THE PUBLIC-PRIVATE PARTNERSHIP SCAM

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
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?

Indepensible Taxing and Spending
Indispensable Taxing and Spending

17 thoughts on “THE PUBLIC-PRIVATE PARTNERSHIP SCAM

  1. 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.

    Like

  2. “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.

    Like

  3. 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.

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  4. 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.

    Like

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