Point of View

The recent Ontario provincial election highlighted three fiscal scandals: ORNGE, the emergency medical helicopter agency; eHealth, an effort to computerize health records; and two gas plants, whose cancellation is expected to cost taxpayers $1 billion. All three scandals involved government contracting with private operators.

PPPs: profit before people

A public-private partnerships (PPP or P3) is simply another way for wealthy corporations to not pay their way. It’s bad enough that corporations have seen massive tax reductions—and are sitting on a hoard of cash they won’t invest to put the country back to work—but the real agenda is to reduce the size and scope of the public service, all to make even greater profits.

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P3 advocates talk about risk-sharing, but the risk falls on the taxpayer and the profits go to the private sector. Cost overruns are not avoided and the quality of service is diminished. As OPSEU documents, P3s have been an “epic fail” for Ontario for the past 20 years.

The first duty of public service is to the public; the first duty of a financial company or a hedge fund is to its shareholders. And that makes all the difference.

The operators of Highway 407 gouge drivers, when other provincial highways are free. P3 projects, according to a recent University of Toronto study, cost 16% more than if they had been tendered in the usual way—much like RRSPs are more costly than public pension plans, thanks to the need to make a profit and increased intermediary costs for lawyers, accountants and consultants.

If the tax revenues are lacking now, increased expenditure on infrastructure will put the unemployed back to work and the resulting revenues will more than offset the temporary debt-servicing costs. And business will benefit, indeed profit, from public investments.

PPPs: improving productivity with private help

Canada is well-launched into a competition for the bottom when it comes to wages and industrial might. Other countries face the same pressures, but have maintained their industrial standing. Thus, the share of GDP held by manufacturing in the German economy is 20%. In Japan and Korea, it is 17%. In Canada, manufacturing accounts for 10%.

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Governments are massively cash-strapped. At the same time, Canada suffers from a massive deficit in infrastructure expansion and renewal.

The money to improve our country’s productivity is not going to come from tax revenues. And most provinces have stretched balance sheets. So the money is going to have to come from the private sector. When a business wants to grow, it borrows, with a lender taking a share of the future profits. So too is the case with governments.

It’s more expensive than tightening the belt. But it can be more cost-effective. Of course the private sector expects a profit. That profit comes from not having nearly the number of employees to do compliance checks and audits on mid-level employees. As noted political scientist Donald Savoie has observed, the more government begins to act like a business, the less it looks like one. The paperwork is too much because the risks are too high.

When a project fails, a government minister often loses his or her job. Maybe a deputy minister too. Rarely does the mid-level civil servant take the fall. Politics isn’t about profit; it’s about popularity, hence the cancellation of the gas plants in Ontario.

The private sector takes on risk for a reasonable rate of return. Far from barbarians at the gate, those investors include public sector pension plans, whose members benefit from higher returns offered by infrastructure investments, and life insurance companies, who often manage investments for smaller pension plans, both public and private.

PPPs are not the bogeyman; they are a means to greater efficiency that benefit us all.



Originally published on Advisor.ca