Financial interests and markets have a more powerful role in the economy compared to thirty years ago. Financialisation has been aided by the deregulation of capital controls, the increasing assets of non-bank financial institutions (such as pension and mutual funds, insurance companies, hedge funds and sovereign wealth funds) and the securitisation of financial products becoming an important source of funds for banks.
Debt financed consumption-driven growth strategies further embedded financial values and created new opportunities for profiteering (and big losses). The finance sector accounts for an increasingly larger share of GDP and corporate profits.
Financialisation, together with personalisation, marketisation and privatisation, comprise the main methods being used to drive the neoliberal transformation of public services and the welfare state (Whitfield, 2012a). They embed commissioning and procurement in public management; ensure in-house provision is no longer the default option; promote the transfer of public services to trusts, arms length companies and social enterprises; establish financial mechanisms to enable money to follow service users or into personal budgets; and create new services and investment markets. All of which are designed to erode public provision of infrastructure and services.
Furthermore, privatisation has mutated into a multi-dimensional process to create new pathways such as individual choice and market mechanisms, partnerships and outsourcing. Increased charges for public services, on top of the debt burden for mortgages, student loans and easy credit, are, in effect, a means of financialising personal income into retirement.
Privatisation and PPPs have also changed the interface between finance capital and the state as new markets have grown in the funding of privatisation, such as the transfer of council housing to housing associations and the growth of outsourcing markets.
New pathways were needed to extend privatisation after most state owned corporations were sold. Political opposition meant that core public functions and services could not be privatised by a stock market flotation or trade sale. Market mechanisms were not in place. Political values and social attitudes had to be changed, not least the belief in 'public services' had to be eroded and embedded trade union and professional interests challenged (Whitfield, 2012b).
PPPs have had a key role in accelerating financialisation in the public sector and the economy. They provide banks, infrastructure, pension and private equity funds with an opportunity for long-term, low risk, inflation-linked investment. Banks and other financial institutions have a key role in project finance, joint ventures with construction companies and many have established their own infrastructure funds.
Project finance and the companies providing financial advice have a more central role in the planning and procurement process. Infrastructure is now considered as an 'asset class' in its own right with manageable risks and good, stable profits! The different ways in which public infrastructure is being financialised are summarised in Table 1. The trading of public infrastructure assets further embeds neoliberal ideology and helps to create new pathways to privatise public services and the welfare state, in effect privatisation by stealth.
Table 1: How PPPs accelerate financialisation of infrastructure
Element of PPP | Financial consequences |
Project finance | Banks, infrastructure funds, private equity and pension funds provide private finance. |
Securitisation | Loans to finance project may be transferred to a special purpose vehicle to capture benefits derived from lower probability of loss with a mixed pool of loan assets rather than an individual loan. |
Sale of PPP equity | SPC shareholders increasingly sell equity after a few years of operation. |
Secondary market | Trading in PPP equity and growth of listed infrastructure funds acquiring PPP assets. |
Risks commodified | All risks identified, allocated between public and private sector and priced. |
State guarantees | Government and EU provide additional financial security. |
Project funding | New user charges such as toll roads. |
Third party use | Income generation and increased charges for community use. |
Performance and availability | Charges imposed for every move of furniture and equipment, changes in use of rooms and availability of facilities reduced to monetary value. |
Transaction costs | Wider range of consultants, financial and legal advisers in procurement, sale of equity, company accounts, due diligence and contract management resulting in higher costs. |
It is, therefore, essential to recognise the role of PPP share dealings in advancing privatisation. They are more significant than simply being a consequence of market forces because they deepen the role of finance capital, which has a more powerful control in the PPP sector, taking over the lead role played by construction companies.