As the title suggests, this blogger is not a fan of public-private partnerships (PPPs). While there may be occasions where this model makes sense, they are relatively rare. Why? What is the problem? The problem involves an inherent conflict of interest. Whenever the government’s ties become too strong to a particular company and its ventures, how can we expect government officials to regulate that company with any objectivity?
Wikipedia, which tries to cover just about everything, has an interesting article on PPPs. Here is a brief excerpt which begins to suggest the kind of problems involved.
Because of the focus on avoiding increases in public debt, many private infrastructure projects in the early 1990s involved provision of services at substantially higher cost than could have been achieved under the standard model of public procurement. The central problem was that private investors demanded and received a rate of return that was higher than the government’s bond rate, even though most or all of the income risk associated with the project was borne by the public sector. (from here)
Businessmen go into business to make money, and the only thing some businessmen will not do to make money is break the law. Politicians, on the other hand, are too often enamored with power, and politicians need money to run for political office. Since politicians have control over the public’s assets (money), and politicians make laws; businessmen can find cozy relationships with politicians far too convenient. After all, with the right connections we can steal without it being against the law.
Fortunately, sometimes the businessmen get so greedy, the public notices. Then politicians cannot make the deal fly. Consider this example from Pennsylvania (Apparently, Virginia politicians are not the only ones who want to sell our roads to foreign companies.).
In Pennsylvania, lawmakers debated a proposal to lease the cross-state turnpike to Citi Infrastructure Investors and the Spanish firm Abertis Infraestructuras for an upfront payment of $12.8 billion. The high-profile deal was shelved last fall after a number of legislators refused to support the plan over concerns about the state’s financial assumptions and oversight, among other reasons. Pew conducted an in-depth analysis of the state’s effort to help policy makers around the country learn from the Pennsylvania experience. The report identifies the information states need and the issues they should consider when evaluating proposed agreements with private companies to fund infrastructure improvements. (from here)
So when does a PPP actually make good sense? The best case for a PPP occurs when a private charity or nonprofit works with government to charitably fulfill a public need. This is a case where no one makes a profit. Instead, government steps aside and accepts the help of private citizens.
Unfortunately, the term “public-private partnership” has little to do with true charity. What the term does is provide glamor for public consumption. Meanwhile, we get fleeced. For example, we have a website dedicated to PPPs. This website kindly lists the criteria for PPP success. I got a good laugh out of this one.
Guaranteed Revenue Stream:
While the private partner may provide the initial funding for capital improvements, there must be a means of repayment of this investment over the long term of the partnership. The income stream can be generated by a variety and combination of sources (fees, tolls, shadow tolls, tax increment financing, or a wide range of additional options), but must be assured for the length of the partnership. (from here)
Tax, tax, and more taxes. Even shadowy taxes. Shadow tolls? I had to look that one up. Here is how the Federal Highway Administration (FHWA) defines the term.
Shadow tolls can be an element of a highway finance approach whereby a public or private sector developer/operator accepts certain obligations and risks — such as construction, operations and most specifically traffic — and receives periodic shadow toll payments in place of, or in addition to, real or explicit tolls paid by users. Funds for shadow tolls can come from diverse (and multiple) government and/or private sector sources, including State Highway Funds, special assessments on nearby properties and regional dedicated tax streams. (from here)
The FHWA proudly describes this form of financing as innovative. Politicians and bureaucrats are never more inventive than when they are figuring ways to tax and spend. Here the public pays, and the fact the money goes into the pockets of a private company garners minimal notice.
So why did I bring up PPPs now? We have no shortage of inventive politicians in Virginia, and PPPs seem to the latest fad in Virginia. In particular, as I last noted in this post, our politicians think PPPs are great way to fund roads. To point out the risks involved I will do a series of posts. For the moment, however, let’s just enjoy some cartoons.
The Cartoons
The article from which I copied the cartoon below made this observation.
It’s time to take a pause and ask some questions: given that the Government is a PPP advocate and has a preference for private finance, how can it be at the same time a steward for the public interest? (from here)
In the next cartoon, the public-private partnership is praised as providing a competitive advantage. It is always nice to have a sugar daddy, but can you tell which side is government and which is private?
In a win/win scenario, the private operator would gain competitive market advantage without expending capital on network construction. Those private sector operators who currently enjoy success in private-sector operations are best positioned and the most experienced to take advantage of this trend. (from here)
- Competitive Advantage
In the final cartoon, the well-dressed government official is portrayed as an indispensable source of funds and expertise. What is sadly hilarious about the depiction below is that in order to get its funds and expertise, government must tax the “stakeholders.”
Consider the realism of the words that went with the cartoon.
Stakeholders felt that it was important for them to be involved with poverty reduction. Farmers, artisans, traders, businessmen, entrepreneurs and public officials should create non party political organisations (including public/ private partnerships) that will allow them to work well together. (from here)
Non party political organizations? What planet could that be?
Indispensable Taxing and Spending
Tom, I am confused.
Are you saying that public/private charities aren’t good ideas?
You other concept seems to make sense, if I am getting it right. Are you saying that mixing businesses with government is bad? If so, I agree.
I use Sallie Mae as an example. If you have a problem with Sallie Mae, both Sallie and the government will defend themselves leaving no one to defend the consumer.
kgotthardt – Have you considered the political advantage of a government-funded “private charity” to a politician. When a politician gives money to a “private charity,” he is funding his reelection. The “private charity” funds advertisements (effectively using tax dollars) explaining how wonderful it is and of the need to give it still more money. The politician claims credit for funding this wonder, and the citizens receiving the charity — well, having been given a handout, they have a reason to vote for that politician.
What of the efficiency and efficacy of the charity? If we are lucky, someone might investigate.
Yeah, I know what you mean about that, Tom. That’s why I’ve blogged about the issue of whether or not to advertise your volunteer work or your donations or charitable work.
On one level, I want to know which companies (or in this case, politicians) are doing good things with their money–which in part is OUR money if we are paying their salaries. On another level, you are right that these people are using charities as free advertisement.
So then I get into…okay. If a politician eats at a certain restaurant, isn’t s/he kind of endorsing the restaurant? How about shopping? Who was it that shopped at Target…Michelle Obama? I can’t remember. But whoever it is gave Target a good ‘ole plug.
As individuals, it’s easier to remain anonymous donors or volunteers. But whenever you get in the public eye, it seems nothing is simple anymore.
If a politician donates on a regular basis, we can at least ATTEMPT to believe s/he isn’t a total selfish rat
It’s not much, but it’s a place to start.
kgotthardt – I honestly do not understand why you think you have the right to use government to fund charity. Taxation is extortion. When one citizen uses government to tax another for “charitable purposes”, he commits robbery. There is no ambiguity here. That is what it is.
You have read Thoreau, and you like him. Don’t you understand we only have government in desperation. Without government to resolve our disputes, we would kill and/or ruthlessly exploit each other.
Think about what it means to enslave another human being. Slavery is the historical norm. We have no choice except to fight this impulse within ourselves tooth and nail. When the masses vote themselves the government treasury (or government charity), we have begun the process of corrupting ourselves and our government. We have taken the first steps towards being enslaved by a tyrannical government. If a man buy your vote to rob and enslave another, he can buy your soul.
Tom, I’m confused. Can you help me wrap my head around this?
1. “I honestly do not understand why you think you have the right to use government to fund charity.” Where did I say that, or what gave you the idea I said that in the comments here? In what context are you saying this?
2. “Don’t you understand we only have government in desperation. Without government to resolve our disputes, we would kill and/or ruthlessly exploit each other.” I understand that. But let me see if I am understanding your position. You believe in government but only enough so we don’t kill each other. Is that right?
3. “Think about what it means to enslave another human being. Slavery is the historical norm.” So you think taxation = slavery. Is that what you mean? (I think you have written that before, but I wanted to clarify.)
4. “When the masses vote themselves the government treasury (or government charity), we have begun the process of corrupting ourselves and our government.” Can you explain what you mean by this?
Sorry to be so muddled. It has been a long week, and I have ‘hours to go before I sleep.’
kgotthardt —
1. Have you forgotten this post, for example? How do you define charity?
2. I believe in limited government. To get an idea what I mean by that, you can read the series of posts beginning here.
3. If someone taxes others for their own benefit, they enslave them. Instead of choosing for themselves how to spend the fruit of their labors, taxpayers must surrender that right or else.
Are you familiar with Tax Freedom Day? This year it will arrive April 11th. Due to the Stimulus Package, we will put our children and grand children in debt, but Tax Freedom Day will come 8 days earlier.
Taxpayers work a third of third of their lives to pay the cost of government. Most of this work goes to pay for the cost of social welfare programs. That money is taken by politicians under the threat of force and given to someone else.
Federal Government participation in welfare program is clearly unconstitutional. The only thing that makes Federal Government participation in welfare “constitutional” is that the Supreme Court decided to say such participation is constitutional. In effect, regardless of what the Constitution actually says, the political class has given the Supreme Court the right to say what it means. Since loose interpretation of the Constitution gives the political elite more power, they are happy to give the Supreme Court such power to amend the Constitution, but this is clearly dishonorable.
4. Politicians now control most of the funds our government spends. Instead of collecting funds with tolls or user fees, politicians simply tax and spend. The politicians get “their” money regardless of whether they provide the taxpayer any needful service. So they can use the money to buy votes. When more people start getting money from government than pay taxes, we have an obvious problem. Even if that is not the case, when so money is spent for health, education, and welfare, we leave the political elite too much discretion. Inevitably, some will buy votes to retain power.
Ah! Thanks for the reference back to my blog, Tom. Honestly, I write so much, half the time I forget what I write. And after a mental marathon of a day, my brain just dies anyway.
Yes, I still think we should have kept the taxes as they were. This doesn’t mean I think we should have raised them. I don’t know how to explain that mathematically. Let me try again. If my mortgage is $1900 per month, then figure out the formula that would keep it that way. The housing depreciation would make up the rest and help offset the deficit. My thought was to make it as painless as possible by just keeping things the same from the perspective of the home owner.
I still think we need to fund our programs, especially those that have historically been funded. Pulling their funding now would ruin them. Because of the recession, no one has the money to take over on funding.
I think I have also said that since we cannot RELY on people to be charitable, the government has to step in somewhere to make sure people aren’t living on the streets. I don’t trust all people to do the right thing. People are too selfish and would rather step over the homeless than reach into their wallets and hand over an extra $100.00. That’s a painful reality. In an ideal world, no government would have to support the poor because we would all pull together. We don’t do that.
But then again, in an ideal world, we wouldn’t even NEED government. Nor would we need money.
I absolutely agree that it’s better to collect tolls and fees than to tax. If we are to tax, we should do it on commodities. I maintain we should tax candy and chips.
I don’t think “welfare” is unconstitutional, but we can have that argument later after I get some work done.
kgotthardt – This is not a perfect world. There are no perfect solutions. Nonetheless, right remains right, and wrong remains wrong. Neither of us has the right to enslave anyone else.
Just because we do not think we can RELY upon people to be as charitable as we think they should be, that does not give us the right to periodically rob them. Yet that is exactly what you advocate.
Look again closely at your own words. What you advocate is both Utopian and illogical.
The idea of the welfare state is actually rather new. For thousands of years, charity was a private matter. Although some kings spent money to aid the poor, that too was a private matter. All he surveys is the King’s private property.
Because Christ taught us to love each other, the Christian church encourages private charity. In fact, churches serve as charitable institutions. Church institutions provided communities the means to help each other and to put subtle pressures upon the less generous.
The government role began to become more formalized about the time of Thomas Paine (He was one of the first advocates in the movement towards the welfare state.). What Paine did not consider was the lesson learned during the decline and fall of the Roman Empire. In order to ensure their ascendancy, political leaders will use the public coffers to buy votes. Hence Roman Caesars bought the votes of the Roman mob with “free” bread and savage entertainment. Then Romans sold their freedom, and the men they sold it to wrecked their empire.
You do not trust people to do the right thing, yet the solution you insist upon entrusts politicians with enormous power. Moreover, it requires that we all vote for the good of all instead of our own best interests. This welfare state, this contrived solution to end poverty, assumes that all men will vote for the best interests of strangers instead of their own best interests and that of their own families. The voters can be trusted to do that? Does this “solution” not replace the problem you posed — the inability to RELY on people to be charitable — with one that is greater and more dangerous?
If we are going to entrust government with the authority to rob Peter to pay Paul, then every time we vote, we each must vote for the way the robs Peter “justly” and not just our own best interests. That has not happened, and it is not going to happen.
So to fix a problem that exists because some do not think people can be trusted, we have connived a solution that requires even more trust. We make ambitious people responsible for the distribution of funds that they did not earn, and we make the people who hope to receive these ill gotten gains responsible for selecting the distributors.
Some sins we cannot punish in this lifetime. In fact, it is not for us to judge who is too greedy to share. Instead of raging against those we suspect as too selfish and greedy, we should have pity and worry first about our own sins.
So Tom, what IS the solution?
Kings had kingdoms where the serfs were enslaved by the rich and powerful.
It seems no matter what we do, we end up in the same place.
How do you propose we fix this?
kgotthardt – “This” cannot be fixed by any wisdom of mine. Even if I could, I would not enslave others into some Utopian solution. The end does not justify the means.
Consider what you are really asking for, perfect people.
We cannot force each other to be angels. Even He who has the power, God, has chosen not to do such a thing. What He did was to set an example for us. The best I know to do is to imitate His example.
If there is a fix to “this,” then it is to be found in each of us when we obey His command to love Him and each other.
Because we have no other choice, we must use government to resolve our disputes. To use it for more is to invite abuse.
The tax spoken of in the story was tribute, a tax not paid by Roman citizens. The Pharisees were unhappy about the tax, but the Herodians advocated submission to Roman rule. Here is what John Wesley has to say about verse 21.
There is a point where we must rebel against government. That comes when we are unable to render unto God what is God’s. As strange as it may seem, the Romans had the wisdom not to deny their subjects the practice of their religious beliefs. Do we? In order to achieve some Utopian vision, will we so busybody and enslave each other that too many will believe they are no longer able to render unto God the things that are God’s?
Spiritually, in a sense, I completely agree with you, Tom. Unfortunately, Jesus also preached the Utopian which once again, we cannot reach. So how can we get a little closer to the ideal? I think what we are really discussing here is the METHOD.
Right now, deciding the method has done little but cause partisan wars (one reason among others that I’m not partisan). Whenever that happens, we get further and further from what Jesus and the great spiritual figures represented. We MUST reach some kind of consensus without bloodying our hands with the hearts of others.
Democracy provides one means of reaching a consensus, but when we turn democracy into a battlefield, we defeat ourselves.
So what is the practical plan we can use at least to point ourselves in the right direction, understanding that we will not all agree about spiritual or political or economical principles?
I would love for two very different people to sit down and draw up a plan that each could live with, at least for a time. Then, I would love for these two to show the world what that plan might look like.
Who knows…the whole world could be changed.
kgotthardt – Not a partisan and yet you would have a “METHOD.” Envision an eye roll which no smiley face could do justice.
Deciding the “METHOD” or rejecting the “METHOD” — that is what causes partisan wars. So long as you are concerned about the “METHOD,” you too are a partisan. Do you think you have earned the ire of other partisans for no reason at all?
The practical plan of which you speak was drawn up by dead white men during a long ago summer. They wrote it in hot room in Philadelphia. These men recognized democracy has its limits, and they worried over those limits. Citizens in successful democracies recognize those limits. Here is a post that cites what James Madison and the gentlemen he worked with had mind that long ago summer.
What about Jesus preachings and the “METHOD”? Jesus did not preach any Utopian ideal; He is the ideal. He is the Way. Jesus was not much concerned with the methods of this life. He came that we might have life.
“Do you think you have earned the ire of other partisans for no reason at all?”
As a matter of fact, I have earned the ire of partisans on both sides just for being who I am.
Kind of says something about people who want to pick sides, people who value the Constitution in name only.
They just cannot believe that not everyone in the world is a politician.
That’s really too bad.
kgotthardt – Everyone in the world is affected by politics. How each of us participates is I think what you are getting at.
When you take a position on a issue, you become a partisan, and you risk incensing people on the other side just by taking an opposing position. Within ANY faction there will be partisans with a deficit of the virtues we supposedly hold dear. If you take a clearly opposing position to one these, they may seek to punish you, verbally or worse.
All I can say is that we must live in different worlds, Tom.
kgotthardt – Perhaps, but what gives your world the right to tax mine?
LOL! Tom…
I meant the idea that every belief is partisan and everything is political.
I guess I live in my own head more than I do in DC Metro.