Monday, April 26, 2010

Public-Private Partnerships

Dear Colleagues

Some people are impressed with the performance of Public Private Partnerships (PPPs) and want to expand their use ... but, like so many other "silver bullet" solutions, this one also is likely to be only a part of a solution.

There is ample evidence that the private sector has the ability to "run things" with more cost efficiency than the public sector. An independent study done in New York City at the end of the Koch Administration suggested that almost everything that was being done by the City administration was costing about 10 times what it would have cost being done in the private sector. My experience working with the World Bank, the UN and a variety of governments confirms that efficiency is not high up in the the public sector's priority list.

But while it is clear that the private sector is good at doing things ... it is only good at doing things it wants to do. If the private sector is not interested in something ... then this matter is going to get ignored. The private sector rarely has the public good as a high priority in its decision making.

A PPP is only going to work when the objectives of both the public partner and the private partners are well aligned. This can happen. At the moment in New York City there are many PPPs that are being very successful in improving the public space in various areas of the city. The private sector ... the businesses in the area benefit from a better neighborhood ... the city needs to do it, but does not have the resources ... the PPP mobilizes resources essentially from the private sector and the job gets done ... and the private sector business community gets benefit. Quality of life is improved. Everyone wins.

Over the past 20 years the center of New York has been transformed from an ugly, dirty, urban, drug infested mess to a much more attractive clean historic and modern area with everyone ahead. Much of the work has been done by the area PPPs. The transformation of Central Park has been facilitated by another PPP ... and what was a dangerous run-down facility 30 years ago is now one of the world's finest big urban parks.

The fact of success of PPPs in doing area improvement work should not be generalized into the PPP being the way to do a whole lot of other things. The work of area improvement has a public and a private goal that is very much aligned. In these cases, the work of the PPP produced a benefit and not a profit ... and the private community in turn could profit from the benefit.

This is in contrast to a PPP to run, for example, prisons. A private for profit operation of a prison may be a PPP, but it may well turn out to fail. The goals of the private operator and the goals of the public sector in this case are not sufficiently aligned. I cannot imagine how, in the long run, a PPP running a prison will satisfy both the public and the private parties.

The PPP is a form of organization that has potential to improve socio-economic performance and improve the quality of life ... but not doing everything everywhere.

Peter Burgess

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