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Abstract
Mixed public–private firms are increasingly used in several European countries. This paper makes use of survey data from Spanish municipalities to examine the motivations of local governments for engaging in partial privatisation of local service delivery of water distribution and solid waste collection. The empirical analysis indicates that mixed firms emerge as a pragmatic middle way between purely public and purely private production. Indeed, local governments make use of mixed firms when cost considerations, financial constraints and private interests exert contradictory pressures. Political and ideological factors play no significant role in that decision.
Acknowledgments
Our research on public sector reform has received financial support from the Spanish Ministry of Education (SEJ2006–04985), and the Spanish Ministry of Innovation and Science (ECO2009-06496). We thank Trevor Brown and Mildred Warner for useful comments and suggestions. Comments by two anonymous referees have been very useful as well.
Notes
1 Warner and Bel (Citation2008) provide a detailed analysis of the organisation of service delivery in the US.
2 Although some cases of not-for-profit organisations can be found in other areas such as social services. In the same area, it is worth noting that public debate in Spain on local services focuses on the results (quality and cost) provided by the service producer, much more than on the process through which the service is delivered. In this sense, problems related to democratic control are not a primary concern in Spain. This can be explained by the fact that no purely private provision (market provision) exists in Spain, and local governments always retain control (as mandated by national law) of the basic characteristics of the delivery of the services we focus on (such as price and quality standards), regardless of whether they are provided by a public unit, a private firm or a mixed public–private firm.
3 Bognetti and Robotti (Citation2003) analyse the implications of the 2002 Financial Law in terms of the promotion of market mechanisms in local services delivery in Italy, including the use of different types of public–private mixed firms.
4 Other types of mixed delivery exist in the US as well: benchmarking for service redundancy, segmenting the market, or dividing the service into component parts or work sharing (Warner & Hefetz, Citation2008).
5 Based on seminal works by Alchian (Citation1967) and Alchian and Demsetz (Citation1972).
6 Most contracts with external suppliers are awarded through competitive tendering; but not all of them, since competitive tendering is not compulsory in Spain. As a matter of fact, only private firms participate in bids for contracts, and – as mentioned – public firms and mixed firms do not usually bid for contracts outside their own jurisdiction. Because of this, contracting out is – in practice – equivalent to private production in water distribution and, especially, in solid waste collection.
7 In our sample, one city in solid waste collection (Parla) and two in water distribution (Calvià and Marratxí) have public and private production coexisting within their jurisdiction. This represents 0.1 per cent of municipalities and 0.2 per cent of the population served, for both services. Indeed, mixed public–private market delivery (in the US sense, which means that public and private production coexist in the same jurisdiction) is exceptional in Spain for solid waste collection and water distribution services. In fact, among European countries, Sweden is the only one in which it is relatively common to find this mixed market delivery (OECD, Citation2000).
8 Note that percentages in are adjusted for differences in city size regarding the frequency of response to the survey. Hence, the adjusted percentage of mixed firms is similar for water distribution and solid waste collection, although the absolute numbers of municipalities with mixed firms differ between both services. This is due to the fact that mixed water distribution firms are more frequent in large municipalities.
9 It should be remembered that, initially, data on the form of production was obtained for 540 municipalities in solid waste collection and 548 in water distribution. However, Parla – in solid waste – and Calvià and Marratxí– in water distribution – have coexisting purely public and purely private production within their municipalities (that is to say, mixed delivery, as in the US). Hence, we have not been able to include these three observations in our empirical analysis.
10 Our sample does not provide detailed information on the percentage of shares retained by the government in the case of mixed firms.
11 Data for this variable refers to 2002 since it is the fiscal burden a year prior to a decision that influences local government choices.
12 It is worth noting that intermunicipal cooperation in Spain – as well as in other European countries – is compatible with any form of organisation (Bel & Costas, 2006; Bel & Fageda, Citation2007). However, in the Netherlands intermunicipal cooperation is not compatible with private production (Dijkgraaf & Gradus, Citation2007, Citation2008b).
13 Data on fiscal burden is not available for nine municipalities so that 18 observations have been excluded from the sample. Data for the other nine municipalities is available only for 2001.
14 We must exclude from the estimation those municipalities whose mayors do not belong to a standard political party (parliamentary representation either at national or regional [state] level), since we cannot precisely infer where such mayors lie on the conservative/progressive continuum.
15 Recall that divergence between the mayor's political affiliation and the ideological leanings of the majority is not that uncommon in countries other than Spain either. For instance, the city of New York is solidly Democrat in the US presidential elections. Nonetheless, both the former mayor, Rudolph Giuliani, and the current mayor, Michael Bloomberg, have Republican affiliations.
16 The joint inclusion of these variables in the estimation could imply a multicollineality problem. However, the results do not change if we estimate these two variables separately.