The Politics of Public-Private Partnerships: Establishing a Research Agenda
Public-private partnerships (PPPs), which collect the financing, construction and operation of assets into a long-term contractual arrangement, are an appealing way for governments facing strict budget constraints to deliver public infrastructure. Since the 2008 financial crisis such agreements between government and the private sector have become increasingly popular for both developed and developing countries as fiscal constraints have tightened (World Bank, 2016).
November, 12 2019 | Anthony M. Bertelli & Eleanor F. Woodhouse
These partnerships provide a way to finance large-scale projects that the government may otherwise be unable to provide (Yehoue et al., 2006), simultaneously allowing the government to push forward expenditures (Ball et al., 2001) and to claim credit ex ante for projects that are as yet unrealized. To date, they have enjoyed sustained support from international organizations, even if concerns about the fit of these privately financed projects with a global agenda on sustainable development are now emerging (UN DESA, 2016).
A deeper understanding of the politics of PPPs for infrastructure is required. The politics of PPPs is understudied in the quantitative public management literature. In qualitative work, problematic dimensions of PPPs have been highlighted—for example, their lack of transparency for both stakeholders and citizens (Hood et al., 2006; Papadopoulos, 2007) or their contracting difficulties, with risk being hard to allocate efficiently and bidding procedures not selecting optimal candidates (Cunha Marques and Berg, 2011)—but quantitative analyses of the implications of PPPs for the democratic process are lacking. Indeed, much of the quantitative literature to date on PPPs has taken a taxonomic approach, evaluating which types of PPPs (e.g. Build-Own-Transfer versus Build-Own-Operate contracts) are best suited to deliver a specific type of public good. Such an approach, whilst helpful in thinking about cost-effectiveness and efficiency, does not tell us anything about the motivating factors behind the distribution of these projects—what we call the ‘politics of PPPs’.
The Politics of PPPs
In a series of articles and working papers, we work to better understand the politics of PPPs.
In a paper by Angulo Amaya, Bertelli, and Woodhouse (2019), we explore the interaction between voters’ experiences with PPPs and their potential as credit-claim opportunities for politicians in Colombia. By ‘credit-claim opportunities’ we mean public moments when politicians are able to communicate to voters their competence in providing public goods. A typical example of an infrastructure credit-claim opportunity is a ribbon-cutting ceremony for the opening of a new bridge or hospital or a groundbreaking event celebrating the first day of construction. Colombia is an interesting context in which to explore the politics of PPPs, as they are frequently used to deliver infrastructure, yet the ten Colombian departments with the largest number of PPPs have all experienced delays, corruption, and failures related to these partnerships. In this paper, we link PPP location data with electoral district level voter response data and argue that bad experience with PPPs crowds out the possibility that promising a new project will improve a voter’s own welfare. Studying 109 Colombian PPP projects between 1998 and 2014, and over 8,700 individual survey responses, we show that vote intention for the incumbent executive or her party decreases as experience with more PPPs in respondents’ districts increases. Indeed, when we look at those districts located along the Ruta del Sol highway—a particularly problematic PPP, marred by large-scale corruption and delivery issues—we find that intention to vote for the incumbent decreases more in these districts. This paper demonstrates that the credit-claim potential of PPP projects is contingent on how such financing arrangements are used, with the pocketbook benefits of a project only taking it so far in terms of its potential as a credit-claiming opportunity.
Aside from their credit-claim potential, there are other political considerations that can affect the decision to adopt a PPP. One such factor is the opportunity PPPs offer for direct contact with private firms who can offer financial support not only for the delivery of public goods, but also for political campaigns and future extra-political professional opportunities. This can make for fertile ground for collusion. Bertelli, Mele, and Woodhouse (2019b) develop and test a theory that electoral competition incentivizes politicians to monitor bureaucratic corruption and focus on the public benefits of projects. Without such incentives, corruption is not monitored and the private benefits of bribes and favorable contract terms are responsible for increasing numbers of projects. We study a panel of 116 countries between 1984 and 2012 and find empirical support for our theory. As public sector corruption increases in democracies, no change in the number of projects is observed, while more projects emerge in non-democracies as corruption worsens.
Do political events also affect how private partners evaluate the benefits of becoming involved in a PPP in a given country? For example, does membership of a trade bloc or ‘club’ of countries affect private take-up of participation in government projects? In order to address these questions, Bertelli, Maselli, and Woodhouse (2019a) ask if EU membership alters patterns of reliance on PPPs for infrastructure development in accession countries. Using cross-national data from 16 European countries, we provide evidence that countries’ currencies react differently to EU accession, which in turn affects reliance on PPPs. Our preliminary results suggest that countries that—prior to accession—had been considered politically and economically stable experience a double boost with respect to accession and PPP adoption: accession strengthens their currencies and PPP adoption increases. In contrast, in countries with more precarious political and economic histories, accession weakens their currencies and—despite the resulting lower costs of doing business there—PPP adoption does not increase. This provides evidence that, when it comes to involvement in PPPs, the strength of a country’s currency and institutions are more salient than the cost of doing business in a given locality.
PPPs as Distributive Goods
A fundamental part of the politics of PPPs is distributive politics. Distributive politics, or ‘decisions about allocations of government goods and services to identifiable localities or groups’ (Golden and Min, 2013), hinges on political actors’ ability to claim credit. PPPs provide a particularly appealing opportunity for credit-claiming in that they represent a more credible commitment than a simple electoral promise—through the negotiation and signing of a PPP contract with a private partner—but they do not come with the long time horizon of traditional public procurement. At the moment of the signing of the contract, the politician can hand over responsibility to the private partner whilst claiming credit for the incomplete project. The credit-claiming occurs, in short, whilst the final costs of the project are still unknown (Maskin and Tirole, 2008). Moreover, the involvement of a private partner gives the politician both an instrument with which to distance herself from the project in case of delays or difficulties and a credit-claiming hook in the form of bragging rights about good business relations with the private sector.
Bertelli (2018) develops a theory of the ex ante commitment value of new construction arrangements, like PPPs, to politicians. He shows that increases in the tenure of the longest-serving veto player, a rising replacement rate of veto players in government, and a larger tax base all decrease the likelihood of observing Build-Operate-Transfer (BOT) type PPPs for infrastructure delivery. The theory is based on the control rights associated with the different kinds of PPPs, with more public PPP types—such as BOTs—being more appealing to certain kinds of governments. The control rights of a PPP project refer to who has residual rights over a specific physical asset, i.e. which member of a PPP—the government or the private partner—has the right to decide how an asset (e.g. a toll road) is used and who has access to it.
Woodhouse (2019) builds on this theory of the ex ante commitment value of PPPs, looking explicitly at whether PPPs are used as distributive goods and how a project’s features affect its distributive use. Woodhouse links PPP projects to sub-national electoral districts in 16 low- and middle-income countries over 30 years, which allows her to undertake a cross-national analysis of how PPPs are distributed. She tests three hypotheses: that PPPs are used as distributive goods, that they are targeted at districts aligned with the national governing party, and that specific features (attributability to the government) of PPPs mean that they are employed according to different political logics. Preliminary results find support for all three hypotheses: PPPs are used as distributive goods, they are more likely to be found in aligned districts, and projects that are less directly ascribable to the government are less likely to be placed in aligned districts.
To conclude, in a series of research projects that span very different countries across the world, we are working to better understand the politics of PPPs. Given their growth in recent years and evidence that they can come with a cost for accountability and for the government when risk is inopportunely allocated, it is doubly important to understand why PPPs are being employed and how the electoral connection comes into this picture.
Anthony M. Bertelli is Professor of Political Science in the Department of Social and Political Sciences at Bocconi University and holds the Sherwin-Whitmore Chair of Liberal Arts as Professor of Public Policy and Political Science at Pennsylvania State University. He is also Senior Executive Editor of the Journal of Public Policy and Fellow of the National Academy of Public Administration. Eleanor F. Woodhouse is Max Weber Postdoctoral Fellow at the Department of Economics at the European University Institute (EUI).
Camila Angulo Amaya, Anthony Bertelli, and Eleanor Florence Woodhouse. The political cost of public-private partnerships: theory and evidence from Colombian infrastructure development. Working Paper, 2019.
Rob Ball, Maryanne Heafey, and David King. Private finance initiative – a good deal for the public purse or a drain on future generations? Policy & Politics, 29(1):95–108, 2001.
Anthony Bertelli. Public goods, private partnerships, and political institutions. Journal of Public Administration Research and Theory, 2018.
Anthony Bertelli, Alfonso Maselli, and Eleanor Florence Woodhouse. Infrastructure partnerships in an expanding European Union. Working Paper, 2019a.
Anthony Bertelli, Valentina Mele, and Eleanor Florence Woodhouse. Corruption, democracy and infrastructure agreements. Working Paper, 2019b.
Rui Cunha Marques and Sanford Berg. Public-private partnership contracts: a tale of two cities with different contractual arrangements. Public Administration, 89(4):1585–1603, 2011.
Miriam Golden and Brian Min. Distributive politics around the world. Annual Review of Political Science, 16:73–99, 2013.
John Hood, Ian Fraser, and Neil McGarvey. Transparency of risk and reward in UK public–private partnerships. Public Budgeting & Finance, 26(4):40–58, 2006.
Eric Maskin and Jean Tirole. Public–private partnerships and government spending limits.
International Journal of Industrial Organization, 26(2):412–420, 2008.
Yannis Papadopoulos. Problems of democratic accountability in network and multilevel governance. European Law Journal, 13(4):469–486, 2007.
UN DESA. Public-private partnerships and the 2030 Agenda for Sustainable Development: fit for purpose? http://www.un.org/esa/desa/papers/2016/wp148_2016.pdf, 2016. Online: accessed 22 March 2018.
Eleanor Florence Woodhouse. Public-private partnerships, distributive politics, and infrastructure development. Working Paper, 2019.
World Bank. Government objectives: benefits and risks of PPPs. http://ppp.worldbank.org/public-private-partnership/overview/ppp-objectives, 2016. Online: accessed 23 March 2018.
Etienne B Yehoue, Mona Hammami, and Jean-Franc¸ois Ruhashyankiko. Determinants of public-private partnerships in infrastructure. Number 6-99. International Monetary Fund, 2006.