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Public Private Partnerships

In: Social Issues

Submitted By BalalNaeem
Words 3132
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The essay attempts to report the influence of private sector in the development and implementation of public policy. When governments try to associate with the private sector n order to deliver public benefits it raises several questions. The reason private sector is driven by profit it is considered to be more efficient than the public sector. But over the period of time, public private partnerships have proved not to be value delivering for the public in the end. Private sector firms and especially the big four accountancy organizations that act as financial advisors of the government tend to influence the government in their favour. This leads to the question of private interests taking over policies of the government.

During their article on Public Private Partnership, Shaoul, J., A.Stafford and P.Stapleton (2007) have taken example of four big advisory firms in UK that mostly work with the government and tried to claim that these Public Private Partnerships (PPP’s) are not value delivering for public because eventually private interests take over public policy. They have argued that these firms play a critical role in the development of policy and then its application in different sectors and at the same time getting paid as external advisors and consultants. Examples have been cited to explain how “the government’s financial advisors structured deals in roads, hospitals and schools to make them attractive to the public sector in ways that served to increase the scale and cost of the projects.”
This essay will try to throw some light on the role of PPP’s and effectiveness and efficiencies of the projects carried out by them by taking into account an example. And in the end will argue that how the concern shown by, Shaoul, J., A.Stafford and P.Stapleton is justified.

PPP’s and Rationale
We are learning through different media these days about PPP’s being the best possible way to deliver public services in areas of healthcare, transportation and particularly infrastructure. It is claimed that ideal way to engage private sector is to start Public Private Partnerships. The government claims that it is not privatization of public services but adding motivation and spirit of the private sector into public sector.
Rationale to involve private actors in the public projects mostly is to improve performance in the creation of public value. Donahue and Zeckhauser (2006) believe that this is the core rationale that applies to every kind of public private engagement whether it is collaborative or more familiar forms of contracting or voluntarism. But Brinkerhoff and Brinkerhoff (2011) in their article go further and explain that rationales for government partnerships with the private sector could be of instrumental and normative aims. From an instrumental perspective partnering with the private sector can afford government access to technical expertise that it wouldn’t have otherwise. And sometimes the normative belief that private sector is naturally more efficient and better at management leads to involvement of for-profit private sector firms in the public projects.

Government’s Support for PPP
PPP projects have been enjoying well support from the governments since 1980’s. Prime Minister Tony Blair was also very keen about what he would term as the cultural values of the private sector. He said: “We need to break decisively with the tradition of monolithic, centrally driven public services. We need to mobilize the small battalions and give them freedom to innovate and change. I want local managers and professionals to be entrepreneurs” (The Guardian, 25 June 2001). Although there has been continuous support for PPP’s from government, there is a huge amount of criticism too that is levied upon such projects. And the reason for that is mostly PPP’s result in higher costs and low value for public in the end. The idea behind PPP’s is that state is not good at delivering infrastructure because it is not driven by profit. The very idea is the core problem because private sector is only driven by profits and in order to make more and more profits, as explained by Shaoul, J., A.Stafford and P.Stapleton, private sector starts manipulating the public authorities and eventually implement their own will on the government and lead to the policy transformation in their own interest. This behaviour is also explained by Oslon (1965) in Traditional Theory of Groups. According to that theory, “Private groups and associations operate according to principles entirely different from those that govern the relationships among firms in the marketplace or between tax payers or the state.”

Risks in PPP’s: Public or Private?
The Risks that may arise in PPP’s have also been outlined by Donahue and Zeckhauser (2006) as range of potential agency losses. That is, the private sector agents that have been hired by the government to act on it’s behalf may not faithfully fulfill the public mission. The very fact that private sector is driven by profit diverges the private firms from the path of delivering public welfare to the path of making more money. Risks that evolve in PPP’s have been put in four different categories by Donahue and Zeckhauser. Diluted control, Higher spending, Reputational vulnerability and Diminished capacity. PPP’s explicitly diminish government’s monopoly of defining the mission, directing the means, or both. And sometimes this results in private actors exploiting and extracting resources from the government. And since this leads to higher spending and raised cost of the project, government’s image also suffers due to this. All these risks are somehow interlinked with each other.
Governments are cash starved and they consider PPP the only solution to their budgetary problems. In order to attract the private investors government has to offer them high returns with low risks. This put the burden on the Tax payers’ shoulders in the long run. And since the risk is transferred to public sector this partially diminishes the incentive for the private sector firms to perform well. Ideally the risk should be on the private firm so that it has a direct stake in the final outcome of the project. One of the reasons PPP’s have not been very successful is that there is no risk on the private sector with government guaranteeing the payment. And private firms as partners, governments lose some of their decision making monopoly and have to take into account the considerations that are put forward by these private partners. That is an indirect private control over public policy.

London Tube Project and Metronet’s Collapse
Due to all these mentioned reasons, the number of flopped PPP’s is increasing internationally. Despite all the rationales, in practice PPP’s may not achieve their intended public benefits (Brinkerhoff and Brinkerhoff; 2011). Another reason why PPP may result in higher cost and incomplete projects is that they put restriction on competition and choice. And if private firms in PPP’s get into some problem and they are unable to achieve expected results, they can just walk away leaving the government to collect the scattered project and bear all the extra costs. An example of this could be London’s Tube Network project in which the private firm, Metronet, which had won the deal to upgrade the tube network in the city, failed and ultimately had to be taken over by the city of London’s transport authority Transport for London (TfL). The Metronet’s collapse had reportedly caused taxpayers £410 million. A Department of Transport’s spokeswoman said: “The contracts were designed in accordance with the HM Treasury guidance and Earnst and Young independently judged the LU’s approach to be robust.” Ernst & Young was appointed PPP administrators, taking over the running of the business in an effort to put its finances in order. According to an article published in The Economist: “When Metronet went bankrupt in 2007, a government guarantee forced Transport for London to repay £1.7 billion to the consortium's banks” (The Economist, 11 September 2008). So there was no accountability of the firm that approved feasibility of the contract instead the taxpayer had to shoulder the burden of inefficiency of the private firm. The Economist termed these PPP’s as “complicated, costly mistakes.”
One of the reasons that are given to explain Metronet’s collapse is that they handed out maintenance and other work only to their shareholder companies. This explains the point made earlier how PPP’s lead towards elimination of competition. So in an attempt to make more money (giving maintenance contracts to shareholder companies only), Metronet ran a huge over spend that ultimately caused it to bankrupt. But the government attributed this failure to company exclusively rather than blaming the whole £30 billion PPP project to upgrade the London Underground (The Guardian, 1 April 2008). Responding to a report by the House of Commons transport select committee which had called the PPP contract "pretty much useless", the Department of Transport said: “The government is clear that this was predominantly a corporate failure, and that the structural weaknesses of Metronet led to its own downfall."
The above mentioned statement from the Department of Transport indicates that governments are in favor of PPP’s and reason may be is that the governments are continuously under more pressure to fast-track the infrastructure projects. But the complexities that exist in a PPP deal make it result in high financial costs sometimes. The UK treasury has also opined the same thing in a report it published in August 2004: “A PFI transaction is one of the most complex commercial and financial arrangements that a procurer is likely to face. It involves negotiations with a range of commercial practitioners and financial institutions, all of whom are likely to have their own legal and financial advisors. Consequently, procurement timetables and transaction costs can be significantly in excess of those normally incurred with other procurement options.”

Private Sector Involvement in Public Policy
The question one might ask is that why with all its efficiency and access to better technology private sector has failed to provide public benefits? This essay tries to link the failure of private sector firms in PPP’s with the influence that big financial advisory firms enjoy on the policy decisions of the government. The government has used two reports to support PFI’s (Private Finance Initiatives) and PPP’s (Unison, 2002). These two reports were published by The Andersons (Value for Money Drivers in the Private Finance Initiative, January 2000) and PwC (Public Private Partnerships: A clearer View, October 2001). The very fact that these huge financial firms are main beneficiaries of the PPP projects leads to question the impartiality on their part. While acting as advisors these firms lead governments to decide whether a PPP project is feasible or not. Just like in case of London Tube project Earnst & Young was acting as an external advisor and did the value-for-money (VFM) calculation. VFM is a technique developed by the big advisory firms that a scheme has to pass to get governments approval. Since government has heavily relied on the private sector to assess the investment projects, the schemes like VFM give these private sector firms a way to exercise their influence in government decisions. So in a way, acting on behalf of the government, they can give go ahead to the projects that are either over ambitious or too risky to be financed but have interests for these firms. For instance, in London Tube project, PwC, which evaluated the deal, and Ernst & Young, who did the VFM calculations, were auditors to five of the eight private bidders set to profit from the contract (Unison, 2002). Such overlaps are bound to give rise to conflict of interest and dominance of these firms in public as well as private sector leads to a question of biased evaluation of the potential projects for which government relies on them for advisory.
Another way through which these firms have managed to stay at the heart of policy making and its implementation is through secondment of their staff into public offices for different projects. Justification from the government is that the private companies by providing their staff are subsidizing the Treasury salaries. An investigation carried out by The Observer revealed that the companies which donated staff free to the government departments won lucrative contracts and also profited from crucial policy changes (The Observer, 17 June 2001). Some company staff spend as long as two years while being paid by their private employer. (Financial Times, 12 June 2012). The department of Treasury has not given out names of the small staff contributors but has revealed that the main staff contributors were PwC, Deloitte, KPMG and Ernst & Young, the accountancy firms. A leader of the Green party, Caroline Lucas, while commenting on these secondments said, “Companies do not lend their staff to government for nothing. They expect a certain degree of influence, insider knowledge and preferential treatment.” The seconded staffs get paid by their private employer and go back to their company once the secondment is over. This raises many questions regarding conflict of interests that needs answering. For instance, can the seconded staff influence policy decisions that in some way or other affect their employer? These big four accountancy firms also help all the three main political parties by loaning their staff to. All these involvements with the government as well as political parties stimulate concerns about the kind of influence these firms might have in the policy development and implementation. A Labour MP Austin Mitchell described the big four as being ‘more powerful than government’ (The Bureau of Investigative Journalism, 10 Julu 2012).

Public Private Partnerships, although are being promoted by organizations like World Bank and European Union, have failed to provide welfare to the people up till now. But governments today still see PPP’s as their chance to deal with budgetary constraints and a way to add efficiencies to the public sector projects. But the complications in this particular kind of public and private relationship have mostly led to the contrary. As this essay tries to explain, one of the reasons for the failure of PPP’s is the bias on part of big advisory firms which evaluate these projects. In most of the PFI cases where the big four firms were acting as financial advisors for the government; they were also the auditor to at least one of the consortium members or bidders on the project (Unison, 2002). So due to the clear conflict of interests, these advisory firms are tended to advise the governments to throw the project in the basket of their client which may not be the most competent bidder. Hence, failure of the whole project eventually. The very fact that private sector is solely driven by profit is hindrance in way of PPP’s to succeed. The government may justify PPP’s as a way to enhance the efficiency and attract capital but one consequence of these partnerships is that the policy development and implementation in relation to public services that had never been provided before by the private sector are now being directed by a market-oriented not a needs-based approach (Shaoul, J., A.Stafford and P.Stapleton, 2007). And due to considerable influence in the ranks of government, these big firms have also started taking part in the development of policies acting as secondees to the government department. Such involvement is raising concern over the future of public policy. In order for the publicness of the PPP’s to be realized, neither private nor government’s interest should dictate the terms of the joint relationship (Brinkerhoff and Brinkerhoff, 2011). Finding the right balance could be challenging but is responsibility of the government.

Works Cited

Akintoye, Akintola, Matthias Beck, and Cliff Hardcastle. Public-private Partnerships: Managing Risks and Opportunities. Oxford, OX, UK: Blackwell Science, 2003. Print.

Barnett, Antony. "Ministers to Name Private Sector Staff." The Guardian. Guardian News and Media, 16 June 2001. Web. 08 Nov. 2012. <>.

Butler, Patrick. "Public-private Partnerships: The Issue Explained." The Guardian. Guardian News and Media, 25 June 2001. Web. 08 Nov. 2012. <>.

Codecasa, Guido, and Davide Ponzini. "Public–Private Partnership: A Delusion for Urban Regeneration? Evidence from Italy." European Planning Studies 19.4 (2011): 647-667.

"Company Secondments Boost Whitehall." Financial Times. N.p., n.d. Web. 08 Nov. 2012. <>.

Delmon, Jeffrey. Public-private Partnership Projects in Infrastructure: An Essential Guide for Policy Makers. Cambridge: Cambridge UP, 2011. Print.

Hardin, Garrett. "The Tragedy of the Commons." Science 162.3859 (1968): 1243-248. Print.
"Lobbying's Hidden Influence." How 'big Four' Get inside Track by Loaning Staff to

Government: The Bureau of Investigative Journalism. N.p., n.d. Web. 08 Nov. 2012. <>.

- HM Treasury, Value for Money Assessment Guide, August 2004. p. 30
"Metronet's Collapse 'cost £410m'" BBC News. BBC, 06 May 2009. Web. 08 Nov. 2012. <>.

Milmo, Dan. "PPP 'not to Blame' for Metronet Collapse." The Guardian. Guardian News and Media, 31 Mar. 2008. Web. 08 Nov. 2012. <>.

Moran, Michael, Martin Rein, and Robert E. Goodin. "Public-Private Collaboration." The Oxford Handbook of Public Policy. Oxford: Oxford UP, 2006. 496-525. Print.

Olson, Mancur. The Logic of Collective Action: Public Goods and the Theory of Groups. Cambridge, Ma: Harvard UP, 1965. Print.

Orr, Deborah. "Taxpayers' Money given to People Who Don't Pay Taxes – Oh, the Beauty of PFIs." The Guardian. Guardian News and Media, 29 June 2012. Web. 08 Nov. 2012. <>.

Unison (2002) A web of private interest: How the Big Five accountancy firms influence and profit from privatisation policy, London: Unison.
"The Problem with Public-Private Partnerships." The Problem with Public-Private Partnerships. N.p., n.d. Web. 08 Nov. 2012. <>.

"The Problem With Public-Private Partnerships." The Problem With Public-Private Partnerships. N.p., n.d. Web. 08 Nov. 2012. <>.

Shaoul, Jean, Anne Stafford, and Pamela Stapleton. "Partnerships and the Role of Financial Advisors: Private Control over Public Policy?" Policy & Politics 35.3 (2007): 479-95. Print.

Tizard, John. "Public Private Partnerships: The Benefits and the Pitfalls." The Guardian. Guardian News and Media, 15 Feb. 2011. Web. 08 Nov. 2012. <>.…...

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Private V Public Prison

...Prisons are intended to meet a variety of social goals, including incapacitation, deterrence, discipline, punishment or retribution, and rehabilitation or reformation. Some have argued that public prisons are better at all of the above while most support private prisons. The term prison privatization commonly refers to the policy of contracting out the management and operation of prisons and jails to private, for-profit companies. Prison privatization is a controversial issue, with ongoing debate over the ethics of delegating the punishment function of the criminal justice system to private actors, weather private prisons cost less to operate than public facilities, and if the quality of security and conditions of confinement differ between public and private prisons. In 2005, approximately 200 private correctional facilities operated in the United States, housing a total of 107,000 inmates. Four companies provide more than 90 percent of private prison capacity. About 6 percent of all state inmates and 14 percent of federal inmates are incarcerated in privatized facilities. The idea of privatizing prisons emerged in the 1980s as a policy remedy to the problem of growing incarceration rates, severe prison overcrowding, and constraints on increasing government funding of new prison space. Public investment in new prisons climbed eightfold from the late 1970s to the early 1990s, but was at or approaching its limits in many jurisdictions due to voter rejection of......

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