{"id":175790,"date":"2020-11-27T20:07:00","date_gmt":"2020-11-28T01:07:00","guid":{"rendered":"https:\/\/www.panix.com\/~msaroff\/40years\/2020\/11\/27\/privatizing-profits-and-socializing-losses\/"},"modified":"2020-11-27T20:07:00","modified_gmt":"2020-11-28T01:07:00","slug":"privatizing-profits-and-socializing-losses","status":"publish","type":"post","link":"https:\/\/www.panix.com\/~msaroff\/40years\/2020\/11\/27\/privatizing-profits-and-socializing-losses\/","title":{"rendered":"Privatizing Profits and Socializing Losses"},"content":{"rendered":"

The World Bank has now come out in favor of a program that would make taxpayers responsible for guaranteed profits of private business all around the world<\/a>. <\/p>\n

This is an obscenity:<\/p>\n

The World Bank has been leading other multilateral development banks (MDBs) and international financial institutions to press developing country governments to \u2018de-risk\u2019 infrastructure and other private, especially foreign investments. <\/p>\n

They promote public-private partnerships (PPPs) supposedly to mobilize more private finance to achieve the Sustainable Development Goals. PPP advocacy has been stepped up after developing countries\u2019 pleas for better international tax cooperation were blocked at the third United Nations\u2019 Financing for Development conference (FfD3) in Addis Ababa in mid-2015. <\/p>\n

\u2026\u2026\u2026<\/p>\n

De-risking?<\/span><\/b> <\/p>\n

The World Bank\u2019s latest Guidance on PPP Contractual Provisions measures progress in terms of \u201csuccessfully procured PPP transactions\u201d. The Bank explicitly recommends \u2018de-risking\u2019 PPPs, effectively involving \u2018socializing\u2019 risks and privatizing profits. <\/p>\n

But the term \u2018de-risking\u2019 is misleading as some risk is inherent in all project investments. After all, projects may encounter problems due to planning mistakes, poor implementation or unexpected developments. Hence, Bank advice does not really seek to reduce, let alone eliminate risk, but simply to make governments bear and absorb it. <\/p>\n

\u2026\u2026\u2026<\/p>\n

Off the books, out of sight<\/span><\/b><\/p>\n

Both World Bank and International Monetary Fund (IMF) research has found many governments using PPPs and other similar arrangements to keep such projects \u2018off the books\u2019 of official central government accounts, effectively reducing transparency and accountability, while compromising governance. <\/p>\n

Such project financing typically involves government-guaranteed \u2013 rather than direct government \u2013 liabilities. Not booked as government development or capital expenditure, it is also not counted as part of sovereign or government debt, e.g., for parliamentary reporting and accountability. <\/p>\n

\u2026\u2026\u2026<\/p>\n

Shifting responsibility<\/span><\/b><\/p>\n

PPP financing is typically booked as government-guaranteed liabilities, rather than as sovereign debt per se. Being \u2018off the books\u2019, governments face fewer constraints to taking on ever more debt and risk. With such commitments, they also become much more vulnerable to \u2018unforeseen\u2019 costs. <\/p>\n

Such contractual arrangements, typically set by private partners in most PPPs, do little to improve governance and accountability. To be sure, normal government budgetary accounting and audit procedures for PPPs may not meaningfully improve transparency and accountability. <\/p>\n

\u2026\u2026\u2026<\/p>\n

Moral hazard<\/span><\/b><\/p>\n

World Bank guidance is clear that even a private partner<\/span><\/b> who fails to deliver as contracted must be compensated for work done before a government can terminate a contract. Whether private partners actually deliver as promised does not seem to matter to the Bank which provides no guidance for addressing their failures to meet contractual obligations. <\/p>\n

The Bank thus contributes to \u2018moral hazard\u2019 in PPPs: the less likely the private partner stands to lose from poor performance, the less incentive it has to meet contractual obligations. Guaranteeing cost recovery, revenue and profit erodes the motive to deliver as promised and to consider project risks. <\/p>\n

Enthusiastic PPP promotion \u2013 by the Bank, other MDBs and donors urging developing country governments to bear more risk \u2013 is not only encouraging \u2018moral hazard\u2019, but also creating more opportunities for the corruption and abuse they profess to lament. <\/p>\n

Instead, private partners have greater incentives to try gouging rents from government partners, e.g., by renegotiating existing contracts to their advantage. Conversely, governments have to choose between bearing the costs of failed projects, and paying even more to save problematic ones in the hope of cutting losses. <\/p>\n

\u2026\u2026\u2026<\/p>\n

Ignoring evidence <\/span><\/b><\/p>\n

Many governments can undertake large infrastructure projects themselves, or alternatively, make much better procurement arrangements. IMF research has also found, \u201cIn many countries, PPPs have not always performed better than public procurement\u201d. <\/p>\n

Ironically, Bank research has shown that \u201cwell-run public firms tend to match the performance of private firms in regulated sectors\u201d, concluding, \u201cThere is no \u2018killer\u2019 rationale for public-private partnerships\u201d.<\/p>\n

Even the Bank\u2019s Research Observer has published a summary of \u201csome of the most compelling examples of this kind of emerging critique\u201d of infrastructure PPPs in telecoms, transport, water and sanitation, waste management and electricity. <\/p>\n

Yet, the Bank continues to promote PPPs as the preferred mode of infrastructure financing, trying to shift more risk to governments, ostensibly to attract more private investment. Meanwhile, Bank guidance typically fails to warn governments of the risks involved and their implications. <\/p>\n

Prejudiced guidance<\/span><\/b><\/p>\n

Bank and other PPP advocates dismiss criticisms as \u2018ideological\u2019 despite growing empirical evidence. Such damning findings have had little impact on their PPP advocacy. Instead, the new fad is for more \u2018blended finance\u2019 to PPPs, using official concessional finance to subsidise and attract more private investment.<\/p>\n

\u2026\u2026\u2026<\/p>\n

Unsurprisingly, despite Bank, donor and other efforts, PPPs have only generated 15~20% of developing countries\u2019 infrastructure investments, according to the Bank\u2019s Independent Evaluation Group, while remaining negligible in the poorest countries.<\/span><\/p><\/blockquote>\n

PPPs, and related institutions are little more than looting by private actors.<\/p>\n","protected":false},"excerpt":{"rendered":"

The World Bank has now come out in favor of a program that would make taxpayers responsible for guaranteed profits of private business all around the world. This is an obscenity: The World Bank has been leading other multilateral development banks (MDBs) and international financial institutions to press developing country governments to \u2018de-risk\u2019 infrastructure and …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[365,368,575,417,632],"class_list":["post-175790","post","type-post","status-publish","format-standard","hentry","tag-business","tag-corruption","tag-fraud","tag-international-commerce","tag-public-finance"],"_links":{"self":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts\/175790"}],"collection":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/comments?post=175790"}],"version-history":[{"count":0,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts\/175790\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/media?parent=175790"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/categories?post=175790"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/tags?post=175790"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}