Public service, private provider?: future implications of the growth of PFI schemes
From Future of Local Services to the Public
Contents |
Summary
In recent years, developed countries such as Britain have faced increasing demand for public services, including healthcare and education. This trend is likely to increase, with healthcare in particular putting a growing strain on public funds as the population ages. Capital investment will be required in order to rebuild and maintain services and infrastructure - but governments acting alone are increasingly finding themselves unable to commit sufficient resources to deliver on all infrastructure development objectives and also turn these projects around in sufficient time to make them worthwhile.
A widely employed solution to this problem has been to introduce private capital to help deliver public services, through schemes such as Public-Private Partnerships (PPPs) or Private Finance Initiatives (PFIs). PPPs entail the provision or management of certain previously state run services by private actors, in exchange for a fee from the state. For example, contractors could pay for the construction costs of certain infrastructure projects, and then rent the finished project back to the public sector.
Impacts
The rationale behind PFIs is that they both introduce incentives for private companies to run public services efficiently (and hence profitably), whilst allowing the state to gain access to capital with which to invest in infrastructure projects without significantly raising taxes. Other ways in which the private sector could be incorporated into state provision of services include businesses as a trust, where profits are returned to the business or returned to users.
However, controversy centres on the tension between the provision of effective services, and the need to make a private profit. The latter can undermine confidence in the process and has led to the criticism of poor value for money for the taxpayer. The future of PFI is uncertain given a strong degree of suspicion both in the public sphere, the media and among politicians, particularly on the Left. However there is evidence of an increasingly favourable experience of such deals among service deliverers and the use of PPP/PFI arrangements looks set to increase as government finds itself unable to keep up with the mounting expectations and costs of building service capacity and delivering services.
Relevance
- Public Private Partnerships are likely to only be effective in certain areas, but initial successes in some areas may prompt the strategy to be improperly applied elsewhere.
- Alternatively, improper deployment of strategies to increase the role of the private sector may reduce government and private sector willingness to attempt more schemes of any design that would risk private capital or prestige of the government.
- Schemes also run the risk of complicating government accounting, and allow for expenses to be hidden until future years, at the same time allowing powerful corporations to harvest the benefits of high repayments for decades at taxpayers expense with little risk.
- Also of concern is the lack of a public service ethos in the private sector and the lack of accountability for mistakes.
- However, the increased investment associated with PPP may restore prestige to working in public-sector related fields and thereby attract more of society's most talented people, who in turn could improve efficiency.
- New and ever-larger partnerships with private employers to coordinate land use development, transportation, education and healthcare. However, if the organisation for such endeavours is left to private organisations, rivalry and back room deals could stifle effective projects.
- Private investment may allow for expenditure and financing to be secured more quickly, thereby facilitating more rapid development of infrastructure in order to meet growing demands.
- Private investment could become the only option for large-scale infrastructure and development projects – particularly across the developing world.
- Long-running contracts will be required to ensure private investors can safeguard investments; this will hamper government flexibility in changing policies and standards unless there is sufficient foresight to allow for future flexibility within contracts (this in turn could undermine the contribution of private enterprise; as an efficient and market-accountable competitive force).
- New trade rules will need to be drawn up to govern capital flows.
- New markets for private capital could spark innovation contests with the most efficient models being adapted to national and local regulations in different jurisdictions.
- Problems may emerge integrating public sector employees transferred to new entities, particularly when merging with private-sector staff. Clashes of organisational cultures may arise, and/or debate between organised labour may cripple schemes, handicapping the ability of government to deliver services and prompting criticisms of mishandling.
- Government may face greater public opposition to private investment in critical and sensitive areas such as law enforcement, tax collection, public administration.
- There will be high criticism of PFI plans where they fails, with many groups suspicious of private sectors motivation.
- Government may be accused of selling off state assets, and in removing the governments direct control of service provision undermining its ability to govern effectively.
- Direct democratic accountability for services of a social good/necessity may also be eroded.
Innovations
