Monday 17 October 2011

Do Public-Private Partnerships breed corruption?

A couple of weeks ago I had the great pleasure of speaking to a group of public officials from South-eastern Europe about corruption risk in Public-Private Partnerships, particularly those set up to facilitate the construction of infrastructure or hospitals.

There are usually two main rationales for using PPPs for such big projects. The first is about reducing the financial burden on the government, because the private side provides part of the investment (and, importantly, bears part of the risk). This means that PPPs are attractive to cash-strapped governments, and arguably makes it more likely that infrastructure projects will get off the ground. Politicians are not typically very keen on big infrastructure investments, which may only be appreciated years into the future when, heaven forbid, it might be a successor government that gets the credit.

The second rationale is about improving efficiency.  The private partner, motivated by profit maximisation, is seen to be a more efficient provider of services. The empirical evidence on that is mixed, at best, though. There are some indications that private partners inflate prices when dealing with public-sector clients.

In any case, neither of these rationales means that PPPs are inherently more corrupt than projects that are financed purely by the state.

An argument can be made that PPPs are less likely to suffer from corruption, because governments are forced to make more careful plans about the projects, in order to get private partners and financiers on board. This leaves less scope - or discretion - for corruption in implementation.

But on the other hand, PPPs are an opportunity for public officials to get access to private funds.  There is a big temptation therefore to design the project in such a way that one's friends or relatives are well placed to win part of the business, perhaps not as the direct partner, but as the supplier of some critical material.

Overall, PPPs might be corrupt and they might not.  It depends on what controls are in place, not on whether the project is public, private, or a mix of the two.

3 comments:

  1. Hi,

    could you maybe recommend some empirical papers on the subject?

    thx

    ReplyDelete
  2. Hi Dan,

    I found it difficult to find anything explicitly about corruption in PPPs, but there are a number of papers about cost overruns in big infrastructure projects which touch on this. For example, a colleague of mine at Oxford works on this: Bent Flyvbjerg http://www.sbs.ox.ac.uk/research/people/Pages/BentFlyvbjerg.aspx . He has a paper coming out soon on corruption in big infrastructure projects in a Handbook on corruption edited by Susan Rose-Ackerman. You could also ask Neill Stansbury at GIACC - he might have some ideas.
    best
    Liz

    ReplyDelete
  3. The reference I was looking for is: Bent Flyvbjerg and Eamonn Molloy, "Delusion, Deception and Corruption in Major Infrastructure Projects: Causes, Consequences, Cures." In Susan Rose-Ackerman and Tina Soreide, eds., International Handbook on the Economics of Corruption.Cheltenham, UK and Northampton MA, USA: Edward Elgar, 2011, pp. 81-107.


    Liz

    ReplyDelete