Archive for November, 2012

Spotlight back on PPPs as BrisConnections falters

by Flavio Menezes

News that BrisConnections, which operate Brisbane’s Airport Link M7, has suspended trade on the ASX as it continues to talk with its debtors is likely to again lead to a debate about the role of Public-Private-Partnerships – or PPPs – in providing government infrastructure.

PPPs have been criticised in the wake of several high profile failures including Sydney’s cross-city tunnel, Brisbane’s Clem 7 tunnel and the consortium building the Ararat prison in Victoria, as well as the high cost to the public of PPPs undertaken in the 1980s and 1990s.

Supporters will argue that the PPP model works because ratepayers will be protected if the company that built and operated the tunnel fails.

Both sides are mistaken. Economic research suggests that PPPs can deliver better outcomes than traditional procurement but often governments choose PPPs for the wrong reasons and fail to take key steps to ensure their success.

Under public procurement, the government finances the construction phase of the infrastructure, tendering the construction to private parties. The operation and maintenance of the infrastructure also may be contracted to private parties.

Under a PPP, a government tenders a “bundle” consisting of financing, construction and operation to private parties. The contract is usually for a fixed period at the end of which the asset reverts back to the government.

An important advantage of PPPs is the potential efficiency gains from bundling the construction and operations/maintenance.

When bundling occurs, the winning firm minimises the total of construction and maintenance/operating costs. So design and construction are undertaken in a way to minimise the total cost of the project over its lifetime.

Another potential advantage from the involvement of private financing under a PPP is in avoiding the construction of politically motivated white elephants. Private parties will find it difficult to obtain financing for a project that is not commercially sound. Arguably, the PPP failures reported above could be related to the particular structure of those PPPs rather than the underlying economics of the projects.

There are also, however, wrong reasons for selecting PPPs over traditional procurement. For example, governments may favour PPPs over public tendering to alleviate its budget constraints. This argument is clearly wrong when PPPs involve direct government transfers, such as minimum income guarantees or other types of payments. It is also wrong to the extent that the PPP project is financed by user fees — a revenue stream which the government gives for the duration of the PPP contract.

Governments can be also attracted to PPPs because they perceive this model shifts the demand risk from the government to the private parties. This argument for choosing PPPs is erroneous for several reasons. Firstly, the private parties bearing demand risk do so in exchange for a risk premium. To the extent that they cannot influence demand, the government may be the best party to hold the risk. Secondly, the upshot of the financial difficulties with projects such as the M7 Airportlink is that it will be very difficult to find investors willing to finance similar ventures in the future.

Third, in a number of cases in Australia and overseas, governments have bailed out failed projects, for example, by renegotiating payments or taking equity stakes. In such cases governments ended up bearing at least some of the demand risk.

There are ways in which PPP tenders can be modified to allocate risk appropriately. For example, research developed over the past decade suggests a tender process that allocates risks appropriately. The key idea is to run a least-present value of revenue tender. The winner of the tender is the firm that has submitted the lowest required revenue (expressed in present value terms). The innovation of this process is that the duration of the concession is variable.

The contract only expires when the winner of the tender recovers the amount of revenue bid. This type of tender allocates the demand risk to the government, reducing financing costs and ensuring that the benefits of PPPs over public tender are realised. This approach has been successfully tested in Chile.

In the past decade, we have learned a lot about what works and what does not in PPPs. To avoid previous mistakes with PPPs, governments need to ensure that there is a robust process for evaluating PPPs. Moreover, closer attention needs to be paid in the design of PPP tenders and contracts, as suggested by both economic theory and international practice.

Flavio Menezes is a Professor of Economics and currently the Head of the School of Economics at the University of Queensland.

A longer version of this article is at Australian Policy Online.

Corby by-election: British Tories all talk on wind power

by Adam Corner

There are few cardinal sins in politics – but campaigning on behalf of your opponent has to be one of them. So when news broke this week that the British Conservative Party MP Chris Heaton Harris had boasted on camera of providing resources and support to an opposition anti-wind farm candidate in order to “cause some hassle”, it was widely expected that the axe would fall.

But instead, as the story developed, it transpired that this was a trail that led to the very centre of the Conservative Party.

In the end, the manouverings came to naught – Labour won the by-election easily, the first time it has taken a seat from the Tories in a by-election since just before Tony Blair’s seismic 1997 general election victory.

Heaton-Harris was caught in an undercover sting by the environmental campaign group Greenpeace. He was bragging that he had backed the anti-wind farm election campaign of the blogger and self-publicist James Delingpole, a far-right commentator whose pantomime-villain outbursts are typically treated as undeserving of serious engagement. Among the climate-sceptic elements of the Conservative Party, however, Delingpole appears to have carved out a role for himself as the mouthpiece for views that they dare not air in public.

Delingpole stood down as a candidate in the Corby by-election several weeks ago, prior to the video emerging. But not before the energy minister, John Hayes, gave an interview declaring that “enough was enough” for on shore wind. This was seemingly in direct contrast to official government policy, which favours a range of renewable technologies as part of an increasingly low-carbon energy mix.

And in potentially even more serious developments, a second Greenpeace film appeared to show the Chancellor, George Osborne, implicated in a plot to withdraw government support for onshore wind. This is despite its huge value to the British economy as a fully operational low-carbon technology.

When David Cameron boldly proclaimed that his would be the “greenest government ever”, following his election in 2010, he must have known the boast would come back to haunt him. And, although the UK is (currently) a world leader in terms of legally binding carbon reduction targets, some members of the Conservative Party look like they are doing everything they can to ensure these targets are unlikely to be met.

The Conservative central command would like to paint anti-wind zealots like Heaton-Harris as existing on the lunatic fringe of the party. But increasingly, it is looking like the MPs who represent the rural constituencies where wind turbines are typically sited are having a disproportionate effect on the Conservative Party. Although there has been no formal shift in energy policy, the “mood music” around the environment on the British right is worrying.

To be clear: opposing the siting of a wind farm cannot be equated with climate change scepticism. But the willingness of Conservative party representatives to promote and publicise the views of hardline anti-environmentalists like James Delingpole does not send out a good signal. And opposing on-shore wind without suggesting an alternative policy for reducing levels of carbon dioxide is tantamount to dismissing the risks that climate change poses.

The relationship between climate change scepticism and political ideology has been documented repeatedly and consistently in the US, the UK and Australia. But how to address it is an altogether trickier question.

There is a proud tradition of conservation and respect for the natural environment in the history of British Conservatism. But the “conserve” part of conservatism currently seems to apply only to the hyper-local, with debate focusing on the aesthetics of wind-farms instead of the value of clean, green energy for the whole of the UK.

Ultimately, the Conservative Party will lose its hard-fought status as an (allegedly) moderate, modern, compassionate, centre-right group if it associates itself with the extreme views of individuals like Delingpole. If the Conservatives don’t want wind farms across the UK, their challenge is to identify and implement another set of policies that will allow Britain’s carbon targets to be achieved – with the consent of the electorate.

Despite the noises coming from climate-sceptic Conservative MPs, wind farms – and renewable technologies in general – are very popular with the public. They are certainly more popular than nuclear power or fossil fuels.

Few credible energy future scenarios see no role for on-shore wind. If the Conservatives have evidence to the contrary, they should speak up. If not, they need to find a way of convincing their voters that climate change is the biggest threat to the environment that they supposedly want to conserve so much – not the wind turbines that can provide clean, abundant energy for the future.

Adam Corner is  a Research Associate in the Understanding Risk research group at Cardiff University.

This article was first published at www.theconversation.edu.au

 

Loud thunder, little rain: China’s new leaders target corruption

by Kenneth Chern

China’s new leaders are aware of the danger that corruption poses to the nation’s social stability and economic development.

But entrenched corruption at the local and national levels, including among the families and friends of those very leaders, will make it difficult for them to break the link between money and power that frustrates the masses but sustains the power of a Communist Party that long ago abandoned political belief for economic gain.

A 2007 report of the Carnegie Endowment for International Peace by Minxin Pei called the level of Chinese corruption “astonishing,” noting that it cost $US86 billion a year, more than China’s annual education budget. Things have not gotten any better. The Bo Xilai affair – Bo’s wiretapping of other top Chinese leaders, his son’s privileged lifestyle abroad, and his wife’s murder conviction — was but the most lurid case of rampant corruption that has shaken the trust of the Chinese people in their government.

Other high-profile cases have left the public seething: the melamine-laced milk that poisoned hundreds of infants; the Wenchuan earthquake that toppled “tofu schoolhouses” onto pupils while government buildings stood firm; the bullet train crash in Wenzhou that disgraced railway czar Liu Zhijun; and the sale by Wukan officials of prized farmland to real estate developers that triggered villager demonstrations and violence.

In his speech to the 18th Party Congress last week, outgoing President Hu Jintao stressed the need to fight corruption, warning that if the issue is not addressed, “it could prove fatal to the party, and even cause the collapse of the party and the fall of the state.” Significantly, he warned leading officials to “strengthen education and discipline over their family and staff.” Along the same lines, incoming Party general secretary Xi Jinping in 2004 instructed, “Rein in your spouses, children, relatives, friends and staff, and vow not to use power for personal gain.”

But Chinese leaders have made similar warnings for years without making serious headway. That’s because of what Kenneth Lieberthal of the Brookings Institution terms the “marriage of wealth and political power” which supports an economic strategy based on rewards to local officials for “producing rapid GDP growth while keeping a lid on social unrest.” Put another way, the breakneck speed of Chinese economic development provides wealth that is distributed as patronage and provides support for the Party’s continued political monopoly. And campaigns against corruption evoke the Chinese proverb, “Loud thunder, little rain.”

More specifically, Minxin Pei cites two characteristics of corruption — the corruption of local state institutions through the purchase and sale of government appointments, and “collusion among local ruling elites” or “groups of local officials who cooperate and protect each other.” These practices drain the economy and feed public cynicism but they nurture the political and economic ambitions of entrepreneurs and government officials who thrive in a poorly defined regulatory and policy environment.

This is the social context in which Chinese leaders and their families operate, which is why the calls of Hu Jintao and Xi Jinping for discipline of families and staff is so interesting. Politicians, their relatives, staff, and friends use their political clout to build businesses and line their pockets. The average wealth of the richest 70 members of the National People’s Congress in 2011 was over US$1 billion. China’s central bank reportedly has evidence that up to 18,000 officials and employees of state-owned firms have fled China since the mid-1990s, taking $127 billion with them.

And recent reports have shown how relatives of top Chinese officials have grown wealthy. Xi himself reportedly has sisters and brothers-in-law with “huge interests in China’s real estate, minerals and telecommunications sectors.” And the family of Premier Wen Jiabao, perhaps the strongest reform advocate of all China’s top leaders, has been reported by the New York Times to have US$2.7 billion in wealth.

The reality is that Chinese leaders, even those who call for (and may sincerely believe in) reform and a crackdown on corruption, find themselves in a social web of political influence and enrichment that sustains the status quo. That reality will make it just as hard for the new leaders as it was for their predecessors to make a serious tilt at corruption.

Corruption and influence peddling are as old as the Chinese nation, and as old as human history. What is new is the demand of poor farmers, workers, and China’s growing middle class for a level playing field and a fairer chance for opportunity. Growing social tensions and environmental stresses make the current system unsustainable for the long term.

How Ji Xinping and the new Politburo meet that test will determine history’s verdict on whether they are authentic leaders with the courage to take the needed steps for the common good of the Chinese people and the welfare of the Chinese nation.

Kenneth Chern is Professor of Asian Policy at the Swinburne University of Technology and Executive Director of the Swinburne Leadership Institute.

This article was first published at www.theconversation.edu.au

 

Moral compass: is Australia a kind nation?

by Nicholas Hookway

We’re in a state of moral decline in the West – or so we’re told. From sky-rocketing divorce rates and the shrinking of life-long commitments to an excessive concern with self and consumerism.

Morality has been diagnosed and it’s terminal.

But does that mean as a nation Australians are less kind or compassionate than we used to be? What’s at the cause of this moral decline? Or does it even exist?

New research suggests that there’s reason enough to question the conventional wisdom around moral decline.

Shaky premise

In an Australian survey, my colleagues – Daphne Habibis and Anthea Vreugdenhil – and I asked nearly 2,000 respondents how kind they see themselves and others.

We found that 95% of respondents believe that it is quite or very important to be kind to one another; 97% agreed that they see themselves as a kind person; 90% reported performing a kind act at least once a week and 82% say most Australians are quite or very kind.

51% said they were kind because “it’s who I am” while only 12% of respondents said it was because they like to be seen as kind, it may benefit them or that they are required to be kind.

These findings suggest that perhaps the extent and nature of moral decline is not what we thought it was.

Two schools of thought

So where do these ideas about moral decline come from?

There are two schools of thought – the first argues that with the weakening of community, we have become less friendly, kind or giving.

Proponents of this view, like Australian commentators Clive Hamilton and Hugh Mackay, argue that the breakdown of community and rise of the individual have undermined a common moral culture and a shared sense of responsibility toward others. Hamilton for example, suggests that materialism has worn away at everyday virtues of honour, courage or self-sacrifice while Mackay suggests that Australians are now less charitable, more prejudiced and less compassionate, because we’re all less focused on our communities.

But there’s another group of thinkers that don’t blame a decline in morality on the decline of community. Instead they point to the lessening of traditional sources of authority like religion. They also point to the rise of a “therapeutic culture” where we focus on improving ourselves. These thinkers see this as leading to uncaring narcissism, where self-improvement and self-gratification become the ultimate concerns of life.

For example, American thinker Christopher Lasch argues that Western culture is pathologically preoccupied with the care and well-being of the self:

“Having no hope of improving their lives in any of the ways that matter, people have convinced themselves that what matters is psychic self-improvement: getting in touch with their feelings, eating health food, taking lessons in ballet or belly-dancing, immersing themselves in the wisdom of the East, jogging, learning how to “relate”, overcoming the “fear of pleasure”.”

Not so simple

Common to both these views, is the understanding that morality has little hope in a culture where strict moral rules are no longer enforced by religion and community. A culture that values emotions and self over rule following and communal values.

But does the alleged damaged moral order just boil down to a weakening of faith, community and tradition? Such perspectives fail to acknowledge the more complex picture of morality. The first view has a romantic image of community, ignoring that communities often silence individual moral responsibility and exclude alternative moral voices.

The second view offers a simplistic view of cultures of therapy and self-fulfilment. They see them as unavoidably self-absorbed, but overlook the morally creative potential of the values of self-development. For example, does turning to “the wisdom of the east” or “eating health food” have to be read as signposts on the way to narcisstic moral impoverishment?

Does the recent growth of Buddhism in Australia, for example, not centre on an ethics of minimising suffering for self and others? Further, why is a better diet simply self-indulgent? Recent research in the area of food and the ethics of consumption shows how the growth of fair-trade and cruelty-free products, the slow food movement, practices of “buycotting” and vegetarianism can engender new modes of ethical citizenship and encourage “politics of the self”.

It seems then the jury is still out on the reasons of moral decline or whether it’s happening in the first place. But perhaps morality is in a better state than we think.

Nicholas Hookway is a lecturer in sociology at the University of Tasmania. His research focuses on how Australians grapple with questions of meaning and morality in contemporary social life. His key research interests are morality and ethics; religion and spirituality and new media and internet technologies.

This article was first published at www.theconversation.com.au

 

 

Media, unions and political parties seen as Australia’s most corrupt institutions

by Sunanda Creagh

The media, trade unions and political parties are seen as Australia’s most corrupt institutions but fewer than 1% of people have had recent direct experience of graft, a new poll shows.

The survey, titled Perceptions of corruption and ethical conduct and produced by the Australian National University’s Research School of Social Sciences, surveyed 2020 people aged 18 years and over by phone between August and September this year, with a response rate of 43%. The results were adjusted to represent the national population.

“Satisfaction with democracy in Australia remains high by international standards, although it is lower in 2012 than at any time since 1998,” the study said, with most concerns related to the quality of government.

“There is a widespread perception that corruption in Australia has increased, with 43% taking this view and 41% seeing corruption as having remained the same,” the report said.

The police and armed forces were seen as most trustworthy while the media, trade unions and political parties were seen as most corrupt.

“The media one is interesting because it confirms a finding across 25 EU countries earlier this year about the pillars of integrity in our community – the media again came down near the bottom,” said study author, Professor Adam Graycar.

“We’ve seen a number of media stories recently globally — the Murdoch scandal in the UK. There have been issues with talk back radio and the cash for comment allegations. This poll was done before the latest talk back controversy. But it’s a global phenomenon and the implications are important because of the very important role the media has in transparency,” he said.

While less than 1% of respondents said they or a relative had experienced corruption directly, “where corruption exists, it does have a serious and deleterious effect on government, on the delivery of our services and infrastructure,” said Prof Graycar.

While political parties were seen as corrupt, more than half of respondents see ‘almost none’ or ‘a few’ federal politicians as being corrupt and public scepticism of politicians’ motives has been stable since the 1990s, the study said.

Professor Mark Findlay, Deputy Director of the University of Sydney’s Institute of Criminology, said public perceptions on crime “often have very little to do either with personal experience or factual knowledge.”

“It is particularly interesting that police corruption is no longer viewed in the serious end (when, in fact, instances of such corruption, particularly in some states such as Victoria, see no sign of abating),” he said.

“This may be explained by things as tangential as new series of ‘Underbelly’ in this viewing season, or in more concrete variables such as a desire to believe in our institutions of public security in a political climate of border protection and prevailing concerns about local and national security.”

The loss of confidence in politicians and trade unions is troubling but consistent with a worldwide disillusionment with conventional institutions of representative governance,“ Prof Findlay said.

“What is more troubling is the belief in media corruption when, in other circumstances, the media is relied upon to expose public sector corruption. Maybe all this could be put down to the recent political scandals and degenerating level of political debate, and the biased and irresponsible role of individual media personalities in fuelling this state of affairs.”

Overall, respondents were mostly satisfied with the direction Australia is headed in, with the economy, immigration and employment topping respondents list of most important issues and concern for the environment on the wane.

Respondents were only asked about perceptions of corruption in public institutions, not private businesses or corporations.

Darren Palmer, Associate Professor in Criminology at Deakin University said the poll showed anti-corruption agencies needed to boost their profile.

“One of the most interesting and also somewhat surprising results is that almost half of the respondents indicate they would report suspected corruption to police. This flies in the face of the major restructure of mechanisms for dealing with corruption, whereby all jurisdictions have invested heavily in various anti-corruption agencies, including those dealing with allegations or suspicion of police corruption,” he said.

“More needs to be done by these agencies to enhance public awareness and access to their complaints processes.”

Sunanda Creagh is the Editor of  The Conversation.   Additional reporting by Bella Counihan.

This article was first published by The Conversation at www.theconversation.edu.au

 


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