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° the ° Record


  • pg 1
Robert Poole, president of U.S. think tank, examines
global revolution in public-private partnerships
   In a recent address to The Canadian Council         4. Increased accountability. Governments are
for Public-Private Partnerships on May 18, 1999,          more directly accountable to their customers.
Robert Poole, president of the Reason                     Performance measures and the Request for
Foundation, demonstrated his exceptional                  Proposal (RFP) process lead to a more precise
knowledge of privatization initiatives and                definition of what needs to be provided.
trends from around the world. He shared his            5. Spreading ownership. P3s and initial public
views on why governments need to make the                 offerings make government accessible to
transition from being service providers to being          ordinary middle-class people. The Thatcher
policy makers and regulators. He contends that            government “tripled the shareholders” in
governments using public-private partnerships             British society. The World Bank has
(P3s) can increase productivity, and ultimately,          recognized the benefit through growth of the
will be more competitive.                                 middle class and economic improvement.
   To support his view of “the global                  6. De-politicization of key portions of society.
revolution” in P3s, he cited some recent statistics       This rests on the notion that too many
from around the world. In the past 15 years,              services are driven by poor politics.
privatization efforts have totalled over US$900           Mr. Poole offered a brief overview of activity
billion, reaching near-record levels in 1998 with      in the U.S. to demonstrate areas of growth. At
US$141 billion in projects. In the last five years,    the federal government level, he noted, “there
he believes, there has been an increase in “more       has been less than you might imagine.” Reagan
basic P3s” with infrastructure and utility             produced only one real privatization – the sale
projects topping the list. Most of these initiatives   of Conrail for $1.6 billion, which has increased
have been in electric utilities, water and             in value five times since then.
wastewater, railways, airports, turnpikes and             The most progress, Mr. Poole contends, has
toll roads, and postal services.                       been under the Clinton administration. Much of
   Mr. Poole believes there are six reasons for        the activity has been in the power generation
the increased prevalence of P3s around the             market and satellite communications. The
world:                                                 outsourcing of many military base functions has
1. Governments are over-extended. Just as the          also been significant. Projects slated for
   private sector began to divest non-core             privatization before the end of term include
   activities in the 1970’s, governments have          passenger rail, the U.S. Postal Service and
   realized that they are involved in too many         electric utilities.
   service areas.                                         State and local governments are where the
2. Fiscal stress. Governments are selling              bulk of the “privatization revolution” has
   enterprises and assets to pay down debt –           begun, Mr. Poole noted. He believes that the
   turning net losses into net gains.                  U.S. is the leading country in privatization at the
3. Improved productivity. Governments have             municipal level. It has moved “from primarily a
   realized     that      improving       economic     Republican phenomenon in small and medium
   performance locally will mean “gainers” for         sized cities to larger urban areas with a wide
   the national economy.                               spectrum of political stripes.” The sharing of
best     practices,    combined      with    more                 As for Canada’s prospects for P3s, Mr. Poole
sophisticated techniques of costing and bidding,               believes there is a lot of potential, especially in
have made many municipal governments more                      electricity, water, wastewater and infrastructure.
comfortable with the process.                                  To put into context his views of privatization in
   However, Mr. Poole noted that there have                    Canada, Mr. Poole cited the recent Pollara
been few sales of government enterprises, due                  survey, which found that 52 percent of the
primarily to the tax-exempt status of bonds that               public “strongly” or “somewhat” supported
make divestiture unattractive. The Reason                      business delivering services. The areas of
Foundation estimates that over $200 billion                    greatest worry (decreased quality, increased
worth of municipal assets could be sold, if                    cost), Mr. Poole believes, “have been dealt
regulatory barriers were removed.                              with.”
   He offered some highlights in sectors that                     When asked about “private monopolies
have been especially active in privatization                   merely taking the place of public ones,” Mr
efforts recently in the U.S. In 1998, for example,             Poole responded that differentiating services is
the prison industry grew by 27 percent, with                   the solution. In short-term contracts, there is
over 132,000 beds now in private facilities                    competition every two years, resulting in better
throughout the country. The majority of these,                 cost-effectiveness and service. In longer-term
surprisingly, are medium to high security                      arrangements, Mr. Poole believes there is value
3prisons.                                                      in separating the regulatory from the delivery
   In water and wastewater, there are now 1,250                functions, similar to what the Thatcher
operation and maintenance (O&M) contracts in                   government did.
the U.S. They have spread beyond the Sunbelt,                     On the issue of mandatory outsourcing
Mr. Poole noted, and have become larger and                    statutes, he is undecided as to their
more complex. Indianapolis and Atlanta, for                    effectiveness. However, he does consider a
instance, have seen 40 percent savings in their                “political champion,” such as a mayor or
water services. Mr. Poole believes that the                    administrative leader, a key success factor for
tightening     of    environmental     compliance              P3s. He also believes that removing union
regulations combined with the capital                          power is a successful technique. Longer-term
requirements to upgrade facilities and save                    contracts will often allow greater flexibility in
energy, have necessitated outsourcing to the                   meeting labour’s concerns, such as no layoff
private sector.                                                guarantees.
   Mr. Poole stated that airports are just at the                 Mr. Poole encouraged Canadian government
beginning of the privatization trend. The Stuart               and business leaders to “push harder and take
Airport in New York was the first                              better advantage of the body of knowledge
commercialization, with a 99-year lease won by                 already out there.” He believes that P3s can be
National Express of the U.K. San Diego, CA and                 politically successful, pointing to Mayor Stephen
Hartford, CT are slated for next year.                         Goldsmith of Indianapolis, who saw that “cities
   In the healthcare sector, a large number of                 are likely to go downhill unless they increase
county hospitals have begun P3 initiatives,                    their competitiveness.” Mr. Poole emphasized
primarily geared to low income users. The                      that the same is true in Canada, where Ontario
Emergency Medical Services (EMS) sector has                    is competing with other provinces, and Toronto
been characterized by what Mr. Poole calls “the                is competing with other cities and its own
paramedic wars,” with fire departments and                     suburbs.
ambulance operators struggling over contracts.                    As for Canada’s record of two decades with
He believes that the private sector has made a                 privatization, Mr Poole hoped that “leaders will
sound case for improving efficiency in collecting              take those lessons to heart.”
bills and economies of scale.

Mr. Poole’s speech was delivered on May 18, 1999 at the Fitness Institute in Toronto, as part of The Canadian Council for
Public-Private Partnerships on-going series of breakfast events with influential business and public leaders.

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