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Even though the current trend towards renationalisation – via remunicipalisation – may tell another tale, both economic experts and fee payers are becoming more and more sceptical about the ability of local authorities to run a business. It is very rare to find a municipal business run solely by a local authority that is in the black. Depending on which political party is in power, one of the key arguments for operating municipal companies is that they provide secure jobs. Is this actually true though? A closer look at the current situation has brought some interesting facts to light.
In its 20th Annual Report, the Monopolies Commission (an independent expert committee which advises the German government) makes the following statement regarding municipal business activities – quoting the Monopolies Commission Chairman, Professor Daniel Zimmer: “The overexpansion of municipal economic activities can give rise to distortions of competition and lead to a shift of significant financial risk to society. In addition, the level of fees and charges for the services of municipal undertakings is not subject to any functioning efficiency control at the moment, leading to additional charges for the public. Therefore, appropriate conditions must be established for better supervision by the public, the decision-makers and the supervisory authorities.”
The Monopolies Commission also has a very clear position on waste management activities. In its press release of July 2014, it says: “As concerns the disposal of household waste, the tender procedures have been successful for long, particularly in rural areas, showing that private undertakings can provide the required services at least at the same high quality as the municipal utilities.
Public private partnerships will continue to be a robust business model for achieving greater quality and efficiency.
Several arguments militate in favour of the assumption that an enlargement of the municipal tenders for household waste disposal would not only alleviate the burden on the general public, but also have ecological advantages.” The latter can primarily be put down to the fact that practically all the recycling plants that are able to recover materials for re-use – such as aluminium, copper, paper and plastics – came about thanks to private sector investment and are also operated by private sector companies. Such operations are in line with current European waste legislation which places the re-use of materials second in its waste hierarchy below the preferred option of reducing volumes of waste. The fact that many local authorities have chosen to send their household waste for thermal treatment over the last few decades can be put down to historical and financial factors. Nowadays, though, this method would appear to be more than outdated, not least thanks to the falling incineration prices and the ever-growing awareness for environmental issues.
Three examples of traditional municipal activities – waste management, water management and local public transport – show that public sector jobs are by no means as secure as is sometimes claimed (see chart). The municipal water authorities in Berlin, for example, reduced the size of their workforce by around 38 percent between 1994 and 2013. During the same period, the municipal firm responsible for city maintenance in Berlin cut the number of people they employed by approx. 47 percent. In 2013, the Rheinbahn railway business employed almost 38% fewer people than it did back in 1992.
What is important is to reduce the financial risk for local residents and to secure jobs.
In contrast, the many successful public private partnerships – especially those involving REMONDIS – have not only demonstrated that their business methods and operations are more efficient, they are also much better at increasing and maintaining the size of their workforce.
A long-term look at a selection of large corporations operated primarily by local authorities
One such example is Frankfurter Entsorgungs- und Service GmbH (FES), the largest public private partnership that REMONDIS operates together with the City of Frankfurt. 1,529 people were working for FES when the public private partnership first started in 1995. Today, there are now 1,669 employees who provide top quality services and ensure fees remain stable. This is a striking example of how PPPs can have a positive impact on jobs. A look at the development of the workforce at REMONDIS and its sister companies is equally impressive. Since 1999, this family run business has increased the number of people it employs in Germany by 243 % – and globally by even 342 % – so that it currently has just under 59,000 employees. With these impressive figures and its commitment to always provide the best value for money, REMONDIS also succeeds in growing efficiency at its municipal partners’ businesses. Whether it be part of a public private partnership or providing individual services for local authorities: when the public and private sectors work together, the result is greater quality, efficiency and job security.