor had to be funded by steady payments from the partnership to the government officials possessing power to control the royal favors.  In exchange, government discretion, including the judging of right and wrong, was all too often influenced by what favored the partnership rather than what favored justice.

This was how public-private partnerships were corrupting on a personal level.  They were also corrupting to the State, corrosive of freedom.  In no small degree British freedoms from the King have been built by the power of taxation controlled by Parliament.  With great skill over centuries British Parliaments wielded the power of managing the government purse to win new freedoms from the British Kings.  Since there is money to be made by using government power in public enterprises, however, sovereigns can find ways to cash in on that value and avoid the accountability that comes with having to seek new taxes to pay for their programs.  In the great conflict between the Parliament and King Charles I, the King was long able to avoid resorting to Parliament and acceding to its demands for freedom by funding his operations through the sale of royal privileges to and by reaping revenues from the companies and other public-private partnerships.  He carried it too far and eventually lost his head, but the American Founders did not fail to learn the lesson.

Neither did our modern Presidents, many of whom have revealed a fondness for public-private partnerships as a means to extend government programs and influence, even to the exclusion of congressional and public oversight.  Franklin Roosevelt loved creating government-sponsored monopolies, even while giving many speeches against the evils of monopolies.  Today our economy is riddled with public-private partnerships, large and small, and they as always tend toward abuse. 

At the heart of the recent financial recession was the housing bubble supported by two of the greatest public-private partnerships in American history, Fannie Mae and Freddie Mac.  Created to promote government housing policy without using taxes or appropriations—and thereby escaping public accountability—their government privileges allowed them to borrow all the money they needed at prices little above government rates and use that advantage to drive competition out of the middle of the housing markets that they occupied.

When the housing bubble at last burst, the Treasury’s TARP used a public-private partnership with banks (most but not all of whom were unwilling partners) to push investors out of the banking markets and turn the financial crisis into a financial panic.  Once in office, the Obama Administration embraced TARP, to which they added a trillion dollar stimulus package that accelerated our budget deficit crisis.  The Obama stimulus package was lousy with public-private partnerships, a significant reason why it failed so miserably to stimulate our economy, destroying one or more jobs for each one that it promised to create through government favor.

The Faustian bargain at the core of the public-private partnerships corrupts all involved and touched by them:  the government that creates them, the partners who sell their souls for the advantages, and those disadvantaged by the whole unfairness.  Former Congressman Dick Armey—a foe of public-private partnerships—has often warned that when you partner with the devil, you are always the junior partner.