Privatization and PPPs—Public Pain, Private Gain?

(Published by The Manila Times on 5 June 2019)

Whenever society faces a problem, the common response—especially from among lawmakers—is to suggest the creation of a government office whose main task is to address whatever problem that might be. The latest suggestion I heard is creation of a Department of Water.

I seldom hear suggestions of abolishing government offices to get rid of problems bugging the general public. For starters, why not, for example, abolish the Office of the President and both houses of congress, and see how many problems we can get liberated from right away. That is metaphor, of course (although it is not hard to imagine the rise of a government in the future where the people themselves are involved in decision-making through web-conferencing technologies and, in the process, making their representatives redundant or superfluous).

But the point is simple: there is merit in the proposition that less government means less problems. Stated differently, there are many government tasks that can be performed more effectively and efficiently by the private sector, especially where government is trying to run a profit-oriented agency. (At one point during the Marcos regime, there were a total of 296 government-owned or controlled corporations).

The privatization binge in the recent past was largely prompted by losses of government corporations that ostensibly performed social development functions. When a government entity is privatized, government hits two birds with one stone, so to speak, as it stops further financial losses and earns income from proceeds of the sale.    

There is a necessary trade-off, of course, when the private sector performs a certain function that traditionally belonged to an agent of the State. People pay more for goods and services produced by the private sector (even if some of the privatized firms may remain subsidized by government). For example, reports say that in “2008, average tariffs in [Maynilad] were 89 percent higher than the pre-privatization tariff of 1997, and 59 percent higher in [Manila Water].”

There are other ways by which government engages the private sector. One of them is through Public-Private Partnership (PPP) projects. Like privatization, PPP enables government to tap private sector resources, such as funding and technology. In return, government provides an environment where PPP proponents are able to make money from their investments (they can even secure government guarantees for the loans they may need to fund PPP projects).

But while PPP projects help government free up its funds for other priority development projects, and while they serve a public purpose, some of them end up compromising public convenience in pursuit of private gain. 

For example, there is this story about a PPP in Australia—a Cross City Tunnel—where motorists resented it “because of high tolls reinforced by alternative route closures designed to force motorists onto the tollway.” Government eventually suspended its operations, forcing the private proponent to demand compensation.

We see something similar at the Paranaque Intermodal Terminal Exchange (PITX), a PPP under the Department of Transportation. Public transport vehicles going to and coming from Batangas and Cavite are forced to go through the facility. Commuters experience longer travel time and pay for higher fare. Worse, those who own cars but opted to commute once or twice a week in the past, have now used their cars all week except on coding days, just to avoid the PITX pain. This resulted in more volume of vehicular traffic plying Roxas Boulevard and connecting thoroughfares.

When government can borrow money at relatively low rates from the domestic capital market, an option is presented where the long-term interest of the taxpaying public is better served by infrastructure projects that are built and funded by the government itself, contracted by the private sector through a graft-free procurement process.

The point is that government can be more judicious in using leverage for its development agenda. There are limits to how far it can engage the private sector to effectively deliver public goods and services; and there are limits to how big it can grow to efficiently perform its tasks. 

I really don’t think there are problems—even those that are yet to be invented—that cannot be addressed by the existing phalanx of government agencies.

So instead of creating new government agencies, policy makers may wish to further streamline government operations and institutionalize positive reinforcements for career people in government. Reward systems based on merit should be strengthened, in contrast, for example, to raising salaries of a group of employees based on tasks that remain to be done. Such systems should also demand accountability from government officials—from the President to the Municipal Mayor, and from the Chief of the Supreme Court to the Heads of Constitutional Commissions—in the hiring, firing, retaining and promoting of officials and employees under them, and ensuring that performers, rather than deadwoods and, worse, transgressors, are rewarded.

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