PPPs: An excuse to build unwanted things

We are anti- PPP (public-private partnerships).  Here’s why.

The private sector allocates resources to those business ventures or lines of production that have the potential to earn a positive entrepreneurial profit for the investor (s).  An investor-capitalist earns entrepreneurial profit by correctly anticipating a consumer demand for good X, and then producing this good to satisfy this consumer demand.

The investor-capitalist adds value to society when he bids factors of production from ventures less demanded by consumers, and applying them to meet an unfulfilled demand of consumers of a higher urgency.  Both producers and consumers benefit in this market process.

The unhampered free market always tends toward this state – the greatest level of fulfilment of consumer desires.

PPPThe essence of a public-private partnership is that private investor-capitalists are incentivised with subsidies from pooled taxpayer resources to invest in a line of production for which demand is not NECESSARILY currently sufficient. The state, and not the individual taxpayer, has the discretion over how these funds are disbursed. The state therefore has the final say over which projects will be pursued, and not the actions and desires of millions of free individuals pursuing their self-interest.  These investments are therefore political, not entrepreneurial, arbitrary, not based on market selection.  They are pet-projects of the state and vulnerable to cronyism and corruption.

Had consumers urgently desired a Gautrain railway line, state intervention would not have been necessary to bring it into existence.  People would’ve sold their vehicles and invested the proceeds to fund the construction of a Gautrain or equivalent mode of transport, or large private investors would have spotted a glaringly obvious profit opportunity.  Commuters could’ve sacrificed the consumption of other goods or the investment in alternative lines of production to free up resources to fund construction of the Gautrain.  It is also questionable whether it would have started off in such grandiose style, and would most likely have been initiated on a heavy traffic flow route, and a Fourways-Sandton node for example could have been built first.  After first proving itself economically viable, there would’ve been investment in more nodes, even by other (competing) private companies who would have incentive to link in to existing competitor nodes.  The private sector may even find that more than one Fourways-Sandton line would be profitable for each and offer competing services for the same route.  Had the first node turned out to be a big flop – that people still preferred the comfort of their own personal transport – the malinvestment would quickly be liquidated and losses kept to a minimum.   Now, we have a province wide potential malinvestment, with state gaurantees that pledge to keep the malinvestment in place at the taxpayer’s expense.  Can anyone say “propping up wasteful malinvestment with taxpayer resources to the benefit of crony corporates?”

Ultimately, the higher the potential entrepreneurial profits, the higher the consumer demands that will ultimately be satisfied, and the stronger the gravitational pull of capital to this project will be.  PPPs distort this law of economics.

The fact that the Gautrain requires patronage guarantees from the state to the Bombela group to embark on this investment means consumers didn’t demand the Gautrain MORE THAN THEY DESIRED EXISTING ALTERNATIVES.  Money had to, by legislative force and taxation, be stolen from free people to fund this pet project.

GauWasteIt is true that some consumers did demand a new Gautrain rail network, but they did not have the financial clout to bid factors from other sectors presently demanded by consumers to build the line.  Now, with state backing, despite this being an uneconomical investment, resources are being diverted from lines of production most desired by consumers to those less demanded by consumers.  Society is worse off as a result, and the market moves further away from the optimum satisfaction of consumer desires.

I’d prefer the state gave me back my taxpayer contributed portion of the patronage guarantee, albeit small it is, so I can contribute the proceeds to the next service of my everyday mode of transport – my personal vehicle.  Perhaps if most taxpayers felt this way, it would lead to a huge inflow of resources from the wasteful Gautrain to employing and training more auto-mechanics, which would lead to a reduction in the cost of servicing a motor vehicle.  If the road network were privatised and consumers were able to contribute to maintenance, upkeep, and new traffic management and even pricing systems, perhaps we wouldn’t need a Gautrain rail line to alleviate traffic congestion in the first place.  Point is, these resources would go to those avenues most urgently desired by consumers.

To finish off, in response to clarky: no, we don’t want any state interference and allocation of resources in the economy whatsoever.  We advocate zero taxation and zero government spending, which means there will be no such thing as a PPP in the first place, and especially no public deficit financing at all.  It is the clear understanding of the anarcho-capitalist private contract society, based on the principle of individual liberty, that means we are always able to distinguish the wood for the trees.

3 Responses to “PPPs: An excuse to build unwanted things”

  1. freeman says:

    Speaking of massive malinvestments from public works projects, see this: http://mises.org/daily/4584

  2. clarky says:

    Both points very good chaps.

    However, one does wonder how you would get around based in “the anarcho-capitalist private contract society, based on the principle of individual liberty”.

    Because by this rational, surely, airports, national highways, railways, ports and power plants are all completely taboo in your society. A good 4X4 I’m sure will do, but then again, petrol as well as getting the machine into the country may be a little difficult (bloody capitalists that built the thing in the first place!). Blasted Government spending on pipelines and berths.

    Infrastructure, due to its long construction periods, lower return profiles and longer payback periods, nearly always results in some form of fiscal intervention. I don’t like it either, the private sector is much more of a pleasure to deal with, but at some level 1)efficient regulation and 2)guarantees are necessary, the fact that the SA PPP structure sucks is not tantamount to the issue that they are required. Even though you advocate “the principle of individual liberty” at some level rules and regulation are always required. I understand your qualm – “Quis custodiet ipsos custodes?”, and the answer is supposed to be that we do. But be careful – Theory is not often the same as practicality, wood from tree’s.

    Keep up the good work. We may not always agree, but i do love your work!

    • freeman says:

      “Because by this rational, surely, airports, national highways, railways, ports and power plants are all completely taboo in your society.”

      Firstly, thanks for your comments and the kudos. Appreciated. Actually airports and the like fit perfectly into our libertarian society. A private firm can build an airport and private airlines can use it. Simple. National highways? Why not have four different routes down to Durban? The consumer choice would be awesome. There could be a really expensive option which would cost a lot in terms of tolls but would be beautifully quiet – perhaps with no speed limit:). Same with rail, and ports. Why can’t the KZN coast have dozens of ports serving businesses and consumers needs?