PPPs Fiscal Hoax Is a Blank Financial Silver Bullet

Yves here. We’ve written regularly against the government looting known as public-private partnerships, or PPPs. They are based on the bogus premise that companies that take over the provision of public services can do so, while also adding their profit margin, more cheaply than the public sector. The reality is that this private enrichment typically comes with lower service levels, witness the privatization of the NHS and the skimpy coverage of Medicare Advantage plans compared to traditional Medicare. Worse, many of these PPP schemes, by moving particular services to private operators, wind up creating what amount to fragmented supply chains, increasing fragility and making it harder for users to navigate obtaining service.

This post also addresses private funding schemes in lieu of government debt issuance and again shows costs are higher.  This post also addresses transparency concerns. PPPs should be subject to the same FOIA requirements as public service providers.

By Jomo Kwame Sundaram, former UN Assistant Secretary General for Economic Development. Originally published at Jomo’s website

Public-private partnerships (PPPs) for infrastructure and service provision are both costly and risky. Worse, PPPs typically fail to ensure universal, let alone fair access to public amenities.

Public-Private Partnerships?

PPPs usually involve long-term contractual arrangements in which private businesses provide infrastructure and services traditionally provided by governments. In recent years, PPPs have built or run hospitals, schools, prisons, roads, airports, railways, water and sanitation.

Risk-sharing between public and private sectors has long been widespread. In recent years, more than two dozen different types of PPPs have been identified. Such variations reflect differences in deals between governments and commercial partners.

Most international financial institutions (IFIs) advise governments to guarantee profits for their private partners. The IFIs continue to urge governments to ‘de-risk’ commercial providers to attract their investments.

Private investor preferences for specific types of PPPs may vary over time and with circumstances, often reflecting changing needs and priorities. As no one type fits all, changing circumstances and preferences have increased the variety of PPPs.

PPP  Problems

PPPs are far more complex than suggested by their cheerleaders’ narratives. Their negative impacts on infrastructure and public service delivery have been highlighted again by a Eurodad-led report. Public expenses rise as governments bear private costs and risks.

Following World Bank and other IFI advice, national authorities attract commercial financial investments by appealing to private greed. PPPs have been used to ‘de-risk’ such investment, by using their terms to ensure profits for private investors.

The report also exposed PPPs’ negative impacts for democratic governance. PPP arrangements typically lack transparency, and rarely involve prior consultation with affected communities. Thus, they have been more prone to corruption and abuse.

While private partners are guaranteed profits, their PPPs may still fail. In recent years, PPPs’ fiscal and other costs kept mounting as their shortfalls grew despite their rising profitability. As such problems grow, criticisms and dissent have risen.

Why PPPs Fail?

PPPs have increasingly been touted as the magic solution to many problems, particularly financial constraints, poor management and delivery. PPPs have become popular among elites in the global South, where their ‘middle classes’ were enticed by the promise of better services and ‘trickle-down’.

The private sector is supposedly more efficient and better able to deliver public amenities including energy, education, health, water and sanitation. But better value for money has rarely ensued, as many studies show. Instead, the converse is more typical.

A 2020 study by the European Federation of Public Service Unions and Eurodad identified eight major reasons why PPPs in Europe have not improved outcomes.

First, PPPs rarely raised additional funds. Instead, they have typically incurred more public debt in the form of government guarantees, rather than direct borrowing. But such additional public debt has often been obscured from the public.

Second, private commercial loans generally cost much more than government borrowings. Third, public authorities, especially central governments, still bear ultimate responsibility, especially in the event of project failure.

Fourth, PPPs have rarely delivered better ‘value for money’ than reasonably managed public projects. Fifth, seeming PPP efficiency gains have been largely due to risky cost-cutting, e.g., in public infrastructure or healthcare provision.

Sixth, PPPs distort public policy priorities, typically requiring even more cost-cutting. Seventh, PPPs have rarely delivered both ‘on-time’ and ‘on-budget’. Eighth, PPP deals are typically opaque, rather than transparent, often involving abuses and corruption.

From early 2020, the Covid-19 pandemic exposed the long-term adverse effects of earlier austerity and underfunding of public health. More recently, inflation, stagnation and more extreme weather have exposed other vulnerabilities and their causes.

What Can Be Done?

As the world faces multiple and interconnected crises, PPPs offer bogus, even dangerous solutions. Eurodad has made policy recommendations to national governments and development finance institutions (DFIs) to improve infrastructure and public service financing.

• Stop promoting PPPs. The World Bank, IMF, regional development banks and DFIs should all end the promotion of PPPs, especially for social services. Access to health, education, water and sanitation should not depend on capacity to pay.

• Fiscal and other major PPP risks should be publicly acknowledged. Governments should be warned of PPPs’ generally poor outcomes, and of the pros and cons of various financing arrangements. DFIs should all more effectively finance national plans for sustainable and equitable development.

Countries should be helped to find the best financing means to deliver responsible, transparent, gender-sensitive, environmentally and fiscally sustainable public infrastructure and social services consistent with national and multilateral obligations.

• Informed public consultations should always precede any infrastructure and public service provision agreement by PPPs. These should include ensuring the rights of all affected communities, including those to fair remedy or compensation.

• Exercise rigorous and transparent government regulation, especially for public spending, PPP contract values, project impacts, and long-term fiscal implications. The public interest must always prevail over commercial ones.

DFIs should only finance projects serving the public interest. Appropriate, publicly funded public services should be promoted, with transparent contracts for and accountable reporting on social service and infrastructure project delivery.

PPPs have often proved to be budgetary frauds, exacerbating, rather than reducing national fiscal deficits. Far from being the financial silver bullet they have been touted as, PPPs have proven to be blanks, making much noise, but with little real benefit.

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  1. eg

    One of the attractions to governments of PPPs was that it afforded them a way to get infrastructure capital debt “off” their established books — it was an accounting dodge from the start, “necessitated” by the successful neoliberal campaign to promote the fallacious household budget analogy.

    The associated grifts were just the icing on their rotten political cake. But there’s an awful lot of icing …

  2. Voting

    One fatal flaw in the PPP scheme leads to the rest.

    The politicians and lobbyists negotiating a PPP contract have demonstrated that they have their own interests and those are not the public’s interests. Basic economics and accountability suffer, and people are led to believe that the pols understand the ongoing public impact and the negotiating ploys. Given their track record, they inspire only a No Confidence vote.

  3. Michael Hudson

    The main problem with PPPs is that public utilities should produce basic services at subsidized prices or freely. Privatization prevents such subsidy. That means that public infrastructure will not be used to lower the cost of living and dong business, but will raise it.

    1. PlutoniumKun

      One thing thats often overlooked about PPP vs public provision via contractors is that the latter is often significantly cheaper, especially in large scale construction works. In many sectors the government, whether central government or a local authority, is often a semi-monopsony buyer of services, which gives them a stronger negotiating position with contractors.

      For a typical small to medium scale construction contractor, the government may be your long term bread and butter source of work, so it simply doesn’t pay to play the sort of cost boosting game which is normal in private sector work. Squeezing an extra 10% out of the job isn’t worth it if you find yourself excluded from future rounds of contracts.

    2. J E Tipre

      Thank you, Dr. Hudson, for including the concept of the Commonweal in this appropriate discussion. Neoliberal thought and practice have embraced private interests while behaving as though public interests would be served. All in just a few generations. Hypocrisy.

    3. Skip Intro

      It seemingly formalizes the creation of new state-granted monopoly rents on formerly public services.

  4. David in Friday Harbor

    The PPP scam was always a way to both cram-down labor costs and to weaken the political power of the working class.

    Public employees tend to have civil service protection, good benefits, and pension plans. They also tend to be union members with large PAC funds that allow them to exert political influence in a democracy. This is unacceptable to the self-anointed pirate oligarchy of Finance and the Military-Industrial Complex.

  5. McWatt

    Good to see Dr. Hudson making a comment here!

    I wonder from which University braintrust these scams originated in:


    Tiff’s (tax increment financing districts)

    Planned Unit Development Ordinance

    All enrich the private sector at the expense of the public sector.

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