The Nordic Model - Embracing globalization and sharing risks

assessed case by case. The importance of design details is corroborated
by experience from incentive designs both in the private and
the public sector. It is impossible to foresee all future contingencies
and the many ways in which creative, profit driven parties can
exploit omissions and mistakes in contracts. Moreover, there is a
fundamental imbalance between the weak financial incentives of
government agents and the strong financial incentives of private
firms, which is always going to warrant consideration.
The third lesson is that outsourcing does require clearly
defined goals and carefully chosen performance measures. Investments
in better auditing systems, especially by independent
parties, can have high payoffs. It is conceivable that accounting
practices within some sectors of government could be changed to
serve the specific requirements of outsourcing and other kinds of
private sector engagements. With better performance measures
one can rely less on how a service is carried out and more on what
the results are. This will increase the autonomy and initiative of
the service provider.
b. Public and Private sector Partnerships
Public and Private sector Partnerships (PPPs) are a more recent
phenomenon. They got started in earnest after Prime Minister John
Major’s Public Finance Initiative in the U.K. in 1992. The PPP
label may suggest a variety of jointly arranged services between
the government and the private sector, but the label refers to a
particular variant of outsourcing. PPPs are governance structures
where a consortium of private investors sets up a company to finance,
plan, build, maintain and operate a piece of infrastructure
such as a hospital, a school, an airport, a highway, or a railroad.
The company does not deal with the patients in the hospital or
teach the students in the school. The sole purpose is to handle the
infrastructure. The hope is that by putting all the stages of a big
infrastructure project under the responsibility of the same entity,
better incentives are created for coordinating the various stages of
the project and undertaking each in a way that takes into account
both short and long-run effects. Also, by moving the financial
responsibility of the project to private investors, the thought is
that risk will be carried by the parties that are in the best position
to monitor and manage those risks.
PPPs amount to a
particular variant of
outsourcing to the
private sector, used
notably in the area of
infrastructures
150 · The Nordic Model