While many people think of the private and public sectors being separate and distinct, the lines between the two often blur in
“There’s a very long history in this province between the government and the private sector,” says provincial NDP leader Darrell Dexter. “In almost every aspect of government, you contract with the private sector to produce what we need.”
Valerie Payn, president of the Halifax Chamber of Commerce, adds that the relationship has evolved.
“We are seeing the private sector broadening its focus beyond the profit motive to include corporate responsibility and other interests,” she says. “At the same time, we are seeing the public sector move towards a more flexible, results-oriented model rather than its traditional rules-based model.”
Public-private collaborations take many forms but public-private partnerships (P3s), Crown corporations, outsourcing and arms-length agencies are the most common in
“There’s continuing confusion between arms-length organizations, true public-private partnerships [P3s] and other forms of private public coordination,” says
According to the Canadian Council for Public-Private Partnerships, a true P3 is a cooperative venture between the public and private sectors to provide a public service or infrastructure, with the partners sharing the risk. In
“There has been a penchant to try and push things off of the government books and into the private sector,” says Dexter. “The argument against it is that it may not save any money and may actually end up costing more money. From a public-policy perspective, you have to be satisfied that it is the best way to deliver an asset that the public needs.”
Government inexperience meant that the province didn’t get the best deal on the schools.
“Bureaucrats were put in place to negotiate with business people and they didn’t have expertise or experience in that field,” Cirtwill explains. “If the government is going to negotiate these relationships, they must bring in outside expertise to help them do it.”
The government seems to have learned from that experience. When defining oil regimes, the government sought input from commercial partners and hired external consultants into the civil service. Some experts think the school experience unfairly tarnished P3s.
“It wasn’t as miserable a failure as it has been portrayed to be,” says Cirtwill. “The government did not have the resources to build all of the schools they felt we needed and the private sector did have those resources. By making the P3 arrangements, we managed to replace aging infrastructure more quickly than otherwise would have been possible.”
P3s are widely used in other areas. For example,
Moving beyond P3s, public-private collaborations involve varying degrees of input from both government and the private sector. Most have boards with seats for private and public members. The Greater Halifax Partnership and Nova Scotia Business Inc. (NSBI) are examples of such collaborations in
“We don’t know, in terms of transparency, how the decisions are made in the office of economic development,” he says. He points to the government decision to give a $350,000 interest-free loan to
“[That decision] was made for purely political reasons,” he adds. “That is why you have an arms-length body like NSBI that has the mandate to go out and do the kind of business development that the province needs.”
Since NSBI runs on private-sector lines, with limited government input, its decisions appear more transparent.
“When making a decision, we ask, ‘does it make good business sense and is it good for the province?’” says NSBI president Stephen Lund. “We take the politics out of the equation and look at ourselves as a business unit that works with other businesses. We’re not a funding agency, we’re a business-development agency that does some funding.”
The board approves some transactions but NSBI requires cabinet approval when committing funds (such as payroll rebates) for future years. With an annual budget of $10 million, NSBI claims it’s created 18,600 direct and spin-off jobs over the past five years in
“We’re focused on helping our clients create higher-end jobs in the technology, financial services and defence and aerospace sectors that will raise the prosperity of the province,” he says. Research In Motion’s (RIM) decision to open a technical-support centre in
Some analysts question incentives like that.
“For the most part, they don’t tend to work out well,” says Cirtwill. “If a business case makes sense, then it makes sense. Bringing in the private sector adds some perspective to the process but it still misses the point.” In a complex economy, it’s difficult to predict if any business will succeed.
“We need an environment where entrepreneurs can try and fail and try again,” he adds. “We need to accept the fact that failure will happen in business and we can’t try to cushion failure or breath temporary success into failure through infusions of public cash.”
But incentives are a reality of the global economy.
“If you want a long track record of success, you’ll find that these are the most desirable businesses and everybody is bidding for them, so the competition is very high,” says Dexter.
Some even see incentives as gestures of good will.
“It’s an incentive-driven world,”
But the availability of government subsidies can turn off private investors who want higher rates of return.
“A concern of Chamber policy is the availability of public-sector dollars at lower interest or interest free,” says Payn. “Over time this may make it harder for the private-sector financial institutions to compete.”
It can also hurt companies looking for investments, according to Cirtwill.
“They have a smaller pool of investors to draw from and because private capital also tends to take higher risks than public capital, companies face more stringent limits for the investments that are made,” he explains.
Ultimately, most subsidies go to larger firms that appear to be safer investments. That approach often overlooks upstarts with growth potential.
“You have to get in at the venture-capitalism stage with these companies,” says Dexter. “It’s riskier but it means that when you’re successful, you’re going to get far better creation of jobs and higher yields in terms of profits that they can reinvest.”
There’s somewhat more flexibility in
“A Crown corporation is not setting policy or direction for the province, it’s managing a business or, in the case of the Liquor Corporation, selling a product,” says Cirtwill.
It’s no surprise then that they borrow ideas from the private sector to reach their goals. Transforming from a commission into a Crown corporation in 2001, the NSLC straddles public and private interests.
“We’re an incorporated entity as a Crown corporation but our day-to-day operations are arms-length from government,” says Bret Mitchell, NSLC president. A government-appointed board (comprised of seven voting members from the private sector and three non-voting members—two from management and one from government) oversees the corporation. The chair of the board reports to the provincial minister of immigration and human resources.
Its main goal is to make money for the province.
“It’s all about bringing product effectively to the marketplace and moving it efficiently from point A to point B,” says Mitchell, “The same principles apply in any industry. There’s a lot of flexibility to do what we need to do in order to build our stores and grow our supply chain network effectively to get us where we want to be as a modern retailer… There are more retail stores under our banner than any other single brand in
Since 2002, net sales have increased by 29 per cent ($112 million annually) and net profits by 31 per cent ($44 million annually). But on the downside, appeasing so many stakeholders is challenging.
“Processes and dealings with our stakeholders are more complicated than if we were just a regular business,” Mitchell says, “So sometimes it slows down our ability to implement initiatives.” And satisfying both interests also brings unique challenges, particularly since the corporation is mandated to support the conflicting agendas of boosting profits and promoting responsible drinking.
“We’re in a monopolistic environment so the public expects higher standards from us,” Mitchell says. “But that’s a good thing and we’re developing our corporate responsibility policies where we can take a leadership position and be more sensitive to our stakeholders.”
Another Crown corporation looming large in
“We represent government as an organization that works directly with local hotels, restaurant owners, and offsite businesses like Pier 21, Citadel Hill and many other groups,” says president and CEO Fred MacGillivray. “We work closely with the private sector and need strong partners in the community.” Its board includes five government and eight private-sector members, with MacGillivray serving as CEO and reporting to the department of economic development.
“It’s a great opportunity for the government and the private sector to come together to grow the economy of
Government-private sector relationships are clearly evolving in
“It will be a learning experience as we work to develop an ideal working model for these partnerships,” says Payn. “Ultimately, I think the relationship between private and public will be in the favour of our city, creating a more competitive marketplace and contributing to the economy.”
Striking a balance is key.
“Businesses always participate in the economy on the notion that they are responsible for what they do,” says Dexter. “If they don’t manufacture a good product, they’ll go out of business. The role of government is to define new markets and take advantage of the strengths and resources we have to strengthen the overall economy of the province.”