Public-Private Partnerships Tend To Create Boondoggles

Over the years we have been hearing a lot of good things about "Public-Private Partnerships" and how they can propel forward needed projects by adding an incentive for the private sector to undertake projects they might choose not to do alone. Often this is because the numbers often simply don't work. These collaborations between government and a private-sector company while touted as our salvation tend to create boondoggles and white elephants. These so-called partnerships constitute a great risk and are ripe for abuse with the devil often lurking in the details buried deep within complex agreements. These projects are often haunted by problems that go from one extreme to another ranging from over-engineering to shoddy work with little oversight.

Phone Companies Loved This "Joint Venture"

Often the private partner participates in designing, completing, implementing and funding the project, while the public partner focuses on defining and monitoring compliance with the objectives. Risks are distributed between the public and private partners according to the ability of each to assess, control and cope with them. The risk-sharing may be in the form of "guaranteeing" a certain occupancy such as was the case of a hotel recently constructed where I live, or the government may pick up part of the cost of the project by providing low-cost loans or supplying part of the infrastructure needed for the project to proceed.

Public-private partnerships have typically been used and found in municipal, transport, and environmental infrastructure such as highways, airports, railroads, bridges, tunnels, water and wastewater facilities, school buildings, prisons, student dormitories and entertainment or sports facilities. They also hide in the form of "funding and promoting research." Expensive studies paid for by the government to determine whether a project is viable or needed by a community is often the first step down this slippery slope. Public officials are pushing on a string when they envision and undertake glorious and unsustainable projects in an effort to better their communities. For a second we will consider their motivation as pure but even if it is the possibility for corruption is everywhere.

This can be seen in situations where the public partner agreed to pay a guaranteed a minimum occupancy or income no matter the demand and it turns out that there are fewer users than expected for the service or infrastructure. An example of government funding and joining up with a company is Solyndra, the solar-panel maker that received more than half a billion dollars in federal loans from the Obama administration only to go bankrupt but it isn’t the first dud for U.S. government officials trying to play venture capitalist in the energy industry.

Since 1961 an Energy Department report in 2008 estimated that the federal government had spent $172 billion on basic research and the development of advanced energy technologies. The Clinch River Breeder Reactor, The Synthetic Fuels Corporation, The hydrogen car and Clean coal are but a few examples spanning several decades that make up a graveyard of costly and failed projects funded with taxpayer money. Not a single one of these initiatives which received great praise when conceived is producing or saving a drop, a watt or even a whiff of energy. Instead, these efforts of government to partner with private enterprise have managed to burn through hundreds of times more taxpayer money than the ill-fated Solyndra.

Over the decades, many of the governments failed projects have been hidden from public view in that they are not hard assets on the ground but rather in IT projects that simply do not get the job done even after a huge number of extensions and cost overruns have occurred. A Bookings Institute study about failed government projects found that improper oversight and/or poor leadership were often to blame. After studying thousands of government IT projects worth $10 million the study found that as little as 6.4%  could be classified as successful. Though it is not strictly an IT project, the US Air Force’s F-35 fighter jet program has been plagued by complex software problems that have led some to question its viability.  If the critics are proved right, the $400 billion F-35 program might one day be viewed as the most expensive failed government project in modern times. It is another example of how hard it is to admit failure and stop throwing good money after bad in an effort to salvage some part of a bad investment.

Federal Money Often Flows Into Public-Private Partnerships

The truth is that history is littered with these failed projects. Often their announcements are accompanied by promises and hype but sadly the synergy these projects are intended to create never occurs. These so-called, "bridges to nowhere" and boondoggles tend to be forgotten and brushed aside each time public servants and their cronies get together. In America they are known as "Public-Private Partnerships" and in a country like China where the economy is controlled and driven by the government, they could be viewed as just another form of corruption. In many ways, the whole concept of China's, "One Belt One Road" initiative could be described as an extension of public-private partnerships into an "If We Build It They Will Come" scheme.

Government officials have used wishful thinking and the idea that "If We Build It They Will Come" as justification and the foundation to undertake monuments to their glory. Often public officials are pushing on a string when they envision and undertake glorious and unsustainable projects in an effort to better their communities. For a second we will consider their motivation as pure but even if it is such that does not guarantee a positive result. They promote the narrative it will create growth and prosperity to move their economy forward. Tossing out the virtues of a project and the narrative it will pay for itself many times over creates a win-win scenario leaving those promoting the project as forward-thinking heroes. Interestingly as you might expect. Federal money often flows into these Public-Private Partnerships so that local officials can paint them as freebies that cost the taxpayer nothing.

A white elephant is a term derived from the story that the kings of Siam, now Thailand, would make a present of one of these animals to those they wished to ruin. This is a possession which its owner cannot dispose of and whose cost, particularly that of maintenance, is out of proportion to its usefulness. In the same way, the public is often haunted by the products what flows from governments meddling in the business sector. Local and city governments also love to exercise this tool to push their growth agenda forward even if they are heavily indebted, the secret is to stretch out the timeline. In the city where I live, I'm seeing financially unviable projects move forward based on partnerships that have contract periods of 25 to 30 years or longer.

Many of these projects like wasteful infrastructure projects are the politicians way of creating jobs today and based on the hope they will prove to be a valuable asset in coming years. While it is difficult in our fast moving world to remain vigilant to such schemes being pushed through we as citizens should be very leery of such projects. Voters caught up in their own busy lives or simply too lazy to demand good governance quickly forget or appear powerless to halt their public servants from playing fast and loose with taxpayer money. This is why we should fear the promise of something for nothing and these so-called investments for the greater good.