This article is part of our special report Progress and Partnerships in Development.
The European Commission has engaged in a dangerously mistaken defence of the role of public private partnerships (PPPs) in EU development policy, warns Jan Willem Goudriaan.
Jan Willem Goudriaan is secretary general of the European Public Services Union (EPSU).
In an interview with EURACTIV.com on 6 June and an opinion piece on 7 June, the European Commissioner for International Cooperation and Development, Neven Mimica, gives a dangerously mistaken defence of the role of public private partnerships (PPPs) in EU development policy. He wants the private sector to play a larger part in the EU’s development policies and invest massively in projects of public interest. This, he claims, will be to the benefit of people in developing countries and so the EU should therefore facilitate PPPs.
EPSU, the European Federation of Public Service Unions, does not agree. Based on our experience with PPPs, promoting the private sector through such projects is wrong and costly for people in developing countries.
There are several reasons for our view. Firstly, the well-documented experience with PPPs across the world should make the Commission refrain from promoting them. PPPs tend to be expensive for public coffers, loading countries with more public debt. The experience in the EU itself provides a glimpse of this. One of the first things the IMF/EU/ECB ‘Troika’ did in Portugal and Cyprus was to identify PPPs as a contributory cause of those countries’ fiscal problems. No new PPPs were allowed. It was recognition that they trap public authorities in long-term contracts that divert resources away from developing public services and addressing people’s needs.
Another concern is that PPPs lead to issues with corruption. Again the EU’s experience sheds light on this with a European Commission report on corruption identifying public contracts as one of the areas of most concern for EU countries. Meanwhile, the European Parliament’s report on the modernisation of public procurement was equally critical of public-private partnerships, their finance and financial risks to governments. It would be wrong to ignore this and continue promoting PPPs in developing countries.
There is more. Research shows that PPPs do not bring the expected efficiency gains to running public services when compared with public sector solutions. The IMF has suggested a basic approach that when “considering the PPP option, the government has to compare the cost of public investment and government provision of services with the cost of services provided by a PPP.” There is no indication that the European Commission is taking this into account.
The problems that EU member states and candidate countries are experiencing as noted in the EU’s anti-corruption report are exacerbated by the lack of good governance, weak democratic, administrative and judicial systems and underfunded public authorities which do not have sufficient and qualified staff and capacity for control and monitoring. This is an issue in many developing countries and especially in the poorest ones. If the EU’s focus is on eradicating poverty, contributing to this via PPPs rather than strengthening democratic institutions is the wrong focus.
The Commissioner acknowledges that PPPs service private interests, including profit maximisation. He is wrong to downplay this. As the World Bank underlines, PPPs, that means the private sector involvement in development, are all about “closing the financial viability gap between costs and expected revenues, using public resources complemented by legislative and institutional provisions supporting private financing of infrastructure”.
This has a perverse influence on a country’s development. The focus on facilitating PPPs and the role of the private sector diverts scarce resources away from developing public services and infrastructure. Public funds are siphoned off to meet the interests of private companies and their shareholders while the people, and that includes the poor, are asked to contribute to the profit margins of these operators and their rich shareholders. That is plainly wrong.
Finally, there is widespread and broad opposition to PPPs and privatisation of public services such as water, health and education. Many municipalities across the world are abandoning the private sector option to run their public services. Again this is the experience in the EU in capital cities like Berlin and Paris. So rather than promote PPPs the Commission should assist developing countries in how to get out of such contracts. The Commission has experience with alternatives. It promoted Public-Public Partnerships under the ACP-EU Water Facility – Partnerships Initiative. This allowed public companies in an EU and in an ACP country to develop their expertise and knowledge to improve the running of public services. It has been very popular but presumably for ideological reasons was not extended and expanded.
EPSU does agree with the Commissioner’s support for strengthening the capacity of tax administrations in his opinion piece. Countries can build up revenue to support public services. But before we encourage the private sector, let us ensure the EU has its house in order to prevent tax avoidance. Public country-by-country reporting for multinationals so they indicate what taxes they contribute including in developing countries and closing tax havens are just some of the measures needed.
The interview says the Commissioner is a member of the Party of European Socialists. PPPs are a recipe from the neoliberal cookbook favouring profits over people. They are not a solution to the problems people face. Progressives should stop supporting them and join the resistance to these Partnerships for Private Profit. Believing we can somehow unleash the powerful profit maximisation motive to run our public services and at the same time tame it in contracts is one of the big mistakes of social democracy. Tax avoidance is just one of the many ways how this motive works.
The research to which this article is based is documented in Why public-private partnerships don’t work, The many advantages of the public alternative, David Hall, PSIRU, University Greenwich, February 2015