Private equity; public principle : evaluating the legitimacy and sustainable of public-private partnerships

Introducing a Third Pillar to an Old PairAs I have already mentioned, one important balance that governments have tried to achieve is between economic prosperity and social equality.Governments intervene in society to redistribute wealth on many levels-through instruments like progressive taxation, subsidies, and social assistance.Economic theorists, however, have protested that these government interventions lead to inefficiencies in the market, and while offering benefit to a select few, hurt society overall.Take the example of rent controls.Governments have used this tool in response to rising housing prices and people's desire for affordable housing.However, to use the economic vernacular, these controls have led to distortions in the market place.These controls have, for example, led to shortages in housing and other unforeseen consequences.Also, sometimes these controls can be circumvented.In housing, some individuals circumvent these controls by introducing other forms of charging renters, such as key money where renters are expected to pay an extra amount to the owner when they move into an apartment.In jurisdictions where such practices are outlawed, housing shortages generally take hold.In the Netherlands, for example, official waiting lists for apartments can stretch into years (Van Ruiten, 2006 January 15).The problem is that builders lack One common image of bureaucracies depicts an organisation slow to adapt to changing situations.Those who accept this image often use it to belittle bureaucracies, but hierarchies are designed with organisational stability in mind.As some sociologists argue, hierarchical organisations are meant to enforce cohesion with a strong focus on structure and order.Hierarchies achieve this 1 Of course, not all academics accept the futility of bureaucracy and hierarchy argument.Some great achievements in environmental policy have derived from government regulation and hierarchical decision making, such as banning leaded gasoline from motor vehicles (Golub, 1998).For an interesting piece on the successes and failures of markets, see Robert Kuttner's Everything for Sale: The Virtues and Limits of Markets (1996).This goal of equity not only feeds social stability, but perhaps more importantly, can enhance policy effectiveness.Policy objectives which are accepted as seen as overstepping their bounds.In these cases, effectiveness generates its own legitimacy.This leads to the conclusion that networks and partnerships, then, can be legitimate, even if they are not democratically responsible.Clearly, legitimacy derived from effectiveness is but one form, which has led some authors to divide legitimacy into two dichotomous forms: input and output legitimacy.Fritz Scharpf is one of the leading proponents of this way of thinking.He defines input-oriented legitimacy as one that emphasises government by the people, and therefore relies on the rhetoric of participation and consensus.This consensus works, he argues, only in somewhat homogeneous societies, as one needs some degree of "sameness" to attain agreement.Output-oriented legitimacy, by contrast, is government for the people, where choices are legitimate if they promote "the common welfare of the constituency."While the author argues that the two complement each other, he says they differ in their preconditions.Output-oriented legitimacy relies on "perception of a range of common interests," which implies a thin identity (Scharpf, 1999).More concretely, this difference between input and output legitimacy can be divided between legitimacy of procedure versus legitimacy created by performance (Van Kersbergen & Van Waarden, 2004).Yet, despite the reassuring claims that other forms of legitimacy can supplement and even replace weakened ministerial responsibility, output legitimacy must work in tandem with input legitimacy.Independent institutions-such as courts, central banks, and other professional bodies-have achieved institutional legitimacy because they are designed as a check and limitation on the power of the elected branches of government.Only in very specific cases do they take on a policy-making role.More importantly, in cases where independent institutions make policy, they tend to be at arm's length from the government.These organisations can be closely linked to government departments, so the bureaucracy does not lose the capacity to properly judge the actions of these bodies.For instance, central banks have been given power over monetary policy, but this power is extremely limited to setting short-term interest rates.Ministries of finance also have more than enough knowledge to judge the actions of the central bank, and in many cases, the minister of this portfolio has the power to appoint a new governor (once their term has expired) if unhappy with the bank's performance.This contrasts quite starkly with network governance and partnerships where networks have much more policy leeway and also operate more independently from government structures.There's a balance to be achieved between effective and legitimate institutions.The problem that partnerships present is that they focus almost exclusively on output legitimacy and fail to address the role of democratic procedure.As mentioned earlier, some look to stakeholder input to answer the input legitimacy issue.However, the problem with this solution is that stakeholders do not necessarily replace the collective voice of a citizenry.A group of selfinterested parties finding a compromise will not necessarily capture the interests of a population.Just because government decisions may become more legitimate | I. A Theoretical GuideThe problem for those advocating this shadow-of-hierarchy argument is that it implies that the state casting the shadow will always remain strong enough and competent enough to step in when the public interest is not being followed.In fact, in one of the original arguments on the shadow of hierarchy, Fritz Scharpf (1994) referred to "horizontal self-coordination" within a single organisation.However, in network governance, the picture is more complex.As the government ends up ceding competencies to other organisations, the state becomes less motivated to keep those competencies in house.In a sense, the state really does hollow out.And as one can imagine, a hollow state casts very little shadow indeed.For all forms of network governance, including partnership, to remain legitimate, the government cannot be an equal amongst many, but rather must be an equal above all. Questions of Sustainability and LegitimacyThis discussion leads to two critical questions when it comes to new modes of governance in all of their forms:1) Do they effectively help achieve the goals of sustainable development?2) Do they do so in a legitimate way?In essence, the basic questions covered in this book add to the vigorous debate in the governance literature on effectiveness versus legitimacy.However, unlike much of the literature, I choose sustainable development as the theoretical focal point for the trade-off.Covering the effectiveness-versus-legitimacy debate under the umbrella of sustainable development also helps to prove a point: effective projects must, by definition, also possess democratic legitimacy.Any mode of governance which fails to possess democratic legitimacy will harm the third pillar of sustainable development-social stability and equity.This also offers a further reason why output legitimacy must work in the shadow of input legitimacy, as input legitimacy through participation produces more equitable and accepted results.(This point is contentious, of course, and will be dealt with in further detail in Chapter 2 on sustainable development.)The key to examining these questions, I believe, lies in analysing the configuration of actors in networks.When I refer to networks, I am not referring specifically to policy networks.Policy networks are specific structural arrangements dealing with policy problems involving complex political, economic, and technical tasks requiring public and private actors to interact and share resources (Kenis & Schneider, 1991).However, network here is used in more generic terms.A network is a group of organisations or units working together to complete a project or solve a problem.A network can be organised into a hierarchical or a networkgovernance structure.The only important feature of the network is the constant interaction and relative stability of stakeholders. •To demonstrate that the question of democratic legitimacy is not only a normative point, but also a question central to the sustainable development debate. Networking MethodsWith the theoretical foundations laid, I will turn my attention to gathering empirical evidence on how accountability, transparency, and participation are influenced by new modes of governance.Network governance, in all of its forms, calls for greater input from various sectors outside of the government, whether that be the private sector, non-governmental organisations (NGOs), or community-based organisations (CBOs).Much of the discussion, as I have briefly outlined earlier, surrounds the way this changes the power positions of various groups in the policy-making process.The loss of hierarchy means that, from a structural point of view, these actors move closer to the centre of decision-making and power.They assume different roles and communicate in different ways with the government and with each other.If these forms of governance really do break down the concept of hierarchy, this structural change should have significant impact on accountability, transparency, and participation.Because the concern is with actor configurations, social network methodologies and theories can shed some light on the questions of accountability, transparency, and participation.A theory of networks-which admittedly, some thinkers argue doesn't exist (Dowding, 1995)-posits that the location of actors, the types of communication that they engage in, and other such networking behaviour can have a causal relationship.Not only does social networking provide a theoretical lens from which to re-envision concepts like accountability, transparency, and participation, but perhaps more importantly, it offers a set of methodological tools to measure network structures by asking interviewees questions about their interactions with others, and then using social network analysis software to generate maps based on a quantification of respondents' answers.Some of the key thinkers who will guide my hypotheses are Milward and Provan and their analysis of network effectiveness in mental-health units.These authors use network theory to argue that structural characteristics of a network influence its effectiveness.Rather than focusing on the characteristics of the organisations within the networks, they focus on the ties between these organisations as their dependent variable (1998).This is not to suggest, of course, that organisational characteristics don't affect the effectiveness of a group of actors; however, the way they communicate and work together can be significant as an identifier for performance.From these basic assumptions, their study draws some major conclusions on effective network structure.First, they argue that some form of hierarchy is an important element of effectiveness.They also demonstrate that a highly integrated network, centralised through a powerful core agency, is important.The question here, of course, is whether the same characteristics of a network can help to make it more accountable, transparent, or open to participation.This book will focus its attention on market-based governance as defined by PPPs.This doesn't mean, of course, that the theoretical sections will completely ignore network-based partnerships because I would like to draw some conclusions about differences of approach to governance and their influence on accountability, transparency, and participation. HypothesesUnderstanding that the focus in this book is on market-based public-private partnerships rather than network-based ones, I intend to test a number of Esping-Andersen groups welfare-state development into three regime types: liberal (market biased), corporatist-statist (family biased), and social democratic (state biased) (1990).The first, identified as Anglo-Saxon countries like Britain, the United States, and Canada, derives from a liberal tradition of laissez-faire.One feature of these states is that they tend to emphasise labour as a commodity.In other words, a person's survival is contingent on the sale of their labour.These regimes also emphasise class differences, as these states tend to institute meansbased social welfare schemes that stigmatise those collecting social assistance.The second regime, as exemplified by Austria, France, Germany, and Italy, represents states that aim to maintain old class differences, and in which the development of •Actor configurations in various countries should be different, with private actors playing a larger role in Anglo-Saxon regimes.• Contracting types should differ across regimes.Most Different Cases: Canada and Hungary and the Relationship to the Netherlands Unsurprisingly, the centre of academic thought on networks and governance is found in countries with a corporatist history.The Max Planck School in Germany has been instrumental in putting forward the idea of harnessing various sectors of society for the purpose of stable governing.The Netherlands has also been at the fore of this type of analysis, which may relate as much to its sharing of intellectual knowledge with its neighbours as to its long history of negotiation.Chapter 5 works as a transition between the theoretical part of this book and the empirical examination of partnerships in Hungary and Canada.Using the definitions of accountability, transparency, and participation, I address how social network analysis can be used as way to measure and map patterns of interaction between actors in a network.These networks, of course, can be based on Elements of post-materialism seep into the Brundtland Report.In the report, the authors outline a list of objectives that should be taken into account when developing policies.One of the six objectives is to change the quality of economic growth.3 4 3 In addition to the recommendation to make growth less material-and 3 The other five objectives are as follows: reviving growth; meeting essential needs for jobs, food, energy, water, and sanitation; ensuring a sustainable level of population; conserving and enhancing the resource base; reorienting technology and managing risk; and merging environment and economics in decision-making (World Commission on Environment and Development, 1987, pp.59-60).

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