Well designed public-private partnerships should be used for goal-oriented growth

For Labour to deliver on its agenda, it must get its public-private partnerships (PPPs) right.
For Labour to deliver on its agenda, it must get its public-private partnerships (PPPs) right.

Summary

  • The UK’s Labour government needs to engage the private sector with deals that impose conditions aligned with public objectives. Countries like Germany, France and the US have been doing this.

The UK’s Labour government has given serious thought to the public investment needed to get the economy back on track after 14 years of austerity, neglect of social infrastructure and capital flight triggered by Brexit and economic uncertainty.

The situation demands a new strategy to tackle big problems like child poverty, health inequities, a weak industrial base and struggling public infrastructure.

What should this look like? The UK department for business and trade’s ‘green paper’ titled ‘Invest 2035’ is a promising start.

Also read: Climate Change and the New Green Economy: The big questions for 2025

In my own response during the public consultation period, I stressed that an industrial strategy should be oriented around key missions like achieving net-zero emissions, rather than specific sectors, as London appears to be doing; while it has set itself five ‘missions,’ they seem more like goals with some targets, rather than being central to the way government and industry work together.

For Labour to deliver on its agenda, it must get its public-private partnerships (PPPs) right. Past collaborations in the UK had the state overpaying and private sector under-delivering.

After the Brexit referendum, for example, the government gave Nissan £61 million to make cars in the UK. But Nissan still abandoned a planned expansion at its Sunderland plant and the promised jobs never materialized.

Likewise, under the failed ‘private finance initiative’ schemes of the 1990s, the state would pay inflated sums to private contractors to operate public services like prisons, schools and hospitals before handing them back to the state, often in poor condition and without any clear improvement.

This approach was widely used for National Health Service hospitals, with the first 15 contracts generating £45 million in fees (some 4% of the capital value of the deals) for advisors across the public and private sector. A UK Treasury analysis later showed how costly it was.

Fortunately, many PPPs globally have had more positive results. Germany’s national development bank, KfW, offers low-interest loans to firms that agree to decarbonize.

The French government’s covid bailout of Air France was conditional on the carrier curbing emissions per passenger and reducing domestic flights; by contrast, the UK bailed out EasyJet with no strings attached.

In the US, the CHIPS and Science Act required firms that benefit from public funds to commit to climate and workforce development plans, provide childcare and pay a living wage. Preference is also given to companies that reinvest profits instead of using share buybacks.

Also read: Britain’s Labour Party bets on big taxes, borrowing to boost economy

The UK does have some experience in shaping markets around clear goals. In developing the Oxford-AstraZeneca covid vaccine, London used a risk- and reward-sharing model in which it provided 95% of the funding in exchange for commitments.

AstraZeneca would provide the first 100 million doses to the UK and allow the government to donate and reassign surplus vaccines.

Similarly, Octopus Energy’s acquisition of energy supplier Bulb allowed the UK government to reap £1.5 billion in profit as it repaid the public support it had got through a profit-sharing deal. This agreement safeguarded jobs and kept consumers costs contained.

With a mission-oriented strategy, the UK could scale up and systematize this type of public-private engagement. Rather than being “unreservedly pro-business," as it claims to be in its green paper, it should ensure that public investment targets clear objectives: to crowd in private capital, create new markets and increase competitiveness.

Consider the UK’s net-zero-emissions target. The state has a crucial role to play as a first-mover, shaping markets so that private incentives are aligned with public goals. Yet, recent moves appear to fall short.

Prime Minister Keir Starmer’s deals with Macquarie, Blackstone and others raised more than £60 billion without setting clear, outcome-oriented expectations or ensuring that both risks and rewards are shared.

The government’s support of carbon capture and storage allows funds to flow to oil giants without holding them accountable in the green transition.

These deals are structured to achieve growth at any cost, when what the UK needs is growth that is inclusive and sustainable. That requires better corporate governance.

Growth itself is not a mission; it is the result of public and private investment, and good growth needs to be directed. If the UK’s climate transition is going to deliver for people and planet, engagement with the private sector must reflect confidence, not capitulation.

Start by deploying existing tools. The new National Wealth Fund (NWF) and Great British Energy could make a difference if policymakers get it right.

The NWF should use conditionalities for public investments, provide public access to intellectual property and patents for research, create subsidies and other incentives for mission-aligned investments and use loan guarantees and bailouts to move firms toward decarbonization, improved work conditions and fewer share buybacks.

Also read: Climate action: UK's Labour Party has made a blunder in greening aviation

The UK must shift from a sectoral approach to a mission-oriented one that embraces an outcomes-oriented form of PPP, incentivizing the private sector to do its part. Labour’s approach needs rework. ©2024/Project Syndicate

The author is professor in the economics of innovation and public value at University College London and author, most recently, of ‘Mission Economy: A Moonshot Guide to Changing Capitalism’

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