Privatization and the Public Interest: Highway 407 Revisited: Chandran Mylvaganam and Sandford Borins. 2004. "If You Build It ...": Business, Government, and Ontario's Electronic Toll Highway. * Toronto, Canada: University of Toronto Press. 164 pp.

The term “privatization” is typically used to illustrate the transfer of activities from the public sector to the private sector. Despite government's “businesslike” innovations in quality, human resources, and technology, the rush to privatize government has seemingly gained unstoppable momentum. Touted regularly by politicians and emphasized by the media, it is now virtually an unquestioned assumption. The logic of privatization's proponents is that turning over services to the private sector—through contracts or through abandonment—produces large savings with virtually no loss of quality or reduction in service levels. Proponents of privatization believe that business can simply do a better job of delivering any service, public or private. Advocates hold that outsourcing can deliver a much greater portion of the services that are now public. In that context, Mylvaganam and Borins's “If You Build It …” examines the public enterprise of privatization in the context of the Greater Toronto Area's (GTA) Highway 407. Highway 407 was envisioned as the solution to an overcongested GTA, a situation largely attributed to the GTA's robust economic growth throughout the late 1980s. The Ministry of Transportation estimated that traffic congestion throughout the GTA produced for Ontario commercial industry losses totaling approximately $2 billion annually. The authors establish two primary objectives: (1) to chronicle the events leading up to Highway 407's development, its subsequent privatization, and its performance; and (2) to critique the Highway 407 project, identifying successes and failures so as to provide a basis for future recommendations to policymakers considering privatization. The authors do offer unique insights into the Highway 407 project given their personal access to the decision-making processes. Mylvaganam served as chief of staff to the Ontario Minister of Transportation from 1990 to 1995, while Borins served on the board of directors of the Ontario Transportation Capital Corporation, which was responsible for constructing Highway 407, from 1995 to 1998. Highway 407 was constructed as a toll highway, utilizing an electronic toll collection system. This was done in the interest of alleviating budgetary constraints, as capital project funding is awarded on a year-to-year basis. There was ultimately no guarantee of funding for the Highway 407 project. Further, an economic recession in 1990 limited the resources that were allocated to capital projects. Decreased tax revenues and skyrocketing social assistance costs engendered budget deficits. Given such circumstances, the government was forced to examine alternative financing mechanisms for large-scale capital projects, including Highway 407. Making Highway 407 an electronic toll highway would ideally make the project self-financing. The Harris government, which was elected on a platform of privatization and limited government, sought to secure political credibility prior to the 1999 election cycle. Highway 407 was consequently identified as a candidate for privatization. Through an open bidding process, Highway 407 was privatized in April 1999. The firm 407 International was chosen as the highest bidder to purchase the highway for a term of ninety-nine years at a cost of $3.1 billion. Given the highway's original $1.5 billion cost, the Harris government realized a profit of $1.6 billion. Mylvaganam and Borins note, however, that approximately two-and-a-half years later Highway 407 was sold for $6.3 billion, double its original market value. The authors fault the Harris government not for selling Highway 407 for only $3.1 billion, for the highway's market value was clearly captured through the competitive bidding process. Rather, Mylvaganam and Borins maintain that the Harris government moved too quickly to privatize the highway in the interest of raising capital shortly before an election cycle. By doing so, the long-term interests of the people were not served. Specifically, Mylvaganam and Borins write, “The timing of the privatization was dictated by the government's political and electoral needs and was undoubtedly premature. By not waiting until the highway had been operational for a longer period, and more actual operating data had been obtained, the government did not sufficiently minimize the risk factor for private sector investors. This resulted in a much lower price than would have been realized had they waited a few more years and observed the steady growth of traffic” (103). The authors present two alternatives to privatization: (1) privatization for the long term and (2) public ownership. Privatization for the long term encompasses a shorter lease period, thirty years as opposed to the ninety-nine-year horizon. Further, this approach considers the option of the government's retaining a minority interest in Highway 407 so as to realize a portion of the revenues generated through tolls. Regarding the public ownership option, the authors maintain that the government could have used Highway 407's electronic tolling technology as a basis for tolling other highways and perhaps even urban road systems. This would have served as a source of revenue and provided a cost-effective way of maintaining the nation's highway infrastructure. Perhaps more important, this could have helped Canada emerge as a leader in advanced highway and transportation development. The momentum for privatization began in the early 1980s with the big push by the conservative right under U.S. president Ronald Reagan and British prime minister Margaret Thatcher. As a matter of policy, both the Reagan and Thatcher administrations were committed to privatizing public functions and enlarging the private sector's scope in society. Their common rationale emphasized free competition within a market system. Small government and minimal taxes were preferred. An important assumption was that the welfare state imposes substantial taxes and regulation on free market mechanisms so as to distort the free flow of capital. The privatization strategy would also imbue the public sector with competition and an ethos of innovation. That transfer of property rights and government functions from the public sector to the private sector has been a prominent part of efforts to institutionalize competition and innovation in the public sector. Mylvaganam and Borins' “If You Build It …” shows that such notions were eventually embraced by Canada's Harris government, which espoused an ideological fervor for the privatization movement. The authors do not present an ideologically motivated book, one that is against privatization. Rather, “If You Build It …” shows the potential pitfalls of privatization, especially if such a movement is motivated by short-term political and electoral goals. This work makes an important contribution in terms of enhancing the privatization literature and also for suggesting how privatization efforts should proceed in an attempt to best protect the public interest.

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