Public Attitudes Toward Public Private Partnerships

An article in The Atlantic suggests that Americans are not completely at ease with the private sector building and operating public infrastructures. Private sector construction and operation is certainly faster and more efficient as is government’s, but offsetting that, government can borrow at about a 3% cost, cheaper than the private sector’s blend of equity and debt financing. The performance of government or private sector depends on the project and the strength of management.

Government has specified and managed some large projects very well. The Apollo 11 Lunar landing put an American on the Moon just a decade after the Soviet Union’s lunar landing of an object in 1959. The Herculean effort was managed by the US government, and was able to count on relatively steady political support, though it has been dogged by wasteful spending.

The Manhattan Project started in 1939 and led to harnessing nuclear fission and subsequently an atom bomb in 1945. The project was conducted by the US, Canada, and the UK in strict secrecy. The US government managed the more than 110,000 workers in research, materials factories and testing functions. Political commitment to this necessary project was steady during the early years, but became somewhat shaky near the end. Because of its secrecy, it is hard to know how well money was spent.

Another successful government infrastructure project is the Tennessee Valley Authority, which helped the Tennessee Valley employ its residents, provide abundant electricity, and create a foundation for vigorous economic growth after the 1933 Depression. But it too has many stories of waste.

Government’s performance also includes spectacular failures such management of Boston’s Big Dig, and the Pentagon’s chronic overruns on major equipment contracts. It is well known around the DC beltway that you are likely to lose money on a government contact until you start receiving change orders.” Still, contracting repeats the errors. The government is wasteful.

The private sector can manage some infrastructure projects well, on time and on budget, especially if the contract was carefully specified and change orders are kept beyond the authority of politicians and bureaucrats who tend to tweak specifications. The SpaceX success in launching earth orbit payloads is an example of private sector efficiency and speed.

Some projects are mismanaged by a government-private sector team. For example, a partnership to build part of Interstate 69 in Indiana exceeded of private sector borrowing capacity and forced the state, under Governor Pence, to take over the project and issue its own bonds.

An upcoming contract of special concern will be the arrangements that govern hiring, management and technical specifications for the replacement of our current air traffic control system and staff. The technical and staffing inadequacies of the current system are well known, but the project brings with it frightful dangers that flow from being heavily politicized (e.g. quota hiring, choice of states for locations for ground assets and the sites of technical equipment manufacturing).

While government and private sector can each succeed or fail on their own or in partnership, but the public’s uneasiness with private sector infrastructure needs an explanation. We expect government to provide more and more services. However, we recognize the private sector is cost conscious and reluctant to provide services beyond its contractual commitment. Ironically it is the government’s tendency to take on more and more spending obligations that deplete its finances and forces it to consider public private partnerships. In other words, it is the public’s own taste for ever-broad suites of services that forces government into uneasy alliances with a financially-rich private sector for big, long lasting infrastructures.

Perhaps the public will recognize private sector partnership as just another symptom of government’s lavish spending habit.

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