This is the introduction to the new book Public Private Partnerships in Ireland by Dr Rory Hearne. Published by Manchester University Press.
Public service reform, privatisation, infrastructure deficits and what role should government, the state and public services play in our economies and society are really 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. This book 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 economy 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, the sense of moral obligation to the poor as nation state’s citizens, and to facilitate the reproduction of capitalism by ensuring adequate regulatory and legal framework for business to take place and providing 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, nationalising industry, 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 & 80s then we witness the emergence of what has become classified as the ‘neoliberal ideology’. This emanated from economists such as Milton Friedman and was implemented savagely by Pinochet in Chile in the 1970s, 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 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 hegemony as the political and economic policy and ideology. Francis Fukuyama in 1992, wrote 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 universalization 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 neoliberalism. Wilkinson and Picket in their seminal work, Spirit Level, also highlighted the huge inequalities and problems associated with that in countries that most closely followed neoliberal policies. Harvey argues that the neoliberal project was a re-assertion of ruling classes and capital’s power in order to redistribute resources (wealth) away from the welfare state which had benefitted the working classes and those who relied on public services and welfare.
After providing this brief overview the book then investigates to what extent neoliberalism has been implemented in Ireland and were the trends associated with neoliberalism in other countries 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, 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. In contrast, PPPs involve the commercial private sector at all these stages. For example, they now get involved in financing, building and operating these 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 e.g. 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 etc)
3. Transfer of risk (if projects ran into problems) to private sector
4. Greater Value for money
The evidence from my research, that is detailed in the book does highlight that PPPs in some instances such as Dublin’s light rail LUAS, some of the 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 amount 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 limited, 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 german based multinational service provider.
In relation to the transfer of risk, in cases where it materialised there were significant disputes between the public and private service providers over who is responsible for addressing 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 the private operator to deal with odour alleviation measures due to the problems with the PPP Poolbeg Waste Water Treatment plant. The value for money (VFM) aspects 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 are these actually VFM. 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, as I refer to in the book, the “annual payments required to pay for this more expensive form of finance are an, essentially, 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.”
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 the 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 built 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 in this globalised world. This policy was therefore, at best, a shortsighted and naive gamble, or at worst an availing of an opportunity to dislocate the communities and privatise 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 a gain. 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 communities hopes were left shattered and some communities have been destroyed permanently. The process of emptying the estates such as O Devaney Gardens, St Theresas Gardens, St Michaels estates in preparation for PPP regeneration has meant that the numbers 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 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 to become sustainable communities as they are an important part of the socio-economic and cultural fabric of these communities and our towns and cities.
This 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 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 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 private state assets as it will ensure handsome profits for corporations and financial investors and rising costs and ineffective services for public service users and the reduction in workers conditions and 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, that is less crisis riven , socially and enviromentally destructive.
Reform should include the state 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 the 1980s had generational impacts. The current austerity cuts will have similar disastrous generational impacts. The capital budget for next year has been cut by a quarter – much needed projects such as the Metro, Dart Underground, 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 there was little appetite for critical intellectual analysis of the dominant social and economic policies being implemented. This environment is changing, however, the current crisis’ 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 the neoliberal route with the policies of austerity, socialising the costs of the private financial institutions’ debt crisis on to the state and its citizens, cutting the public services and expenditure, privatisation 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 China and Brazil which have pursued a ‘state capitalism’ model following Keynesian social market economic policies of regulation, and 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 has played, is currently playing to various degrees in countries around the world, and will continue to play a central role in determining the nature and characteristics of our society and economies, in terms of stability, development, equality, sustainability, standards of living etc. 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.