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Hume Monograph No. 1. (ISBN 1 870482 54 9)
by John W Sawkins and Robert McMaster
Lecturers in Economics at Heriot-Watt and Aberdeen Universities.
On April 1st 1996 Scottish local government underwent its most radical reform in over twenty years. Significantly, the most controversial aspect of the whole process was the proposal to allow some limited private sector involvement in the delivery of water and sewerage services north of the border for the first time in over fifty years. One year on, private sector involvement in the industry has developed, and the new Labour government has signalled its willingness to allow the policy to continue for the foreseeable future.
In this Hume research monograph the authors analyse the way in which the public and private sectors might work together to deliver water and sewerage services. By drawing parallels between the institutional structure and operation of the French and Scottish water and sewerage industries they endeavour to promote a useful cross fertilisation of ideas and experience: an intellectual revival of the 'Auld Alliance'. France is chosen as the comparator because of its long and varied tradition of private sector involvement in the water industry. This involvement, it is argued, has lessons for the Scottish industry which is slowly coming to terms with private sector participation.
The institutional arrangements for the delivery of water and sewerage services are outlined in some detail, highlighting the role of quasi-markets.
Drawing on the long French experience of private sector involvement the authors outline some of the main challenges facing the Scottish industry as it embarks on its first quasi-franchising experiments in the form of PFI (Private Finance Initiative) contracts. They discuss whether the Scottish variant of the French model will indeed deliver a more efficient and effective service to Scottish consumers, and equally whether this domestic experience might yield useful insights into service delivery for the French.
They conclude that some form of mixed public-private system of provision is the best available arrangement for the delivery of water and sewerage services in both Scotland and France. However, no 'blueprints' exist and the mixed public-private systems should be tailored to a country's political, legal, physical and economic circumstances and should be flexible enough to respond to changes in the external environment.
The authors argue that private sector involvement in the Scottish industry should be nurtured by policies promoting competition between potential contractees and between contract granting authorities themselves. In France a diverse, competitive market for water and sewerage contracts already exists, however they consider that there is scope for enhancing competitiveness and limiting opportunistic behaviour by opening up the contracting process through competitive tendering. In neither country do they consider full privatisation of the industry to be appropriate or inevitable. But neither should the industry be renationalised. Instead a middle way involving quasi-franchising and public / private co-operation should deliver most of the benefits of full privatisation or nationalisation to consumers.
The monograph concludes with some suggestions for the future development of the Scottish industry. These include:
- the promotion of contract based provision to increase the size of and activity within the market,
- the transfer of residual property rights (ultimate ownership) in all water industry assets to public sector bodies (the water authorities),
- the strengthening of local democratic accountability of industry management by requiring water authority boards to reserve a proportion (but not necessarily a majority) of their seats for local councillors,
- the preservation of a mixed public-private industry structure within a stable institutional environment permitting the development of trust between all industry stakeholders.
None of these ideas are simply transplanted from France. Instead they are examples of ways in which a valuable cross-fertilisation of ideas may result from a comparative analysis of industries in two countries. Meanwhile, at a time when domestic political relations between member nations of the UK appear to be under strain, whilst the new government appears more favourably disposed towards European co-operation, the case for renewing 'auld acquaintance' is looking increasingly attractive.
Price: £12.00 Available from the Institute
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