1. The Dilemma of Global Governance and the Development of Public-Private Partnership Pattern
The concept of global governance was first introduced by Brandt, the Chairman of International Development Committee, in 1990, which conformed to the global trend of multi-polarization and the requirement of joint management in global affairs. After WWII, thanks to its strength in politics, economy and military, the United States took the lead in establishing global organizations such as the United Nations, North Atlantic Treaty Organization, World Bank and so on. Based on the huge institutional network, the U.S. provided global public goods for the other countries in exchange for the legitimacy of its hegemonic status. However, due to weak economy and the rise of new economic powers, the ability and willingness of U.S to supply public goods was greatly reduced after the financial crisis of 2008. Besides that, the imbalance between supply and demand in global governance is becoming more and more serious. And the rise of nationalism intensified the shortage of global public goods. 1The altruistic provision of global public goods lead to the phenomenon ¡°free ride¡±, which caused the normalization of short supply of global public goods.
The main problem of global public goods supply has two aspects: insufficient use and short supply. Sometimes, the serious lack of some kind of public goods would seriously affect people¡¯s life. Even though some kind of public goods is supplied, there can also be underutilization and unequal distribution. With the development of globalization in this new period, transnational migration, international trade and investment scale are growing. Economic globalization has created demand for the supply of some global public goods such as international public security, legal system, economic order, public infrastructure, prevention and control of animal and plant disease, which lead to the sharper contradiction between supply and demand of global public goods.2 The solution of global issues requires global collective action and the effective supply of global public goods. Therefore, the bottom up public-private partnership could overcome the dilemma in global governance to some extent by relying on market forces.
Until now, there is not a standard definition of ¡°Public-Private Partnership¡±(PPP) accepted by the international community. According to the Canadian Council for Public-Private Partnerships(CCPPP), a public-private partnership is a cooperative venture between the public and private sectors, built on the expertise of each partner, that best meets clearly defined public needs through the appropriate allocation of resources, risks and rewards. The National Council for Public-Private Partnership of the US considers the public-private partnership as a contractual arrangement between a public agency (federal, state or local) and a private sector entity. Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the use of the general public. The World Bank defines that, a public-private partnership is a long term agreement between public and private entities, which can bring greater validity and sustainability to the provision of such public services. Also, it allows for the better allocation of risks.
It is estimated that about 400 PPP projects have been in operation in the world, and 25% belongs to the environment and health sector. From 1985 to 2011, PPP projects in constructions of the global infrastructures was a nominal value of 7,751 dollars, and Europe accounted for 45.6%. There are more successful cases the UK, Canada and Australia.5 For example, about 222 PPP projects operated by CCPPP cover 11 provinces and expand around the world, which focus on the global governance issues such as energy, education, medical, care environment, transportation, and communication.6 We can say that, a new pattern of cooperative governance that is different from the traditional in the field of public goods supply has emerged during the process for PPP project promoting.
We find that, in the new context of global governance, the pattern of PPP breaks through the limit of relying purely on public sector in the supply of global public goods, and provides a unique solution to the problem such as insufficient impetus, fund shortage and low efficiency in the process of global public goods supply.
2. Features and Operation of PPP Pattern in Global Governance
In terms of the current situation of PPP governance in the world, the pattern of PPP can be divided into two types: state/government those denunciated by international organizations.
2.1 The PPP Pattern Dominated by the State/ Government
There are mature markers for PPP projects operation in Canada, the UK, Australia and America. The PPP projects dominated by the government in Canada, the UK and Australia
usually have different kinds of operation pattern. These projects cover the field of medical care energy, environment, education etc. But many domestic issues have become increasingly global in the process of globalization. Also, exploration of the domestic PPP projects could help to solve more global problems by using the PPP pattern in a larger scale.
Features of the PPP pattern dominated by the government are:
(1) Specialized management and operation institution. In order to ensure a better implementation of PPP projects, the government would establish a specialized institution, for
example, The Canadian Council for Public-Private Partnership, Infrastructure UK, National Council for Public-Private Partnershipand Infrastructure Australia. Such institutions could provide policy guidance and technical support for the government, and help to solve the institutional failure of PPP management mechanism. Sotheby play a key role in the development of PPP pattern.
(2) A Stable market. The stability of the PPP market has been crucial in securing competitive contract prices and high quality bids, and it will drive the PPP governance pattern into the other cities even outside of the country. The long-term professional cooperation could help to stimulate and sustain the development of a diversified and competitive market through the establishment of mutual trust mechanism between public and private sectors.
(3) A supportive political environment. There has been a growing acceptance of a greater role for the private sector in the public domain among the general pubic in Canada, and the support for PPP has increased from 60 percent in 2004 to 70 percent in 2011. The PPP pattern not just enhances the quality of public infrastructure and services, improves the market environment, but also promots the employment and economic growth.
2.2 The PPP Pattern Dominated by International Organizations
The PPP pattern was dominated by the governments in Canada, America and the UK, but in some developing countries with an inactive PPP market, the effect of international organizations should not be neglected.
For Example, as a member of World Bank, The International Finance Corporation(IFC)aims to reduce poverty and help people to achieve better living standards by encouraging private sector development across the world. It has formulated a unique governance pattern of PPP. (Figure 1)
Feasible Project Build Public-Private PPP Project
Environment Partnership Implementation
Figure 1 The PPP Governance Pattern of IFC
IFC serves as a bridge between public and private sectors, and it provides advice to help the national and municipal governments in developing countries partner with the private sector to improve access to agricultural irrigation, the efficiency of communications, transport, higher quality healthcare and educational services. So it can better supervise the private sector to implement strict bidding rules in order to secure fair competition. By the year 2014, the IFC had invested 360 projects across 102 countries. Of that total investment commitment, approximately $13.5 billion was invested by the private sector, which helped almost 48 million people set access to quality basic services. IFC helps to advance the infrastructure condition in developing countries by providing advice in public-private partnerships.
Features of PPP pattern dominated by international organizations are:
(1) Professional and directional. Although providing global public goods for the world through PPP governance pattern only started not long ago, international organizations such as IFC and MIF have trained a large number of professionals and accumulated rich experience in the operation of PPP projects during the past 20 years, which help to provide better professional advice including detailed design and implementation for PPP construction and minimize the risk during the process of governance.
(2) Neutrality. Official Development Assistance is defined as government aid designed to provide global public goods for private sector. However, different from the supply model of public goods in developing countries, the most important feature of PPP pattern dominated by the international organizations is its neutrality. The international organizations stand between public and private sectors, and balance the demand of the general public and private investors with the help of market forces, which not only meet the public demands for better services, but also attract appropriate investors.
(3) Objectivity and invisibility. International Organizations usually lay down strict bidding rules in order to secure the fairness of competition at the beginning of the bidding stage. Each PPP project including both the ended and ongoing project would publish its whole project report for public scrutiny. The features of objectivity and invisibility could help the private investors to overcome the uncertainties of state policy and high risk investment.
(4) Flexibility and diversity. Different international organizations play a different role in its own PPP governance pattern. For example, IFC and Multilateral Investment Fund may provide advice in order to improve the infrastructure and public services in developing countries; to the European international organizations prefer to deliver technical assistance and data support for the establishment of PPP projects by taking its advantage of expertise. Due to the influence of different international organizations, the PPP
governance pattern presents a high degree of flexibility and diversity in different ways.
3. Advantage and Challenge of PPP Governance Pattern
To be objective, the development of PPP governance pattern is still in its infancy in global governance and most of the projects are carried out in developed countries. But a new pattern of governance that is different from the traditional has been produced during the development of PPP. The government does not need to invest directly, but to ncourage the private sector to contribute to the solution of global problems with the help of market forces.
3.1 Advantage Analysis of PPP Governance Pattern
The PPP pattern connects the public and private sectors though the sharing of risks and responsibilities. It takes advantage of private sectors to manage and supervise the project operation. In some areas with a lack of public services and infrastructures, the cooperation with private sectors would better provide an effective method to solve the problem in global governance. The achievements of PPP pattern showed the potential advantage as:
(1) Improve the limited capacity of public sectors to satisfy the needs for an effective solution for global problems. As mentioned above, the global public goods are underutilized and in short supply, and no power on earth can satisfy the supply needs of global public goods itself. With the expansion of global problems, the application of PPP pattern could improve the existing facilities in agriculture, energy, education, medical care, communication and transportation area, and provide better public services. Also, the private sectors would be responsible for the sustainability and effectiveness of public goods supply.
(2) Improve the efficiency of public services. Tremendous pressure of market competition could help the government to achieve efficiency from the private sectors and address bureaucratism. The cooperation between public and private sectors allows for a better allocation of risks, and the high level of specialization and practical operation of private sectors could improve the efficiency of public services. Also, the profit-oriented strategy of private sectors would have direct economic stimulus to develop new projects and better service in the world and meet the demand of publics.
(3) Provide a new method of financing. The private sectors could develop new financing channels with the help of market forces when global public goods are in short supply, and achieve the optimisation of budget through market mechanism to maximize the value of capital. Without the engagement of private sectors, some projects may be abandoned for the lack of public funds.
(4) Achieve effective complementation between public and private sectors. A public-private partnership is a cooperative venture between the public and private sectors to provide public services through the appropriate allocation of resources, risks and rewards. The government establishes the project goals and the private sector is responsible for them. The government provides a constant sense of motivation throughout the project process of design, establishment and operation, and effective supervision to private
sectors. In turn, the private sectors could promote the technology transformation and cultivate talents for the public sectors. A perfect structure of PPP makes the profits of private sectors depending on the implementation of project goals. The government bears responsibility for securing the publics to obtain adequate services from private sectors while retaining the ownership of projects. A better Public-Private Partnership could help the government to raise fund and promote development by taking advantage of the professional skills of private sectors in order to realize better allocation management of risks between pubic and private sectors.
3.2 The Challenges of PPP Governance Pattern
There are difficulties during the development process of PPP pattern even though it has achieved some success in global governance. We need to avoid the risk of failure while taking advantages of the PPP pattern.
(1) Government acts as the purchaser and administrator in the partnership, but in order to achieve the value of capital and secure the implementation of compulsory bidding, public institutions have to get involved in the process of project operation, which resulted the lack of transparency and efficient management.
(2) The absence of supervision of the public and private sector actions in the imperfect market would cause the change of validity and legitimacy of original projects, which adversely affects the construction and operation process of PPP projects and even leads to the failure. Meanwhile, there are disadvantages such as the high level of public credit risk, deficiency of the supporting facilities, and uncertainty of project profits in the governance process of PPP pattern.
(3) The capacity development of private sector can be a key factor in the success of PPP pattern. With the increasing capacities of multinational activists and the failure of global governance, public sectors are beginning to transfer power to a certain extent to private sectors. The private sectors, especially enterprises, exist mainly for the purpose of oofits making at the beginning of public-private partnership, but they will pay more attention to the brand effect to enhance its local influence as the partnership progressed, which has been crucial in promoting the validity and sustainability of PPP pattern.
(4) Cooperation between public and private sectors has become the foundation for PPP pattern. To realize equilibrium of profits through interactions provides fundamental impetus for the development of PPP pattern. In the field of global governance, reducing the cost of public interest suppliers through the marketization of public interest could facilitate the cooperation between public and private sectors. The construction of partnership aims to find innovative solutions to solve the problem of public goods supply.
Furthermore, we need to know that the success of PPP pattern does not only depend on the cooperation between public and private sectors, but also rely on the interaction of global political, economy and social networks. In other words, the success of PPP pattern requires the whole society to pay more attention to global problems about nvironment, and security, it also requires a good economic foundation to secure the construction of public-private partnership. What¡¯s more, support from the government and relevant stakeholders could help to provide a stable regulation environment, guarantee the competitiveness of bidding process and secure the validity and sustainability of PPP projects.
At present, 840 million people lack access to clean water, more than 1 billion people lack access to the telecommunication service, about 1 billion worldwide still live without access to electricity and 2.5 billion live without modern sanitation. The gap of public goods supply has caused poor health condition, low development of economy, and entrenched poverty in developed countries. Overall, the rise of PPP pattern conforms to the trend of globalization. The bottom-up public-private partnership could relief the dilemma of global public goods supply by relying on the market mechanism. In order to solve the dilemma in global governance, we need to depend on the coordinated management of the market and government, encourage the role of market mechanism in global public goods supply and arouse the enthusiasm of private sectors. Although the PPP pattern is not the inevitable choice for all countries in the world to build infrastructure, provide public services, and supply global public goods, it can offer a new pattern of
responding to global problems and promote the common development of the human society in the modern area of globalization.
(Lyu Xiaoli, associate professor of School of Government, Beijing Normal University, doctor of law, master tutor, specialized in: globalization and global governance; Liang Xiao, master of law, graduated from School of Government, Beijing Normal University in 2016.)
1. http://www.ifc.org/wps/wcm/connect/AS_EXT_CONTENT/What+We+do/IFC+and+PPPs. Latest accessed: