Wednesday, December 9, 2009

The Privatization of Chicago's Parking Meters

One of the dumber municipal initiatives I have heard in a while is Chicago’s recent sale of the rights to its parking meters to a group of private investors, detailed here:

Setting aside the major, obvious problem that the deal was never scrutinized by anyone, and thus the city sold the rights for half of what owning the parking meters would actually be worth, without saving any costs at all… parking meters are a terrible candidate for mass privatization, and especially without price controls (and think about how often you hear me saying THAT!)

Parking meters are a public service, and thus it is in the interest of Chicago to ensure that said public service is provided as efficiently and effectively as possible.

Privatization of something tends to work better than public ownership when there is vigorous competition in that area. Competition drives down prices, promoting cost efficiencies that drive down prices further. As long as reasonable safety and quality regulations are in place with sufficient penalties for noncompliance, competition provides a significantly better outcome for consumers.

The problem with parking meters is that parking meters are a local monopoly. The fixed stock of parking meters in front of a store is likely the only parking that’s as close to the store, so parking meters don’t lend themselves to competition very well. Instead, they lend themselves to monopoly pricing, which hurts consumers, and if high enough, actually can reduce utilization of the parking meters, which is the opposite of what a public service is supposed to be able to do.
The other problem with privatization is that the state is still bearing most of the costs associated with the parking meters. Not only are prices higher for consumers up front, consumers don’t even realize any major tax savings by allowing a private company to slash costs and increase operating efficiency to improve profits. In a sense, the privatization of Chicago’s parking meters is the worst of both worlds – the inefficiency and arbitrary nature of public bureaucracy, and the rent-seeking-at-any-cost behavior of the more unsavory parts of corporate America. The fact that anyone thought this was a good idea is stunning, and more importantly, the fact that it was not subject to a legitimate review process is a disgrace to Chicago’s democracy.

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