Addressing public-value failure: remunicipalization as acts of public entrepreneurship

ABSTRACT

The idea of “pragmatism” provides a successful account explaining why municipalities re-internalize previously privatized responsibilities for service delivery. This paper develops the idea by accounting for remunicipalization in contexts defined by failures with service innovation – rather than delivery – under privatization. This account highlights remunicipalization as an act of public entrepreneurship and offers a complementary explanation for the dynamics in local service restructuring. Analytical utility is demonstrated in a case study of the restructuring of local energy supply in Aalborg Municipality, Denmark. In perspective, the paper refines the understanding of contexts, behaviours, and dynamics leading to remunicipalizations in the twenty-first century.

KEYWORDS:

• Case study
• energy sector
• green transformation
• privatization
• public enterprises
• public-value failure
• remunicipalization

JEL:

• H10
• H40
• L32

Acknowledgements

I would like to thank my colleagues at Center for Organization, Management and Administration (COMA), Aalborg University, Denmark and participants at the workshop on remunicipalization brought together January 2019 in Amsterdam, Netherlands for valuable criticisms, comments and encouragements in the process of writing this paper. Any errors or flaws are mine.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. Aalborg Municipality is Denmark’s third largest Municipality, with approximately 215,000 inhabitants, of which about 115,000 live in the City of Aalborg (2018 figures). Geographically, the Municipality covers 1,140 square kilometres. Politically, social-democratic (left-wing) mayors have led the Municipality continuously since the 1920s. Historically, the Municipality has been dominated by heavy industries, but since the 1990s, it has been transformed through the establishment of clusters of different industries and the development of the city’s harbour front. The Municipality is home to Denmark’s third largest university and one of the main regional hospitals in Denmark’s five regional (upper-tier) administrative districts.

2. Economically, NJU represents a natural monopoly involving high fixed capital costs with low or no marginal production costs. NJU produces more than one-half of all central heating water in Aalborg Municipality and is complemented by production facilities exploiting surplus heating from local heavy industry and waste incineration plants. Combined, the facilities produce about 36 million cubic metres of heating water per year – equivalent to about 3,500 TJ – and serves about 37,500 end users (2017) in total. In addition, as a byproduct of central heating water production, NJU produces a substantial amount of electricity, which is sold through regional markets. Thus, the price of heating water is partly determined by fluctuating market prices for electricity.

3. Key documents collected for the case study comprise company reports (e.g. annual financial statements) and webpages, expert comments and analysis reported in the media and trade journals, municipal strategies, policies, and decision memos, national laws, strategies, and regulations, and press coverage of key events. Background interviews include local politicians from the leading coalition and the opposition and the city manager [kommunaldirektør].

4. Owners of intermunicipal partnerships (interessentskaber, denoted “I/S”) are 100% financially liable for all commitments made by the partnership and have some powers of supervision and direct instructions. Intermunicipal partnerships are fully regulated by public law.

5. A public company [offentlige aktieselskaber, denoted “A/S”] is characterized by limited financial liability of shareholders and limited and indirect powers of supervision and instruction by owners and is regulated by private law.