...the way Joe McCarthy used to throw the word communism around.'—Coun. Justin Swandel
Privatization has been once magical word. I remember that, if something did not work in public sector utilities, companies or services, it was quite popular by politicians to call upon invisible hand of market and all powerful capabilities of private sector. And the magical word politicians used was privatization.
After 1980 the popularity of privatization has been decreasing steadily and PPP came in as more popular solution to problems in public services and infrastructure. Number of people is making the same mistake and PPP is becoming “magical word” of the begging of this century.
But there is no magic. There are many issues which can be solved by privatization, which PPPs can’t solve, there are projects, which are ideal for PPPs and there are some, which can’t be PPPs and should not be privatized. We have to evaluate all pros and cons rather than using magical words.
Sometimes people even define PPP as privatization like Kieran Lynch, who in his case study on London Underground defines PPP as “a variation of privatization in which elements of a service previously run solely by the public sector are provided for through a partnership between the government and one or more private sector companies. “ Obviously this kind of definitions is not helping to make substance of PPP clear to public.
As result of confusing PPP and privatization a lot of people in many countries have to explain the difference. Mr. Mitra in India recently commented "Let me make it clear, the Public-Private-Partnership model of financing projects is not privatization ... Besides building the world-class facilities, generating revenue for the Railways would also be the key consideration of the innovating business ideas," John Prescott, former UK Deputy Prime Minister, wrote in a letter to The Guardian “The PPP is not privatization…” and European Parliament explains that PPP is not even “ the first step towards privatization, because it's a contract with an end. “
Wikipedia defines privatization as the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector (government) to the private sector (business). In a broader sense, privatization refers to transfer of any government function to the private sector including governmental functions like revenue collection and law enforcement.
Wiki definition is correct, while privatization transfers ownership, PPP does transfer risks. While in privatization public sector delivers assets and gets paid, in PPPs private sector delivers assets and gets paid. I am really surprised people can get this wrong.
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Hey Filip, nice blog! Indeed there is still a lot of confusion between PPP and privatization. I find that especially some "older Economists" who cut their academic teeth in the 1960s and 70s tend to be opposed to PPP and conflate it with privatization, not understanding the nuances or improvements. Moreover, scholars like Sachs and Stiglitz who have published a lot on the benefits of "privatization" and continue to do so for the most part have steered clear of doing work on P3. Someone should really write a paper in response to the question, "What are the primary differences between the classic privatization theory of the 1970s-1990s, and contemporary thinking on PPP?"
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