Home   Editorial   About   
PPP is not PPP
A note

Hector McNeill1

This note is a caution to readers to avoid any confusion between Price Performance Policy and Public Private Partnerships which both have the acronym PPP.

This article explains the difference

PPP-Price Performance Policy

Price Performance Fiscal Policy provides incentives for economic units to moderate unit prices with the objective of securing growth through market penetration while also augmenting the mutual real income positions of labour, shareholders, beneficiary owners and consumers in general. The policy instrument used to convert the monetary aspects of pricing to real productivity (more output through the use of less resources) is the Price Performanc Ratio or PPR which measures the relationship between movements in unit input costs and unit output prices. The governor or controlling policy instrument is the Price Performance Levy (PPL) which is charged against margins in proportion to the PPR so that the more nominal prices are moderated against input inflation the lower the incidenceof the PPL. As a result policy provides incntive for competitive prices and investment to achieve increasing productivity.

Significantly PPP places the means of managing real incomes through sound business rules so that economic decision-making within companies of all types remain coherent with an overall policy objective of stabilization and steady groth in real incomes. This is achieved by adhering to a strict supply side model ( What are the elements of a supply side policy? ) and also providing practical business rules upon which to base company decisions ( Appropriate business rules for competitivity & growth ).

PPP-Private Public Partnerships

Public Private Partnerships embody the concept that by involving private companies in the provision of public services in an attempt to improve the efficiency of the resulting services and supply of products. Unfortunately the practical track record has been very mixed ranging from this being considered to be a sort of "socialism for corporations" where there are many cases of pricing by private contractors becoming excessive with high bonus payments to executives and the deployment of financing packages involving interest rates well-beyond the levels that government could have raised separately. Many "partnerships" have as a result of cash-flow mining resulted in excessive debts and the failure of many PPP operations in utilities, health services and educational operations.

One "advantage" of PPP schemes was to place these operations "off balance sheet" as a way to hide the real extent of debt. This reality while bein openly admitted as a "benefit" provides an example of lack of operational transarency of government expenditures and position with respect to debt and risk.

Many PPPs transfer ownership of final assets to the private partner while bearing most of the risk of the scheme. In many cases of utilities private suppliers were gaunateed a fixed market volume and therefore revenue irrespective of actual consumption. This has the effect of reducing supplier risk but removing their operations from the realities of the market and representing an extremely inefficient allocation of government resources.

In conclusion the experience of Public Private Partnerships has been mixed and has permitted companies to operate in a way at variance with government declared objectives. Under Price Performance Policy this is not feasible.

1 Hector McNeill is the director of SEEL - Systems Engineering Economics Lab.

All content on this site is subject to Copyright
All copyright is held by © Hector Wetherell McNeill (1975-2019) unless otherwise indicated

SMOT.GIF - 2160 Bytes