Leading the Worldwide Privatization of Local Infrastructure

On February 4, 2025, the business sector of Chicago, Illinois, reacted negatively to Mayor Brandon Johnson’s suggestion to increase real estate transfer taxes, exacerbating the city’s existing economic challenges. In addition to a faltering pension fund, elevated housing costs, and other issues, a major factor contributing to the city’s troubles stems from the contentious privatization efforts from the 2000s, referred to as the “Great Chicago Sell-Off.” In the last twenty years, these choices have drained around $3–4 billion from Chicago.

The trend of privatization initiated under former Mayor Richard M. Daley, commencing with the Chicago Skyway. In 2005, a consortium headed by Spain’s Ferrovial and Australia’s Macquarie Group leased the 7.8-mile toll road for $1.83 billion. Toll rates were increased right away, and in 2016, the 99-year lease was transferred to “three Canadian pension funds” — the Ontario Municipal Employees Retirement System (OMERS), the Canada Pension Plan Investment Board (CPPIB), and the Ontario Teachers’ Pension Plan (OTPP) — for $2.8 billion. In 2022, Atlas Arteria Ltd of Australia purchased a two-thirds share for $2 billion, with OTTP keeping the rest.

In 2006, four parking garages in the downtown area with over 9,000 spaces were rented to Morgan Stanley for $563 million for a period of 99 years. Following Morgan Stanley’s default on its lease agreement-related debt, control was handed over in 2014 to lenders such as France’s Societe Generale, Germany’s government, and Italy’s UniCredit S.p.A. In 2016, Australia’s AMP Capital and Canada’s Northleaf Capital Partners purchased the garages.

Daley aimed to equalize the city’s budget without increasing property taxes prior to exiting office. Nonetheless, the one-off payments led to lasting effects. Along with economic setbacks, the privatization agreements have obstructed Chicago’s capacity to upgrade infrastructure by restricting initiatives to create bike lanes and lessen reliance on cars in the downtown area. Individuals must obtain approval or make payments to firms located thousands of miles away for community street parades.

Profit-oriented organizations contend that privatizing public infrastructure results in enhanced efficiency due to specialized knowledge and capital. Nonetheless, their emphasis is on maximizing profits rather than enhancing services, resulting in persistent rent-seeking behavior. Additionally, in agreements with limited liability firms, the state bears the losses, whereas private entities enjoy the profits. Businesses can retreat or request renegotiations, whereas governments must uphold services, bear enduring revenue deficits, and impose greater expenses on the public.

Chicago’s experience illustrates that privatization has transcended local markets to emerge as a global trend. Beginning in the 1980s, reforms by the International Monetary Fund (IMF) and World Bank promoted the privatization of public infrastructure to draw in investments, resulting in its global integration. According to an Oxfam Briefing Paper, “A 2006 investigation conducted by the Norwegian government on IMF conditionality found that 23 of 40 impoverished nations still face requirements for privatization and liberalization linked to their IMF loans.”

By the year 2000, sovereign wealth funds, pension funds, and multinational companies started viewing infrastructure as a global asset class, often involving long-term leases that change ownership frequently. Foreign firms operate based on bilateral investment treaties or trade agreements, enabling them to avoid local judicial systems. Conflicts are frequently settled in overseas courts or via international arbitration mechanisms, including Investor-State Dispute Settlement (ISDS) and the World Trade Organization. By utilizing legal loopholes such as offshore subsidiaries and tax havens, corporations can protect profits while encountering minimal public examination.

Although Chicago stands out as the most notable American case, comparable agreements are common throughout the United States, mainly involving firms from allied or dependent countries. In 1998, Atlanta, Georgia was among the initial cities to engage in an international privatization agreement regarding public services, entering into a 20-year contract worth $428 million with United Water, a subsidiary of the French conglomerate Suez, to manage the city’s water system. Regarded as the largest privatization agreement in the US at that period, it resulted in accusations of reduced quality, delays, and other mismanagement prior to the contract’s cancellation, causing the infrastructure to revert to public ownership in 2003.

Despite this, the trend persisted. By 2006, foreign firms were renting and managing 80% of US port terminals, along with a lesser portion of the country’s airports. The National Grid of the United Kingdom manages and runs electric transmission systems in the northeastern United States.

Indiana has since emerged as a notable instance of testing international privatization. In 2002, Veolia of France signed a 20-year agreement to oversee Indianapolis’s waterworks. The agreement was, nonetheless, terminated in 2010. In the meantime, the British Airport Authority oversaw its airport from 1994 to 2007. In 2006, a foreign consortium led by companies from Spain and Australia leased the Indiana Toll Road for 75 years for $3.8 billion. In 2015, it was subsequently sold for $5.7 billion to IFM Investors of Australia.

American companies acquired various infrastructure overseas, including in 1999, when a Bechtel subsidiary privatized the water system in Cochabamba, Bolivia, but later withdrew due to backlash. However, for a significant economy, the US possesses surprisingly few foreign infrastructures. There are limited state-owned companies for international infrastructure investments, although several private firms such as Blackstone’s Infrastructure Partners division and Corsair Capital are involved. Rather, significant domestic privatization prospects have positioned US infrastructure as a key target for both American and international investors.

Canadian and Australian pension funds, along with other organizations, motivated by robust funding structures, consolidation, government backing, and prior privatization experiences, have emerged as significant infrastructure investors in the US and beyond. The CPPIB possesses toll roads globally, the OTPP has investments in airports throughout Europe, including the Channel Tunnel, whereas the Canadian firm Brookfield Infrastructure Partners controls telecom infrastructure in Europe.

Approximately half of Australia’s pension funds are invested internationally. However, Australia’s Macquarie Group has notably experienced a significant increase in its assets, becoming the “largest infrastructure asset manager in the world.” Since the 1990s, Macquarie Group has concentrated on finding underperforming or undervalued public assets to purchase and reorganize. According to its website, it launched its Global Infrastructure Fund in 2001 “to invest in infrastructure financing opportunities in the US, Canada, UK, and the European Union.” Besides Chicago’s Skyway, Macquarie possesses long-term operational permits for Virginia’s Dulles Greenway toll road and Alabama’s Foley Beach Expressway, among other projects.

Macquarie’s toll road assets in India are valued at approximately $2 billion. In 2021, it acquired a 49% share in Greece’s biggest utility, Public Power Corporation. It also spearheaded the initiative to privatize Bristol Airport in the UK in 2001, while the largest water utility in Britain was sold to a global consortium led by Macquarie Group from 2006 to 2017. In 2023, Macquarie gained complete ownership of the UK’s National Gas Network.

Since the worldwide privatization trend in the 1980s, the UK has served as a significant market for infrastructure investors. In addition to Macquarie’s infrastructure assets, the largest electricity production company in the UK was privatized and bought by France’s Électricité de France (EDF) in 2009. International investors have persisted in diversifying, as Saudi Arabia’s Public Investment Fund (PIF) is set to acquire Newcastle Airport, following the purchase of a 37.6% share in Heathrow alongside French co-investor Ardian in 2024.

The shared experience of Europe regarding infrastructure privatization has been characterized by debate, mainly because of the dominance of Western European corporations. With the expansion of the EU, several Western EU firms acquired control over essential infrastructure in Eastern EU member nations. In 2015, Greece sold 14 regional airports, transferring control to a consortium headed by the German firm Fraport. This action was not well-received in Greece, particularly after the austerity measures enforced by the EU and Germany during Greece’s financial turmoil. Nevertheless, the EU also offers protections in these agreements, such as profit sharing and financial assistance to member countries.

Beyond the EU, settling disagreements is considerably tougher. French water firms such as Veolia and Suez are frontrunners in worldwide privatization initiatives but have faced legal challenges regarding their interactions with Argentina during the 1990s, Egypt in the 2000s, and Gabon in the 2010s. In 2012, Argentina renationalized its oil firm from the Spanish company Repsol due to domestic backlash, harming relations between the nations. These situations can be especially delicate when they entail former colonial powers and their erstwhile colonies, since economic conflicts may be perceived as continuations of historical control, with former ruling nations charged with exploiting privatization to preserve their influence.

China’s Belt and Road Initiative mainly emphasizes developing infrastructure in non-Western nations, although the 2020 acquisition of Laos’s electric grid presents an exception. In contrast, Europe’s current infrastructure has shown appeal for Chinese investment. In 2016, Greece transferred a 51% share of its Piraeus Port Authority to China’s China Ocean Shipping Company, which subsequently raised its stake to 67% in 2021. China’s competitive pricing, strategic objectives, and considerable financial and productive assets have broadened its infrastructure impact on nations that possess their own extensive foreign infrastructure investments. Chinese companies have investments in ports in Belgium, the Netherlands, Germany, Spain, and Italy, along with European energy and telecom infrastructure.

In Australia, the Port of Darwin was leased to China’s Landbridge Group for 99 years in 2015, while the Australian government faced pressure but chose not to annul the agreement. The State Grid Corporation of China and its affiliates, on the other hand, possess significant shares in Australia’s gas and electricity infrastructure, prompting national security worries because of their connections to Chinese military and intelligence organizations. Additionally, China’s dominance over Australian farmland has provided it with significant water rights.

The geopolitical consequences of these foreign infrastructure investments are evident, as national security issues compelled China to divest its interest in the US Port of Long Beach in 2019. However, these investments are increasingly becoming prevalent worldwide. Though they can enhance economic connections among nations, they diminish accountability, jeopardize sovereignty, and detach public services from local control, neglecting efficient public planning to benefit foreign interests. This trend seems poised to persist, necessitating more responsible strategies to uphold a healthy equilibrium between the need for infrastructure investment and public demands. Brief contracts, profit-sharing structures, and performance-driven arrangements may enable nations and businesses to demonstrate their development strategies and skills—possibly at costs lower than those of local suppliers. Nevertheless, profit maximization continues to be the primary motivation, especially when financial institutions lead the industry.