PPPs don’t make economic sense

Written By: - Date published: 9:57 am, April 15th, 2010 - 55 comments
Categories: prisons, privatisation - Tags:

With echoes of the mining debate, the Government’s apologists on private prisons say ‘sure, in principle we shouldn’t do this, punishing criminals is the job of the state, but we’ve got to balance that against all the money we will save… money!!’ and we know that money trumps all for these people.

But do Public Private Partnerships (privatisation in rather tawdry drag) really save money?

The experience here and abroad says no.

The corporations know that the government will always bail them out. And that induces a predictable behaviour in profit-driven corporations: asset-stripping. There are numerous overseas examples of this happening. Here in New Zealand we only need look at the privatisation of rail. Fay Richwhite and Toll knew that they could run the rail system into the ground while creaming off super-profits, safe in the knowledge that the government couldn’t let a major piece of infrastructure collapse (what people forget is that rail, like roads, brings major benefits to the economy, not just the owner) and the govt would eventually step in and buy them out.

English has said that a PPP will have to beat the public cost by 10-20% for them to be interested. Seems fair enough, eh? But we know what happens. The corporations will happily tender as low as English needs them to. Bid low then under-deliver and over-charge, and what can the government do about it? It’s not like it can just walk away from paying for a prison housing 1,000 inmates.

The experience around the world has been worse outcomes for more money. The same thing will happen with prisons. The corps will run them into the ground until the government has to pay through the nose to take them over and get them running properly again.

To put it bluntly, when you rely on someone else to deliver something you need they’ve got you by the balls. And the profit motive gives them all the incentive in the world to squeeze.

From first principles, its hard to see why privatisation should save money. I mean, the State needs a job done, a service delivered. The State can do it itself, and pay all the costs. Or it can pay someone else to do it. They’re doing the same task, so they ought to have the same costs, plus they’ve got to earn a profit for their owners. Which is greater: Cost or cost plus profit?

Unless you believe in some kind of magic private sector pixie dust there’s no reason the private sector should be able to do a job cheaper than the public sector, especially when it’s got to make a profit and the public sector doesn’t. And if there is some underlying efficiency the private sector could create there’s no reason the public sector can’t imitate it. Hell, most government bodies are run along private business models now anyway.

And that’s what the privatisation argument boils down to. Right wingers (who are fundamentally just pissed off about paying tax) don’t like the government doing stuff. They are ideologically drawn to privatisation. To justify it, they invent privatisation pixie dust that magically creates savings that the public sector can’t. Unfortunately for them, the reality is that privatisation is a failure, a corporate scam, and they will end up paying, via their dispised taxes, along with the rest of us if privatisation goes ahead.

55 comments on “PPPs don’t make economic sense ”

  1. Lanthanide 1

    “Bid low then under-deliver and over-charge, and what can the government do about it? It’s not like it can just walk away from paying for a prison housing 1,000 inmates.”

    The government could stand by the contract and not pay the private company a penny more than was agreed. If the private company then fails to live up to their side of the contract with regards to various measures, then the government could vacate the contract and buy them out at 1/2 the market value. You agreed to do X for Y money, if you can’t do it then you’re not going to get Y+Z money, we’ll simply take control away from you for breach of contract. Seems simple enough.

    • Lew 1.1

      That makes the contract-writing and enforcement aspects of the agreement a battle of wits between the public and private partners and their law firms. While there is much wailing and gnashing of teeth about the “unlimited resources of the state”, there are a few object lessons in what happens in these sorts of cases abroad: Microsoft antitrust; the tobacco industry; etc. Private concerns who are dependent for their very survival on winning a court action will do what is necessary to win it, and public opinion be damned. Governments, since they’re reliant on public opinion for their survival, will settle, dilute and sacrifice what the private concern needs because that is a lesser political cost than the cost of fighting a long and costly legal case (even if eventual victory is certain).

      L

    • Bright Red 1.2

      “The government could stand by the contract and not pay the private company a penny more than was agreed. If the private company then fails to live up to their side of the contract with regards to various measures, then the government could vacate the contract and buy them out at 1/2 the market value.”

      But, don’t you see? They’ve won then haven’t they? They’ve got the money, not had to spend it, and then the pay-out to leave.

      If you were going to be able to buy them out at half price that would have to be a term of the contract and the quid pro quo of that would be higher built-in costs.

  2. Melburnian 2

    PPPs seem to be working pretty well in Victoria:

    http://www.partnerships.vic.gov.au/

    • Zaphod Beeblebrox 2.1

      Whats happened to Port Phillip Prison- seems to have dropped off the list!

  3. ianmac 3

    Lanthanide: Could you see the crrent Government admitting that the private prison had failed and then buying them out? Yeah right!
    A new prison built with newest technology as the plan is, should be cheaper to run than say an old prison like Mt Eden.
    How about turning Mt Eden over to Private operation and building a new prison for a State run one?

  4. English’s suggestion that the construction of a school could be done by way of PPP was especially unusual.

    Schools are constructed by the private sector to a reasonable standard. If the private sector was to do it there would be an initial saving because the capital would not have to be injected but you can bet as time goes by the payments would become more and more significant. A return would be expected and sufficient profit needed to justify a commercial decision to hand the buildings over after 30 years.

    The only way that it would be cheaper than for the state to build and own would be for standards to be reduced.

  5. Sookie 5

    New Labour and Bliar were fond of experimenting with PPP’s in the UK. The results were ridiculously expensive schools half paid for by religious nutters who have a ‘say’ in the curriculum. Scary. Imagine a PPP school half paid for by the Exclusive Brethren or Family ‘I beat my kids asses’ First. That’s what the tighy righties are all about, regardless of their political colours. Ideology at the expense of common sense.

  6. tsmithfield 6

    Can’t agree with you Marty.

    http://www.bop.gov/news/research_projects/published_reports/pub_vs_priv/oreprcampgaes.pdf

    This is an authoritative study. Have a look at the first paragraph on page 23 (its a PDF doc so I can’t copy and paste unfortunately).

    • Fisiani 6.1

      Makes a good read and great to have some facts amidst the red mist.

      • nzfp 6.1.1

        red mist” Fisiani, really logical fallacies such as “Dicto simpliciter” don’t make your arguments true. Your assertions that opponents of your arguments are part of the “red mist” is as broad a statement as those of Peter John’s descriptions of South Aucklanders. You’re attempts at “Reductio ad absurdum” with regard to “red mist” does not take the form of a valid or useful argument, because it brings no new information or concrete discussion into the debate. Consequently your comments can be disregarded as fallacious.

    • Bright Red 6.2

      this is your evidence?

      “We have some evidence from Australia and the United Kingdom that privatization has brought competition to the public sector, and this has improved the overall operations of the prison systems in these countries (both public and private). In particular, in England, privatization has brought the use of standards to the operations of public prisons where previously there had been resistance from top management to their use (Vagg, 1994, p. 307). There is not as much evidence that similar system-wide changes have occurred in the United States, but there are hints that the competition created by private prisons has improved the cost performance of some prison systems.”

      “some evidence” “not as much evidence” “there are hints”

      The only actual evidence they claim is the use of standards in prisons in the UK, well our prisons already have standards to meet (break-out standards etc)

  7. Of course private is cheaper. All you need is a container depot in Wiri. 500 containers patrolled by security guards with dogs would do it cheaply enough.
    Wouldnt you say that instead of moaning about the banksters privateer coup in this country that the social democratic left should simply demand that Labour comes out now against PPPs and promises to nationalise the lot when elected back into office in 2011? Profits cause crime and now they want to profit from crime? NOT FOR PROFIT PEOPLE!
    What happened to the dream of democratic socialism? Labour should be saying that it will restore progressive taxes, impose capital gains on developers and a robin hood tax, a living wage, jobs for all, and start campaigning on it now. If Labour stays in the Blairite limbo land of its post-rogernome history it will be consigned to the rubbish bin of history. It will serve no useful purpose for the bosses. Key will claim the centre from the centre left. Historically Labour claimed to stand for workers not lie down on them.

  8. tsmithfield 8

    If you have a look at the research on the bop site, BR, it is apparent that there has not been a huge amount of research in this area. Also, research that has been done has been recognised as having substantial weaknesses in study design etc. Therefore, its not surprising that the authors of this study were less than emphatic with their conclusions.

    However, the message we can take from this study is that it does seem that the introduction of privatisation alongside public prisons have resulted in improvements. In the case of the UK this may have meant improvements in areas that we are already strong in. However, it may well be that the introduction of private prisons in NZ might bring about advantages in other areas.

    • Pascal's bookie 8.1

      Or it may not. There is little to suggest either way. The para you point to pge 23, seems to suggest that private management can gain effeciencies through ignoring various stakeholders that governments have problems ignoring.

      I’d like that to be spelt out a little clearer. What do you think it meant? Seeing you seem to find it ‘authoritative’

      I take it as meaning that staffing costs can be reduced and noisy civil liberties groups shut out. That is probably true, whether or not it makes for good prison policy is the question though.

    • Draco T Bastard 8.2

      You’re really reaching. You said that the study you linked proved it when it didn’t. Now you’re saying that having them might bring some improvements when there’s no evidence to suggest such. The unequivocal evidence shows that privatisation makes things worse.

      The reality is that private prisons will cost more and not less due to the added dead weight loss of profit.

  9. nzfp 9

    Global Research, March 10, 2008 reported in an OpEd titled “The prison industry in the United States: big business or a new form of slavery?”[1]:

    Human rights organizations, as well as political and social ones, are condemning what they are calling a new form of inhumane exploitation in the United States, where they say a prison population of up to 2 million – mostly Black and Hispanic – are working for various industries for a pittance. For the tycoons who have invested in the prison industry, it has been like finding a pot of gold. They don’t have to worry about strikes or paying unemployment insurance, vacations or comp time. All of their workers are full-time, and never arrive late or are absent because of family problems; moreover, if they don’t like the pay of 25 cents an hour and refuse to work, they are locked up in isolation cells.

    Of particular note in the article are the demographics, specifically:

    There are approximately 2 million inmates in state, federal and private prisons throughout the country. According to California Prison Focus, “no other society in human history has imprisoned so many of its own citizens.” The figures show that the United States has locked up more people than any other country: a half million more than China, which has a population five times greater than the U.S. Statistics reveal that the United States holds 25% of the world’s prison population, but only 5% of the world’s people. From less than 300,000 inmates in 1972, the jail population grew to 2 million by the year 2000. In 1990 it was one million. Ten years ago there were only five private prisons in the country, with a population of 2,000 inmates; now, there are 100, with 62,000 inmates. It is expected that by the coming decade, the number will hit 360,000, according to reports.

    It appears that the PrisonIndustrial Complex is a fast growing business in the US:

    The prison industry complex is one of the fastest-growing industries in the United States and its investors are on Wall Street. “This multimillion-dollar industry has its own trade exhibitions, conventions, websites, and mail-order/Internet catalogs. It also has direct advertising campaigns, architecture companies, construction companies, investment houses on Wall Street, plumbing supply companies, food supply companies, armed security, and padded cells in a large variety of colors.”

    The findings of GlobalResearch article have been corroborated in multiple sources such as the 2/28/2008 USA Today Report “Record-high ratio of U.S. adults in prison”[2], the February 29, 2008 The China Post report “Report says more than 1 in 100 Americans now behind bars, making US world incarceration leader”[3] and many others.

    [1] “The prison industry in the United States: big business or a new form of slavery?” http://www.globalresearch.ca/index.php?context=va&aid=8289
    [2] “Record-high ratio of U.S. adults in prison” http://www.usatoday.com/news/nation/2008-02-28-prison-record_N.htm
    [3] “Report says more than 1 in 100 Americans now behind bars, making US world incarceration leader” http://www.chinapost.com.tw/international/2008/02/29/145077/Report-says.htm

    • The Chairman 9.1

      This Dillon fund (link below) provides a link between the privatisation of prisons, offshore funds and arguably the most prestigious private bank in the world.

      The transatlantic slave trade never dreamed of financial leverage, engineering and liquidity this pervasive, instantaneous or socially respectable.

      More here: http://alt.economics.scoop.co.nz/?p=53

      • nzfp 9.1.1

        Catherine Austin Fitts was the assistant Secretary of Housing and Federal Housing Commissioner at the United States Department of Housing and Urban Development (HUD), she served as managing director and member of the board of directors of the Wall Street investment bank Dillon, Read & Co. Inc. In an eight part audio interview, Fitts recounts the corruption and black budgets including the missing $59 Billion USD, she encountered while working for HUD. If you’re interested you can find all eight of the interviews with Dennis Bernstein of KPFA’s Flashpoints in the series “Anatomy of a Financial Coup D’Etat: Wall Street, Banksters, Feds and Fascism” here: http://reformthemoney.blogspot.com/search/label/Grinning%20Planet

        It is certainly fascinating.

  10. tsmithfield 10

    nzpf: “where they say a prison population of up to 2 million mostly Black and Hispanic are working for various industries for a pittance.”

    Also gaining work experience and work skills while receiving free food and accommodation. Thus more likely to integrate back into society once out.

    nzpf: “There are approximately 2 million inmates in state, federal and private prisons throughout the country.”

    I don’t dispute this. But not really relevant to the debate at hand.

    • Pascal's bookie 10.1

      Of course it is.

      How much money does the prison industry make off slave labour? Do they donate money to groups advocating longer sentences?

      And those skills they gain aren’t much use when they will be competing for jobs with the prison population.

    • nzfp 10.2

      Hey tsmithfield,
      You said “while receiving free food and accommodation”, yet according to the 2/28/2008 USA Today Report “Record-high ratio of U.S. adults in prison'[1] (referenced in my original post)

      The report, released Thursday by the Pew Center on the States, said the 50 states spent more than $49 billion on corrections last year, up from less than $11 billion 20 years earlier. The rate of increase for prison costs was six times greater than for higher education spending, the report said.

      Compare this with the Global Research, March 10, 2008 article “The prison industry in the United States: big business or a new form of slavery?'[2] (also citied in the original post)

      The prison industry complex is one of the fastest-growing industries in the United States and its investors are on Wall Street. “This multimillion-dollar industry has its own trade exhibitions, conventions, websites, and mail-order/Internet catalogs. It also has direct advertising campaigns, architecture companies, construction companies, investment houses on Wall Street, plumbing supply companies, food supply companies, armed security, and padded cells in a large variety of colors.”

      You also question if the assertions presented in the articles are “really relevant to the debate at hand”. In response consider the Global Research, March 10, 2008 article “The prison industry in the United States: big business or a new form of slavery?'[2]

      “The private contracting of prisoners for work fosters incentives to lock people up. Prisons depend on this income. Corporate stockholders who make money off prisoners’ work lobby for longer sentences, in order to expand their workforce. The system feeds itself,” says a study by the Progressive Labor Party, which accuses the prison industry of being “an imitation of Nazi Germany with respect to forced slave labor and concentration camps.”

      [1] “Record-high ratio of U.S. adults in prison’ http://www.usatoday.com/news/nation/2008-02-28-prison-record_N.htm
      [2] “The prison industry in the United States: big business or a new form of slavery?’ http://www.globalresearch.ca/index.php?context=va&aid=8289

  11. tsmithfield 11

    PB “Of course it is.”

    So how is the assertion that the US unreasonably has lots of people in both private and public prisons relevant to the debate of the merits between public and private prisons?

    PB “And those skills they gain aren’t much use when they will be competing for jobs with the prison population.”

    Thats a big assumption. Are you saying that the only industries that would use those skills are ones that employ prisoners? If nothing else, what about developing good work habits, getting used to working a 40 hour week, proving themselves reliable and trustworthy? Aren’t these attributes valuable to most employers?

    • Pascal's bookie 11.1

      Plenty of drug dealers work long hours, and have a wide range of generally applicable skills. Spending years making helmets under coercion won’t be teaching them much. Unless you think a compliant and broken labour force is a good goal. Go team capitalist pig!

      As to the relevance, I thought you were keen on the idea of unintended consequences. Do you think introducing the profit motive into the prison service will not produce any? Or are they prevented by the aforementioned pixie dust?

      • tsmithfield 11.1.1

        PB “Unless you think a compliant and broken labour force is a good goal.”

        No. I think an active workforce is a good goal. I would prefer to have the work tied in with training though, so the prisoners get some truly transferable work skills. However, I think working is preferable to stagnating in their cells all day.

        PB “As to the relevance, I thought you were keen on the idea of unintended consequences. Do you think introducing the profit motive into the prison service will not produce any?”

        Sure there could be unintended consequences. Usually are with most things. But no more than under the public system, where major stuff-ups that cost millions get bailed out by the tax-payer.

        • Pascal's bookie 11.1.1.1

          “the public system, where major stuff-ups that cost millions get bailed out by the tax-payer.”

          Heh.

          God how it’s good to be banksta.

  12. Name 12

    Private can be cheaper than Public, as we all know that the Public Service is the last refuge of the incompetent where with no fear of having to answer for their cock-ups and the bottomless public purse to call on (dud bullets for the army anyone? A navy ship delivering oranges in the Mediterranean? The INCIS fiasco?) projects can over-run by millions, yet Ministers have to protect the pin-striped dummies with every means at their disposal to protect their own Hides.

    Some things are and some things are not suitable for public/private partnerships and prisons are not as the private sector can have no interest whatever in rehabilitation, unless you are going to financially penalise every prison-running company every time one of their clients returns for another stay!

    • lprent 12.1

      Private can be cheaper than Public

      I bolded the important part of your statement. In theory you could be right – however in practice it frequently isn’t.

      1. There is the need to have a return on investment that requires profits and raises costs to the public.

      2. Anyone who has been around corporates in a monopoly, duopoly, or cartel position is aware that they they frequently have immense amounts of more highly paid deadwood than the public service. That just adds to costs. All of the proposed PPP’s look like they are going to be in that economic situation, so I’d expect the padding to be high.

      3. Private businesses tend to get confused (to put it politely) when they’re pursuing a multiplicity of social goals. They usually drop them in the too hard basket and pursue profit. This means that it increases the costs to the public and economy because they don’t hit targets.

      In short – you’re talking theoretical crap.

      • tsmithfield 12.1.1

        Iprent, I think something that has been missed here is the concept of hedging risk. I’ll accept for the sake of argument that the private operators are more expensive than public providers of prison services. Even so, it could still be worth going the private route if it allows unknown and difficult to calculate risks to be passed to the private sector. Hedging against those sort of risks sometimes costs the premium of a higher, but known, fixed price, and thus reduced risk.

        For instance, spiraling wage costs due to unexpected inflation. Unexpected maintenance building maintenance costs etc.

        • lprent 12.1.1.1

          One of the interesting issues with PPP’s is the manner in which they, in every case I’ve looked at so far, manage to push all of the risk back on to the public purse. Frequently this only shows up later in the piece.

          Personally, I’d look more kindly on PPP’s if all of the contract documents were public and damn the ‘commercial sensitivity’ when the public purse is involved.

          • tsmithfield 12.1.1.1.1

            Iprent “Private businesses tend to get confused (to put it politely) when they’re pursuing a multiplicity of social goals. They usually drop them in the too hard basket and pursue profit. This means that it increases the costs to the public and economy because they don’t hit targets.”

            The way to solve this is to have financial rewards for meeting/bettering social objectives. Thus profit is, at least in part, tied to social goals.

            Also, as I mentioned in an earlier post on the similar topic, its about reducing the costs overall. If the public and private providers are continually benchmarking against each other in competing for funding, then costs overall should go down and services improve. This is what competition is all about in the private sector. No reason it shouldn’t work between public and private providers as well.

      • Bored 12.1.2

        Im totally in agreement with you on this, 30 years corporate and business experience at senior manager level and I have seen it all……TS you need to go out and do it in these areas long term then spout the wisdom you will recieve from observation as opposed to theory.

    • David S. 12.2

      “unless you are going to financially penalise every prison-running company every time one of their clients returns for another stay!”

      Anyone else think this is actually a really good idea?

      • Rex Widerstrom 12.2.1

        I do, and it’s actually what does happen in some private prison contracts. So the prison operators not only concentrate on rehabiliation course in their prisons, but on transition-to-society support (with housing, jobs etc) for newly released prisoners and ongoing support for ex cons.

        As I’ve said on here till I’m blue in the face, “public = good, private = bad” is NOT true. It all depends on how either system is run. I can (and have, in the past) pointed to examples of well run private prisons to which inmates in public prisons are queuing up to be transferred.

        I have no idea of cost efficiencies simply because if a private prison can treat prisoners humanely while ensuring the majority don’t reoffend, I don’t care if they can do so more cheaply than can a public prison and thus make themselves a profit.

        Conversely, if they can achieve those objectives but at a higher cost than the public system, then it provides a basis on which to examine whether we’re investing enough in rehabilitation.

      • lprent 12.2.2

        Provides an incentive for the company to rehabilitate? Why doesn’t that sound like a good idea. Fits exactly into a profit motive.

        • Rex Widerstrom 12.2.2.1

          So what? As I understand it, the private prison operators are paid the equivalent of a “trailing commission” an insurance agent gets – e.g. “for every year the policy holder retains the policy [the crim stays out of poky], you get x%”.

          Sounds ideal to me. Even helps relieve some of the burden on social services agencies.

          The state is failing to rehabilitate people, if someone believes they can and is prepared to be paid on results, good luck to them.

      • Pascal's bookie 12.2.3

        How do you deal with the fact that some people are just a hell of a lot more likely to re-offend?

        Will the co. have the ability to cherry pick inmates statistically less likely to end up costing them these fines?

        • lprent 12.2.3.1

          That of course is what would happen…. cherry-picking

          • Rex Widerstrom 12.2.3.1.1

            “Of course” nothing, LP. The Inspector of Custodial Services in WA is a constant thorn in the side of the government and the Department. He’s stridently independent and uncompromsing when it comes to issues of prisoner welfare and rehabiliation.

            His report on the privately owned prison (now it’s no longer run by G4S, when he found it to be ‘close to failing’) is generally full of praise. He notes:

            Research demonstrates that the second criticism that the quality of service will inevitably suffer under private prisons – does not withstand scrutiny. Worldwide, the experience has been that the private sector is just like the public sector in the sense that it is capable of running good prisons, bad prisons and anything in between. Internationally, the best private prisons are undoubtedly offering a cost effective, high quality service.

            And he goes on to point out that:

            Acacia (unlike other prisons) is subject to clearly set and monitored contractual requirements (including penalties for non-performance) on issues such as security, safety and the delivery of treatment programs, education and training… It can safely be said that the expectations of the public sector prisons are less clear and less robustly monitored than Acacia’s. Indeed, some of those prisons would almost certainly have been put out for re-tendering if they had been privately operated… Serco have not sat back and waited for the issues to be resolved, and have already spent around $400,000 on changes and improvements, many if not all of which were arguably the responsibility of other parties

            Nasty, profiteering bastards!

            I want the best possible outcomes for prisoners and for wider society and nothing drives me crazier than someone dismissing privately operated prisons based on little more than a philosophical objection to privatisation.

            • lprent 12.2.3.1.1.1

              I’m not against prisons being run privately. I’m just immensely skeptical because I have a deep suspicion about the profit motive being placed against the multiplicity of social objectives.

              Businesses are extremely simple structures in objectives compared to the social institutions. I can see too many possible ways for them to cockup on the longer term objectives of why we have prisons. I’m aware that the present prison systems are a dogs breakfast. I’d prefer that they aren’t made into direwolves lunch.

              The issue for me in the prisons being run privately here fits into several parts

              1. The detail being released is incredibly sparse. It amounts to Collins level PR – ie inept. We really have no details on this Wiri prison about the contract details.

              2. There is a big question mark in my mind about private companies funding political and judicial decisions – as has been seen in the US. The Sensible Sentencing Trust funding in particular, but also the Waitemata trust and others.

              3. There appears to be no external oversight apart from the Corrections head of the operation of the prisons. In particular no bodies apart from those that the current government (who have a vested interest in the outcome) getting a look over the operations.

              etc….

              I’m moving files to the new server so I’m short of time, but I’m sure you can guess what a lot of my other skeptical points are…

              In the end, it is up to the government to provide enough information to validate their case. To date they have failed to even attempt to do it – they keep waffling about costs rather than the purposes for which prisons are built. At present, I’d be strongly inclined to support reversing their decisions because there appears to be no basis for their decision in terms of prison outcomes.

              BTW: It appears to me that if they’re concerned about costs, then they should look at the stupidities of some of the damn sentencing and rehabilitation that is rapidly filling the prisons with repeat offenders. With a deep recession that is going to get a lot worse before it gets better..

              • Rex Widerstrom

                FWIW I agree wth you on the points you raise above.

                Independent monitoring, in particaulr, is vital… but not just of private prisons, of all prisons. In WA, aside from the formal inspections every few years the Inspector’s office has independent visitors who are regularly in prisons and can talk to any prisoner – or staff member – in private. The Inspector’s reports are published. And he makes regular comment on prison matters.

                Plus we have several social services groups (of which I’m a member of three) who monitor prisons to a greater or lesser degree.

                The funding thing could be got round by complete transparency on donations (my favoured solution for everyone) or a ban on prison operators funding groups with a political purpose. But that could get messy.

                And so on… but all along the way, openness is the key and all my advocacy of private prisons is predicated on that openness, which does actually happen in WA (much to my amazement, I admit).

                And as for you “BTW”… with that I double agree, with bells on.

                Good luck with the IT stuff…

        • Rex Widerstrom 12.2.3.2

          You’re right PB, that can potentially happen.

          It’s something that needs careful monitoring by Corrections, who are, after all, the ones who make the decision which prisoners get sent where.

          The privately run prison here in WA is a medium security one but I know of people who’ve appealed against a transfer to state-run minimum security facility because the atmosphere at the private prison is just so much better, job and educational opportunities are superior, and the facilities are better maintained.

          Having seen them both, if I were ever back in that position I’d have the same desire.

  13. Bored 13

    For those who missed what I said about PPPs for schools on Open Mike it pays to understand how the money is made. Heres one of the mechanics of a PPP as a money making exercise……

    The private partner offers funding etc as a “set price contract” which is based upon the premise that prices always go up (not necessarily so but read on…..)

    First private partner signs a fixed price twenty year contract, inflation (but not deflation) indexed and non renegotiable. The private investor then gets to put up the price annually whilst his capital cost remains static.

    Second, the private party may chose to not pay back capital, the inflation over the years will vastly exceed this.

    Third, private party makes use of tax claw backs which in effect mean the tax payer subsidises the investor.

    As you see the only risk is price deflation (housing boom bubble bursting a good example) but in this scenario you can always as a good capitalist go bankrupt having never stumped up much of the capital yourself. The banks who you owe then only need ask the taxpayers to bail them out whilst your saftely stashed profits elude everybody else. More likely the banks will go to the public partner who will have guaranteed the risk….you and I pay….great deal eh!

    • lprent 13.1

      Yeah, that is what I see when I’m looking at PPP contracts (those parts that are available to the public). That the contracts are designed to avoid any significant risk to the private partner(s).

      It is nice work if you can get it. And it appears to get it all you have to do is deposit money in the anonymous trust funds as donations to political parties. Makes me direly suspicious of who has been depositing in the Waitemata Trust, and probably explains a awful lot of the fuss in 2007/8.

      A high degree of transparency on both the PPP contracts and the political donations seems to be logical to me.

  14. Hamish Deam 14

    Marty G wrote: “And that induces a predictable behaviour in profit-driven corporations: asset-stripping. There are numerous overseas examples of this happening. Here in New Zealand we only need look at the privatisation of rail. Fay Richwhite and Toll knew that they could run the rail system into the ground while creaming off super-profits, safe in the knowledge that the government couldn’t let a major piece of infrastructure collapse (what people forget is that rail, like roads, brings major benefits to the economy, not just the owner) and the govt would eventually step in and buy them out.”

    Sorry Marty but can I stop you there. Sure Fay Richwhite stripped rail, it’d had years of incorrect investment. Money not being put into areas that needed it, starting loss making passenger routes that were never viable. To be fair, this was done in the 70’s and 80’s. But still. You seam to imply that Tranz Rail were making massive “killings” out of rail – they weren’t! Once non-core assets were sold off (eg, InterCity buses were once part of the Railways) it was just a lose making exercise. Tranz Rail made a half year loss of 350 million (I think) a couple of years before it was sold to Toll. As for saying Toll asset stripped it, pull the other one!! Toll never even owned the rail network, it was brought by Labour back in 2004, and renamed OnTrack. If you ever see the utes around fixing up track now, they still have OnTrack written on them. Toll ran the operations, OnTrack owned and maintained the track and infrastructure itself. Toll made a profit our of rail, not because it asset stripped it, but because OnTrack looked after the network and not Toll. If the network had been state owned back when Tranz Rail were alive, it’d be making a profit.

    Fact is, rail in our country is a niche market. It’s only helpful for moving freight sometimes, not all the time. Like taking coal from the coast to export in Christchurch. Long distance freight.

    Next time you try to use Rail as an example of failed privatization (which is is not!), do try to add a few facts into the post.

    • Armchair Critic 14.1

      Weird comment Hamish. Despite your apparent disagreement and belligerence, most of your first paragraph supports Marty’s post.
      Your assertion about Toll never owning the network is not supported by OnTrack’s website, which says Toll owned the network from when they bought TranzRail in 2003 to when they sold the network to the government in 2004. And, while it might be semantics, it was the government that bought the network, not Labour. I can’t imagine why a political party would want to own a rail network. But, y’know, if you want to go accusing people of not having their facts straight, it pays to have yours in order.
      So if you had your facts in order you would know that after the Heads of Agreement was signed in 2003, the fee structure was that Ontrack would start charging capital costs in 2008, in addition to the access fees it charged. Which was a big driver for Toll to divest themselves of their rail transport business – they would have had an even more difficult job making a profit after 2008. How did they make profits before then? I’m still trying to access their pre-2008 Annual Reports, so I can’t say for sure. But they were only paying the access fee (to “look after the network”, as you put it) and not capital costs, even though they were the only user of the network. Asset stripping? Maybe. Clever accounting? I’ll wait to see their ARs before I make up my mind.
      And you would know that, in addition to long haul freight, rail is also quite good at moving people around cities, which is why the National government are continuing to invest in it.
      You would also know that transporting goods by road, in trucks, is subsidised, unlike rail, and the playing field for transporting goods is far from level.
      This makes rail look like a less attractive option than it actually is for transporting goods. And it is why the Road Transport Forum made a large donation to the National Party before the last election.
      You would know that rail has less environmental impact than road transport, in terms of CO2 emissions per tonne-mile.
      And you would back up your assertion that the privatisation of rail in NZ was not a failure with some real evidence, not just bullshit and bluster.

  15. graham 15

    if one takes your arguement to its logical conclusion there shouldnt be any privately owned companies or land in this country.

  16. logie97 16

    It could be argued that the failure of rail was accelerated by the splitting off of the buses. A country our size and of islands, with such a small population, needs an integrated transport system with one section subsidizing the other at times.
    Rail was also starved of investment when the trucking lobby had such a close ear in National administrations back in the 70’s and again in the 90’s – it has been suggested in cabinet itself. Rail network was closed down in many areas. If only it had been expanded, given the potential for the tourist dollar.

    Private operators are in it for profit only and are not in any business with a social conscience – they leave the government to pick up the “flotsam”. Even worse when those enterprises have creamed off monies to their overseas shareholders.

  17. Zaphod Beeblebrox 17

    If all our investment capital is spent on state sponsored monopoly rents like prisons and schools, where is the investment capital that is needed for the tradeable and creative sectors supposed to come from? Bit hard to compete for funds with sure fire winners like govt supported PPPs.

  18. valeriusterminus 18

    Lanthanide – Origins
    All about mean timing
    “In the meantime”?

  19. valeriusterminus 19

    Sorry
    Have not indulged the prior assertations.
    Did anyone qualatively assert the previous success of PPP in NZ??

  20. The Chairman 20

    Private prisons lock up profits but society pays price
    More here: http://tinyurl.com/y2sk7y4

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