THE ROLE OF AND POTENTIAL FOR THE ROLE OF AND POTENTIAL FOR PUBLIC-PRIVATE COOPERATION IN PUBLIC-PRIVATE COOPERATION IN

ARMENIAARMENIA

Richard BeilockRichard Beilock

AIPRGAIPRG

andand

University of FloridaUniversity of Florida

David A. GrigorianDavid A. Grigorian

AIPRGAIPRG

andand

International Monetary FundInternational Monetary Fund

Structure of the Paper

IntroductionIntroduction

Rationales and Organizational Rationales and Organizational Alternatives for PPCs Alternatives for PPCs

Potential Applications for PPCs in Potential Applications for PPCs in Armenia Armenia

Special InterestsSpecial Interests

IntroductionKarl Marx vs. Adam Smith: is there Karl Marx vs. Adam Smith: is there generally a role for governments to play?generally a role for governments to play?How is the reality shaping for Armenia: How is the reality shaping for Armenia: transition vs. Armenia-specific issues?transition vs. Armenia-specific issues?We assert that:We assert that:– Dirrefences would encourage PPCsDirrefences would encourage PPCs– Declining returns to PPCs would benefit Declining returns to PPCs would benefit

developing countries more developing countries more – The range of possible alternative The range of possible alternative

arrangements for PPCs is widearrangements for PPCs is wide

Surplus Surplus additional value possible together additional value possible together over sum of individual effortsover sum of individual efforts

Mutual AdvantageMutual Advantage

Needed for All Viable PartnershipsNeeded for All Viable Partnerships

Difference, the Soul of PartnershipDifference, the Soul of Partnership

Without differences, no potential for Without differences, no potential for SURPLUSSURPLUS, no potential for viable , no potential for viable partnerships partnerships

Different types and Different types and relative endowments ofrelative endowments of

Assets

Knowledge

Talents

Rights/Powers

Public-Private Differences Public-Private Differences

Always considerableAlways considerable

Particularly large in Armenia owing to:Particularly large in Armenia owing to:– Inadequate means and capacity of the Inadequate means and capacity of the

governmentgovernment– Emerging, but not fully developed, Emerging, but not fully developed,

domestic private sectordomestic private sector– Involvement (and potential) of the Involvement (and potential) of the

Diaspora, NGOs, and multilateralsDiaspora, NGOs, and multilaterals

PPC Organizational AlternativesPPC Organizational Alternatives

Non-Invasive Coop (NIC)Non-Invasive Coop (NIC)Your org. does this and mine does that.Your org. does this and mine does that.

Management Contract (MC)Management Contract (MC)Your org. runs these parts of my org. forYour org. runs these parts of my org. for

these incentives.these incentives.

Concession (CONC)Concession (CONC)Your org. runs these parts of my org. forYour org. runs these parts of my org. for

these incentives…AND you make investmentsthese incentives…AND you make investments

Joint Onwership-based Coop (JOC)Joint Onwership-based Coop (JOC) Our org.s jointly own this venture.Our org.s jointly own this venture.

PPC AlternativesPPC AlternativesTypeType StrengthsStrengths WeaknessesWeaknesses

NICNIC Easy est. & endEasy est. & end

Few turf battlesFew turf battlesLimited use of Limited use of comparative adv.scomparative adv.s

MCMC Contract flexibleContract flexible

Easy getting biddersEasy getting bidders

Contractor retains Contractor retains

controlcontrol

Possible incentive Possible incentive problems, esp. toward problems, esp. toward end of contractend of contract

CONCCONC Fewer incentiveFewer incentive

problemsproblems

Contract flexibleContract flexible

Harder to attractHarder to attract

biddersbidders

End of contractEnd of contract

incentivesincentives

JOCJOC Liquidity, ease of Liquidity, ease of

altering ownershipaltering ownership

structurestructure

JOC, connotes ownership JOC, connotes ownership structure, but not structure, but not cooperative systemcooperative system

PPC SURPLUS SOURCES

Improving Public Sector Improving Public Sector Performance Performance

Improving Private Sector Improving Private Sector PerformancePerformance

Public Sector Improving:Public Sector Improving:

Efficiency of Core FunctionsEfficiency of Core Functions– Tourism, Research (CRO), Environment (ATP)Tourism, Research (CRO), Environment (ATP)

Law- and (Executive) Decision-making Law- and (Executive) Decision-making – Diaspora Agency, Anti-Corruption Agency, andDiaspora Agency, Anti-Corruption Agency, and

Deregulation AgencyDeregulation Agency

Management of Inherently Private, but Management of Inherently Private, but Publicly-owned AssetsPublicly-owned Assets– Armenian Railways Armenian Railways

Private SectorPrivate Sector

Reducing the Knowledge and Reducing the Knowledge and Information GapsInformation Gaps– Development AssociatesDevelopment Associates– Credit Rating AgencyCredit Rating Agency– Business IncubatorsBusiness Incubators

Correcting Inefficiencies Related to Correcting Inefficiencies Related to Collective Action ProblemsCollective Action Problems– WineWine– HousingHousing– FisheriesFisheries

Private Sector (contd.)Private Sector (contd.)

Reducing Problems Related to Small Reducing Problems Related to Small Size and Thin MarketsSize and Thin Markets– Tourism ConcessionsTourism Concessions

Ensuring Quality and Adherence to Ensuring Quality and Adherence to StandardsStandards– TourismTourism– FoodFood– Medicine Medicine

SPECIAL INTERESTSSpecial Interests (SIs)Special Interests (SIs)– Ind./groups working to further their goalsInd./groups working to further their goals

Core FunctionsCore Functions– Well-defined set of objectivesWell-defined set of objectives

TerritorialityTerritoriality– Actions to enhance prestige and gain control Actions to enhance prestige and gain control

beyond necessary to perform core functionsbeyond necessary to perform core functions

ShirkersShirkers “Bad Guys”“Bad Guys”

STRATEGIES OF DEALING WITH SIs

Suppress/DestroySuppress/DestroyWhen the harm is considerable, and tolerating it When the harm is considerable, and tolerating it

exacerbates the costsexacerbates the costs

IgnoreIgnorePower/harm is not considerable, and costs of dealing Power/harm is not considerable, and costs of dealing

exceeds potential gains exceeds potential gains

Buy offBuy offThe SI faces costs, and would rather see itself legalized, The SI faces costs, and would rather see itself legalized,

which would result in net benefit for both which would result in net benefit for both

Make Part of the SystemMake Part of the SystemInterests of both sides are consistent, and it is possible Interests of both sides are consistent, and it is possible

to develop rewards to make them more consistentto develop rewards to make them more consistent

STRATEGY OF DEALING WITH SIs

Which method do I apply?

STRATEGY OF DEALING WITH SIs

ShirkersShirkers “Bad Guys”“Bad Guys”

Make part DestroyMake part Destroy

of the system (Zero tolerance)of the system (Zero tolerance)

CONCLUSIONSCONCLUSIONS

Potential for PPCs in Armenia is greatPotential for PPCs in Armenia is great

PPCs could be used to:PPCs could be used to:– Improve efficiency of the Public SectorImprove efficiency of the Public Sector– Improve efficiency of the Private SectorImprove efficiency of the Private Sector

Treat Special Interests to:Treat Special Interests to:– Reduce the costs associated with their actionsReduce the costs associated with their actions– Generate positive returns from their involvement Generate positive returns from their involvement