The private finance initiative (PFI) and finance capital: A note on gaps in the "accountability" debate

During recent years, a wide spectrum of research has questioned whether public services/infrastructure procurement through private finance, as exemplified by the UK Private Finance Initiative (PFI), meets minimum standard of democratic accountability. While broadly agreeing with some of these arguments, this paper suggests that this debate is flawed on two grounds. Firstly, PFI is not about effective procurement, or even about a pragmatic choice of procurement mechanisms which can potentially compromise public involvement and input; rather it is about a process where the state creates new profit opportunities at a time when the international financial system is increasingly lacking in safe investment opportunities. Secondly, because of its primary function as investment opportunity, PFI, by its very nature, prioritises the risk-return criteria of private finance over the needs of the public sector client and its stakeholders. Using two case studies of recent PFI projects, the paper illustrates some of the mechanisms through which finance capital exercises control over the PFI procurement process. The paper concludes that recent proposals aimed at “reforming” or “democratising” PFI fail to recognise the objective constraints which this type of state-finance capital nexus imposes on political process.

The limits of market-based governance and accountability - PFI refinancing and the resurgence of the regulatory state

The refinancing of PFI (Private Finance Initiative) projects currently represents one of the most contentious aspects of Public Private Partnership in the UK. The negative publicity associated with UK PFI refinancing deals is associated with two main factors, namely evidence of massive private sector profit making in connection with past refinancing deals, and the ‘failure’ of private sector financiers to share refinancing profits with public sector organisations in line with government recommendations. This paper examines the ongoing ‘dance of non-regulation’ associated with PFI refinancing on the basis of traditional Marxist notions of ‘contradictions of capitalism’. Our analysis commences with the argument that PFI represents a prototypical case of an alliance between finance capital and the state, which has been created with the principal purpose of establishing a new source of profits for the private sector. A Marxist analysis of state-business relationships would predict such an alliance to show tendencies towards instability which could arise from a number of factors. These include, among others, the inherent lack of legitimacy of such an alliance vis a vis established policy goals and the stakeholders associated with them; a lack of a credible regulatory framework which, as a systemic prerequisite of private sector profit making, further exacerbates existing problems of legitimation; and, perhaps most importantly, the potentially self-defeating attempt by capital to maximise gains from the exploitation of the existing alliance without concern for the possibility of a political or regulatory backlash. Examining the recent history of PFI refinancing we find evidence of most of these destabilising tendencies which we expect to trigger calls for a greater regulation of PFI projects in the future.

A comparative study of institutional frameworks for local public service partnerships in Finland and Scotland

This research presents a cross-national comparative review of the institutional arrangements for how local public service partnerships are regulated and governed in Finland and Scotland.Both legal and administrative differences of partnership policies are analysed in order to explain the nature of the incentives and obligations for local governments to collaborate with external partners. Institutional theory and conceptual partnership approaches are utilised in the analysis. The Scottish institutional framework provides defined requirements for public-private partnerships. The partnership term is not recognised in the Finnish legal framework;instead it operates with the general concept of co-operation. Both Scottish and Finnish municipalities have more institutional obligations than incentives for partnerships or collaboration. The Scottish institutional framework requires municipalities to partner with external organisations, while in Finland, the legislature has not been proactive in promoting or encouraging public-private partnership. While the political incentives for partnerships are stronger in Scotland, Scottish municipalities have limited financial incentives to look for budgetary savings from partnership arrangements. In contrast, in Finland such financial incentives exist. However, the fixed forms of municipal-municipal collaboration may inhibit the search for more effective forms of partnerships

BSE crisis and food safety regulation: a comparison of the UK and Germany.

The BSE crisis represents one of the worst policy disasters experienced by a UK government in recent years. In material terms, it led to the slaughter of 3.3 million cattle and an estimated economic loss of £3.7 billion. In administrative terms, the crisis led to the dissolution of the Ministry of Agriculture, Fisheries and Food (MAFF), an institution that was heavily criticised by the Phillips Inquiry for its lack of openness and transparency. Although far less severe in terms of its economic impact, with estimated losses of between Euro 0.8 and 1.05 billion, the German BSE crisis resulted in extensive political fallout, leading, inter alia, to the resignation of two government ministers. This paper compares the handling of the crisis in the UK and Germany and the regulation put in place in its aftermath. It explores the reasons for the failure of both governments to manage this crisis in a credible, timely and proactive fashion. Examining the institutional contexts in which decisions about scientific evidence on BSE were made, the paper argues that, in both countries, a centralised system, in which government agencies controlled “science for government”, was vulnerable to expert-interest group alliances which undermined the potential for a credible assessment of public health and safety risks. Looking at the policies adopted in the aftermath of these crises, the paper notes that, although being far less affected by BSE, Germany paradoxically adopted far more rigorous measures for the prevention of future incidents, which included the strict administrative separation of the risk assessment and management functions. Our paper concludes that the extent of administrative reforms which are initiated in response to crises is more likely to correspond to that general receptiveness of the political environment to these reforms, than the ‘objective’ impact of the crisis itself.

The Impact of the 2007-09 Credit Crunch on the Funding of Public Sector Infrastructure in the UK

The 2007-09 credit crunch has not only created problems for the UK’s public finances in meeting the costs of bailing out commercial banks and dealing with recession but also for providing better public services. This paper analyses the causes of the credit crunch, government policies to address it and its impact on the financing of new public sector infrastructure in the UK. It finds that provision of new public sector infrastructure and related services has been adversely affected by the impact of the credit crunch on Private Finance Initiatives (PFIs). Commercial banks are now generally only willing to lend to replace collapsed PFI bond financing if new PFI contracts reduce financial risks. By such means, PFIs can be expected to survive but within an increasingly diverse mixture of procurement methods

Initiative procurement documents : the difference between The United Kingdom and Malaysia / Nooriha Abdullah, Darinka Asenova and Stephen J. Bailey.

The aim of this paper is to analyse the risk transfer issue in Public Private Partnership/Private Finance Initiative (PPP/PFI) procurement documents in the United Kingdom (UK) and Malaysia. It utilises qualitative research methods using documentation and interviews for data collection. The UK documents (guidelines and contracts) identify the risks related to this form of public procurement of services and make explicit the appropriate allocation of those risks between the public and the private sector PPP/PFI partners and so the types of risks each party should bear. However, in Malaysia, such allocation of risks was not mentioned in PPP/PFI guidelines. Hence, a question arises regarding whether risk transfer exists in Malaysian PPP/PFI projects, whether in contracts or by other means. This research question is the rationale for the comparative analysis of documents and practices relating to risk transfer in the PPP/PFI procurements in both countries. The results clarify risk-related issues that arise in implementing PPP/PFI procurement in Malaysia, in particular how risk is conceptualised, recognised and allocated (whether explicitly or implicitly), whether or not that allocation is intended to achieve optimum risk transfer, and so the implications for achievement of value for money or other such objectives in PPP/PFI

Julkisen ja yksityisen kumppanuus (PPP) tarkasteltuna maankäyttöprosessin näkökulmasta

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Identifying influencing factors of sustainable public service transformation: a systematic literature review

This article continues the conversation on public service innovation and transformation in the International Review of Administrative Sciences. Political, socio-economic and technological changes drive public service transformation in rendering current service delivery models increasingly ineffective. However, public service transformation introduces risks. This article finds a paucity of academic research into those risks, highlighting need for their management. The key conclusion is that risk management, leadership and public participation can facilitate or hinder public service transformation