Privatization and Public-Private Partnerships

By E. S. Savas | Go to book overview

CHAPTER NINE Public-Private Partnerships for Infrastructure

How shall we build our infrastructure? In the past, roads, water systems, and other infrastructure have been financed, owned, and operated in most countries by government agencies with the notable exception of the telephone system and most electric utilities in the United States. The implicit justification for this practice was that infrastructure is so important, benefits so many people, and requires so much capital that the private sector could not be entrusted with this responsibility and in any event lacks the resources. This is curious reasoning. Facilities so vital to a nation's economy should be encouraged with incentives to attract investment in viable projects, priced according to supply and demand rather than politics, operated efficiently, and maintained in good condition. This is a prescription for private rather than government ownership.

The need for infrastructure--particularly in capital-starved former socialist countries and developing countries, but also in U.S. state and local governments--has outstripped the supply of conventional public funds. Increasingly, therefore, we see private groups financing, designing, building, operating, and even owning infrastructure via innovative public-private partnerships. Transportation facilities (roads, bridges, tunnels, rail systems, ports, and airports), water-supply systems and wastewater treatment plants, telecommunications systems, electricity generation and distribution systems, public buildings, and solid-waste and hazardous-waste disposal facilities are being built, expanded, rehabilitated, operated, and maintained around the world through privatized arrangements, relying more on the private sector and less on government to satisfy people's needs.

The distinguishing characteristic of such facilities is that, being toll goods (see Chapter 3), they lend themselves to user charges, because end users or government intermediaries can pay directly according to usage.

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