Accountable Strategies blog

A blog about accountability issues in the public, private, and nonprofit sectors

Was government missing from this discussion of public-private partnerships?

Posted by David Kassel on November 2, 2007

Public-private partnerships tend to be “complex and messy” arrangements that are difficult to manage.

But when they work, they can create a “convergence of public and private value” that can help society address increasingly difficult public policy problems.

That was the message that emerged from a discussion of three recent PPP cases at a seminar led by Alan Trager this week at the Kennedy School of Government, where he is an adjunct lecturer. 

The only problem I had with the cases that were discussed is that government appeared to have played only a nominal role in them.  It seems that it’s when government invests heavily in a PPP that the most serious problems can arise, and those problems usually seem to dog taxpayers.

The first case was about the drugmaker, Eli Lilly, which has organized a global PPP to fight multi-drug resistant tuberculosis, a serious and spreading problem in developing countries around the world.  The partners include the World Health Organization, the Centers for Disease Control, Purdue University, Brigham and Woman’s Hospital and numerous others.  Eli Lilly donated $453 million in products and $58 million in cash to the venture.

This partnership, in which Eli Lilly set a goal of treating 30,000 people a year with two effective TB drugs, has been moderately successful, Trager said, in merging public and private value.  Lilly invested a huge amount of its own resources in the project and, as a result, has benefitted through the strengthening of its brand throughout the world.  Public value has been created as well through the treatment of thousands of people who would not normally have been helped by their own governments or by drug companies in their own countries.

This case, though, seems more of a private-public partnership than a public-private one, if one can make that distinction.  Most of the financial investment appears to have come from Eli Lilly and not from the public entities.

The second case was also conspicuous for its lack of governmental involvement.  It involved the production of environmentally friendly hybrid electric trucks under a partnership involving FedEx Express, the Eaton Corporation, and the Environmental Defense Fund.  This project did not succeeed as well as the Eli Lilly partnership did in merging public and private value, Trager noted.  The government declined to get involved in financing or promoting the FedEx project to other companies.  But more perhaps importantly, FedEx itself declined to invest heavily in the project because of the high cost of the hybrid vehicles.  FedEx limited itself to purchasing just 93 of them.  This decision was made even though the fuel savings in the hybrid vehicles would have paid for the additional cost in just a few years.

The third case involved the development of Bryant Park in New York City.  This park, located in the city’s financial district, used to be run down and dangerous.  Through involvement of the Rockefeller Brothers Fund and the creation of a Business Improvement District, which taxed real estate owners in the park’s vicinity, the park was transformed, not only into a vibrant meeting spot for the public, but a desirable location for the new headquarters of Bank of America.  In this case, private and public value were merged seamlessly.

In a question-and-answer session, Trager acknowledged the cases he selected differ from the complex contractual arrangements between government and the private sector that are also often marketed as “public-private partnerships.”  In those arrangements, public jurisdictions, such as municipalities, have frequently found themselves enmeshed in business deals involving such things as wastewater treatment and prison construction.  These deals are often characterized by long-term contracts that have tended to place most of the projects’ financial risks on the public jurisdictions and consequently taxpayers.

I hope that in future courses and discussions on PPPs, The Kennedy School and other academic institutions will shine the spotlight on the full spectrum of PPPs, and focus closely on the problems that occur at the intersection of the public, private, and nonprofit sectors when taxpayer money is more at stake.

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