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Empirical and theoretical
Posted in Economic
Private sector involvement in the design, construction, and operation of capital goods has an extensive history. For example, the Perrier brothers were given a licence to supply water to Paris for 15 years in 1782 (a contract that was later rescinded by the Revolutionary government).
Large public projects in the nineteenth century, such as the Suez Canal and US railroads, were also designed, constructed, financed, and operated by the private sector. However, Leiringer and Michaud have argued that the first modern and significant use of a PPP arrangement was by the Turkish government for the construction of nuclear power projects in the early 1980s.
In this case, the use of PPP was driven by strong financial constraints imposed on the Turkish government by the International Monetary Fund. PPP offered a mechanism to transfer the risk and debt associated with these new capital projects to the private sector in return for a long-term service contract.
What are PPPs? The official UK government definition includes a wide range of different types of partnerships between public and private sector. PPP may involve:
1. The introduction of private sector ownership in state-owned businesses.
2. The Private Finance Initiatives (PFI) where the public sector contracts to purchase services on a long-term basis.
3. Selling government services to ‘wider markets’ where private sector used to exploit the commercial potential of government assets.
To date, little research has focused on the impact of PPPs on the firms who actually design, build, and operate the capital goods. The use of PPPs has created a new industry of PPP providers. Many of these firms are traditional construction firms, but they also include engineering and design organizations, architects, financial companies, service and outsourcing companies, and train manufacturers.
Little is known about how these organizations have changed their activities as a result of the new procurement mechanism, yet it is any such changes within and among these firms that will enable them to experience the main benefits of PPP for innovation. Accordingly, greater research is required on the impact of PPPs on the innovation process inside capital goods providers.
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