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In the Twilight Zone: A Survey of Public-Private Partnerships in Sweden Author(s): Sven-Olof Collin Reviewed work(s): Source: Public Productivity

& Management Review, Vol. 21, No. 3 (Mar., 1998), pp. 272-283 Published by: M.E. Sharpe, Inc. Stable URL: . Accessed: 08/11/2011 14:40
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in Partnerships Sweden A Surveyof Public-Private

SVEN-OLOF COLLIN Sweden LundUniversity,

is and betweena municipality one or moreprivatepartners one of the A partnership of production sewices to satisfythe needsanddemands manyformsfor the municipal of citizens available(Borys 6c Jemison, 1989; Mackintosh,Jarvis,& Heery, 1994; capital Mohr& Spekman,1994).In theUnitedStates,it hasbeena meansof gathering projects(Davis, 1986; Stephenson, and competenciesfor downtownredevelopment (Field, 1990), and in 1991), in Englandof achievinglocal economicredevelopment 1990). Germanyit has sesed similarpurposes(Jochaimsen, (PPP) is not restricted,however,to local economic partnership A public-private policy; it can also be useful in otherareasundermunicipaljurisdiction.A PPP can enable a municipalityto obtain accs to specific competenceor to create stong competitorsto enhancecompetitionin the local market.As with any organizational form, specific conditions and strategies speak for its employment.For example, underfinancialstressmay have need for a PPPto obtainfromprivate municipalities sourcessufficientfinancialresourcesto financedowntownredevelopment. that A PPPis, however,an organization is positionedin betweenthe publicsphere, and citizens, and monopolyproduction, by characterized such things as democracy, the privatesphere,with its price system, owners,and competition(Brunsson,1989; Dahl & Lindblom, 1953; Parker,1992; Perry& Rainey, 1988). A PPP could gain obstaclesand of advantages its locationin the twilightzone, overcominginstitutional using qualitiesfromboth spheres. Thus, we can find reasons why PPPs are used, despite or thank to its twilight character.The aim of this article is to test a theory concerningPPPs, predicting owned and controlledin a conditionsthatpromotethe employmentof organizations between a public and a private organization,that is, a public-private partnership partnership. The structureof the articleis as follows: In the first section, the majormotives decision to engage in a PPP are and behindboth a municipality's a privatepartner's
Note.The workffiis arficlerepresent was fundedby R^detfor KommunalElconok Forskning Author's
and (e Councilfor Research Trg OchUbildning (KE1:U) and Bengt Jacobssonprovidedhelpfulcomments. & ProdgctivitMgc Public

Hansson Economics).Lennart in Municipal

21 Rai, Vol. No.3, Mh 1w8 272->3

1998 Sagc Publicadons,Inc.








{ | |

1 _

Socialization Regulabon Deregulation Public-Pnvate Partnership (PPP)



Figure 1. Three Municipal Strategies for Managing the Line of Demarcation Between a Municipality and Society

deduced. thesecondsection, In thesevarious motives thentaken account a are into in theory predicting propensity the toward useof PPPsas a function thestructural the of characteristicsthemunicipality, of which seenasshaping is thesemotives. method The usedin theempirical investigation described thethird is in section, theresults and are presented thefourth in section. Finally, conclusions drawn practical are and implicationsarediscussed. Public and Private Motives for the Use of a PPP APPP betreated arational can as response problems opportunities to or experienced bybotha public a private and party. thissection, willlista fewconceivable In I reasons fortheuseof a PPP. listis based The partly theliterature partly speculation. on and on A municipality an organization a constantly is with changing of demarcation line betweenitself and society.Threemunicipal strategies dealingwith this line of in demarcation be identiEled can (Kooiman, 1993): privatization/socialization, (de)regulation,andPPPs(seeFigure1). Privatization implies operations that within municipal a organization transferred are to a private owner. Ihis seemsto be a rather popular strategy mostcountries in today (Galal, Jones, Tandon, Vogelsang, dc 1994).A lesspopular strategy todayis socialization,to transfer former private operations themunicipality. secondstrategy to to A is regulate line of demarcation the through laws andregulations, is, to changenot that theplayers thecoachbuttherulesof play.Theth*dstrategy, onefocused in or the on thisarticle, to create PPPin whichthemunicipality a private is a and partner share the risk,the profit,theutility, the investments and (Haider, 1986).It is notprivatization becauseoperations notshiftedout.Neither it regulation are is because newrules no


1998 PPldRIMarch

a or a to It areinvented. is a stetchingof the borders, create no-man's-land, better actors be partners. can in both-man's-land,whichthetwoquitedifferent in engaging a PPPis its lackof a resource basis A reasonable fora municipality's over influence the in a through partnershipwhich can of somesort,onethat begained (Mackintosh, can resources beobtained of and is operations retained synergies different in supply in One 1995). resource short & Russell, Harding, Parkinson, 1992;Roberts, in to duemainly difficulties raising which is capital, is municipalitiesmonetary today's reasonfor using a PPPin downtown common taxes.1Misseems to be a rather & (Bennett Kingdom and States theUnited both projects intheUnited redevelopment to firmsbeingengaged bnng bothcapitaland Krebs,1990;Lyall,1986),private in resource shortsupplyis Aus, another to SpeCifilC competence the partnership. or employing hiringsucha resource of specialcompetence sometype.Although as collaboration, used can someresources be better in interorganizational is possible, is supply ffiat of category resource canbe in short by indicated Powell(1996).A third have supposedly of fostering partners that mental disposition pnvate thecommercial orientation. and of a climate costpressure market through competitiveness to A secondinducement engagein a PPPis market stretching 1992) (Mackintosh, andthrough organizations of transformationmunicipal aims at operations municipal of The the legal limitations. transformation former it and sector to legitimize asanefficient of culture theprivate the gaining commercial in operations Municipal of demands competition. to operation meetthe increasing that operations, is, the speculative laws (a) through that prohibit are Sweden restained of to geographicallyffiearea the operations (b) of running a business; limitmunicipal to on and and municipality; (c) forcethedocuments books theoperation bedisclosed, public. This to are in documents Sweden considered be genuinely all because public inanother for tomatoes profit engage selling in can that means nomunicipality legally heat surplus from heated through in are if district thetomatoes cultivated a hothouse of unlessthegrowing these plantownedby themunicipality, heating the municipal involvedand uses slaclcsin the tomatoesis only a smallpartof the operations can grown besoldoutside than perhaps more 5%of thetomatoes no Thus, operations. themunicipality that operations encounter thosemunicipal hamper Thesethreelegalrestrictions The reforms the municipalities. in market-oriented through competition increasing to who competitors, arenotrestricted a face municipalities highlybusiness-minded on placed themto maketheir fewerdemands area geographic andhaveconsiderably are of responses thisproblem competition (1)toprivatize to Rational public. operations or expansion; (b) them thus operations, withdrawing fromlegalrestrictions; market that expansion, is, of of Ihe (Ansoff,1965). alternative product expansion (c) product at utility aiming thesame of in engaging theproduction another operation a municipal inside competition it rare is that market, of themunicipalit, probably because creates to but alternative a prerequisite it is that is Market expansion a viable theorganization. the through creation this In can thelegalrestrictions besidestepped. Sweden is possible it However, is unclear actor. with together a private owned an of a PPP, organization therehavenotbeenany here have to whatdegreemunicipalities freedom because the This to of operations a PPPyetthathavebeenbrought court. emphasizes twilight PPPs. of zonecharacter Swedish



Thereasons behind private the actor's involvement a PPPcanbe assumed be in to related, directly indirectly, profit(Kouwenhoven, or to 1993).A PPPcangenerate a good profitfor the privateactoror reducethe actor'srisk if it involvesa related diversification the actor's of operations (Datta, Rajagopalan, Rasheed, & 1991).An obviousprerequisite thisis thatthePPPoffersthemarket commercial to a product or service, whichit doesnotnecessarily inthecaseof moreindirect do profit effects.One suchindirect proElt effectis the synergy occurswhenthePPPallowsa resource that thatis produced the PPPor supplied the private by by actorto be morefully used. Another indirect effectis the goodwillthatinvolvement a PPPcancreatefor the in private actor. PPPcanenable private The the actor display highquality work to its of andits trustworthinessbusiness in affairs, whichamong other things reduces municipaluncertainty about future possible contracts. Tosummarize, appears a municipality two major it that has reasons becoming for involved a PPP, of gaining in that resources, it monetary be capital, competency, a or commercial mental disposition, thatof gaining and competitive equality. private The actor, theother on hand, adirect has profit motive concerned profit, reduction, with risk or indirect gainsthrough synergy goodwill. or

A Theoryof the Propensity Use a PPP to

The mixingof the publicandof the private actor's motivesmeansthattheseare variousfactorsor conditions may be conducive establishing PPP.In this that to a sectionwe focus on the structure the municipality one factorthataffectsthe of as propensity toward of a PPP. use Thegaining different of typesof resources, financial resources beingoneof these, is a major motivebehind creation a PPP. a municipality the of For under considerable financial stressbecause a highburden debtandthe low tax base,theElnancial of of motivecouldpredominate. possibility gaining serviceinvolving The of a littlefinancialburden couldbeveryattractive a municipality to under conditions. such Thus,our firsthypothesis thata municipality a low taxbasehasa stronger is with propensity to use a PPPthanone witha hightaxbase:
Hypothesis The tax base in a municipality negatively 1: is related the municipality's to propensity use a PPP. to

Thesecondhypothesis expresses contention a highdebtburden the that orients the municipality gaining to financial resources through alternative sources, example, for a PPP.
Hypothesis Thedebtburden a municipality positively 2: of is related themunicipality's to propensity use a PPP. to

Gaining competency through useof private the actors thepooling resources and of is a second motive behind PPPs. Thisshould more likelyoccur municipalities in where the municipal organization smallbecause the population is of beingsmall,withthe accompanying inabilityof the municipality use nondivisible to resources such as


PPhIR March / 1998

competence. Thus,ffiecontention is thatthepropensity here toward usinga PPPis higher a smallmunicipality in a larger in than one.
Hypothesis The size of the population a municipality negatively 3: in is related the to municipalit's propensitto usea PPP.

However, contradictory a hypothesis to be formulated, has basedon theopposite of resource scarcity. Sweden, is widely In it believed large that municipalities more are innovative morewillingto experiment new ideassuchas thoseof new and with organizational forrns. Large organizations presumably can absorb higher risksthan smaller onescan,thisplacing restrictions thesmaller on organizations' propensity to experiment. addition, organizations In large contain more slackthat bedirected can at experimenting. PPPbeinga rather A untried organizational form,the innovative disposition thecapability absorbing hasto be high.Ishefactthatonlya and of risk largeorganization capableof doingthis forcesone to formulate hypothesis is a contadictory Hypothesis to 3.
Hypothesis The size of the population a municipality positively 4: in is related the to municipalit's propensity usea PPP. to

The thirdresource offeredthrough of a PPP,thatof a commercial use mental disposition, would preferred municipalities be by confronted problems a rigid with of bureaucracy. leastinSweden At there a beliefthat is business principles applicable are whencost-effectiveness customer and satisfaction soughts are something stimuthat latesthe introduction proElt of centers corporations a municipal and in organization (Collin& Hansson, 1991).A PPPrepresents only a business not formbut also a business substance through private the partner representing ultimate the application of busitless principles. Because itsbusiness-oriented of environment, a societywitha smallpublic sector wouldpresumably lesserriskof developing rigidbureaucface a racy. wouldtherefore We expect municipality a large a with public sector be more to inclined usea PPP. to Thishypothesis be reinforced can through inclusion the the of private partner's motive goodwill. of When public the sector a municipalitylarge, in is it representslarge dominant a and market private for entrepreneurs. 'rhrough involvement a PPP, private gainsaccess thishugemarket theaccompanying in the actor to and goodwill.Accordingly, canbe hypothesized a largepublicsectorfostersthe it that creation PPPs. of
Hypothesis Therelative of thepublic 5: size sector a municipalitypositively in is related to themunicipality's propensity usea PPP. to

In thiscase,too, it is possible formulate contradictory to a hypothesis. Whenthe public sector large dominant, is capable beingself-supporting regard is and it of with to most of the servicesand activities demanded. Thereis no need then to join cooperative partnerships because anylackof competency. of Under suchconditions, public partners couldbe assumed bethemostlikelypartners. to Thus, whenthere a is large henceself-supporting and public sector, useof a PPPtendsto be hampered. the



Hypothesis The relativesize of the public sectorin the municipalityis negatively related 6:
to the municipality'spropensityto use a PPP.

The industrial structure a municipality of could influencethe propensitytowardthe use of a PPP.Because on the whole municipalities produceonly services,partnerships are most likely to occur in the branchof service. Partnerships with manufacturers should probablybe of short-termcharacter, focused on single productionssuch as buildings. Therefore,one can suspect that the presence of a large service sector in a municipalityincreasesthe propensityto use a PPP. Iypothesis7: The relativesize of the service sectorin a municipalityis positively relatedto
the municipality'spropensityto use a PPP.

Because a municipality is principally a political organization, an ideological dimensionhas to be includedto explaina municipality's propensitytowardthe use of a PPP.Being in the twilightzone betweenpublicandprivate,it could be hardto predict the outcomes of different political majorities. The left-wing parties in Sweden, consisting of the Socialists and the formerCommunists,have tendedto favor a large public sector, yet with a hazy distinctionbetween the public and the privatesectors, as conceptualizedin the terms of folkhemmet,the people's home in which society should function as a great family, with the state providing it with support. The right-wing and center partiesin Sweden, represented the ConservativeParty,the by CenterParty,and the Liberals,have tendedto favor a smallerpublic sector andrather sharpdistinctionsbetween the public and the privatesectors,stronglycombinedwith the family concept.The left wing could thusbe expectedto favor a PPPmorestrongly because it constitutesa mix of the public and the private,or only partialprivatization with the retainingof political contol. Thus, it can be hypothesizedthat a left-wing majorityin the municipalcouncil should foster a propensitytowardusing a PPP. Hypothesis A left-wing majority in the municipal council is positively related to a 8:
municipality'spropensityto use a PPP.

The varioushypothesesthathave been proposedare summarized Figure2. in Method Data on PPPs in Sweden had to be collected througha survey because no reliable datafiles were available.To this end, I selected64 municipalities (out of 280), limiting randomselection throughthe use of two criteria:

Here I selected all municipalitieswith a populationexceeding 49,999 inhabitants; the logic of this criterionwas thatthe projectof which this articleis a partneeded a record of as many PPPs as possible and that I believed PPPs to be more frequentin larger municipalities. Geography: Because Sweden extends very far in a north-south directionin particular, is it importantthat every part of the country be representedin the data. The nonrandom selection procedurenotwithstanding, sample reflects the populationquite well if the measuredby a frequencydistribution the size variable(X2= .0007, p = .9786). on


PPMR/ March1998


Figure 2. Hypotheses RegardillgMunicipalityPropensityto Use a Public-PrivatePartnership (PPP)

Two assistants,MagnusRonnlidand JorgenMalmsten,to whom I acknowledge my gratitude,called the centraltelephoneexchangein each of the 64 municipalities Strangelyenough, only a to determineall of the PPPs in each of the municipalities. we few municipalities theirPPPs registered.In the 64 municipalities found 117 had PPPs. A comparisonof our list of PPPs with one received from the Statistiska Centralbyran (SCB) (an organizationproducingmuch of the official statistics in showed that 31% of all the Sweden), containingdata from the same municipalities, cases (i.e., my list and the SCB list) were identical,whereas41% of the cases only occurredon the SCB list and 28% of the cases occurredonly on my list. Since SCB only recorded some few variables, lists couldnot be combined.However,comparthe "legalformof the organization" indicated ing ourlist with the SCB list on the variable no significantdifferencebetweenthe two samples (%2 = 1.15317, with 4 degrees of freedom;p = .886). The observations which the differentvariableswere basedwere gatheredfrom on sources as close to the PPPas possible, preferablyfrom the CEO or from a person of similar position. Unfortunately, was not always possible. This reducedour this The variables recorded presented Table1. are in samplesize on some of the variables. We tested the hypothesesby using a multipleregression.Testing involved two dependentvariables:(a) the numberof PPPs in the municipalityand (b) a dummy variableindicatingthe presenceor nonpresenceof PPPs. Thus, both intensity and propensityin the use of PPPscan be tested. by The regressionof a qualitativevariablerepresented a dummyvariablesuch as propensityposes two serious problemswith regardto estimation(Montgomery& can Peck, 1982). First, the estimatedprobabilities assumeboth negative values and values greater than 1, which are meaningless. Second, the demand of normally



Variables lible 1. Observed

VariablesTesting Propensityfor the Use of pPpa


PPPInt PPPProp Population Taxability Debts RightWing LeftWing Service Public

(S) of the measuring number PPPsin a municipality. PPP-Intensity, has whether municipality (1) ordoesnothave(0) a measuring PPP-Propensity, (S) oneormorePPPs. because logarithmically in of number inhabitants 1993,transformed Population, (O) and of highkurtosis skewness. as to capacity paytaxes,expressed an of Taxbase,anestimate thepopulation's (O) mean. where100is thenational index, by divided thenumber of the measuring debts themunicipality Thedebtburden, (O) of inhabitants. as recorded (1).(O) a parties having majority, in the majonty 1993, right-wing Political as recorded (1). a parties achieve majority, in majority 1993,theleft-wing Political of had variable anevenbalance with Municipalities (0) in thisandtheformer power. (O) party to belonging service territory in of Theshare allthoseemployed themunicipality (O) production. to belonging public territory in of Theshare alliose employed themunicipality (O) production. or be production, it governmental municipal

that (O):datafromofficialstatistics, is, Arsbokfor Sveriges Kommuner Note. (S): datafromthe survey; (1993). parMership. a. PPP= public-pnvate

distributed estimated asymptotes

errors through

is violated. a maximum 0 (AElfi

A solution likelihood & Clark,

to these


is to apply

a logit

model curve

as with

technique, 1990; Kennedy,

creating 1984)

an S-shape

at 1 and

Results Table PPPs. least Many employed coefficients population more burden lation PPPs. and with The one 2 summarizes municipalities PPP. Our sample are the descriptive a mean a tax by and in our statistics of base 1.84 (98.5) of PPPs close the and test of the propensity (0.7) mean to use have (100). 70% correlation with have with debt correthat are at

have shows governed


of them population (0.67). sector.

to the

municipalities in service show size, The

a right-wing are within use of

majority the public is that

Almost The

production that intensity

41% the initial the use


positively larger

correlated municipalities correlated


supporting toward

hypothesis of a PPP with


is positively population supporting to use

is almost taxability exposed

significantly approaches to Elnancial the multiple by the intensity

correlated significance, stress regression size of the


A negative our contention


municipalities Table significantly pality. an

are more equations. population removes relative


PPPs. in the use of PPPs the and the municireveals service is

3 presents influenced

Intensity and the size taxability population of the

within effect and

Transforming both of

to propensity and of the
















PPMR March / 1998

lAble Means, 2. Stgadard l)e09Zans, Comlation and

Variable M SD 2 3 4

Coemc-ientsfor Dependent and Intlependent Variabks Concerning the Use of pPpsa (N = 64) 5 6 7 8 9

2. PPPProp 3. PopulaXon

0.70 4.64

0.46 0.45


-.19 .25* -.09 .58*** .47*** .14 .16 .18 .02

.02 -.14

.14 .08 .52*** .05

4. Taxabilit 98.5 12*8 5. Debts 16,782 4,994 6. RightWmg 0.67 0.47 7. lsfftXmg 0.17 0.38 8. Service 68.7 10.3 9. Public 41.1 7.0 Note. See Table1 for descripbon variables. of a. PPP= public- vk parMership. *p c .05. **p < .01. ***p < .001. Ap < .l0.

-.09 .58*** -.04 .01 .29* .23t -.65*** .20 -.05 -.13 .11 .56***

Ibble ReFessioD 3. Regax g IlxtelXsity Propensit5y Usillg and ward pPpsa

Varisble Populabon(log) Taxabilit Debts RightXmg LeftXmg Sexce Public Constant PPP Intensity 2.514** (o.732) 4.069* (0.027) 4.00001 (0.00005) 4.935 (0.643) 4.602 (0.802) 0.046 (0.042) 4.062 (0.043) -2.708 (2.863) AdjustedRj = .200 F = 3.254** Note. Standard ewrors in parentbeses. are a. PPP= public-privat paruership.
$p 05 **p^< 01

PPP Propensity 1.347 (1.181) 4.150** (0.047) 0.0001 (0.00009) 4.796 (1.004) 0.205 (1.244) 0.169* (0.069) 4.144* (0-073) @.143 (15.835) x2 = 19.958** (7 degreesof freedom)

sectors. An increase in the public sector is also associated with a decrease in the propensityto use PPPs,whereasan increasein the servicesectorappearsto promote the use of PPPs. A classiElcation table showed that the estimationcould correctly predict78% of the cases.



The significantly supportedhypotheses were thus Hypothesis 1, concerning the negative impact of taxability;Hypothesis 6, concerningthe negative impact of the public sector;and Hypothesis7, concerningthe positive impactof the service sector. The size of the municipalityand political partyin power did not appearto influence the propensity. Conclusions PPPs are organizational forms situatedbetween the public and the privatezones. Our results indicatethat PPPs are used as a strategyto attractscarce resources,be it money or competency.When there is no scarcity,that is, when the public sector is large, the propensitytowardthe use of PPPs decreases. The ideological dimension was not found to have any influence. Obviously, this could have its cause in a poor conception of the ideological standpointsfavoring or disfavoringPPPs. However,a morerealisticunderstanding the predictionfailureis of thatthe 1980s andthe beginningof the 1990shavewitnessedaratherturbulentpolitical situation in Sweden. Majorities have shifted from the Left to the Right in many municipalitiesduringthis time. A PPP is presumablya ratherenduringorganization because it embracesa privatepartner,making a terminationof the organizationnot only a political action but a contractual as well. PPPs can thereforebe thoughtto one survive shifts in political majority,with the observed consequence of ideological predictionfailure. The practicalimplicationsof the studypoint towardthe PPPpotentialof being an instrumentfor managingthe bordersof the municipality'ssphere of influence and control,attracting resourcesnot otherwiseavailable.PPPsshouldbe regarded viable as alternativesto privatization socializationbecausethey providethe opportunity and to alterthe institutionalmilieu withoutthe loss of municipalinfluence.Ample evidence from otherlines of researchis availablethatdiversitycreatesmilieus characterized by innovation (Ancona & Caldwell, 1992; Bantel & Jackson, 1989; Murray, 1989; Watson, Kumar,& Michaelsen, 1993). Thus, mixing two institutionallydifferent partiescan create potentialfor change and, as Mackintosh(1992) put it, "to turnthe pressuresof partnership the service of a new 'developmentalism' local level and to at within the local state"(p. 211). However, the twilight characterof the PPP creates not only advantagesfor the municipalitybut disadvantages well, the uncertainty the institutional as of basis being the most obvious. The large differencesbetween private and public can induce the municipalityand the managersof the PPPto exploit the twilight character the PPP, of sometimes acting as if the PPPis in the privatesphereand sometimes as if it is in the public domain. The twilight character be reinforcedthroughthese acts, making can the behaviorof the PPP unpredictable the other stakeholders.Thus, the twilight for character a PPP puts a demandon the municipalityand the managersof the PPP to of properlybalancethe interestof the public and the pnvate sphere.


PPMR/ March1998

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Sven-Olof Collinis an assistant professor theDepartment Business in of Administration at LandUniversity, Sweden. research focusedon corporate His is governance issuesin thepublicandtheprivate sphere.