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  A Winning Partnership 

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Average public spending as a share of GDP in OECD countries exceeded 45 percent in 2015, indicating the significant weight of the public sector in many economies. This public spending plays a key role in stimulating private initiatives -- whether it's the public procurement of private services, or the private sector managing public services via public-private partnerships (PPPs).

But it's not just that the public sector is good for private enterprise. Given the shrinking budgets and growing deficits of governments around the world, the public sector cannot afford to finance, design, build and operate large-scale infrastructure projects without the input, investment and collaboration of the private sector.

PPPs are necessary not only from an economic perspective but also from a technological one. The intelligent application of digital technologies to public services can make them more efficient and effective. In the case of cities, it can improve citizens' quality of life, in what are being called "smart cities." Public administrations can't keep up with the pace of technological advances in the same way that private-sector companies and startups can. They need these companies that are constantly developing new business models to help improve the quality of our public services.

Besides stimulating economic activity, the public sector serves another vital role as market regulator, ensuring that markets are competitive and that there is a level playing field for all market actors. This role is even more crucial since the regulatory failings that precipitated the Great Recession. We need regulation, not just to prevent new economic crises, but to ensure that new business models flourish in a properly competitive market that benefits citizens. The new challenges raised by the Digital Revolution are a case in point: the regulatory role of the public sector will be key to defining the rules of the game.

In this dossier, we address several topics that we consider central to the relationship between the public and private sectors.

The first article -- written with my IESE colleague Pascual Berrone and the team of IESE's PPP for Cities -- discusses the success factors for public-private partnerships in the complex context of cities. If forecasts are correct that more than two out of every three people are expected to live in cities by 2050, then the issue of how to manage these vast concentrations of urban dwellers becomes urgent for governments and private businesses alike.

Whatever form these public-private partnerships take will require some form of contract and public tender. This is the subject of the second article by Steven Tadelis of Berkeley's Haas School of Business. The author makes several recommendations about public procurement, with the aim of making the process more flexible and efficient, and preventing cost overruns.

Rounding out this dossier, IESE's Xavier Vives presents some ideas from his latest book, Competition and Stability in Banking: The Role of Regulation and Competition Policy. What is the right balance to strike between competition and stability, between too much regulation and too little? As we have seen, too little regulation of the private sector can be damaging to society. But where must public authorities draw the line when it comes to banking, so as to stabilize the sector without strangling it?

Together, these three articles help companies gain a deeper appreciation of the public-private issues at stake. This is something we have been studying since the founding of the Public-Private Sector Research Center, which just marked its 15th anniversary during this last academic year. This dossier seems an appropriate way of marking the occasion.

This article first appeared as an introduction to the dossier "The Double Advantage of Public-Private Partnerships" in issue 34 of IESE Insight Review.
This article is based on:  A Winning Partnership: The public and private sectors need each other now more than ever
Year:  2017
Language:  English