A potential solution for Europe’s stretched social budgets was put under the spotlight at the Policies and Practices Breakfast Debate held in Brussels, 29 January 2013, on public private partnerships to develop social policies.
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“There is in practice no real public-private divide….What is important is to develop intelligent partnerships where each party knows its specific role better.” – Dr Lieve Fransen, European Commission
The added-value of PPPs
Guest speakers at the debate were Dr Lieve Fransen, from the European Commission (DG Employment, Social Affairs and Inclusion), responsible for the social aspects of the Europe 2020 Strategy, and Maxime Cerutti, Director of BUSINESSEUROPE’s social affairs department.
Dr Fransen took the opportunity to highlight the potential benefits offered by PPPs which she said can reduce costs, encourage innovation, improve and speed up the delivery of social projects.
“There are new models for organising PPPs where the ownership of the project is shared between public and private sector and involves the sharing of risks and profits,” Dr Fransen explained. “The key to the process is to focus on what we want to do together, define the expected outcomes and then put it all in an appropriate organisational format.”
It is important that the partnership is well defined in terms of what is expected of each party, she said. “We have complementary roles. If we properly understand these different roles, we can partner better and not get in each other’s way.”
Maxime Cerutti from BUSINESSEUROPE highlighted a number of successful PPPs that have been set up in a variety of sectors. In Spain there is considerable involvement of private finance in the healthcare sector. The Hospital of San Sebastián de los Reyes in Madrid, for example, has received some 120 million euro in private sector investment for its development, allowing public funds to focus on other social needs.
He pointed to the added value of private sector involvement: greater effectiveness, better value for money and more efficiency. The important job of the public authorities is to lay down the necessary quality standards and define the outcomes required.
“The good examples that already exist show us the benefits of stronger cooperation between the public and private sectors,” Cerutti said.
Encouraging governments to invest in people
Europe differs from other regions across the world in its strong commitment to social spending. “Europe has a large governmental sector which accounts for 50 percent of spending of GDP. Half of this government spending goes to social policies. And without economic growth, we cannot increase social budgets” Cerutti said. Dr Fransen insisted on this figure, adding that, in some countries, 30-40% of GDP goes to social policy.
But there is today tremendous pressure on public finances, Cerutti added. “We need therefore to be innovative and to do as much as possible with constant resources. We believe PPPs are an important answer which has been underestimated and underused so far. (...) in the framework of PPPs, the private sector is already demonstrating that it can help deliver better social services and make better use of tax payers’ money.”
Dr Fransen discussed PPPs in the context of the forthcoming Social Investment Package (SIP), an important initiative about to be adopted by the European Commission to support future health and social policies. The SIP has been developed as a response to the significant social challenges facing Europe: major demographic changes, an ageing society, increased urbanization, declining population growth etc., all of which is set in the context of a far-reaching financial and economic crisis.
The Social Investment Package will try to help EU Member States to reform their welfare systems, she explained. “It is important that governments continue to invest in their people. This is essential for Europe’s competitiveness and meeting the Europe 2020 targets in areas such as poverty, education, skills, employment etc. We cannot leave them in poverty or not develop their competences”.
“But we need ways of being more efficient with available budgets for social services” she said.
The Social Investment Package will call for more partnership with the business sector. Particularly in the areas of:
The use of microcredit – to increase establishment of start-ups, microbusinesses involving migrant populations, apprenticeships, etc.
Social innovation – to develop new ways of working, service delivery and retaining older workers in the workforce.
The use of social impact bonds – a system of PPPs already tested in UK and US where the public sector defines the outcome and the private sector is paid when it achieves the agreed targets.
Expanding social entrepreneurship where start-up capital (partly financed by EC through its regional funds) is provided for new, socially-oriented businesses.
The European Commission is also proposing significant changes to the EU’s public procurement Directives to make them more amenable to social activities.
Downward trend in PPPs
Mr Cerutti said that a Social Investment Package which leads to growth is the right direction.”
He pointed to the urgency of this since, despite the evident advantages of the PPP approach, the current trend is not moving in the right direction. In 2011, only 84 PPP transactions (worth almost 18 billion euro) reached financial closure, which is significantly below the 112 and 118 deals closed in 2010 and 2009 respectively.
During the Q&A session, Matheus Maucher of the European Public Service Union highlighted the poor performance of the large-scale Private Finance Initiatives in the UK where some had resulted in bankruptcy.
“Around Europe we can see some good practices and some bad practices,” said Cerutti. “And it is up to the parties of the partnership to properly define the operating framework and conditions.”
He put forward the idea that the European Commission could provide a common base of knowledge about what is happening on the ground. “We need a common base of factual information about the pros and cons of different arrangements,” he suggested.
Dr Fransen took the view that the public and the private sector can indeed do more. “There are areas where partnership at local, regional and national levels can happen,” she said. “The approach will differ from country to country. The requirements in Spain and the UK could be very different. It is important that the parties properly define what they are trying to do.”
“There is in practice no real public private divide,” she insisted.” What is important is to develop intelligent partnerships where each party knows its specific role better.”
Mr Cerutti was asked from the floor about the difference between partnerships and contracting in PPPs. He replied that a partnership implies that both sides invest resources in the common project where the project is not owned by the public authorities but both have a stake in it.
“Contracting is asking a service of a private operator, in this case by the public authority. The two exist and are quite different but they are both important.”
Impediments to PPPs
The growth of PPP projects seems to be currently held back by a lack of awareness within the public authorities of the possibilities for creating partnerships within the existing legal framework, Cerutti explained. “The EC has perhaps a role to play in raising awareness and perhaps encouraging the training of the public officials managing those services.”
Dr Fransen was fully in agreement about the need to better inform citizens and public servants. Indeed special guidance for officials will be provided in the Social Investment Programme regarding public procurement and social services of general interest, she explained.
From the audience, Susan Bird (DG Employment) suggested that some of the difficulties with PPPs can be due to lack of experience on how such contracts are put together. Practice needs to be looked at and lessons learned about the terms of reference agreed between the parties.
“Today at this conference we have brought together an unusual mix of people including those dealing with single market issues and others from social NGOs. Such gatherings are important to raise the awareness of relevant stakeholders on the benefits of cooperation between public and private sectors for citizens” Maxime Cerutti concluded while Dr Fransen welcomed the opportunity to focus on parts of the social policies being developed by the EU where we would like to have a dialogue with the private for-profit sector.