U.S. Cities Need Effective Public-Private Partnerships to Thrive; How Can This Happen in a Divided America?
By: Sandeep Chandrasekhar
Tags: Freedom, Smart Cities, Cybersecurity, Technology, Private Sector

COVID-19 has revealed America’s fundamental flaws; the country’s greatest strengths of freedom and opportunity have contributed to an embarrassing pandemic response from the entire country. America runs on free market capitalism — where buyers and sellers come together to make transactions — as individuals ruthlessly defend their freedom of choice for any action taken. The “American Dream” is glorified from rags-to-riches stories, where hard work and opportunity can make anyone successful in this nation.

Freedom comes at a price though; that built-in gritty mentality of Americans can lead to stubbornness, which has contributed to astronomical difficulties in achieving cooperation between Americans — hence, the inability to get people to wear a mask. The coronavirus pandemic has revealed America’s systemic weaknesses with self-mindedness, as our country has not made any progress to defeat the virus, rebuild the economy, or fully reopen the nation. Americans have gradually lost the ability to co-exist, and one fundamental theme highlighting the divide revolves around the control of power between public and private entities.

For dense regions, this public/private divide is rampant; every choice has resulted in a consequence. Innovations in technology in economically powerful cities like San Francisco and Seattle have created new jobs and better infrastructures but have displaced communities in urban regions, leading to socio-economic and cultural issues. The meteoric rise of Uber and Lyft, displacing the taxi industry, have created legal battles with cities — as the future of ride hailing remains increasingly uncertain.

SMART Cities initiatives intersect the fierce battle between municipalities and businesses, as transportation, energy, housing, commercial real estate, and the overall telecommunications infrastructure blend a combined responsibility from both public and private organizations. This partnership has proven difficult, as the rise of digitalization has increasingly fractured the relationship between both entities, with trust between public and private entities worsening by the day. Where do these divisive issues stem from?

Different Goals with Public and Private Endeavors

Competition drives the American spirit and forces people to continuously adapt or fall behind in society. Corporations in the private sector must consistently provide value-added services and remain fiscally responsible; otherwise, they risk their customers flocking for other solutions or running out of cash, which would put them out of business.

Economically, the pursuit of continuous growth and profits has spurred unprecedented innovation in America, with 70% of the world’s unicorn startups (companies valued at $1 billion or more) based in the U.S. — as the quest to obtain the most market share has allowed the 2020 Fortune 500 companies to collectively represent $14.2 trillion in revenues — or two-thirds of the U.S. economy.

The economic success of America’s biggest companies has come at a price, with an ever-growing wealth inequality between the rich and the poor. The imbalance has contributed to social and political unrest all over America, with citizens everywhere seemingly clamoring for radical policy changes. Thus, governing bodies typically assign different departments & agencies within any specific region — from the federal level in DC to state, district, county, and city levels all around the nation — to address this gap and ensure a more equitable society, but their governance requires a different set of principles to effectively function.

Running public agencies — such as public transit systems, delivery systems, agriculture, education, and many others — as businesses poses enormous challenges. For instance, public transportation departments and organizations have had major financial difficulties in generating a positive cash flow. In addition to the high operating and maintenance costs for most public transit systems, U.S. public transit ridership has fallen in 31 out of 35 major U.S. metropolitan areas during the 2010s, even before the pandemic. With lower fare revenues from fewer riders and less tax money contributed to transit systems, COVID has exasperated the problems facing public transit agencies, most of them requiring billions of dollars in bailout funding from the government just to remain functional. The financial issues extend to the car and micro-mobility ride hailing systems, with most of these companies in the transportation sector operating deep into the red.

Other agencies like the USPS — which had already lost over $69 billion in the 11 years prior to 2020 —have faced financial calamities — the USPS expects to lose $20 billion over the next two years as a result of the pandemic. Surely, the rise of email has contributed to the decline in mail delivery demand, but the fiscal disaster facing USPS has predominantly resulted from an outdated and inefficient fiscal and operating system.

Private corporations are not designed to handle such societal challenges; they need to stay fiscally responsible while continuously innovating to remain in business. Public entities must prioritize a clean, smooth, equitable, and inclusive society, or risk turning their regions into violent battlegrounds, like what has happened with societal unrest in many of America’s largest cities. Private entities require speed and swiftness, while public endeavors need methodical alignment, which takes significantly more time to properly implement. These divergent priorities have contributed to an increased social, political, cultural, and economic divide in this country.

Conflicts of Interest on Taxes

While most publicly funded endeavors — such as road construction, new railways, education, and research — require taxpayer funding, private entities prefer to give Uncle Sam as little as possible and instead reinvest any earnings back into their ventures. Those who embrace freedom often despise government interference in their affairs, often leading to tax evasion, as 1 out of every 6 dollars owed in federal taxes is not paid.

Smart companies have leveraged all sorts of tax loopholes to avoid paying any taxes, especially under the Trump Administration, which administers policies favorable to corporations. With legislation like the “Tax Cuts and Jobs Act” — which lowered the federal tax rate from 35% to 21% — major companies like Amazon paid $0 in federal tax in 2017 AND 2018, despite obtaining over $11 billion in profits before taxes. Because Amazon reported 8 years of losses since its IPO in 1997 (from investments back into the company), it could write-off future tax bills; add in stock compensation write-offs and massive federal tax credits ($1.4 billion at end of 2018) from R&D and investments in plants/equipment/buildings and Amazon has saved billions of dollars in taxes from the system.

Amazon is not alone; in 2018, NINETY-ONE of America’s largest companies paid zero dollars in federal taxes, which marked the full full year since the legislation above. This contributed to a near one TRILLION dollar federal budget deficit in 2019; amid COVID-19, the federal deficit has ballooned to nearly three TRILLION dollars and is only getting higher. Nationwide, sales tax revenues have declined 21% from last year.

While companies and businesses look to avoid paying taxes and instead re-invest revenues back into their own respective ventures, public projects significantly suffer with less tax revenues to work with.

Private Companies Have Little Incentive to Cooperate with Public Regulations

Money and opportunity drive job growth; the question becomes, should this come from the private sector or the public sector? Corporations believe their capacity to innovate and move swiftly fuels job growth, while public sector employees believe their work is more meaningful and driven by service and the quality of work, not by profits. Businesses want the freedom to innovate without government interference, while municipalities want a more structured, unified approach without worrying about profits.

In effect, public governing bodies cannot keep up with the pace of innovation, while private companies have little incentives to adhere to all public regulations.

Just look at some of these scandals:

A $5 billion fine for Facebook’s data breach with Cambridge Analytica means very little when the market cap of the company exceeds $500 billion.

Apple’s fine of $1.2 billion for slowing down iPhones to incentivize users to purchase newer versions also does not move the needle when the market cap has reached $2 trillion.

Uber’s $148 million fine to cover up a data breach is trivial when the company operates at an annual loss of over a billion dollars and has already used the data to adjust its business decisions

By the time any of these cases get settled in court, companies have moved so far ahead. It took roughly three years for each of the above scandals to get resolved from the time each incident happened. With the rapid pace of technology, three years is an eternity to economically strike big with an innovation.

Millions of other cases exist of private companies pushing the boundaries to get valuable information or make new sales or partnerships. From a business perspective, this makes complete sense; the price paid to obtain valuable information or break the laws can save companies from making poor business decisions or come up with better solutions from what they originally intended. If decisions do not improve their bottom line, companies have little incentive to adhere to any social causes.

Lack of Public Trust with Cybercriminal Activity

Cities want to incentivize people to spend time in their cities in order to boost overall economic activity and provide a quality experience for all residents and visitors. To improve urban areas, cities must continuously improve the transportation infrastructure, bolster job creation, provide a clean and safe environment for all citizens, and engage and connect the citizens among other issues. No one private entity can effectively fulfill every one of these needs, and balancing change with maintaining any city’s identity has proven increasingly difficult.

COVID-19 has brought a much-needed pause to these patterns. Since the turn of the century 20 years ago, rapid improvements in bandwidth, connectivity, and network — now gradually approaching the fifth generation (5G) — has led to transformative technological advancements — such as the Cloud for data storage, faster Internet connections, and faster communication between devices and servers. This is designed to improve the quality of life in any city, and the private sector has fueled the 21st century technological growth; unfortunately, the rapid speed of innovation has not provided governing bodies with the time and resources to effectively implement a structure to accommodate the changing realities of the world.

This has led to so many public trust issues, beginning with massive cybercriminal activity; in fact, more than 4.1 billion data records were exposed in known data breaches from January through June 2019, costing businesses $4 million each. Cybersecurity has become a $120 billion industry and is expected to double by 2022. Anything associated with technology runs the risk of data privacy issues, which present monstrous legal hurdles especially as technology evolves.

Balancing Economic Mobility with Culture & Livability

Technology has democratized the playing field and created a more global economy. This alone has led to friction, with many deep-rooted Americans questioning the motives of several American companies, many of whom outsource labor and production overseas. The foreign worker visas have long been the tech industry’s dirty secret, tying foreign workers to jobs and driving down pay for American workers.

From a business perspective, policies like Trump banning hundreds of thousands of foreigners from seeking U.S. employment hurts the bottom line, as many of the top skilled workers can form competitor companies overseas. For those who stay, tech companies want to pigeonhole any foreign workers to prevent competitors from scooping them up. Cities, on the other hand, do not want to displace many of their current citizens and workers, as we have already seen what economic imbalance has done to homelessness and crime in the Bay Area, Portland, and Seattle, among many other cities.

America will never be a homogenous country or society. Foreigners flock to the United States for opportunity to fulfill their dreams and innovate. Other governmental structures hinder innovation, so people from literally all over the world want to come to this country to work hard, pair up with like-minded people, and create something meaningful for the world. They do not work for government jobs to improve a particular region but rather, create a solution utilized universally. Most global innovations happen in the private sector, and cities must continue to encourage innovation or risk falling behind in society.

Tying it All Together

No easy answers exist. Motivations of hungry workers and deep-rooted American families differ greatly. The fundamental definition of America also provides different answers from different segments of people, and it’s no accident why we have entered into an era of political catastrophe.

America, though, should not worry about appeasing the entire nation, as the beauty of the country lies is the uniqueness of each individual region and state. Each place has its own set of values, cultures, and norms that define the communities. After what has happened in the Pacific Coast, many states fear gentrification and the impact it can have on their communities and values.

Thus, America should embrace its free-mindedness and individualism by allowing each city and place to operate individually. This country is incapable of operating at a federal level because of the country’s greatest strength of stubbornness, but it can certainly operate at a state and local level where people actually care about their neighbors and communities.

With a stronger understanding of a public region and culture, private and public entities can better co-exist to solve needs for the entire region to create a better socio-economic system.