The aspect of globalization, principally the 2008-11 financial crisis (The World Bank, 2011) has brought forth a renewed interest in public private partnerships in both the developing and developed nations. Facing constraints on fiscal space and public resources (Corbacho, 2008), while realizing the significance of investment to aid in the growth economies, governments have opted for the private sector as a substitute source of funding to fill the gap. Therefore, many nations have pursued PPPs on infrastructure, health, as well as auxiliary public goods. As Bracey and Moldovan (n.d.) has found out, global investments in PPPs by the early 1990s was at 131 billion dollars.
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Nonetheless, the last eight years have witnessed a decline in PPPs. The rationale being that investors have determined that the risks allied with the investments are extremely costly and the proceeds are not as high as anticipated. Despite this, PPPs have emerged a trendy technique of initiating public works projects via the private sector particularly within the developing countries. This entry is intended at providing a comprehensive overview of the PPPs and the economic risks and benefits associated with them.
A public-private partnership refers to a cooperative venture amid the private and public sectors (Thia & Ford, 2009), established on the proficiency of each partner and it endeavors at meeting overtly defined public needs via appropriate allocation of resources, rewards, and risks. In partnership, all parties remain committed to pursuing both individual and collective benefit and thus they entail a relationship built on an agreement (Mitchell, n.d.). Partnerships commonly emerge in response to tumultuous conditions, which compel stakeholders to come together either to resolve a conflict or to move forward with a shared vision.
Background of Public-Private Partnerships
A progressively politically sensitive concern across countries is the high costs allied to the provision of health care to the populations. The escalating demand for health care services means that the health care institutions are facing great challenges (Nikolic, & Maikish, 2006). Not merely is the demand rising, but also the service infrastructure is proving incapable of coping with the demand, evidence being fragmented and poorly coordinated services, spiraling costs surfacing across international contexts, and rising concerns pertaining to the quality of services (Rummery, 2009). The challenge facing health care sectors is how to address the rising demand for services coupled with increasing globalization as well as changes in social and economic developments. These have led to criticisms of the traditional patterns of service delivery as being ineffective and inadequately responsive to user demand. At a time when global interdependence is the way of life, the epochs when the medical sector and public health could exist independently are gone. Both the medical sector and the public health are fighting to redefine their ostensibly complimentary roles within the evolving health system. The focus on public private partnerships, which emerged in the United States (Yescombe, 2007) has assumed a central significance in the delivery of efficient health care services. Partnership working both amid different areas of the public sector and between the public sector and other sectors are embraced as a means of achieving improved health care services. However, concerns have arisen about partnership working within the context of health care delivery. To begin with, there are concerns on the perceived legitimacy problems resulting from issues of democratic accountability and responsiveness of governance arrangements. Moreover, there arise concerns, predominantly emerging from researchers and policy commentators trying to evaluate the success of the PPPs, rotating around the definitional problems as well as on intricacies in evaluating the effectiveness of partnerships as compared to other governance arrangements. Besides, the final concern revolves around the effectiveness of partnerships and the dearth of evidence on whether it produces significant improvements in user outcomes.
Economic risks and benefits of PPPs
Most governments face fiscal constraints that compel them to cautiously prioritize and limit public expenditures. Furthermore, most public health systems are in debts and face additional fiscal pressures, for instance the need to endow the increasingly aging populace with care, improve quality care, or invest in costly technological advances and medical treatment. Indeed, when appropriately planned and executed, turning to the private sector can aid in addressing specific investment and cost challenges, enhance service quality, and deliver improvement in healthcare efficiency. PPPs in the health sector may take diverse forms with distinct degrees of private and public sector responsibilities and risks. They are exemplified by sharing of universal goals as well as rewards and risks with the aim of delivering a facility or service to the public. While the private sector may take responsibilities in some project operations, financing may emerge from within the private or public sector or both.
The principal rationale behind establishment of PPPs is resource constraints within the public sector, high proportion of out-of pocket expenses by the poor, concerns about efficiency, quality, and equity in the health system, and rapid growth of the private sector (Raman, 2008). According to Campos, Norman and Jadad (2011) PPPs the WHO has embraced the involvement of both traditional and non-traditional sectors such as governmental agencies, non-governmental organizations, media, consumer groups, academia, and industry in the healthcare industry. It is supposed that PPPs provider viable options to overcome impediments to development and access to vaccines and drugs to combat neglected diseases, which inexplicably affect the poor. Furthermore, PPPS are capable of overcoming unattractive commercial returns on investments of pharmaceutical companies in both low and middle-income nations by providing an alternative model for investment. Equally, PPPs may fill the gaps left by the health systems owing to their inability to provide public goods by their own because of competing priorities, and dearth in resources, among other aspects. Within other health sectors, PPPs have emerged with the aim of strengthening health services, improving coordination and product quality, and providing education.
PPPs have become more common since private and public partners believe that PPPs achieve shared objectives more efficiently as compared to entities acting alone (Lawson, 2011). Collaborating with private sectors has the potential for meaningful gains to the public partner as well as the health sector. Potential gains may incorporate reduced government spending such as getting rid of large up-front investments of limited public funds, better healthcare management such as infrastructure and hospital services, and greater efficiency resulting from private partners’ operational competence. Raman 2008 establishes the benefits as improved productivity, transferring risks of service delivery, improved quality, greater innovation and responsiveness, cost savings, and allowing governments to lay their focus on their chief responsibilities. Equally, within the health sector, partnership can be chiefly valuable as a strategy of spurring technology transfer and leveraging management or technical expertise, for instance, performance-based monitoring and incentives, all of which can result in quality improvements.
Effective use of technology, which is critical for economic development, can be an intimidating challenge. However, as World Bank, Makinen, Sealy and Bitran (2011) expounds, private sector participation within the health sector endorses innovation and creative thought. Through PPPs, health institutions are able to overcome legal, financial, and technical barricades to accessing particular technology. Indeed, technology companies are collaborating with health institutions to support them and position them for effective quality care.
PPPs can either reduce or better allocate risks. For instance, the private partner might be better be capable of managing schedule and cost overruns. Equally, suitable convergence of expertise and interests in a PPP in practice may result to a well-managed project execution. Whilst scientists collaborate to improve risk assessments, researchers are capable of transferring knowledge to the private sector to enhance quality care. Ultimately, in a PPP, the public partner may embark on further steps to ensure that the aforementioned benefits are achieved, risks are reduced, and public funds are utilized in accordance to the partnership’s stated goals through establishment of payment and reward techniques, which set incentives for enhanced performance and improved outputs. As Lawson (2011) establishes, whilst development officials point out that PPPs are not principally a means of saving taxpayer finances, sharing the cost and financial risks of the development activities is a chief attraction of the contemporary partnerships, which engross joint resource contributions. Both the private and government entities are at times willing to participate as partners in projects they would not be able to support in their entirety. PPPs may consent to project implementation on a larger extent, as well as to cost savings, which may result to each partner attaining greater development returns on the investment.
PPPs within the health sector are known to facilitate risk sharing. A basic aspect of partnerships is that the private and public sectors identify common interests, establish shared visions of change, and share risks. Effective risk management entails anticipating, preparing for, and alleviating adverse upshots, devoid of eradicating beneficial risk taking (Hodge & Greve, 2005). Within a competitive industry, some of the risks previously ingrained within the public sector are transferred to the private sector. These risks incorporate operating risks, maintenance risks, and revenue risks, among others.
PPPs are known to enhance a company’s reputation through interdependence in implementation of their ambitions (Dewulf, Blanken & Bult-Spiering, 2012). Positive public relations are usually a significant consideration for corporate entities engaging in PPPs. Partnering with government entities tend to lend legitimacy to private entities. Equally, association with development activities enhances an organization’s reputation for being communally responsible. Moreover, the participating corporations and organizations anticipate that the partnerships will enhance their relationships with community and national leaders, an aspect that improves their reputation.
PPPs are allied to sustainability. A major criticism of conventional development activities is their failure to become self-sustaining and thus fade away subsequent to termination of government funding. However, PPPs avoid this predicament by tapping into hub business interests as well as making sustainability profitable.
Another benefit of PPPs is market access or networks. Private entities and corporations often have networks of suppliers, employees, customers, and supporters that can widen the reach of development programs beyond where development agencies could go. By collaborating with the private sectors in several regional alliances, the public sectors tap into a vast global audience of clients within all areas. The public sectors get opportunities for positive associations and public relations with non-governmental organizations that can potentially enhance their reputation.
In terms of savings, contracting health and medical services tend to save up to 22% of the pre-partnership costs (Raman 2008). The degree of efficiency and competition levels prior to the partnership is the chief determinant of the savings. Within the public sector, there is scarcity of expertise to monitor performance effectively and rigorously
On the other hand, whilst most development experts perceive PPPs as possessing the potential to be jointly beneficial, some are wary of unbalanced partnership associations as well as the resource demands of managing the partnerships. Consequently, there arises a myriad of negative impacts. To begin with, there arise major management concerns pertaining to PPPs. As World Economic Forum (2006) establishes, effectual governance within PPPs arrangement is an intricate subject. PPPs encompass of significant risks that stipulate effective management. In this perspective, planning an effectual PPP entails careful evaluation of allocation of financial rewards and risks, responsibilities, and decision-making mechanisms, and the applicable contractual and regulatory framework. Equally, most PPPs necessitate more effort and time to design and implement as opposed to conventional contract based programs. Significant effort is essential in managing the partnership associations as well fulfilling the reporting requirements. As Lawson (2011) has found out, devoid of a standard definition of PPP across government development agencies, significant assessment of PPPs as a development tool has proved intricate.
In PPPs, there are distortions of development priorities. Most development officials lay concern on the allegation that opportunities to access private resources via partnerships may pull the staff away from plan priorities. They allege that the availability of private funding is difficult to ignore even when a projected partnership is not in line with an established mission priority. Hence, the opportunity cost of pursuing PPPs that are not essentially associated with the stated mission priorities might be high.
PPPs tend to benefit the most developed nations at the expense of the least developed ones. The genre of private capital flow spurring modern PPPs remains concentrated within the relatively developing nations. Thus, the emphasis on leveraging the flows through PPPs might steer more resources to these countries to the detriment of the poorest nations where opportunities for the partnerships is limited. Similarly, use of PPPs, predominantly those dealing with global corporate partners may enhance development disparities among nations through introduction of international standards. The chief concern is that those nations that are better able to meet the international standards and relatively well off may prosper, while those who are not may fall further behind.
There are diverse criteria to evaluate the risks and benefits of PPPs, ranging from financial to socio-economic. The evaluation of the economic risks and benefits associated with PPPs is a major step toward ensuring future successful endeavors within the field of PPPs. These evaluation lays downs specific aspects against which all PPPs can be measured and approved, and as well ensures best interests of the PPPs are met. Even though PPPs projects may be financially unviable, there exist public concerns on lack of proper comparison on their cost effectiveness. However, PPPs are known to provide potential economic benefits to the public. In this context, they aim at augmenting the delivery of services for minimal government outlays. Given that PPPs affect the broader society, they remain controversial, thus a subject to external scrutiny and public debate. Major concerns are on the balance of overall benefits and risks. Hence, it is the role of the PPPs to price the risks transferred to it whilst seeking public concessions to augment profits.
Discussion of PPPs, predominantly in the health sector is significant and timely in illumination of the challenges that the public sector is experiencing in healthcare management, finance, and provision. Nevertheless, leveraging partnerships with the private sector to deal with the challenges manifest within the healthcare today may not be an easy task. PPPs may take quite a long period to found and bring to fruition. Equally, in most instances, they may not prove to be the most effective option available. Therefore, careful analysis of the provisions for success and sustainability is vital to evaluate the costs and benefits as well as the likelihood of success of the approach.
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