1 00:00:08,800 --> 00:00:11,150 Welcome back to the course. 2 00:00:11,150 --> 00:00:17,800 In week 3 I talked about organizational fragmentation, unbundling, convergence and the multi-actor environment. 3 00:00:17,840 --> 00:00:22,500 This web lecture is about governance and public values. 4 00:00:22,500 --> 00:00:28,689 When we privatize or liberalize public services in the world of transport, energy or telecom, 5 00:00:28,689 --> 00:00:33,160 it's common sense to emphasize that public values should be safeguarded. 6 00:00:33,160 --> 00:00:38,900 A public value might be affordability - we should not make a public service too expensive, 7 00:00:38,900 --> 00:00:42,230 denying people access to this service. 8 00:00:42,230 --> 00:00:47,200 Privatization, liberalization should not result in compromising quality, 9 00:00:47,400 --> 00:00:53,200 or safety, or accessibility, or sustainability. 10 00:00:53,200 --> 00:00:59,900 All these public values have to be safeguarded in a privatized environment. 11 00:00:59,900 --> 00:01:06,400 We can safeguard these values by regulation or by special conditions in a contract, 12 00:01:06,400 --> 00:01:14,900 we can formulate special conditions in a concession, or we can design a performance management system, 13 00:01:14,980 --> 00:01:17,700 the instruments depends on the specifics of the context. 14 00:01:17,700 --> 00:01:22,580 But before we start talking about the policy instruments to safeguard public values, 15 00:01:22,580 --> 00:01:25,000 there are four issues that have to be resolved. 16 00:01:25,000 --> 00:01:30,400 These issues are: the identification of the most relevant public values, 17 00:01:30,400 --> 00:01:35,500 The trade-off between these values, the multi-actor context, 18 00:01:35,500 --> 00:01:39,200 and the question how to specify public values. 19 00:01:39,200 --> 00:01:43,400 We'll now discuss these four issues in more detail. 20 00:01:43,400 --> 00:01:48,200 In a specific situation we will of course identify the main public values. 21 00:01:48,200 --> 00:01:53,640 So in the case of public transport, public values might be affordability (reasonable 22 00:01:53,640 --> 00:01:58,590 ticket prices), quality (clean modern busses, friendly and 23 00:01:58,590 --> 00:02:03,120 competent bus drivers), punctuality (no delays), 24 00:02:03,120 --> 00:02:07,610 and sustainability (the busses should be as green as possible). 25 00:02:07,610 --> 00:02:14,120 Now the issue is that these public values will almost always be conflicting or competing. 26 00:02:14,120 --> 00:02:18,420 More quality and greener busses, will probably result in higher costs, 27 00:02:18,420 --> 00:02:22,110 higher ticket prices and in less affordability. 28 00:02:22,110 --> 00:02:26,440 So we always have to make a trade off between competing values. 29 00:02:26,440 --> 00:02:32,120 Second, this trade off can change in the course of time because of the simple fact that our 30 00:02:32,120 --> 00:02:34,450 preferences can change. 31 00:02:34,450 --> 00:02:39,750 So suppose a bus operator gets a concessions for 8 years to exploit a network of bus lines. 32 00:02:39,750 --> 00:02:43,370 At first, the government emphasis the public value of affordability 33 00:02:43,370 --> 00:02:49,810 - reasonable prices are key to the government, busses should be an attractive modality to 34 00:02:49,810 --> 00:02:51,910 everyone, including the low income groups. 35 00:02:51,910 --> 00:02:57,300 But after a few years, the public value of sustainability might become important. 36 00:02:57,340 --> 00:03:01,900 A local government is faced with high pollution levels, 37 00:03:01,900 --> 00:03:06,290 is looking for cleaner air, and wants the bus operator to introduce whispering, 38 00:03:06,290 --> 00:03:09,450 green electric busses. 39 00:03:09,450 --> 00:03:12,770 There are not only competing public values, requiring a trade off, 40 00:03:12,770 --> 00:03:18,540 this trade off might also be dynamic and change in the course of time. 41 00:03:18,540 --> 00:03:24,370 Safeguarding public values always takes place in what we call a multi-actor context 42 00:03:24,370 --> 00:03:29,180 - there are many actors involved, with often diverging interests and opinions. 43 00:03:29,180 --> 00:03:31,350 So again, take the case of public transport. 44 00:03:31,350 --> 00:03:33,950 What are the actors involved here? 45 00:03:33,950 --> 00:03:35,490 There is the bus operator. 46 00:03:35,490 --> 00:03:37,110 Or perhaps there are several bus operators. 47 00:03:37,110 --> 00:03:38,890 There is a government. 48 00:03:38,890 --> 00:03:40,810 There are user-organizations. 49 00:03:40,810 --> 00:03:46,050 There might be competing modalities, an metro operator, a train operator. 50 00:03:46,050 --> 00:03:48,890 There are the companies, selling green and electric busses. 51 00:03:48,890 --> 00:03:53,040 And there are their competitors, selling traditional busses. 52 00:03:53,040 --> 00:03:57,849 All these actors have a stake in bus transport - and they all have an opinion on what the 53 00:03:57,849 --> 00:04:02,319 relevant public values are and what the trade off should be. 54 00:04:02,319 --> 00:04:07,450 Formally, a government offering a concession will make the decisions on the public values 55 00:04:07,450 --> 00:04:10,569 and the trade off between these values. 56 00:04:10,569 --> 00:04:14,180 But this government of course depends upon the support of the other players. 57 00:04:14,180 --> 00:04:18,200 They might have expertise, the government needs to define public values. 58 00:04:18,489 --> 00:04:22,960 They might have societal power - a user organization that does not agree 59 00:04:22,960 --> 00:04:26,699 with the trade off, can activate public resistance. 60 00:04:26,699 --> 00:04:31,189 So the point here is, There are not only competing public values, 61 00:04:31,189 --> 00:04:34,409 requiring a trade off, this trade off might not only be dynamic and 62 00:04:34,409 --> 00:04:36,139 change in the course of time. 63 00:04:36,139 --> 00:04:40,919 But there are also different actors involved, with different opinions on what the relevant 64 00:04:40,919 --> 00:04:45,749 public values are, what the trade off should be and whose opinions 65 00:04:45,749 --> 00:04:47,590 might change over time. 66 00:04:47,590 --> 00:04:52,700 Finally, there is a very simple observation here: the devil is in the detail. 67 00:04:52,759 --> 00:04:56,650 It is easy to define public values at a high level of abstraction. 68 00:04:56,650 --> 00:05:05,500 We will all agree with public values like affordability, quality, safety, accessibility, sustainability. 69 00:05:05,539 --> 00:05:09,500 These are all what we call 'feel good' concepts. 70 00:05:09,500 --> 00:05:16,800 Just have a look at the following video, most of you will agree with the framework presented 71 00:05:16,800 --> 00:05:20,000 for the future of shale gas. 72 00:06:37,879 --> 00:06:41,700 The question of course is how do we make these values specific. 73 00:06:41,700 --> 00:06:44,779 Coming back to the example of the bus: 74 00:06:44,779 --> 00:06:46,029 What exactly is affordability? 75 00:06:46,029 --> 00:06:49,180 What is a reasonable price for a ticket? 76 00:06:49,180 --> 00:06:51,819 What actually is quality? 77 00:06:51,819 --> 00:06:54,439 How do we define punctuality? 78 00:06:54,439 --> 00:06:58,610 Safeguarding public values might mean that you have to dive into the details. 79 00:06:58,610 --> 00:07:01,289 It is rather paradoxical. 80 00:07:01,289 --> 00:07:03,889 Privatization is aimed at using the power of the market, 81 00:07:03,889 --> 00:07:10,389 but will often result in more detailed regulation, which is not the first connotation we have 82 00:07:10,389 --> 00:07:12,990 when we discussing the power of the market. 83 00:07:12,990 --> 00:07:19,700 So safeguarding public values is not an easy thing, given these four issues; an example: 84 00:07:19,759 --> 00:07:23,689 Suppose a bus operator will get a concession to exploit a network of lines. 85 00:07:23,689 --> 00:07:29,499 A trade off of public values will be made and each public value will be made specific, 86 00:07:29,499 --> 00:07:30,900 will be operationalized. 87 00:07:30,900 --> 00:07:36,809 For example, punctuality means that each bus should arrive and leave on schedule. 88 00:07:36,809 --> 00:07:40,589 If the bus arrives or leaves more than three minutes later, 89 00:07:40,589 --> 00:07:43,119 the performance is not punctual. 90 00:07:43,119 --> 00:07:48,490 So punctuality is defined as a bus arriving and leaving less than three minutes later 91 00:07:48,490 --> 00:07:51,099 than the scheduled time. 92 00:07:51,099 --> 00:07:54,460 How will a government safeguard this public values? 93 00:07:54,460 --> 00:07:56,550 For example by imposing a penalty. 94 00:07:56,550 --> 00:08:01,669 When at the end of the year, say, 5% of the busses had a more than three 95 00:08:01,669 --> 00:08:04,759 minutes delay, the bus operator will get a penalty 96 00:08:04,759 --> 00:08:09,539 - which will of course depend on the percentage of delayed busses. 97 00:08:09,539 --> 00:08:14,400 This is called a high impact Performance Management System. 98 00:08:14,400 --> 00:08:17,330 You have to perform, if you don't perform well, 99 00:08:17,330 --> 00:08:19,069 you will get a penalty. 100 00:08:19,069 --> 00:08:23,700 The idea is that you will do everything you can, to perform well, given this penalty. 101 00:08:23,740 --> 00:08:30,139 However, a high impact system might lead to another type of behavior. 102 00:08:30,139 --> 00:08:37,139 If you simply can't meet the performance criteria, if only 5% delays is too ambitious a figure, 103 00:08:37,940 --> 00:08:42,060 a high impact system might also result in perverse behavior. 104 00:08:42,060 --> 00:08:43,829 How to meet the 5% norm? 105 00:08:43,829 --> 00:08:47,970 Well, you might change the time table, simply take more time for the rides 106 00:08:47,970 --> 00:08:54,000 - and you will easily meet the 5% criterion and have a high performing bus route. 107 00:08:54,000 --> 00:09:00,750 But is it a high performance if buses are overcrowded? 108 00:09:00,750 --> 00:09:03,400 Another example of perverse effects of PMS. 109 00:09:03,400 --> 00:09:07,470 A bus driver has to leave from the station at 10 o'clock. 110 00:09:07,470 --> 00:09:09,959 He knows that anther bus will arrive at 5 past ten 111 00:09:09,959 --> 00:09:13,920 - this bus is a bit delayed. 112 00:09:13,920 --> 00:09:18,170 In this other bus are several passengers that want to change at the bus station and that 113 00:09:18,170 --> 00:09:20,670 want to take the bus of our driver. 114 00:09:20,670 --> 00:09:24,310 The driver, however, is so much focused on leaving on time, 115 00:09:24,310 --> 00:09:29,810 that he leaves at 10:03 - and that he is not willing to wait for two 116 00:09:29,810 --> 00:09:33,579 extra minutes, to serve the passenger that want to change. 117 00:09:33,579 --> 00:09:36,980 Again: on paper this is a well performing bus driver, 118 00:09:36,980 --> 00:09:39,610 but everyone will understand - in the real world, 119 00:09:39,610 --> 00:09:42,800 this behavior is not good. 120 00:09:42,800 --> 00:09:46,380 How to prevent this perverse effects? 121 00:09:46,380 --> 00:09:51,829 One of the main lessons in the literature is that in this case government and bus operator 122 00:09:51,829 --> 00:09:56,000 should negotiate about the PMS. 123 00:09:56,000 --> 00:10:00,399 When you negotiate, you can discuss possible perverse effects 124 00:10:00,399 --> 00:10:04,040 and try to design a system that prevents these effects. 125 00:10:04,040 --> 00:10:07,199 We might go one step further - in a multi-actor world, 126 00:10:07,199 --> 00:10:14,199 it might be wise to involve other actors in this process of negotiation. 127 00:10:14,269 --> 00:10:16,720 This completes the picture of Safeguarding Public Values 128 00:10:16,720 --> 00:10:19,620 - competing public values require a trade-off 129 00:10:19,620 --> 00:10:24,879 - this trade off is dynamic - different actors might have different opinions 130 00:10:24,879 --> 00:10:28,869 on public values, - public values have to be made specific 131 00:10:28,869 --> 00:10:33,600 - this process of making the specific requires cooperation between at least the principal 132 00:10:33,600 --> 00:10:35,540 - the government - and the agent 133 00:10:35,540 --> 00:10:40,350 - the bus operator - to prevent perverse effects. 134 00:10:40,350 --> 00:10:46,129 Remember, whatever the policy instrument to safeguard public values is, 135 00:10:46,129 --> 00:10:50,399 it will almost always be a negotiated instrument.