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With PPP, Public Treasuries are Plundered

According to the neoliberal myth, higher profits lead to increased investments and more jobs. In truth, investments have declined in the past decade. Corporations use higher profits for speculating on foreign currencies and buying back their own stock. Crises are chances to rethink private and public, market and state and change production and consumption patterns.
PUBLIC-PRIVATE PARTNERSHIPS PLUNDER PUBLIC TREASURIES IN THE LONG RUN WITH GREAT PROFESSIONALITY. PART 1

Interview with Werner Rugemer

[This interview published in the German-English cyber journal Telepolis 6/15/2011 is translated from the German on the Internet,  http://www.heise.de/tp/druck/mb/artikel/34/34801/1.html.]


Privatization policy in Germany is an ideal circulus vitiosus. With the Public Private Partnership (PPP), indebted communities abandon their infrastructure to private businesses and these lease the infrastructure back to the communities. However this has the opposite effect on account of the absurdly one-sided contractual conditions in favor of the investors. The planned debt cancellation leads to an increase of indebtedness. Therefore more pressure is exerted on communities to sell more parts of their infrastructure with catastrophic social and political consequences. This interview with Werner Rugemer [1] focuses on his book "Heusschrecken im offentlichen Raum" (Grasshoppers in the Public Sector) [2].

Mr. Rugemer, PPP projects are presented to the general public as partnership enterprises that will save communities in the time of tight budgets. What is your assessment?

Werner Rugemer: With the PPP, banks and investors have developed a new credit- and investment instrument to capitalize or cash in on the public indebtedness. As with the state bailout of the banks, this is not a partnership but an additional dependence of the public authority on banks and investors.

PPP projects are carried out by communities, state governments and the Federal German government. The Federal Government of Germany undertakes the biggest financial projects: truck tolls on the autobahn Toll Collect [3], revitalization of sections of the autobahn (for example between Hamburg and Bremen).

How great is the danger that communities, state governments and the Federal Government of Germany will incur heavy debts again with PPP?

Werner Rugemer: With PPP, the public treasuries are plundered in the long term with great professionalism. The standard running time of PPP contracts is 30 years. During this period, the private investor takes over all previous functions of the public authority, not only the building and refurbishing of schools, prisons, streets and so on but also planning, controlling, operating and financing. The investors use this monopoly function to get extra profits. In addition, expensive consultants are hired while the state and communities reduce the work of their experts. Investors usually make additional demands after a few years.

Can you give an assessment on how high will be the state's indebtedness with PPP?

Werner Rugemer: I estimate that 200 projects of communities, state governments and the Federal Government will convert 20 billion Euros from the public to the private. This is not the peak of additional indebtedness. The assessment is very uncertain because the additional charges cannot even be estimated. The first project in Germany was Toll Collect in 2003. Most projects are three or four years old. Buildings, streets and so on are a high risk with extra costs after the 30-year contractual running time.

In your book, you cite the example of Great Britain where the PPP has received state blessings since the 1990s. How would you compare England today to the times before privatization?

Werner Rugemer: PPP was introduced in 1997 in Great Britain in the reign of the super-demagogue Tony Blair. In Downing Street No. 10, he met represe3ntatives of McKinsey and Price Waterhouse Coopers more often than his own ministers. After the brutal selling off of public enterprises by his predecessor Margaret Thatcher led to catastrophic results for the population, Blair pleaded: "We in New Labor will not sell anymore; we have partnerships with the investors now. There are 1000 PPP projects. They form shadow budgets because leasing obligations over decades do not appear in the public budget. Many projects failed with great additional costs for the state. The best known example is the London Metro where the investors declared bankruptcy after three years and left the state billions in debts.

Why is the infrastructure so attractive to businesses?

Werner Rugemer: The infrastructure - schools, streets, autobahns, hospitals, town halls, political stations, exhibition halls, prisons, justice centers, waterworks, water sewage plants and the like - represent permanent needs that are not subject or are hardly subject to economic and crisis-conditioned fluctuations of the capitalist market. This infrastructure is always used in more or less the same amount. The accumulating "cash flow," the regular revenue from fees, rents and so forth are very attractive to investors and banks because of the long-term regularity and because they can immediately make money.

What are the effects of PPP on the political system?

Werner Rugemer: The political system is undermined, neutralized and made into a farce. The contracts are secret, both to the public and to elected members of parliament, city councils and district councils. Even when delegates can see them, they may not speak about their contents in public. They are highly professional and juridical texts of a hundred or a thousand pages that cannot even be understood. The Toll Collect contract, for example, that no Bundestag delegate could see before its passage ran up to 17,000 pages.

What is the task of consultants in this financing package?

Werner Rugemer: Specialized consultants with high royalties are active in every phase. Auditors examine the bids, consultants negotiate and formulate the contract, private engineering offices plan and tax consultants counsel the private investors. These consultants represent the private side and assume no liability. State and community experts are eliminated.

How sound and convincing are these experts?

Werner Rugemer: The consultants are all PPP lobbyists. They start from the fact that the public administration is slow, bureaucratic, ineffective, learning-impaired and helpless in dealing with modern procedures like PPP.

Why were PPP projects given tax relief? Doesn't that contradict the alleged advantage that the state and communities save money with PPP?

Werner Rugemer: Since the hegemony of false neoliberal doctrine, private investments are promoted across-the-board by tax breaks... Private pensions are promoted for tax purposes. From the beginning, PPP projects were encouraged for tax purposes. Governments and investors consciously accept that this simultaneously damages public budgets structurally and permanently. The higher the public indebtedness, the more private parties can gain a profit.

How many past PPP projects failed in Germany?

Werner Rugemer: "Failure" has different forms. I think every PPP project fails from a public perspective because it costs more, makes the state more dependent and undermines democracy. In the narrower sense, projects can be considered failed when the additional charges turn out higher than the initial efficiency advantage in the decision for the PPP. This is the case with the showpiece project of the Offenbach district. All 90 schools have to be revitalized.

Construction costs tripled at the Hamburg Philharmonic. On account of secrecy, we do not know in how many projects the additional charges exceed the promised efficiency advantage. Projects in which the investor declared bankruptcy are also failed projects.

How many deaths occurred through PPP?

Werner Rugemer: In the past there were only four deaths with Autobahn A1...

The public has heard little about failed PPP measures. What role do the media play?

Werner Rugemer: As with the financial crisis and the bank bailout, the established media are on the side of private investors. Every new project is praised by Frankfurt, Koln, Stuttgart and Leipzig newspapers but which then are uninterested in its further course.

In the communities, the privatization- and PPP-euphoria is partly ebbing away and a little criticism is voiced. What ace will PPP entrepreneurs and their politicians now pull out of their sleeves?

Werner Rugemer: The ace is the state indebtedness increased after the bank bailout that is used by the Federal Government of Germany for new additional cuts to the burden of state governments and communities. The German government makes PPP projects and even forces them. The German transportation ministry is the largest customer. The dozen autobahn projects amount to five billion Euro; more projects are in the planning stage.

This began in the Red-Green government with Toll Collect... The German government forces the PPP through the stock corporation "Partnerschaften Deutschland" (Partnership Germany) in which investors, banks and consultants hold shares.

NOTES

[1]
 http://www.werner-ruegemer.de/
[2]
 http://www.transcript-verlag.de/ts1741/ts1741.php
[3]
 link to www.heise.de
[4]
 link to www.rp-online.de

RELATED LINKS:

Alliance for Democracy, www.afd-pdx.org

Morris, David, "And the Winner is... The Public Sector," www.onthecommons.org, July 2011
 http://www.onthecommons.org/and-winner-isthe-public-sector

Ulrich, Peter, "There is an Alternative to Profit Maximization," interview July 2009
 http://portland.indymedia.org/en/2011/08/409586.shtml

Walljasper, Jay, "One Man vs. The Common Good," www.onthecommons.org July 2011
 http://www.onthecommons.org/one-man-vs-common-good

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