![]()
1
The Emergence of Concessions
Governments throughout the world have been involved in public-private partnerships. The public and private sector are increasingly interdependent for the implementation of their ambitions. The boundaries between public and private organisations are therefore blurring, and public management is changing. Output and performance now are the key criteria for evaluating the public sector. The attention on Public Private Partnerships (PPPs) fits this context: the public and private sector combine their efforts.
PPPs, and more specifically concessions, are a special feature of governance. In order to understand PPPs, we need to understand governance. A focus on governance means a focus on processes, rather than on institutions: governance considers the institutions of government, and the processes through which these institutions interact with civil society (Pierre, 1997a). Self-organising, complex, and dynamic inter-organisational networks are characteristics of todayâs social political world (Stoker, 1997; Laws et al., 2001). The term âgovernanceâ recognises the interdependence of organisations and tries to meet the requirements of this world (Stoker, 1997).
Governance does not only comprehend the governance of organisations but also the governance of the public sector as a whole, and consequently the relations between all players in the public domain: local, regional and central governments, private actors, citizens, and interest groups. Good governance therefore implies the involvement and endeavour of all players (Montfort, 2004). Governance has an emphasis on the processes or functions of governing, as against the structures of government (Kersbergen and van Waarden, 2004).
Pierre and Peters (2000) point out eight factors that prompted the increasing attention given to governance issues in the last decade of the 20th century:
1. A shift from politics towards the market.
2. Economic crises forced governments to put their management intentions in perspective.
3. Economic and political globalisation forced adjustment of management intentions and changes in public institutions on a national level.
4. Dissatisfaction with the governmentâs performance leads to more private sector involvement in the enforcement of public tasks.
5. The of rise of âNew Public Managementâ (NPM) ideas and instruments as a counterpart for traditional, input-oriented management styles resulted in an increasing interest in output management, evaluations, and separation of policy making and enforcement.
6. Growing attention given to citizen participation and environmental issues.
7. The increasing importance of sub-national and super-national institutions resulted in a growing attention for multi-level governance.
8. The tension between several new forms of public management and coordination on one hand, and the old traditions and instrument of public accountability on the other, resulted in the introduction of ânewâ players (private parties, citizens, non-governmental organisations (NGOs) ) in the political process.
The central issue within these explanations is the changing role of the government:
âWe believe that the role of the state is not decreasing as we head into the third millennium but rather that its role is transforming, from a role based in constitutional powers towards a role based in coordination and fusion of public and private resourcesâ (Pierre and Peters, 2000).
The focus on governance, rather than on government, emphasises the expanding scope of multiple actors with certain stakes. This accounts for all activities in the public sector domain, and therefore also for spatial planning and thus for construction projects. By focusing on a PPP as a governance mechanism this book gives a great deal of attention to the functioning of the networks and coordination mechanisms.
This chapter describes the history of PPPs and explains the rationale behind their evolution. Different forms of PPPs are distinguished, and specific attention is paid to the concession type of PPP.
1.1 The rise of public-private partnerships
PPPs have a long history in many countries, but became significantly more popular during the 1980s. At this point, private sector thinking was introduced and employed in the public sector, and market-based criteria were applied to the delivery of public products and services (Pierre, 1997a). During the 1990s, NPM and market-based philosophies have further influenced public management in many countries. Since the degree of complexity of the problems that needed to be solved increased, caused by growing interdependencies between the assignments and actors involved, more partnerships between public and private actors were formed.
PPPs have the longest tradition in the United States. In the 1950s and 1960s, these partnerships in the US were set out by the federal government as a tool for stimulating private investment in inner-city infrastructure and regional economic development (Fosler and Berger, 1982; Beauregard, 1997; Linder, 1999).
PPPs became an explicit instrument during President Carterâs administration. Carterâs 1978 National Urban Policy and Urban Development Action Grant (UDAG) encouraged cities to go from simple private investment subsidies to joint equity venture PPPs (Stephenson, 1991; Clarke, 1998; Linder, 1999; Rubin and Stankiewicz, 2001). The Reagan administration reinforced this orientation towards private investment, by reducing the size of federal government and its role in local decision making. His policies gave priority to private investment decisions (Clarke, 1998; Walzer and Jacobs, 1998).
Throughout the 1980s, PPPs became more and more a derivative of the privatisation movements and the rethinking of government. Private providers were assumed to be able to provide higher quality goods and services at lower costs, which would significantly reduce the governmentâs tasks and responsibilities (Linder, 1999). Hence, the factors that explained the emergence of PPPs in the Carter and Reagan administrations are the decreased role of the national government, a declining faith in government, and the need for private capital and effective use of it (Beauregard, 1997).
The Clinton administration, an advocate of the Third Way policy, promoted public-private partnerships as a key component of its urban policy. Third Way policy ideas are consistent with NPM, in their view of partnerships as a new way of governance (Rubin and Stankiewicz, 2001). PPPs are considered to be NPM mechanisms, as a means of establishing a new form of governing working across organisational boundaries (Keating, 1997). Unlike earlier federal government encouragement of partnership, the Clinton administration emphasised the importance of full local community involvement (Rubin and Stankiewicz, 2001). Local governmentâs dependence on business investment is strong in the US, because of the absence of state and federal aid.
But it was not only in the US that PPPs rapidly gained attention in the latter half of the 20th century. In the late 1980s under the Thatcher administration in the United Kingdom the government turned to the idea of public-private partnerships as a preferred method for economic regeneration. City Challenge (the programme that encouraged local authorities to propose schemes for economic regeneration in partnership with local business) replaced the Urban Development Corporation. The UK thinking on partnerships was significantly influenced by best practices in the US.
Other parts of Europe also started using PPPs in this manner in the late 1980s and examples of PPPs in developed countries can also be found outside Europe and the US. In Australia, for example, the introduction of public-private arrangements for the provision of infrastructure dates back to the early 1990s. The first projects focused on toll roads, hospitals, water and power. In the mid-1990s, the focus was on prisons, sea ports, and sports stadiums. In the late 1990s airports were added to this list, with defence, schools, and courts attracting contracts from 2001 (Crump and Slee, 2005). The introduction of PPPs in Australia is a reaction to the large costs and inherent risks in terms of cost recovery involved in the construction of many large infrastructure projects in Australia. Alongside some circumstantial and environmental factors, aspects that give PPPs their current appeal in the Australian context include the potential for achieving cost efficiencies, early project delivery, achieving gains from innovation, transferring some project and finance risk to the private sector, and creating and accessing improved services for citizens (English and Guthrie, 2003).
In the late 1990s, several publications linked the development of PPPs to economic development strategy (Clarke, 1998; Walzer and York, 1998; Linder, 1999; Rosenau, 1999; DiGaetano and Strom, 2003). Today, we can depict a similar trend in the emerging countries. In India, the government has introduced several policy measures to create opportunities for private investors to invest in PPPs. For instance, in order to support the rapid expansion of the southern suburbs of Chennai (India) the government of Tamil Nadu decided to develop a six-lane highway from the city through to the southern suburbs. This project was delivered through a PPP due to a lack of municipal finances (Delhi et al., 2010). In South-Africa, the Mandela administration was confronted with alarming budget deficits and significant infrastructure requirements. PPPs were launched to cope with these problems (Jooste et al., 2011). The N3 toll road and the N4 Maputo Development corridors represent the first major PPP projects.
As mentioned above, the rise of PPPs goes hand in hand with the dominance of New Public Management (NPM).
1.1.1 New Public Management
In the context of relations between public and private organisations, the defining themes of NPM are the achievement of objectives through economy and efficiency and an explicit emphasis on the dominance of individual over collective preferences (Minogue et al., 1998). In effect, the emphasis of NPM is on reshaping the boundaries and responsibilities of the public sector, especially through privatisation, the restructuring of public services, and the introduction of private market disciplines into public administration. Hood (1995) identifies seven key elements of NPM:
1. Unbundling the public sector into corporatised units organised by product.
2. More provision by contract-based competition, with internal markets and term contracts.
3. Emphasis on private sector management styles.
4. More emphasis on discipline and frugality in resource use.
5. Visible hands-on top management.
6. Explicit formal measurable standards and measurement of performance and success.
7. Greater emphasis on output controls.
During the latter decades of the 20th century governments have been limiting their tasks in favour of the market. These decades have witnessed the dominance of neo-liberal thinking. The translation of these ideas into practice has led to the adoption of neo-liberal principles in a whole spectrum of reforms that impinge on or directly involve the public sector. The economic outcome of these principles is that the operations of the market have been liberated from the distortions produced by government intervention. This logic was then applied to the public sector itself, with the objective of reducing the size and activities of the public sector. Another consequence of these principles is that the public sector has been assessed in its broad relations with society and the economy rather than from the viewpoint that the public sector should comprise a narrow and specialised set of institutions.
1.1.2 The impact of NPM on the provision of public infrastructure
As a result, many governments have recently involved the private sector in the funding and delivery of public infrastructure. This introduction is part of a wider belief that one can improve the public sector through the introduction of private sector methods, management, and expertise under the NPM (Dunleavy and Hood, 1994; Broadbent and Laughlin, 1999).
The adoption of NPM principles has been accompanied by two other key drivers in the involvement of the private sector in infrastructure provision.
First, the increasingly complex tasks and problems in society have intensified the dependency of the public sector upon private sector organisations in order to achieve its objectives and fulfil its tasks. These problems are characterised by a high degree of wickedness (Mason and Mitroff, 1981). The admittance of the private sector into infrastructure provision reflects the view of governments that identify infrastructure provision, to an increasing degree, as such a wicked issue (Stewart, 1996). Wicked issues are those complex and irreconcilable issues facing the public sector that require an integrated collaboration by public and private partners. Governments, business, and civil society are unable to tackle these issues individually (Koppenjan and Klijn, 2004).
Second, the decreasing governmental budgets for infrastructure provision have meant that the mobilisation of private funding for public infrastructure and services has become critical and even, in some cases, encouraged by national legislation and funding regimes (Bovaird, 2004). Economic crises, growing budget deficits, and globalisation have reinforced governmentsâ reliance on markets. Due to increasing governmental deficits governments have become increasingly dependent on private funding for public infrastructure and services. Although governments are still the major funders of infrastructure development, the role of private investors is increasing. The larger this dependency the more necessary it is to have the commitment of those actors who do control resources (Wong et al., 2006). The governmentâs ability to provide adequate amounts of capital to fund the investment needs of public infrastructure tended to deteriorate, for example in the UK (Winch, 2000). Nevertheless, the demand for new infrastructure has increased as economies grow and patterns of economic activity change. Private involvement in the provision of public infrastructure has been the answer in many countries.
The developments described above have practical implications for the provision of infrastructure around the world. For a long time, the public sector has had a leading role as the principal in infrastructure projects. In this conventional approach to infrastructure provision, the government takes the initiative, and develops the plans for the execution of work in some detail. The contractor only has to execute these elaborate plans.
This model, however, was and is often criticised as it leads to adversarial relations between the actors involved in providing and managing the infrastructure. In the past, and partly as a result of the nature of budgetary allocation processes, governments have addressed maintenance requirements by over-capitalising design and construction, and under-budgeting for ongoing maintenance. This resulted in communities inheriting expensive, risk-laden infrastructure facilities which, in a number of cases, have progressively been run down (Partnerships Victoria, 2001). The focus on short-term gains is considered to be inefficient in the total life cycle of infrastructure provision.
The...
