Wednesday, October 26, 2005

Public-private politics

The Tyee also discusses the economic implications of public-private partnerships...and points out that studies which purport to claim that these are a better means of development tend to leave out a crucial detail:
The private sector has always built the infrastructure we need. The key difference with P3s is that the developers, not government, borrow the money needed to pay for the projects. The government just has to pay an annual fee to use whatever is built...

The rhetoric in support of P3s is no longer about private sector contributions to public infrastructure projects in B.C. They understand that the private financing of public infrastructure projects does not allow government to undertake projects it otherwise could not afford. Their rationale is more subtle, based on 'value for money' studies purporting to show benefits from P3s compared to more conventional contracting arrangements.

The shocking problem with these studies, however, is that they consider only the potential benefits of P3s while they explicitly ignore the extra cost they entail. It is much more expensive for private developers to raise the money needed for these projects than for government to borrow the money itself. The cost of private financing could add 3 percentage points or more to the interest cost taxpayers must ultimately pay.

I'm not one to be a slave to ideology when it comes to service delivery: if it's genuinely possible to save money while delivering the same quality of service, then every government should be looking to do so. But that process will be utterly useless if the government involved wilfully ignores some of the costs involved in one of the options.

It seems that in many cases, governments eager to privatize have chosen that wilful ignorance over a realistic evaluation of costs and benefits...leading to added expenses on every project undertaken as a result. And that's the kind of government waste that we should all be able to agree to eliminate.

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