7/29/2019 PA315Lecture 7

http://slidepdf.com/reader/full/pa315lecture-7 1/22

PA 315

Government Business Relations

Lecture 7

Critique of Privatization

Bargaining

7/29/2019 PA315Lecture 7

http://slidepdf.com/reader/full/pa315lecture-7 2/22

Agenda

Critique of Privatization

Bargaining

Case Analysis: The City of Winter Park

7/29/2019 PA315Lecture 7

http://slidepdf.com/reader/full/pa315lecture-7 3/22

Critique of Privatization

7/29/2019 PA315Lecture 7

http://slidepdf.com/reader/full/pa315lecture-7 4/22

The Limits of Privatization

Major argument:

The public and private sectors in the

 American political and cultural setting are

fundamentally different and ultimatelydistinctive in character. Thus, the criteria for 

assigning functions between sectors should

take into consideration these fundamental

distinctions (Moe 1986)

7/29/2019 PA315Lecture 7

http://slidepdf.com/reader/full/pa315lecture-7 5/22

The Limits of Privatization

The single most important characteristic that

separates the public and private sectors — 

SOVEREIGNTY (inherently governmental examples):

Power to go to and wage war  Set foreign trade agreements; domestic trade rules

Coercive power (police powers)

Immunity from suit except by their permission

Power to disavow debts (rather than bankruptcy) Right to establish the rules for protection and transference of 

property (eminent domain)

Power to “coin” money 

Even partial privatizing of these functions needs great care 

7/29/2019 PA315Lecture 7

http://slidepdf.com/reader/full/pa315lecture-7 6/22

The Limits of Privatization

General issues to consider 

Sovereignty issues such as national security

(e.g., CIA, embassies) and public safety

 Accountability issues

Possibilities of corruption

Market imperfections

Maintaining some government managementcapacity

7/29/2019 PA315Lecture 7

http://slidepdf.com/reader/full/pa315lecture-7 7/22

Factors to consider

Inherently governmental functions: the government has to keep

certain functions and services under public ownership because of 

their strategic importance or sensitive nature.

Goal diversion (public preference for equity over profit): the

profit motive may be subordinated to social objectives. Sometimesequity of service is more important than profit maximization

Higher accountability: the government is accountable to the

people through the legislature. The public does not have any control

or oversight of private companies. There are times when public

accountability is better.

Profiteering from the public good: Profits from public services end

up in private, even foreign, hands instead of being available for the

common good.

7/29/2019 PA315Lecture 7

http://slidepdf.com/reader/full/pa315lecture-7 8/22

Factors to consider

Corruption: privatizing reduces transparency, allowing the

contractor and elected officials controlling the contract to gain

personally, sometimes to an illegal extent.

Problems with monopolies: where natural monopolies exist (e.g.,

military hardware), must decide between privatizing and heavyregulation.

Poor private sector performance: sometimes the public sector 

outperforms the private sector 

“Yardstick” competition: some public sector competition can

improve market by providing comparative service, especially wherethere would be none otherwise

Losing government capacity: the government may lose the

capacity to perform or manage such duties, leading to market

distortions or breaches of public security

7/29/2019 PA315Lecture 7

http://slidepdf.com/reader/full/pa315lecture-7 9/22

Bargaining

Government sets up standard business conditions through laws and ordinances

and by setting up taxing, zoning, and service provision procedures that apply

across the board. But what if business wants “special” conditions? E.g. in

the article, the United Airlines maintenance hub set up competition among state

and local governments who offered special packages. Other examples are sports

stadiums (providing national recognition, tourism), factories (jobs, taxes infuture), stores (especially Big Box stores for sales tax revenue), and

headquarters (high paying jobs).

Often government refuses to bargain (especially at national government level),

but let’s look at reasons why it does ….. 

7/29/2019 PA315Lecture 7

http://slidepdf.com/reader/full/pa315lecture-7 10/22

Bargaining

Government reasons

tax dollars,

 jobs, and

public relations. [also, jobs for blighted

areas, sometimes

specialty companies to

complement existingbusinesses, and to

redevelop areas.]

Business reasons

tax breaks,

zoning variances,

land assemblyassistance,

infrastructure

improvements, and

special servicesprovided such as

education

7/29/2019 PA315Lecture 7

http://slidepdf.com/reader/full/pa315lecture-7 11/22

Bargaining

Public Sector

Public interest

Tax revenues

Jobs

Low income

housing

 Amenities

Environment

protection

…… 

Private Sector

Corporate

interest

Tax breaks

Income

streams

Business

opportunities

…… 

7/29/2019 PA315Lecture 7

http://slidepdf.com/reader/full/pa315lecture-7 12/22

12

Factors Affecting Bargaining

Public Interest Corporate Interest

Market ConditionPopular Control System

Policy Intervention Mechanism

7/29/2019 PA315Lecture 7

http://slidepdf.com/reader/full/pa315lecture-7 13/22

13

Bargaining

Three major factors affect bargaining relationship (Kantor 

and Savich)

market conditions

circumstances or forces that make cities more or less appealing to

private investors e.g. demand for land, location, amenities

popular control systems

the polyarchal processes through which public sector decisions that

affect development

e.g. ability to influence government policy through political rather than economic means

policy intervention mechanisms

relationships and methods used by government to regulate the

marketplace

e.g. land assembly assistance, zoning, tax

7/29/2019 PA315Lecture 7

http://slidepdf.com/reader/full/pa315lecture-7 14/22

Characteristics Determining Governmental Bargaining

Advantages (Kantor & Savitch)

Market conditions bargaining results

Poor for gov.Competitive opportunities

Nondiversified. E.g., company

townsFlexible capital and mobile

investment

Good for gov.

Few alternatives for businessEconomic diversity

Economies of agglomeration

Fixed capital and sunk

investments

UnfavorableInducement to business: Cash

outlays, tax exemptions, aid to

capital projects, loan guarantees,

free land, large-scalecondemnation

MixedNegotiations with business: Extent of tax

abatements, public-private contributions

to capital projects, payments for land,

capital improvements to land

FavorableDemands on business:

Development fees, public

amenities, higher business taxes,

stiffer architectural requirements,

restrictive zoning requirements

7/29/2019 PA315Lecture 7

http://slidepdf.com/reader/full/pa315lecture-7 15/22

Characteristics Determining Governmental Bargaining

Advantages (Kantor & Savitch)

Popular control systems bargaining results

Poor for governmentLow party competition

Fragmented party organization

Few channels for citizenparticipation

 Apathetic citizens

Good for government

Competitive partiesHigh ideological cohesion

High party discipline

 Active citizens

Weak Acquiescent, uninvolved

public—bargaining takes place

exclusively between elites—increasing number of side

payments, low accountability,

exclusionary zoning

Strong

Institutionalized land-use reviewpolicies, employment concessions

for local residents and minorities,

contract set-asides for local firms

or minority contractors, rent

control or stabilization laws,

inclusionary zoning

7/29/2019 PA315Lecture 7

http://slidepdf.com/reader/full/pa315lecture-7 16/22

Characteristics Determining Governmental Bargaining

Advantages (Kantor & Savitch)

Policy intervention mechanisms bargaining results

Poor for governmentDecentralized planning leading

to more flexibility, but also

greater competitionSide payments (corruption)

Finance: high dependence on

private investment

Good for government

Centralized market regulationSubstantial money for spending

on infrastructure, subsidies

Finance: autonomous

investment

Dispersed Absence of zoning or loose

zoning laws, tax code

enforcement, intensecompetition between localities,

significant sublocal disparities

IntegratedHighly restrictive zoning laws,

strict code enforcement,

extensive infrastructure

investments, frequent public-

private compacts.

7/29/2019 PA315Lecture 7

http://slidepdf.com/reader/full/pa315lecture-7 17/22

The comparison of Amsterdam and Detroit:

Market conditions

Amsterdam

Center of Holland’s

economic engine

The nation’s political andfinancial capital

Light industry, tourist and

historic center,

transportation hub Transformed economy to

residential and

postindustrial uses

Detroit

Rustbelt (once US’s

industrial heartland)

Economy revolvedaround automobile

manufacture

Deindustrialization and

foreign competition Loss of manufacturing

 jobs

Poverty

7/29/2019 PA315Lecture 7

http://slidepdf.com/reader/full/pa315lecture-7 18/22

The comparison of Amsterdam and Detroit:

Popular control

Amsterdam

Proportionally

represented council well

organized and easilydisciplined by voters

Political parties with

cohesive programs

Reinforced politicalaccountability

Councils participation in

decentralized services

Detroit

Elected at large council

Long tenure of elected

official Singular ethnic

composition

 A tight-knit elite

7/29/2019 PA315Lecture 7

http://slidepdf.com/reader/full/pa315lecture-7 19/22

The comparison of Amsterdam and Detroit:

Policy intervention mechanisms

Amsterdam

Integrated national

planning scheme

Three-tier government Upper level: goals

Regional level: master 

plans

Grass roots:

implementation

Budget by national

treasury

Detroit

Standing alone

Suburbs resisting central

city Failed collaboration

Shrinking federal and

state aid

7/29/2019 PA315Lecture 7

http://slidepdf.com/reader/full/pa315lecture-7 20/22

The comparison of Amsterdam and Detroit:

Results

Amsterdam

Bargaining tilted to the

public sector 

Being able to useinfrastructure investment,

subsidies, and its capacity

to construct housing to

extract concessions from

investors and enforce

development standards

Promoting equity

(massive housing

subsidies)

Detroit

Bargaining tilted to the

private sector 

Offering land, money, andtax relief to attract

development

Dominated by a tight

circle of political and

economic elites.

7/29/2019 PA315Lecture 7

http://slidepdf.com/reader/full/pa315lecture-7 21/22

21

Question: Where would you place Winter Park FL, in terms of 

bargaining power, in figure 3?

Winter Park is an old and well-known resort town in

Central Florida (along with Orlando). It is a very well-off,

land-locked city with extremely little available land.

Considered a fashionable address. (market conditions)

The citizens in Winter Park are extremely active in

managing the activities of the city. Displeased with the

local electric utility, citizens authorized its purchase.(popular control mechanisms)

Winter Park is one of 17 cities are in Orange County.Land in the county is available but no longer abundant.

Cities compete for businesses and development. (policy

intervention systems)

7/29/2019 PA315Lecture 7

http://slidepdf.com/reader/full/pa315lecture-7 22/22

22

Question: Mark how favorable or unfavorable is bargaining to

government, using the three factors that Kantor and Savich

identify.

Favorable togovernment

Unfavorable togovernment

Market conditions

Popular control

systems

Policy intervention

systems