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Back Society - Public Private Partnerships in Ireland: Failed experiment or the way forward?

Public Private Partnerships in Ireland: Failed experiment or the way forward?

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st michael's estate dublinWhat is happening to public services, infrastructure and communities in Ireland? An introduction to Dr Rory Hearne's new book Public Private Partnerships in Ireland

Public service reform, privatisation, infrastructure deficits and what role government, the state and public services should play in our economies and society are all important questions that require analysis. How we respond to these challenges will have a significant influence on how we achieve recovery as a nation, and whose interests will be prioritised in the recovery. Public Private Partnerships in Ireland explores the development of central and local government policies in relation to implementing neoliberalism in addressing public service and infrastructure deficits in Ireland over the last decade. The evidence presented has important lessons for policy makers, communities, academics, trade unionists and those interested in progressing a society and economy based on the values of sustainable development, equality, and democracy.

The theoretical framework of the book is the application of a political economic analysis of the development of the role of the state in the last century or so in Western Europe. It focuses on the impact of neoliberalism on the welfare state, particularly its role in the delivery of public services and infrastructure.

 

The book details in the introductory chapter how public services and infrastructure developed on a large scale in the first decades of the 20th century onwards by states (governments and their administrations) for different reasons: as public housing or sanitation for the poor; because the private sector failed to do so as it was not profitable; as a response to working class protest and potential revolution; through a sense of moral obligation to the poor as nation states’ citizens; and to facilitate the reproduction of capitalism by ensuring an adequate regulatory and legal framework for business to take place and to provide some basic infrastructure to ensure the functioning of the system.

The 'Keynesian period', which covers roughly the years from the 1940s to the 1970s, witnessed an unprecedented expansion of state involvement in the economy and society. Essentially, Keynesian theory held that the state should intervene to ensure full employment and guarantee an adequate standard of public services for populations; this involved labour regulations, nationalisation of industry and transport, the development of national health services, huge public housing programmes, and the growth of welfare provision. This general policy was implemented to varying degrees in different countries.

In the 1970s and 80s we witness the emergence of neoliberalism. This emanated from economists such as Milton Friedman and was implemented savagely by Pinochet in Chile in the 1970s, and in other developing world countries under the Structural Adjustment Programmes of the World Bank and IMF, Reagan and Thatcher. Neoliberalism critiqued the Keynesian state's interference with and control over the economy. Neoliberals argued that the state was stifling economic growth by not promoting business enough. The mass unemployment and economic crisis of the time was blamed on the incompetent, 'bloated' state and the strong influence of trade unions. They argued for a return to neoclassical economics –the laissez faire model of the Victorian period.

Under neoliberal theory the unregulated market is the most efficient provider, and therefore provides the best guarantee of social outcomes and freedom. Markets are efficient and governments are not. Therefore the policy advice was to privatise, open state and public services to competition, and reduce the power of trade unions and labour regulations. By the 1990s it had achieved hegemonic status as the political and economic policy and ideology. Francis Fukuyama wrote in 1992 that, "What we may be witnessing is not just the end of the Cold War, or the passing of a particular period of post-war history, but the end of history as such: that is, the end point of mankind's ideological evolution and the universalisation of Western liberal democracy as the final form of human government." Thus neoliberal capitalism had triumphed.

In the 2000s, urban geographer David Harvey and other sociologists and political economists critically analysed the outcomes of the period of neoliberalism and demonstrated the unprecedented rise in inequality in countries that had most intensely implemented its policies. Wilkinson and Picket in their seminal work The Spirit Level, also highlighted the huge inequalities and problems associated with those inequalities in countries that most closely followed neoliberal policies. Harvey argues that the neoliberal project was a reassertion of the power of the ruling classes and capital with the aim of redistributing resources (wealth) away from the welfare state which had benefitted the working classes and those who relied on public services and welfare.

Neoliberalism in Ireland: Public Private Partnerships

ppps in ireland

After providing this brief overview the book then investigates to what extent neoliberalism has been implemented in Ireland and whether the trends associated with neoliberalism in other countries were being experienced here. Using Public Private Partnerships (PPPs) as a case study of neoliberalism in practice it details the outcomes of PPPs based on research I undertook as part of my PhD (2003-2008) in Trinity College and follow on research afterwards. PPPs were piloted as a new way to deliver key public services and infrastructure in Ireland in 1999. Projects included waste-water and water treatment plants, motorways, schools, social housing regeneration projects, and light rail services.

Under 'traditional' public service and infrastructure delivery in Ireland the service/infrastructure would be designed and planned in-house within the public sector, then either directly built by public labour or, more commonly, contracted out to a private construction company to build. It was then taken back and managed and maintained by the public sector. By contrast, PPPs involve the commercial private sector at all these stages. For example, they now get involved in financing, building and operating public infrastructure/services. The book details the mechanisms in these processes and projects. PPP proponents (government, Department of Finance, financiers such as AIB, Barclays, private consultants such as Farrell Grant Sparks, PriceWaterHouseCooper, Deloitte, KPMG etc.) stated that PPPs would have the following benefits over traditional delivery:

1. Greater access to finance (PPP payments were current expenditure – rather than capital – essentially like a mortgage)

2. Greater effectiveness and efficiency of service delivery by introducing the efficiencies of the private sector into public service delivery (innovation in design and so on)

3. Transfer of risk (if projects ran into problems) to private sector

4. Greater value for money

The evidence from my research detailed in the book does highlight that PPPs in some instances - such as Dublin's light rail LUAS, some schools, the regeneration housing in Fatima Mansions, and the motorways - were designed, built and managed to extremely good standards. However, in contrast to the government and private consultants’ policy aims and claims, which dominates the discourse on PPPs, the book details a number of areas that require further analysis of their implications.

For example, significant problems were found in some PPP projects such as poor construction, the conflict of the private partners' commercial imperative – its profit-maximisation requirements - with social objectives such as flexible service delivery, waste minimisation targets, and the deprioritisation of sustainable forms of transport infrastructure. The PPPs are, generally, twenty-five year projects and therefore require massive legal contracts between private and public partners that cover all eventualities. This has meant huge fees for lawyers but problems for the operators. For example, the school principals explained how it is impossible to run a school according to a fifty page legal document. If a window broke the document would have to be consulted to see who was responsible to pay for it –the private operator or the school. Furthermore, the significant number of PPP contracts granted to multinational service companies and financial institutions means control over large parts of our public infrastructure is in the hands of the shareholders of these companies. This is very worrying. As I write in the book: "The process of buying and selling public assets as internationally traded commodities could have significant implications not just for the provision of public services and infrastructure, but for the democratic control by national governments over the services for which they have the responsibility to provide to their public."

For example, the LUAS is a PPP operated by Veolia Transport Ireland, a subsidiary of Veolia Environnement, a global multinational service provider, with over 336,000 employees and a recorded revenue of €34.6 bn in 2009. The Criminal Courts of Justice is managed by Amber Fund Management ltd, which administers the PPP through a company listed on the London Stock Exchange called International Public Partnerships which has over €2bn of PPP assets across the world. The pilot schools are operated by Hochtief, a multinational service provider based in Germany.

In relation to the transfer of risk, in cases where it materialised there were significant disputes between the public and private service providers over whose responsibility it is to address problems as they arise. In most cases it was the state that was left with the cost of failures. Dublin City Council had to pay €35 million to a private operator to deal with odour alleviation measures due to problems with the PPP Poolbeg Waste Water Treatment plant. The value for money (VFM) aspect of these projects is extremely dubious. The method of analysis of VFM used by the public sector was not released, as it is deemed 'commercially sensitive'. Therefore there is no evidenced way of showing these projects actually are value for money.

The Comptroller and Auditor General's analysis of the pilot schools showed that the projects were 8-13% more expensive than traditional procurement. Furthermore, these are mortgage-type payments, and as I write in the book, the "annual payments required to pay for this more expensive form of finance are, essentially, an accountancy trick that obscures the true, full cost of PPPs. Ultimately over the long-term they will require additional public expenditure over and above that which would be required if public funding was provided up front. For example, the stated cost of the PPP Poolbeg Incinerator is €350 million, but the cost over the twenty-five year life contract life will be €600 million. Meanwhile profits of €1bn will be generated for the private companies involved."

Social housing

The collapse of the social housing regeneration PPPs is the most tragic example of the costs of risk materialising being borne by the State, and in this case, most acutely by communities. PPPs were planned to deliver the regeneration of disadvantaged social housing estates across the country. In Dublin, Dublin City Council developed the most extensive PPP scheme. These schemes were based on a transfer of public land (existing social housing estates) to private developers who could build private apartments and return social housing units and community facilities to DCC and the local community. It was based upon the principle of the continuous growth of the property market, and the neoliberal denial of market failures and crises in line with the dominant public policy discourse at the time. Of course, any basic critical analysis of capitalism demonstrates markets fail and have intermittent crises - increasingly so in this globalised world. This policy was therefore, at best, a shortsighted and naive gamble, or at worst opportunism around the dislocation of communities and privatisation of public land. Analysis of the financials of these projects also demonstrated a huge public donation to developers if they had gone ahead. Based on analysis of just six of the planned PPP regeneration projects the state was going to give developers over €300 million in gains. They were going to receive public land worth €545million and return social housing and community facilities worth just €214million.

So, when the inevitable crash happened, the hopes of the communities whose estates were to be redeveloped were shattered. Some communities have been permanently destroyed. The process of emptying estates such as O’Devaney Gardens, St Theresa’s Gardens, and St Michael’s in preparation for PPP regeneration has meant that the number of remaining tenants is extremely low. Therefore, many thousands of tenants still remain in dire need of regeneration (new housing, community facilities, employment, etc.). I provide the detail of what principles should underpin regeneration based on analysis of various projects, and particularly based on the insights from the community where I work - Dolphin House in Dublin 8. The book explains how the regeneration of social housing areas is an essential mechanism to address social disadvantage and inequalities in Ireland. It also shows how community action can achieve progressive change, evidenced by the human rights framework in Dolphin House and the many community services that deliver important supports in the most disadvantaged communities across the country.

This story is far from over, as communities are asserting that the land should be used for social housing and community amenities and that the remaining communities should be supported and made sustainable as they are an important part of the socio-economic and cultural fabric of our towns and cities.

The book notes how "the ability of existing public sector service providers in Ireland to satisfy users and retain the confidence of the public has come under unprecedented strain from the significant (infrastructure and service) deficit, underfunding, insufficient reform, PPPs and privatisation policies. There is a widespread public perception that the State on its own is no longer capable of providing quality public services and infrastructure." It analyses how Ireland did not develop a welfare state like other European countries and instead relied on charity and religious institutions to play a large part on public service provision. Historically, there has been a low spend on social expenditure as a proportion of GDP. Services have been provided on a minimalist, charity basis and are not universal according to the needs or rights of citizens. There is clearly an urgent need for radical reform of the State, our public services and infrastructure, but the answer, as demonstrated by the evidence in this book, is not further privatisation and neoliberalism. The book demonstrates the danger of current proposals to privatise State assets as such privatisation will ensure handsome profits for corporations and financial investors, rising costs and ineffective services for public service users, and the erosion of workers’ rights. The Irish State, if it is to be relevant and effective, needs to implement a programme of radical reform of public services based on adequate resourcing, accountability, and meeting people's needs and rights. This process should prioritise the involvement of civil society and aim to develop a state that ensures a more equal, sustainable economic development model; one that is less crisis riven, and socially and enviromentally destructive.

Reform

Reform should include the State’s accessing finance to address the social and economic infrastructure deficits that I detail in the book. Finance could be obtained from the National Pensions Reserve Fund and invested in transport, hospitals, schools, social and community services, regeneration, environmental technology, water and waste water treatment. This would help bring about social and economic recovery.

However the Government is repeating the mistakes of the 1980s. I detail how the cuts in health and education spending in that decade had generational impacts. The current austerity cuts will have similarly disastrous generational impacts. The capital budget for next year has been cut by a quarter – much needed projects such as the Metro, Dart Underground, and the new DIT campus at Grangegorman in Dublin have been postponed. The National Development Plan in 2007 planned capital spending for 2012 of €12 billion. Yet next year it will be less than €4 billion. It is Illogical to reduce public investment at this time of recession.

During the economic boom of the Celtic Tiger years there was little appetite for critical intellectual analysis of the dominant social and economic policies being implemented. This environment is changing, however, and the current crisis's roots in the failures of the neoliberal, pro-market, corporate type state have not been analysed, debated, communicated or explained sufficiently. In fact, Ireland is continuing down the neoliberal route with the policies of austerity, socialising the costs of private financial institutions' debt crisis onto the State and its citizens; cutting the public services and expenditure, privatising State assets, etc.

Internationally the debate is raging. A recent edition of The Economist stated that: “the era of freemarket triumphalism has come to a juddering halt”. Yet the response to the financial crisis in Europe, and to a lesser extent in US, has been to accelerate neoliberalism. Naoimi Klein has called this the 'Shock Doctrine' - whereby natural and man-made catastrophes and crises are increasingly being used to implement neoliberal policies when any potential opposition (citizens) is focused on trying to survive the crisis. Yet even a cursory glance shows different outcomes in countries where neoliberalism was not implemented to the same extent - such as in Denmark and Sweden, or in China and Brazil which have pursued a 'state capitalism' model following Keynesian social market economic policies of regulation, giving a central role to strong state-led industries. Clearly the assumptions about globalisation and neoliberalism that the nation state was finished and western liberal capitalism would be the dominant model is wrong. We are living in an increasingly multi-polar world with global financial and political systems in chaos and transforming rapidly.

Within all this, as the historical analysis of the international economic, social and political landscape in my book shows, the state, public services and infrastructure have played, are playing, and will continue to play a central role in determining the nature and characteristics of our societies and economies in terms of stability, development, equality, sustainability, and standards of living. The real question is what role will this be. This is extremely complex and clear definitions are hard to make. It can, however, be summarised generally into a question of the prioritisation of the interests of global multinationals, financial investors, stock markets, the accumulation of wealth of private investors and banks, or the interests of the majority, and particularly lower income populations and the marginalised. Depending on the priority, the state will have very different roles, characteristics, services and infrastructure. {jathumbnailoff}

Public Private Partnerships in Ireland is published by Manchester University Press.


Image top (St Michael's estate, Dublin): The Labour Party.

Last Updated on Wednesday, 04 April 2012 15:06

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