Welcome back to the course.
In week 3 I talked about organizational fragmentation, unbundling, convergence and the multi-actor environment.
This web lecture is about governance and public values.
When we privatize or liberalize public services in the world of transport, energy or telecom,
it's common sense to emphasize that public values should be safeguarded.
A public value might be affordability - we should not make a public service too expensive,
denying people access to this service.
Privatization, liberalization should not result in compromising quality,
or safety, or accessibility, or sustainability.
All these public values have to be safeguarded in a privatized environment.
We can safeguard these values by regulation or by special conditions in a contract,
we can formulate special conditions in a concession, or we can design a performance management system,
the instruments depends on the specifics of the context.
But before we start talking about the policy instruments to safeguard public values,
there are four issues that have to be resolved.
These issues are: the identification of the most relevant public values,
The trade-off between these values, the multi-actor context,
and the question how to specify public values.
We'll now discuss these four issues in more detail.
In a specific situation we will of course identify the main public values.
So in the case of public transport, public values might be affordability (reasonable
ticket prices), quality (clean modern busses, friendly and
competent bus drivers), punctuality (no delays),
and sustainability (the busses should be as green as possible).
Now the issue is that these public values will almost always be conflicting or competing.
More quality and greener busses, will probably result in higher costs,
higher ticket prices and in less affordability.
So we always have to make a trade off between competing values.
Second, this trade off can change in the course of time because of the simple fact that our
preferences can change.
So suppose a bus operator gets a concessions for 8 years to exploit a network of bus lines.
At first, the government emphasis the public value of affordability
- reasonable prices are key to the government, busses should be an attractive modality to
everyone, including the low income groups.
But after a few years, the public value of sustainability might become important.
A local government is faced with high pollution levels,
is looking for cleaner air, and wants the bus operator to introduce whispering,
green electric busses.
There are not only competing public values, requiring a trade off,
this trade off might also be dynamic and change in the course of time.
Safeguarding public values always takes place in what we call a multi-actor context
- there are many actors involved, with often diverging interests and opinions.
So again, take the case of public transport.
What are the actors involved here?
There is the bus operator.
Or perhaps there are several bus operators.
There is a government.
There are user-organizations.
There might be competing modalities, an metro operator, a train operator.
There are the companies, selling green and electric busses.
And there are their competitors, selling traditional busses.
All these actors have a stake in bus transport - and they all have an opinion on what the
relevant public values are and what the trade off should be.
Formally, a government offering a concession will make the decisions on the public values
and the trade off between these values.
But this government of course depends upon the support of the other players.
They might have expertise, the government needs to define public values.
They might have societal power - a user organization that does not agree
with the trade off, can activate public resistance.
So the point here is, There are not only competing public values,
requiring a trade off, this trade off might not only be dynamic and
change in the course of time.
But there are also different actors involved, with different opinions on what the relevant
public values are, what the trade off should be and whose opinions
might change over time.
Finally, there is a very simple observation here: the devil is in the detail.
It is easy to define public values at a high level of abstraction.
We will all agree with public values like affordability, quality, safety, accessibility, sustainability.
These are all what we call 'feel good' concepts.
Just have a look at the following video, most of you will agree with the framework presented
for the future of shale gas.
The question of course is how do we make these values specific.
Coming back to the example of the bus:
What exactly is affordability?
What is a reasonable price for a ticket?
What actually is quality?
How do we define punctuality?
Safeguarding public values might mean that you have to dive into the details.
It is rather paradoxical.
Privatization is aimed at using the power of the market,
but will often result in more detailed regulation, which is not the first connotation we have
when we discussing the power of the market.
So safeguarding public values is not an easy thing, given these four issues; an example:
Suppose a bus operator will get a concession to exploit a network of lines.
A trade off of public values will be made and each public value will be made specific,
will be operationalized.
For example, punctuality means that each bus should arrive and leave on schedule.
If the bus arrives or leaves more than three minutes later,
the performance is not punctual.
So punctuality is defined as a bus arriving and leaving less than three minutes later
than the scheduled time.
How will a government safeguard this public values?
For example by imposing a penalty.
When at the end of the year, say, 5% of the busses had a more than three
minutes delay, the bus operator will get a penalty
- which will of course depend on the percentage of delayed busses.
This is called a high impact Performance Management System.
You have to perform, if you don't perform well,
you will get a penalty.
The idea is that you will do everything you can, to perform well, given this penalty.
However, a high impact system might lead to another type of behavior.
If you simply can't meet the performance criteria, if only 5% delays is too ambitious a figure,
a high impact system might also result in perverse behavior.
How to meet the 5% norm?
Well, you might change the time table, simply take more time for the rides
- and you will easily meet the 5% criterion and have a high performing bus route.
But is it a high performance if buses are overcrowded?
Another example of perverse effects of PMS.
A bus driver has to leave from the station at 10 o'clock.
He knows that anther bus will arrive at 5 past ten
- this bus is a bit delayed.
In this other bus are several passengers that want to change at the bus station and that
want to take the bus of our driver.
The driver, however, is so much focused on leaving on time,
that he leaves at 10:03 - and that he is not willing to wait for two
extra minutes, to serve the passenger that want to change.
Again: on paper this is a well performing bus driver,
but everyone will understand - in the real world,
this behavior is not good.
How to prevent this perverse effects?
One of the main lessons in the literature is that in this case government and bus operator
should negotiate about the PMS.
When you negotiate, you can discuss possible perverse effects
and try to design a system that prevents these effects.
We might go one step further - in a multi-actor world,
it might be wise to involve other actors in this process of negotiation.
This completes the picture of Safeguarding Public Values
- competing public values require a trade-off
- this trade off is dynamic - different actors might have different opinions
on public values, - public values have to be made specific
- this process of making the specific requires cooperation between at least the principal
- the government - and the agent
- the bus operator - to prevent perverse effects.
Remember, whatever the policy instrument to safeguard public values is,
it will almost always be a negotiated instrument.