Public–Private Partnershipping as a Tool of Government: Exploring its Determinants Across German States

Abstract

Despite considerable public and scholarly interest in public–private partnerships (PPPs) as a tool of government in Germany, there is no quantitative empirical study exploring the motivations behind policymakers' decisions to (not) use this type of privatisation policy. This article contributes to filling this gap by investigating the extent and determinants of the PPP activities of the 16 German states' governments over the period 2002–09. For that purpose, a PPP Activity Index is constructed which not only includes official PPP project figures but also state governments' programmatic, institutional, and advisory activities regarding PPP. Using this index, we statistically analyse whether fiscal stress, government partisanship, and other factors can help to explain the considerable differences between Länder governments' PPP activities. Among other things, it turns out that partisanship only matters if Socialists are part of a coalition government, and that fiscal transfers have a negative impact on a state's PPP activity level.

Acknowledgements

The authors would like to thank Inga Hillesheim, Wade Jacoby, Thomas Saalfeld, Carina Schmitt, Reimut Zohlnhöfer, and two anonymous referees for their helpful comments and suggestions.

Notes

Further PPP models are presented in E.R. Yescombe, Public–Private Partnerships: Principles of Policy and Finance (London: Butterworth-Heinemann, 2007); D. Grimsey and M.K. Lewis, Public Private Partnerships: The Worldwide Revolution in Infrastructure Provision and Project Finance (Cheltenham Edward Elgar Publishing, 2007); OECD, Public–Private Partnerships: In Pursuit of Risk Sharing and Value for Money (2008).

For a literature survey, see T. Krumm and K. Mause, ‘Public–Private Partnerships als Gegenstand der (Politik-)Wissenschaft’, Politische Vierteljahresschrift 50/1 (2009), pp.105–29.

See e.g. W. Gerstlberger and K. Schneider, ‘Public–Private Partnership in deutschen Kommunen’, WSI Mitteilungen 61/10 (2008), pp.556–62; D. Sack, Governance und Politics. Die Institutionalisierung öffentlich-privater Partnerschaften in Deutschland (Baden-Baden: Nomos, 2009, tracing the development until 2007).

E.g. based on his analysis (telephone surveys, documents, interviews) of the national level and nine German Länder (observation period ends 08/2007), Sack, in Governance und Politics, concludes that neither at the national nor ‘…at the Länder level one can observe party political differences regarding the topic PPP’ (p. 266, our translation).

Deutsches Institut für Urbanistik, Public Private Partnership Projekte. Eine aktuelle Bestandsaufnahme in Bund, Ländern und Kommunen (Berlin: DIFU, 2005).

K. Fischer, A. Jungbecker and H.W. Alfen, ‘The Emergence of PPP Task Forces and their Influence on Project Delivery in Germany’, International Journal of Project Management 24/7 (2006), pp.539–47.

Cf. www.ppp-projektdatenbank.de (accessed 30 June 2009; our translation).

E.g. Fischer et al., ‘The Emergence of PPP Task Forces’; Sack, Governance und Politics.

Years with a change of government were coded according to the government being longer in office in this year. For example, in Hesse on 5 February 2009 a CDU-FDP coalition government (programme item value = 2) followed a CDU one-party government (programme item value = 1). Hence, the year 2009 gets the programme item value 2.

For detailed analyses of this development, see Fischer et al., ‘The Emergence of PPP Task Forces’; Sack, Governance und Politics, pp.254–68.

The latter is presented in OECD, Dedicated Public–Private Partnership Units: A Survey of Institutional and Governance Structures (2010), pp.59–60.

Under the heading ‘Constructing and Transforming Indicators’, Gurr notes: ‘If he [the researcher] suspects that population, or country size, or level of economic development, or some other background variable is systematically distorting his results, a measure of it can be separately included in statistical analysis and its effects determined’. T.R. Gurr, Politimetrics. An Introduction to Quantitative Macropolitics (Englewood Cliffs, NJ: Prentice-Hall, 1972), p.103.

For an overview of this literature: G. Bel and X. Fageda, ‘Factors Explaining Local Privatization: A Meta-regression Analysis, Public Choice 139/1-2 (2009), pp.105–19. This recent meta-analysis includes more than 30 studies from different countries, but none for Germany.

J. Welch ‘Public–Private Partnerships in Germany: German budget deficits present investment opportunities’, Infrastructure Journal (Spring 2006), pp.37–9.

See e.g. PricewaterhouseCoopers, Delivering the PPP Promise: A Review of PPP Issues and Activity (2005); Deloitte, Closing the Infrastructure Gap: The Role of Public–Private Partnerships (2006); Ernst & Young, Privatisierungen und ÖPP als Ausweg? Kommunalfinanzen unter Druck – Handlungsoptionen für Kommunen (2007); KPMG, The Changing Face of Infrastructure. Frontline Views from Private Sector Infrastructure Providers (2009).

Cf. www.ppp-projektdatenbank.de (accessed 30 June 2009; our translation).

G.A. Hodge and C. Greve, ‘Public-Private Partnerships: An International Performance Review’, Public Administration Review 67/3 (2007), pp.545–58.

Federal Ministry of Finance, The Federal Financial Equalisation System in Germany (2008), p.3. Note that the correct official German wording is ‘gleichwertige’ (equivalent) – not ‘equal’ living conditions.

Cf. H. Seitz, ‘Fiscal Policy, Deficits and Politics of Subnational Governments: The Case of the German Laender’, Public Choice 102/3-4 (2000), pp.183–218; J. Rodden, ‘And the Last Shall be First: Federalism and Soft Budget Constraints in Germany’, MIT Working Paper (2005); B. Jochimsen ‘Fiscal Federalism in Germany: Problems, Proposals and Chances for Fundamental Reforms’, German Politics 17/4 (2008), pp.541–58.

For surveys, see M.G. Schmidt, ‘When Parties Matter: A Review of the Possibilities and Limits of Partisan Influence on Public Policy’, European Journal of Political Research 30/2 (1996), pp.155–83; M.G. Schmidt, ‘The Impact of Political Parties, Constitutional Structures and Veto Players on Public Policy’, in H. Keman (ed.), Comparative Democratic Politics (London: Sage, 2002), pp.166–84.

Cf. A. Belke, F. Baumgärtner, F. Schneider and R. Setzer, ‘The Different Extent of Privatization Proceeds in OECD Countries: A Preliminary Explanation Using a Public-Choice Approach’, FinanzArchiv 63/2 (2007), pp.211–43; R. Zohlnhöfer, H. Obinger and F. Wolf, ‘Partisan Politics, Globalization, and the Determinants of Privatization Proceeds in Advanced Democracies (1990–2000)’, Governance 21/1 (2008), pp.95–121.

See e.g. K. Armingeon, P. Potolidis, M. Gerber and P. Leimgruber, Comparative Political Data Set I, 1960-2007, 23 OECD Countries (Institute of Political Science, University of Berne, 2009).

For details see Fischer et al., ‘The Emergence of PPP Task Forces’; Sack, Governance und Politics, chapter 12.

See e.g. M. Flinders, ‘The Politics of Public-Private Partnerships’, British Journal of Politics & International Relations 7/2 (2005), pp.215–39.

This is a common indicator used in empirical political economy to measure party strength in cabinet. See e.g. Schmidt, ‘When Parties Matter’; Armingeon et al., Comparative Political Data Set.

G. Tsebelis, Veto Players: How Political Institutions Work (New York: Russell Sage Foundation, 2002).

Ordered logit regressions (based on the method of maximum likelihood) are appropriate due to the ordinal nature of the dependent variable.

See e.g. C. Eder, A. Vatter and M. Freitag, ‘Institutional Design and the Use of Direct Democracy: Evidence from the German Länder’, West European Politics 32/3 (2009), pp.611–33.

Our econometric strategy basically follows the one applied in L.P. Feld and J. Schnellenbach, ‘Political Institutions and Policy Innovations: Theoretical Thoughts and Evidence on Labour Market Regulation’, in A. Marciano and J.-M. Josselin (eds), Democracy, Freedom and Coercion: A Law and Economics Approach (Cheltenham: Edward Elgar, 2007), pp.192–220. They analyse the effects of politico-economic factors on an ordinal index measuring labour market regulations in 12 EU countries, 1970–1996.

A Wooldridge test for autocorrelation indicates that there is serial correlation in our panel data.

A.C. Cameron and D.L. Miller, ‘Robust Inference with Clustered Data’, Working Paper No. 10-7 (Department of Economics, University of California-Davis, April 2010).

Wald tests show that the time dummies are jointly significant and their inclusion appropriate.

E.g. Sack, in Governance und Politics, concludes that ‘…at the Länder level one cannot observe [sind nicht auszumachen] party political differences regarding the topic PPP’ (p. 266, our translation). This statement is based on a qualitative case study including those nine German Länder (development until 08/2007) in which Sack observed ‘PPP initiatives’.

E.g. Seitz, ‘Fiscal Policy, Deficits and Politics’; Rodden, ‘And the Last Shall be First’; Jochimsen, ‘Fiscal Federalism in Germany’.

Whether this ‘solidarity’ is voluntary is another issue. See W. Jacoby, ‘Side Payments over Solidarity: Financing the Poor Cousins in Germany and the EU’, German Politics 17/4 (2008), pp.470–87.

Unfortunately, compared to R ² in linear regressions, the pseudo-R ² in ordered logit regressions cannot be taken as an indicator of the proportion of variance for the dependent variable (e.g. states' PPP activities) explained by the included explanatory variables. Here McFadden's pseudo-R ² reaches the value of 0.27 (see Table 3) which indicates not an excellent but a satisfactory level of explanatory power for an ordered logit framework.

M.H. Ross and E.L. Homer, ‘Galton's Problem in Cross-National Research’, World Politics 29/1 (1976), pp.1–28; R. Snyder, ‘Scaling Down: The Subnational Comparative Method’, Studies in Comparative International Development 36/1 (2001), pp.93–110 (at pp. 95, 104).

See also W. Renzsch, ‘Federal Reform under the Grand Coalition’, German Politics 19/3-4 (2010), pp.382–392 (at pp.385–387).