Reimagining Public-Private Partnerships

Our economy is quickly entering a depression, one that will likely ripple for generations. It is a known future, one that forces us to consider what comes next. How will we reshape production and labor in the United States, given our experience so far with the crisis? Whatever directions we choose, they all begin with reimagining public-private partnerships.

Public-private partnerships have a detailed history in the United States. Their creation stems from an attempt to solve a problem—what does a government with limited resources do when a risky and expensive project needs to be done? The answer was to utilize the productive and imaginative capacity of private citizens.  

In the 19th century, public infrastructure projects like roads, sewers, bridges, and tunnels were also easy political targets. The dominant belief of the time was that the federal government had no right to involve itself in projects impacting the state. Political actors of the time had to navigate public sentiment alongside national infrastructure demands. The resulting policies sought out those with the resources necessary to enact such plans. America was built on public-private partnerships, but those agreements came at a steep price.

During the industrialization of the United States, robber baron capitalists were the primary benefactors of public-private partnerships. Armed with the leverage of resources and public sentiment, these business owners insisted on guarantees before entering any projects. The central theme across verticals was monopoly power over the projects. It was an idea rooted in the philosophies of the famous economist John Stuart Mill, who argued that it didn’t make sense to have four different bridge owners. Additional concessions were plentiful. For example, railroad builders were given land grants to plots surrounding the tracks. We can’t know if American leadership conceptualized how these agreements would greatly empower existing elites, but if they did, it was likely thought of as a cost of national infrastructure [1].

 

Flaws of present public-private partnerships

Our government operates differently from the governments of the past. Resources were tied to a gold standard, ensuring a limited supply of total money. Today the world runs on fiat currency. Banks create credit at the point of contract. In the past, governments had few options other than cooperating with ultra-wealthy elites. That’s not the case anymore; almost any privatization of government services is a choice based on convenience and connections. It’s a lot quicker (and requires less work) to outsource a necessary service, and as anyone involved with local politics will tell you, backroom deals with friends and family members are commonplace. The results of which are subpar services and additional costs, burdening the taxpayers they serve.

Central to the problems facing modern public-private partnerships is profit incentive. Every governmental arrangement to provide necessary services with a for-profit company extracts money. The result is direct economic harm to lower-middle classes as well as perverse incentives that shape society.

The theory behind outsourcing a necessary public service is that the private company should be able to deliver higher quality and lower-cost service than a publicly owned option. History shows us that, in many cases, this is simply not true. A 2009 study averaging over forty states showed that citizens living in areas with privatized water paid 33% more than their counterparts using publicly owned services [2].  

In 2019 New Jersey residents were forced to provide the private electrical monopoly PSE&G a $300 million bailout to save the state’s aging nuclear infrastructure [3]. Eventually, it came out that PSE&G never needed a bailout, the nuclear divisions were profitable. This legal theft from New Jersey residents highlights another flaw of existing public-private partnerships, lack of transparency. Contrast that to the state of Nebraska, which has had 100% public ownership of the utilities for over 100 years. Their program continually operates at a surplus that they reinvest into community programs. The state has averaged net position gains of approximately $79 million per year over the last three years.

Nowhere are perverse incentives more apparent than the private prison industry. Before 1980 there were few if any private prisons in the United States. Between 1990 and 2009, the number of private prisons increased by approximately 1600% [4]. The entire business model relies on proactive incarceration; many of these prisons have agreements with the states they operate in, enforcing capacity quotas. Several studies conducted across multiple states show that private prisons also have higher rates of recidivism, people ending up back in jail after release [5]. Reimagining public-private partnerships forces us to grapple with the objectives and integrity of our penal systems. Is our aim to harm those who have done wrong, or do we believe that prison should be a place of reflection and reform?  

These are just a few of the available examples to help illustrate why our present form of public-private partnerships is inadequate. In the best-case scenarios, they fail to deliver value at both service and price. In the worst, they are actively detrimental to the health and well being of society as a whole. Now more than ever, we need to rethink how we classify and approach public-private partnerships. When transactional relationships are society’s default, crisis will always bring tragedy.  

Developing Alternatives

So how do we bridge the gap from a transactional-profit model to one that prioritizes total stakeholders? We redefine the concept, expanding the definition of success within public-private partnerships to include all stakeholders. Laborers, citizens, and the municipality become the primary beneficiaries at the expense of profit of the organization owners. To ensure this result, we redefine the laws defining property and contract in a way that allows for multiple markets (each with different rules) to operate side by side.

Recognizing that capitalist, socialist, and hybrid economies can exist simultaneously in society opens a Pandora’s box of possibilities. We can illustrate this with a simple example. Socialized healthcare, for-profit video game developers, and hybrid real estate organizations can all exist at the same time with unique rules and regulations to guide their behaviors. We can do this now by creating laws that only apply to specific verticals of society. This is how we redefine public-private partnerships.  

Reimagining market verticals falls into two primary categories. Responsive and proactive. The responsive approach is converting democratically chosen for-profit verticals into a public stakeholder model, for example, shifting our existing for-profit healthcare to a socialized model. Proactively we open up avenues to allow new forms of business to be developed outside of the models currently available. We accomplish both approaches by creating new and changing existing corporate structures.  

If you’ve ever explored how to start your own business, you probably spent some time researching corporate structures. Today we have C-corps, S-corps, LLCs, B-Corps, and more. All of which are different variations of the same, offering slightly different methods of taxation and benefits depending on your circumstance. The failure of these corporate models is that they only provide financial incentives, doing nothing to empower the experimental potential of the organizations.   

For the sake of exploration, we can consider several new and unique arrangements for corporate governance. The first and most direct would be the socialization of existing for-profit verticals. We begin by developing a social corporation model, new rulesets that will be the guidelines for new social corporations, and those transitioning.  

All citizens are stakeholders in social corporations. They invest in and reap the benefits of these organizations. Funding comes from federal spending and taxation. They operate under similar transparency rules as are currently established 501(c)3 nonprofits. All financials are published annually and accessible by the public. There are set salaries and pay grades at all levels. CEOs of large social corporations make less than their private counterparts (if they still exist), but every employee makes a living wage. Social corporations are direct pathways to training and employment guarantees in sectors of our society that will remain for the foreseeable future. Social corporations don’t pay dividends, excess capital is always reinvested in people, process, or technology. The objective of these organizations is the perpetual improvement of vital social arrangements.

While social corporations’ sacrifice retained earnings and profit, they benefit from security and stability. Pulling from our earlier examples, industries like water treatment and distribution, energy production, and health care are foundational aspects of modern society. Social ownership insulates them from the risk of catastrophic industry collapse, even in the worst of times. This mutually beneficial arrangement protects both the workers and society at large from losing absolute necessities in times of crisis.  

Funding and supporting social corporations will benefit from developing separate funding and support organizations. We equip these financiers with new tools such as different interest rates, capital exchange rates, tariffs, and import controls [6]. Custom financial benefits based on economic verticals. Through these designs, we allow for better flexibility and transparency in the innovation of necessary services. These new funding organizations are highly regulated but operate independently of the government, and the firms they are funding to encourage experimentalism.

Determining what organizations to transition into social corporations is an ongoing process. Ideally, it’s performed democratically, either through public votes or bulk transitions from a popular presidential mandate. There are prominent industries such as health care, water, and energy that are absolute necessities to modern life. Having a profit incentive baked into these services enriches a tiny minority at the expense of the majority. Additional preliminary verticals might be agriculture, transportation, communication, information (the internet), and housing. Strong arguments exist for transitioning some or all of these verticals to social corporations.  

Beyond these immediate verticals, we can establish protocols and criteria for why and how we would transition organizations that fall outside these vital verticals. The most common reason for invoking this transition will be for organizations whose products or services integrate so deeply into the society they serve that they require oversight.  

Consider Amazon.com. Amazon is a logistics giant. The organization controls approximately 50% of all e-commerce sales, likely more given COVID-19. The combination of their technology, revenues, and automation fuels a perpetual monopoly in consumer goods distribution. This level of social integration creates a de facto social contract, one that demands recognition and stakeholdership for all citizens.  

Amazon’s logistics network is a strong argument for social corporation status, but there is an additional, more compelling argument. Amazon’s most profitable business vertical is Amazon web services (AWS). The company owns large server farms where they provide space for other organizations to operate their web platforms. Expenses related to server farms generally fall under three categories: initial investment, maintenance, and, most significantly, energy consumption. We can see the conflict, how does a society with socialized energy reconcile with those who would use it to profit? It’s a question beyond the scope of this essay, but one we’ll need to answer in our not too distant future.  

Reimagining public-private partnerships evaluates organizational operations in alignment with democratic values consistently. Understanding that the changes we make today will be inadequate for tomorrow. Revision is a process, not a destination.

The only thing limiting the types of organizational structures we could create (and the laws that they operate within) is our imaginations. We understand for-profit corporations and we’ve explored social corporations, now we’ll examine hybrid models.  

Real estate can exist in a hybrid model. Rent-seeking on residential real estate is an illegitimate form of revenue when there is no alternative for the renter. It adds no productive value to society and only furthers existing class divides. Every person has a right to a safe and secure home, but that doesn’t mean that people can’t own private residential property. In this scenario, we divide residential real estate into two distinct categories, creating unique sets of laws and regulations for the organizations operating within them.

Publicly owned housing is federally funded and accessible to anyone. There are examples of these programs throughout the world, and how we structure ours is up to us. We give priority for public units to those not possessing private residential property, beginning with the most disenfranchised. The most direct pathway would be acquiring existing units, think condo complexes or high-rise mid to large apartment buildings. These residential zones would likely create unique cultural and innovation hubs surrounding them. Public housing is a federal program, so whether or not people choose to participate, they support the effort of more substantial societal progress through federal investment.  

Not everyone can live in a beautiful mansion on the coast. Those with a preference for owning larger dwellings can fill their desires through private purchase.  The private real estate economy can operate much like today, and people’s rights within their home are secure so long as they are not harming others. The value of private housing would likely decrease alongside public dwellings in the United States, giving more people more opportunity to pursue this direction should they choose. Combined with steeper taxation on the hereditary transfer of assets, we can significantly increase equal access to housing opportunity.  

Why Reimagine?

Identifying the flaws with existing public-private partnerships and presenting alternatives lays a foundation for us to build upon, but it doesn’t answer why. As with any question relating to the collective direction, we have to explore what it is we want. For much of human history, society has progressed under the direction of a few. Today we recognize that under different structural organizations, we can have many trailblazers.

Reimagining public-private partnerships is a direct path to treating ourselves better. We now have access to the technology and resources to redefine human rights. By raising the floor we empower more people to unleash their creative potential. Today it’s within our means to create better services. Employment, training, and transparent accounting help to free us from existing cycles of corruption. This is the task of the social corporation.

Expanding our experimental potential is another reward for rethinking our systems. Creating more flexible and custom rulesets that favor innovative projects (over well-established ones) allows more people to try more new things. Each further organizational success inspires ideas about better alternatives.

Planning any new direction requires us to consider the immediate present. COVID-19 is identifying severe flaws in the United States, issues that call into question why we should allow this system to continue any longer. As if one crisis wasn’t enough, our planet is still warming at an alarming rate causing massive extinction events. Considering alternatives to existing public-private partnerships argues that we cannot afford not to change, given our circumstances. The only thing we have to lose is old ways of thinking and being that are inadequate for this moment in time.

Ultimately, every organization is a public partner to some degree. Reimagining public-private partnerships is an exercise in building the rules we choose to live by. The process never ends but requires that we decide to begin. There are better ways to do things. 


[1] Peter Norton on the history of paying for big projects Financial Times Podcast https://www.ft.com/content/af21369d-d476-4e64-a299-f5bfa6a3dadf 

[2] Questions & Answers: A Cost Comparison of Public and Private Water Utility Operation Food & Water Watch 2009 https://www.foodandwaterwatch.org/sites/default/files/qa_public_private_water_fs_june_2009.pdf

[3] N.J. approves $300M nuclear bailout — and your utility bill just went up by Michael Sol Warren  NJ.com https://www.nj.com/politics/2018/01/theres_a_new_nj_nuclear_bill_but_how_much_will_it.html

[4] Banking on Bondage: Private Prisons and Mass Incarceration ACLU https://www.aclu.org/banking-bondage-private-prisons-and-mass-incarceration 

[5] How private prison companies increase recidivism In the Public Interest 2016 https://www.inthepublicinterest.org/wp-content/uploads/ITPI-Recidivism-ResearchBrief-June2016.pdf

[6] Democracy Realized: The Progressive Alternative by Roberto Mangabeira Unger 1998 p.189 

 

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