Infrastructure: A Road to Riches?

As Americans have learned in the last month, even in this country most port facilities have been privatized. Foreign companies are the major players in large part because foreign nations went to this system long ago. (One of the arguments made against the Indiana toll road deal was that it would be dangerous for the road to be under foreign ownership.)

Since the idea is so new in America, it's too soon to tell if privatizing infrastructure will prove to be the most economical way of financing those projects. Government entities can almost always borrow money cheaper than private companies can raise capital, so the private sector starts with a handicap. Private toll-takers and maintenance crews will probably make less money than public employees doing similar work, but private managers demand higher salaries than the government pays. And privatization requires profits -- two tiers of profit, actually. Companies such as Macquarie, Carlyle and Goldman Sachs will earn a profit for arranging and managing these transactions, and stock and bond investors who put up the capital will get a second profit.

Nor can anyone know yet how profitable the business will be. Analysts are projecting that infrastructure projects will produce dividends and long-term capital gains that add up to returns in the low teens.

Finally there's the question of how well the public will be served by privatization. It could take several years of private operations before anyone can judge how well it is working.

Facing a multibillion-dollar backlog of road-building needs, governments aren't likely to wait for the facts. Already Pennsylvania is investigating some kind of private deal for the Pennsylvania Turnpike. Other projects are in the works in California and Texas.

Prudence would argue for going slowly, doing what amount to clinical trials of privatization before prescribing it as a cure for the ailments of America's infrastructure. But bridges are crumbling, roads are jammed and the infrastructure privateers are standing at the door, checkbooks in hand.

As the Virginia legislature has demonstrated so far this year, many politicians aren't willing to take the risk of passing tax increases. But lawmakers across the nation are willing to take the risk of passing the buck to the private sector. It'll take so many years to know whether this is the right decision that the politicians who promoted it will be long gone by the time anything can go wrong.

In the meantime, there's money to be made investing in infrastructure.

Jerry Knight's e-mail address isknightj@washpost.com.