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The case against privatization and P3s


When the Liberal party campaigned and won in 2015 on making significant new investments in infrastructure, there was cause for optimism.

The Broadbent Institute released important research last year on the significant long term economic benefits of public infrastructure spending and supports the idea of financing these needed infrastructure investments through federal borrowing at this time of historically-low interest rates. 

In our study, authored by statistician Robin Somerville at the Centre for Spatial Economics, we examined the short term (2015 to 2019) and long run (2020 to 2040) economic impacts of a large public investment program ($50 billion over 10 years) in transportation and basic urban infrastructure, country-wide. The benefits of such a spending program include more private-sector investment, significant short-term employment gains, a more productive economy, and a higher standard of living — all of which is achieved without significant long-term fiscal consequences to government budgets.

The optimism over the Liberals “historic” infrastructure plan has been blunted of late amidst rumours that the government is considering selling off public assets like airports. Hopes turned sour with the government’s announcement in the recent budget update that the new Federal Infrastructure Bank will focus investments on “revenue-generating infrastructure projects”. In other words, the bank will fund public-private partnerships raising troubling questions about the role of private ownership, user fees and tolls in the financing of new projects.

The attack on the public sector:

For social democrats, the role of public investment and public provision is pivotal to building the kind of equitable and prosperous society we fight for. This is why the Broadbent Institute unequivocally opposes P3s and broader privatization efforts as for example with Hydro One in Ontario.

We believe public services and infrastructure are best financed and delivered by the public sector. While we believe in the role of a competitive market economy, we also believe in the virtue of collective action for the collective good. We champion public provision and investment in universal social programs as part of the fight to de-commodify our social architecture. Moreover, we favour strong progressive taxation in order to pay for public services, public infrastructure and other social goods that individuals cannot provide themselves. In short, we advocate against the prevailing wisdom that we need a lesser role for the state and the public sector.

The three decades long bashing and diminishing of the redistributive capacities of the state has led to pronounced inequality, degraded infrastructure stock, and a blunted ability of government to respond to current societal challenges. Of course, this was what the right-wing wanted. We understand the attack on the public sector as part and parcel of a broader neoliberal economic program that has favored financial deregulation, the expansion of unfair trade and investment deals, the weakening of worker rights and, finally, a retrenchment of welfare state programs and public services.

In Canada, the neoliberal attack on the public sector has been used to justify austerity and to promote both the privatization of existing public assets as well as the private ownership and operation of future projects and assets through P3 agreements. We fundamentally disagree that the private sector is necessarily more efficient or more capable of owning, operating and delivering projects and services as P3 advocates, including some progressives, falsely claim.

We believe these “partnerships” obscure that P3s socialize risk and privatize rewards.

Strong evidence against P3s:

Significant empirical work has demonstrated P3s to be costly and ineffective. The evidence, from groups like the CCPAColumbia Institute , CUPE and others has demonstrated that P3s do not deliver on cost savings for the public, nor do they prove effective in sharing risk as advocates claim. Privatizing operation and ownership means foregoing significant returns on investment for the public dime, handing over potential revenue streams to private companies.

CUPE economist Toby Sanger's recent analysis of the Ontario Auditor General report on P3s captures the key evidence succinctly and convincingly. In short, P3s have been shown to cost more, to leave the public without control of services and assets, and ultimately to saddle the public with the costs if and when a project doesn't work out.  It is for these reasons that we also support municipal moves to in-source or bring privatized services back in-house.

There are models of mission-oriented public investment banks that the government could have followed and that social democrats could, in theory, support. We see no credible case to use public funds to underwrite P3s rather than to invest in publicly run and operated infrastructure. That’s why we focused our response to the fiscal update on a rebuke of the infrastructure bank. Our senior policy advisor, Andrew Jackson, wrote about the folly of the banks mandate for the Globe and Mail, as well as for the Institute blog.

At this moment of deep political convulsion throughout the West, the fight against privatization is part of a broader struggle against the economic logic that has led to corrosive inequality and underpinned the bankrupt neoliberal economic paradigm. We must continue to dispel the myth that it is the private sector alone that drives innovation or that is capable of driving economic growth and dynamism. And we must fight to ensure that the public is equitably rewarded for the investments it makes.

For its part, the Institute will continue to advocate for government investment in public programs and public services that help cultivate a collective ethic, secure broadly shared prosperity, and defang and discredit right-wing populism in the process. 

Jonathan Sas is the Research Director at the Broadbent Institute.

Photo of privatized Ontario highway 407 by Ken Lund, used under a creative commons BY-SA-2.0 license.