Public Private Partnerships as a Tool for Social Policy

By Brett

When entering a Public Private Partnership (PPP), local governments have opportunity to seek out terms that achieve a broad range of social and economic development goals. A government hoping to create jobs for locals in new city projects might impose a quota of local employees or contractors,[1]  provide incentives to boost the candidacy of local workers,[2] or remain neutral, relying on local expertise and proximity to lead to jobs for locals. The first option in particular may be unappealing to private corporations, but could be feasible for the right project.

However, opportunities to contract social benefits go beyond direct job creation. In the TransMilenio case, the government of Bogotá required new BRT operators to buy out and scrap buses from the old system. Reducing the old buses while simultaneously implementing BRT eased traffic congestion, reduced emissions from the older buses, and boosted demand for the BRT. Early on, new BRT operators had little trouble with this requirement, as there was a ready market of drivers willing to accept cash for their old buses. As the project progressed however, the supply of old buses decreased and BRT planned expansion to more lucrative lines. OId bus drivers increased their demands, raising costs and complications. The government and private operators remained aligned in goals, but the increased burden of buying out set number of old buses fell largely on the private side.

It is instructive to contrast social policies through contract to traditional regulations. Major health, safety, or environmental concerns will likely remain regulated areas, as they can be imposed upon all industries or residents within a city at once. However, passing these regulations can meet with political hurdles and delays. Moreover, in some communities, including Bogotá and the Dharavi Slum, so much of the local economy is in the informal sphere that these regulations are unenforceable anyway. In TransMilenio, we saw an effective example of leveraging a PPP to bring many private bus drivers under formal contracts, thus ensuring their involvement in social security and workplace safety requirements.

Acting through contract also offers opportunity for experimentation. Employment quotas may be unnecessary or ineffective. Contract also allows more precision. The local pool of candidates for jobs in banking may be vastly different than those in engineering—one quota may not fit all. Eliminating ineffective social policy clauses in contracts could permit governments to demand higher concessions from the private operator.

[1] For further discussion of the opportunities and perils of a quota system, see e.g. Williams, Jane “Emiratisation: The way forward” INSEAD 25 July 2011.

[2] For example, the Portuguese government offered to pay the first two years of salary for any Portuguese PhD graduates hired to work in PlanIT Valley.  In doing so, the government is building the capacity and experience of its population and creating a ready benefit to be touted in future elections.