If We’re Concerned About The Legacy We’re Leaving Our Children…

Today I posted over at Dale & Co:

It will be interesting to see how the Chancellor responds to the Treasury Select Committee’s report on the Private Finance Initiative, released to relatively little fanfare on Friday. The Select Committee’s conclusions are stark. The Private Finance Initiative, in its present form, fails to deliver value for money. It should be avoided, except in limited circumstances, until serious structural failings can be addressed.

Pretty much all “public” infrastructure investment over the last twenty years has been financed using PFI. So this conclusion represents a profound challenge. It is a call for a radical change in policy. Not so much a new approach but a return to the old one.

You can read the full post here.

On bankruptcy constraints, soft and hard

One strand of the economic critique of government provision is that public providers face a soft bankruptcy constraint. If they operate inefficiently or extravagantly and run out of money then they can turn to government for a handout to cover any shortfall. If the government is short of money to bail them out they just put up taxes. Private providers, in contrast, operate in the face of a hard bankruptcy constraint. They must operate in the face of ever-present risk. If they don’t produce what consumers demand, and do so as efficiently as possible, then their continued existence is in doubt. Hence, the argument runs, a powerful incentive is missing from the sphere of public provision. This argument has been invoked as one component of the justification for shifting activities from public to private sector. Read more of this post