Arnold's Privatization Mania (Partially) Explained

We know that Arnold holds a grudge against unions, which he believes caused him that stinging defeat in 2005, and much of his goals on the budget lately have taken their aim at those unions. In particular, Arnold is seeking to privatize major infrastructure projects, ostensibly for the sake of "efficiency" but as a practical matter to get the jobs out of union hands. I thought that much of this was just a sop to Arnold's friends on the Chamber of Commerce and just more of the conservative mantras of animosity toward unions and privatization equaling a universal good. But there's also a quid pro quo angle involved here in the form of David Crane, a top economic advisor to the Governor, who would stand to benefit financially from any public-private projects put forward by his current boss.

As Gov. Arnold Schwarzenegger demands that lawmakers allow private interests into California's huge market for public works projects, a company with close personal and financial ties to the governor's economic advisor is positioned to benefit.

The advisor, David Crane, has spent years promoting private-sector involvement in public construction projects -- one of a few issues holding up a deal between Schwarzenegger and legislative Democrats to ease the state's worsening fiscal crisis.

Babcock & Brown, the financial services firm where Crane worked for a quarter of a century, hired a Sacramento lobbyist last year to influence the governor's office on so-called public-private partnerships, records show. Since joining the governor's team in 2004, Crane has received hundreds of thousands of dollars of income from deals he made while at Babcock, a firm founded in San Francisco and based in Australia, according to financial disclosure reports.

Those deals included projects in areas such as telecommunications, in which he served as a financial advisor; personal investments in real estate from Babcock's public-private partnership projects in England; and partnerships he formed with other Babcock executives to invest in oil wells and an Italian restaurant chain.

Crane is claiming that he cannot possibly benefit financially from any future deals, but one wonders whether, even if Crane is telling the truth, it really matters. The network of friends and former business associates to which Crane's advice could directly or indirectly steer business is vast. This is how government-by-profit-taking typically works, rewarding friends and punishing enemies. Whether or not Crane gets his profit now, as an economic adviser, or later, when he returns to Babcock & Brown or some other destination, is in many ways besides the point, just a clever way to avoid violating the letter of the law.

Jessica Levinson, the director of political reform at the nonprofit Center for Governmental Reform in Los Angeles, said Crane appears to be operating within the letter, though perhaps not the spirit, of the law.

"It starts to have the appearance of doing political favors for old friends, and that is not something that I think is illegal, but it still may not be fully ethical," Levinson said. "I think it all comes down to, is he making this decision for public good or is he making it to help his old business friends?"

By the way, Crane is a Democrat, or at least that's what it says on his voter registration card. The issues are the same. He's a free market fundamentalist who probably thinks he's advocating on behalf of a good solution for California. After a while, the theft becomes so commonplace that the thieves don't even see it as stealing anymore.