Improving State Capacity-building
The P3 Paradox
A presentation by the Confédération des syndicates nationaux (CSN)
OCDE Seminar on Public-Private Partnerships
Zurich
February 21st and 22nd, 2008
Improving State Capacity-building / The P3 Paradox
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The Confédération des syndicats nationaux (CSN) – or, in English, the
Confederation of National Trade Unions - is the second largest central union
organization in Canada. We represent workers in public and private sectors,
organized both regionally and in nine sectoral federations: health and social
services, higher education, public services (such as municipalities and public
transit), communications, pulp and paper, metalworking, commerce and
construction. More than 50% of our members are women, and half of our
membership works in the public sector. Although largely concentrated in Québec,
a province in Canada, the CSN is also present elsewhere in the country,
especially in telecommunications, trucking, and federal penitentiaries, where it
represents correctional officers.
General context
The last five years have been a period of major transition for public service
worldwide. Citing a lack of revenue and public services that are too costly and
inefficient, government’s intention was to “re-engineer” the State, with the goal of
downsizing the government apparatus. A such, it opened the door to privatization
of entire sectors of government by allowing contracting out; by giving the goahead to the creation of public-private partnerships (P3s), in reference to the
UK’s experience of Private Finance Initiatives (PFIs); and by developing
government units for public-private partnerships.
In Quebec, the government has also attacked union organizations by removing
the right to organize for groups of health and child care workers, by decertifying
unions that had previously been legally recognized, and by imposing working
conditions on half a million government employees. P3s are part of a larger
strategy which in some countries has become the way to radically influence the
role of each public player.
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Improving State Capacity-building / The P3 Paradox
The position of the workers’ union regarding P3s
The CSN and several other global unions are firmly opposed to the privatization
of public works and services, and in particular to the expansion of public-private
partnerships as a method of financing, managing and operating infrastructure
assets and public services. We maintain that the main arguments used by the
proponents of P3s – cost reduction and value for money, improving public
infrastructure and services, competition, durability of public assets and risk
transfer - do not withstand detailed analysis. Furthermore, we also maintain that
P3s distance us from the fundamental goal of improving employment and
working conditions, democratic governance and State capacity-building. As you
can see, we need to open lines of communication, to understand each other and
find solutions for the workers and citizens we represent.
For us, this doesn’t exclude the private sector from being one of the players.
Government has a long tradition of collaboration with the private sector. You may
recall one of the very earliest P3s – the construction of the Canal du Midi in
France – in the 17th century Public and private sectors have both strengths and
areas of expertise. But the sectors’ fundamental objectives are dramatically
different. The goals of the State, and within it, the public sector, are to ensure the
proper functioning of society and the common good, while the private sector’s
goal is simply to make a profit. Government objectives can be aligned with the
profit objectives of the private sector to a limited degree only, and only when the
State is in command. Infrastructure, goods and specialized services required by
government in specific areas should be obtained by way of traditional public
procurement based on tried-and-true contracts. This doesn’t mean that public
assets, delivery of services, and public management do not need to be improved
or reformed. They should be improved but on a basis other than the P3s. The
relationship between public and private sectors is not necessarily a “win-win
scenario”. The more complex and asymmetrical the relationship, the higher the
Improving State Capacity-building / The P3 Paradox
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stakes, the longer its duration, as in the case of a P3 – the higher the risk for the
public sector.
Why oppose P3s as a method of financing, ownership, management and
operation of infrastructure assets and public services ?
Do P3s reduce costs or provide value for money ?
The partnership contract and the project society created for the implementation of
a P3, a pyramidal structure of sub-contractors and investors, are too complicated
and convoluted to bring about improvement in productivity and to reduce the cost
of infrastructure assets and delivery of service. The related costs are many: the
higher cost of private capital, ballooning of the profit margin, resulting legal and
commercial expenses, all spread out over time, not to mention eventual refinancing and speculation, et cetera. That the P3s reduce the overall cost of new
infrastructures and public services, thereby creating more value for money, is an
allegation that has never been systematically demonstrated. So what does the
private sector do better than good public sector management ?
Are P3s improving services for all citizens ?
Despite the fact that the surveys are still incomplete, a general trend has
appeared. According to the World Health Organization, P3s lead to higher costs
of new facilities, loss of quality and flexibility, maintenance deficiencies, reduction
in services, imposition of fees, unequal access to services and a decline in the
public institution’s ability to render services.1
1
Bulletin of the World Health Organization November 2006, 84 (11) Public-private partnerships for
hospitals Martin McKee, Nigel Edwards and Rifat Atun. pp.890- 896.
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Improving State Capacity-building / The P3 Paradox
Are P3s creating monopolies or improving competition ?
In market societies, competition is never perfect. In the case of a P3, competition
is drastically narrowed during calls for tender, because of the expertise and
capital required. Only a few private firms can qualify. This explains and “justifies”
the creation of a consortium. When selected, the consortium becomes a
monopoly for the duration of the contract and has a wide competitive edge when
the contract is renewed. In the future, how many consortia will bid on a project
worth 3 billion Euros ? Perhaps one or two ?
Do P3s guarantee optimal maintenance of public assets ?
In many P3 contracts, the cost of preserving infrastructure assets is prohibitive
and higher than it would be if the public sector had operated in a more traditional
manner, and had the legal obligation to ensure maintenance of those assets.
Are P3s improving jobs and working conditions ?
The International Labour Office and a number of academic researchers point out
that the consequences of P3s on jobs and working conditions are considerable:
reduction of employment, loss of good-quality jobs, decrease in pay, increases in
atypical workers, those who experience job instability, and placement agency
workers; the emergence of two-tier work, intensification of work, general
deterioration of conditions in terms of health, safety, job security and training,
loss of collective agreements, decline in unionization, and weakening of the
influence of trade unions2. For us and for the workers we represent, this just
doesn’t look like a fair deal!
2
Winners or Losers ? Liberalizing Public Services. Edited Ellen Rosskam. ILO International Labor
Office, 2006. Geneva.
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Are P3s transferring any risk to the private sector ?
Of all the arguments used to justify public-private partnerships, risk transfer is the
most important one used by P3 supporters. But as trade union delegates, we
have to separate fact from fiction. As value for money, the risk-transfer argument
is a smoke screen. When the risk is calculated in monetary terms and included in
the cost of the P3 project, at each step nothing is transferred but money. As the
government is always financially and politically responsible for contractor
bankruptcy, failure of projects, and other unexpected long-term risks, the most
significant risks are therefore not transferred to the private partner. And if the
risks are over-estimated and the list grows longer, the result is a higher profit
margin for the private partner who has taken the gamble. Thus, the real aim of
the so-called risk transfer is obviously to create more value for money for the
shareholder and not for government.
Are P3s improving democratic governance ?
Public-private partnerships lead to a loss of transparency and democracy. In
order to protect business confidentiality, P3s limit access to information. The lack
of information, as well as its control, threaten the governance process of P3s as a
whole. Public accountability is greatly reduced by the absence of complete data
regarding contracts and their fulfilment, information that might enable government
to make better decisions. At a time when people aim to encourage democracy,
citizen involvement in the building and management of public services is curtailed
by P3s. And to whom are we accountable You and I are working for our fellow
citizens, for each other. We cannot forget the real goal of our States: to further
democracy and citizenship! And finally with P3s, ethical risks, such as
favouritism, conflict of interest and corruption are even more acute.
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Improving State Capacity-building / The P3 Paradox
Are P3s improving the State’s capacity-building ?
Public-private partnerships are bringing about profound change in the State
apparatus. P3s downgrade the role, size and functioning of government. They
force public authorities to abandon their traditional role of purchasing, owing and
managing assets, as well as their role in conceiving, managing and delivering
services. P3s transform government into a tenant of infrastructure, a “brokerpurchaser of services”, and a designer of policy framework and procedural tools
in order to create, manage and regulate P3s.
Policy framework and procedural tools usually include a dedicated P3 unit,
comprehensive contract arrangements, adaptation of existing legislation to the
P3 scheme, consultation and participation of all stakeholders, a worker protection
policy, regulations to ensure complete access to information, improve
transparency and accountability, prevent asymmetric relations, collusion, conflict
of interest and political financing; rules defining standards for infrastructures,
buildings and services, to ensure quality control, fair pricing and universal access
to facility-use, to treat various conflicts of interest; pricing mechanisms (incentives
and penalties) to ensure compliance and enforcement; adequate appeal
procedures; sub-contracting regulations, et cetera.
Taking into consideration the interests of workers and of all citizens, the trade
unions are in favour of a strong regulation framework for P3s. If the question
were “Do the unions agree to increase control of P3 projects with the aim to have
better control of public funds ?” - of course the answer would be “Yes!”
Nevertheless, the elements of this framework are the residual functions of a
minimal State. And many of these elements have never been implemented or, if
they have, the implementation was very slow, with limited resources, following
much criticism, public opposition, confrontation among those involved, and in
some cases, resulting in outright failure of the projects.
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The P3 paradox
The implementation of a dedicated P3 unit is often presented as the fundamental
criterion in the expansion and evolution of P3s. However, the real question is
whether improving the State’s capacity-building is possible, when a general trend
in occidental countries is the outsourcing of a major portion of government
activity. Have P3s become the Trojan horse of the privatization process ?
In addressing State capacity-building, we encounter what we refer to as the P3
paradox. The illusion depends first on the fact that the laws adopted and the
regulation of the P3s allow one to believe that the State has not reduced its
capacity-building; second, the P3 unit creates the illusion that the State always
controls the process. However, both the P3s and the P3 units weaken State
capacity- building because the P3s increase the general outsourcing process and
because the P3 unit, by using multinationals consultants to manage a large
portion of its responsibilities, further diminishes public expertise. Therefore two
processes which claim to be supportive of State capacity-building, in reality
continually undermine it. Thus the paradox lies in the fact that government
creates the illusion of increasing State capacity-building when in actuality, it
allows it to erode.
If the reason to have a dedicated P3 unit is to ensure that the P3 will fulfil the
expectations of the private partners regarding risk transfers and future payment
obligations of government departments, we cannot agree. We are frightened by
the idea that the role of the unit is to regulate, in the long-term, the downloading
of a large portion of the State’s financial resources, which will further reduce the
State’s capacity-building.
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Improving State Capacity-building / The P3 Paradox
How do we increase the State’s capacity-building ?
Overall, one can see that P3s distance us from the fundamental goal of
improving public infrastructure and services at the lowest possible cost; and we
have our doubts about the necessity of P3s in modernizing the State and public
management. As participants of this seminar, we all have the same goal: to
enhance the quality and quantity of infrastructures and public services for our
fellow citizens. In doing so, we must look for new ways of accomplishing this,
without transferring the role and power of public authorities to the private sector.
Many techniques that have been applied to P3s, such as “phased design and
construction”, could be adapted to public management. Therefore, the role of the
P3 unit must also transfer to the public sector all knowledge accumulated in the
process of regulating P3s.
Public-private partnerships lead to an impoverishment of governance and a loss
of democracy. P3s are harmful to the collective interests. The role of the private
sector is to sustain the action of the State, not to take its place or to use it as a
tool for the promotion of one’s own financial interests, to the detriment of the
common good and democracy.
And this is why we should promote and improve traditional public procurement
instead of multiplying and regulating P3s.
How can we achieve good governance, when the ultimate argument used to
justify public-private partnerships, the risk transfer, is false ? Are P3s merely
castles in the air ?
The trade union’s role is to defend the interest of workers in both the private and
public sectors. But we are also citizens, and as such we are the guardians of
good governance. If value for money makes sense, it makes sense for the people
who need and pay for services! We are not consumers first and foremost; we are
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part of democratic governance and in this sense we think that P3s do not meet
our needs! We must work together to find a public alternative for financing our
need for infrastructure and public services. And, finally, we must reform public
governance in a more efficient and democratic way.
Thank you.
Louis Roy
Vice-president