Bringing Something Different to the Table: Potentials of

Public-Private Partnerships For Armenia and Other

Developing/Transition Nations

Richard Beilock

AIPRG

and

University of Florida

David A. Grigorian

AIPRG

and

International Monetary Fund

Yvonne Reinertson

University of Florida

3 Darn Good Stereotypes

1. Private Sector is more efficient

Public sectors in Developing/Trans. (D/T)

tend to:

2. Be more inefficient & corrupt than in developed nations

3. Operate in spheres better served by private sector.

Following from these…

Privatizations are encouraged

Higher share GDP from private sector considered to be a measure of progress.

Public-Private Partnerships (PPPs) encouraged

The unwanted partner

Privatization …. Preferred

PPP …To minimize a government’s harm when it (ungraciously) refuses to exit the stage completely.

These views are usually right.

Evidence is overwhelming that the 3 stereotypes are, indeed, darn good.

But….

• There may be cases where PPP is better than either all public or all private

• Always assuming private is best may not encourage cooperation from governments.

A Caution

PPPs can improve performance

But… this mixing of public & private

can present opportunities for: Businesspersons Oligarchs

Bureaucrats Corruption We address this partially later under Special Interests

Surplus Surplus additional value possible together additional value possible together over sum of individual effortsover sum of individual efforts

Mutual AdvantageMutual Advantage

Needed for All Viable PartnershipsNeeded for All Viable Partnerships

Difference, the Soul of Partnership

Without differences, no potential for SURPLUS, no potential for viable partnerships

Different types and Different types and relative endowments ofrelative endowments of

Assets

Knowledge

Talents

Rights/Powers

Public-Private Differences

• Always considerable

• Particularly large in D/Ts, such as Armenia owing to:– Inadequate means and capacity of the

government– Emerging, but not fully developed, domestic

private sector– Involvement (and potential) of the Diaspora,

NGOs, and multilaterals

PPP Organizational Alternatives

Non-Invasive Coop (NIC)Your org. does this and mine does that.

Management Contract (MC)Your org. runs these parts of my org. for

these incentives.

Concession (CONC)Your org. runs these parts of my org. for

these incentives…AND you make investments

Joint Ownership-based Coop (JOC) Our org.s jointly own this venture.

PPP AlternativesType Strengths Weaknesses

NIC Easy est. & end

Few turf battles

Limited use of comparative adv.s

MC Contract flexible

Easy getting bidders

Contractor retains

control

Possible incentive problems, esp. toward end of contract

CONC Fewer incentive

problems than for MC

Contract flexible

Harder to attract

bidders than for MC

End of contract

incentives

JOC Liquidity, ease of

altering ownership

structure

JOC, connotes ownership structure, but not cooperative system

PPPs, not just for D/TsPPPs in the Republic of Ireland

• National Roads Authority 10• Courts Service 1 • Department of Education and Science 4• Department of Health and Children 1• Arts, Sport, and Tourism 1• Office of Public Works 1• Irish Prison Service/Department of Justice Equality and Law Reform 2• Department of Transport/Railway Procurement Agency 3• Department of Environment, Heritage, and Local Government 30

TOTAL VALUE € 5 - € 8 Billion

PPP SURPLUS SOURCES

• Improving Public Sector Performance

• Improving Private Sector Performance

Public Sector Improving:

• Efficiency of Core Functions– Research (CRO), Environment (ATP)

• Law- and (Executive) Decision-making – Diaspora Agency, Anti-Corruption Agency

• Management of Inherently Private, but Publicly-owned Assets– Armenian Railways

Private Sector

• Reducing the Knowledge and Information Gaps– Development Associates

• Correcting Inefficiencies Related to Collective Action Problems– Wine

– FisheriesState power essential to manage free-rider problems

Private Sector (contd.)

• Ensuring Quality and Adherence to Standards– Tourism

– Food

– Medicine

Private Sector (contd.)

• Reducing Problems Related to Small Size and Thin Markets– Tourism Concessions Problems:

Thin markets… B&B in Dilijan

Deteriorating archeological/natural sites

Critical mass & uncertainty problems

for ‘normal’ intl. Tourists

Free-rider problem for collective action

Private Sector (contd.)

Imagine: A concession for a Capitalist In-Tourist

Responsible to: Rationalize remaining State hotels, etc.

Restore/operate/transfer (or privatize) viable ones

Manage/maintain parks

Manage/restore/study archeological sites

Encourage private tourism industry

Build links with tourism for other areas – Caucasus, Turkey, Holy Land

Provide generic advertising/quality ratings/bookings

Revenues: Customer fees at managed facilities Share of tourist-linked taxes, such as hotel taxes Commission for arranging bookings with private vendors

Ideal concessionaire

Intl. Tourist promoter

Major university

SPECIAL INTEREST

An individual or organization with a unique set of goals and the will to act.

If consistent with societal goals…wonderful

If not…

SPECIAL INTEREST …RangeShirking ….Worker sneaking off for a smoke

Petty theft…stealing pencils

Firm opting out of a generic advertising effort

Local NGO promoting cleaner environment in Sisian

Petty corruption…small bribes

Diaspora Association seeking to reduce poverty

Firm attempting to influence officials to secure government contracts

Director of government agency extorting funds from foreign and domestic business and embezzling

agency funds.

SPECIAL INTERESTS

• Strategies for Dealing with SIs– Suppress/Destroy

– Ignore

– Buy off

– Make Part of the System

SUMMARY AND CONCLUSIONS

1. When reluctant to exit entirely, PPPs can infuse some of the benefits of the private sector….

2. In some cases, PPPs can be superior to either all public or all private…there may be a surplus

Keep your pro-private sector philosophies,

but recognize this possibility.

SUMMARY AND CONCLUSIONS

3. D/T nations may be particularly fertile grounds for PPPs

4. Special interests can offer both

opportunities and dangers for societies and PPPs can play a role in exploiting positive aspects & controlling negatives.

Thank you