The growing complexity of social and economic challenges is driving new, innovative forms of collaboration between governments and businesses.
While public-private partnerships (PPPs) have occurred in the United States for at least 200 years,1 they have primarily involved large infrastructure projects with formal contractual agreements, considered too costly or risky for one side to take on alone. But the increasingly complex nature of our national challenges, along with recent shifts in economic and social forces, are creating incentives for government and business to collaborate more frequently and in new ways that go well beyond traditional infrastructure investments, expanding the definition of partnerships in the future.
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Traditionally, government and business had few incentives to actively collaborate. For the most part, government regulated business, and business lobbied government on areas of economic interest. When partnerships did occur, they were usually undertaken to invest in large infrastructure projects through formal contractual agreements, as represented in the National Council for Public Private Partnerships’ definition of PPPs:
Public-private partnership: A contractual agreement between a public agency (federal, state, or local) and a private sector entity. Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the use of the general public.
Today’s challenges for the United States—including an unprecedented recession and fiscal crisis, global warming, terrorism, the Afghanistan conflict, and crises in healthcare and education—are changing the equation. There is a sense that these problems are increasingly complex, requiring new responses. Faced with mounting pressure to resolve these complex challenges, government is introducing regulations to prevent future crises, and seeking innovation to execute its mission more effectively with fewer resources. In spite of these actions, there is an increasing recognition from government that it cannot solve these challenges alone.
Meanwhile, in the business world, there is also an increasing recognition that these challenges, as well as the government’s response, represent both a threat and opportunity. The impact of government behavior on business was evident in a recent Deloitte LinkedIn poll of more than 500 senior executives, which found that 82 percent of respondents believe government’s influence on their business has either greatly or somewhat increased in recent years.2 This seems to indicate that business leaders acknowledge that something fundamental is changing in their relationship with government. The question is, what will come next? Lobbying spending rose dramatically in response to new regulations in recent years,3 but government and business are also starting to take more creative approaches to collaborating. Both sides seem to realize that business problems are now government problems—and vice versa—and both are proactively intensifying new approaches to partnership at the highest levels.
The complexity of the current challenges and changes occurring at the political and macro-economic level have fundamentally changed the federal government’s traditional behaviors, creating new incentives for partnership. Here are a few examples of these changes.
See endnote 4
The challenges facing the US government are becoming increasingly complex. For instance, education used to be about building a system that would deliver basic skills to children through high school. Now it can be about creating highly specialized training that is delivered well into adult years, evolving as the needs of business change over time. Protecting the environment used to be about developing local and national regulations and subsidizing improved technology to mitigate industrial pollution. Now, protecting the environment often involves dramatically reducing the burning of fossil fuels not just in one industry in one city, but across multiple uses and in countries all over the world. As a result of these types of fundamental shifts, government is increasingly looking to business for resources and new approaches to these challenges. The business world has an incentive to help solve them both out of a sense of social responsibility, and because they affect economic growth and the bottom line.
See endnote 7
Not only must government solve more complex problems, but they must do so with fewer resources. In the last five years, gross federal debt rose sharply as a percentage of GDP (figure 2).5 The federal government is under tremendous pressure to reduce costs. Federal discretionary spending has already declined—by 3.4 percent between 2010 and 2011 and by 2.07 percent between 2011 and 2012.6 With government looking to reduce costs, there will likely be an incentive to cooperate with business on joint investments or to open up opportunities for business to provide services traditionally performed by government, creating a new opportunity for private sector growth.
The government’s response to the recent financial crisis was largely aimed at offsetting the chances of another such disaster, most notably with regard to the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act. To date, the Commodity Futures Trading Commission has issued 40 final rules related to Dodd-Frank legislation alone.8 Meanwhile, government has become more active in regulating other areas, particularly healthcare, energy, and defense, reversing the de-regulatory trend. Evidence of this trend can be seen in the Obama administration’s requirement for doubling fuel efficiency standards by 2025. While government clearly sees re-regulation as part of the solution to prevent future crises, it should also avoid taking unilateral regulations that unduly harm business and damage economic growth. Both sides have an interest in partnering to develop smarter regulations.
See endnote 9
The federal government is increasingly turning to innovation as a means to improve services and engage more effectively with consumers. In recent years, more than 28 federal innovation offices and programs have been created, and many agencies have developed programs specifically focused on promoting innovation within the government.10 According to data from the Office of Management and Budget (OMB), the government has backed that commitment with consistent increases in R&D spending for non-defense, energy, and health sectors over the past four years.11 Innovation is also seen as a way for government to “do more with less” by adopting new technologies or dramatically changing its existing operating models. Government is increasingly looking to partner with and learn from business on how to innovate more effectively, and may represent a new market for business innovations.
See endnote 12
The current environment calls for broader thinking about all that public-private partnership can really achieve beyond traditional PPP investment structures. It is important to realize that PPPs are not one-size-fits-all. There is a range of PPP models that can work in different contexts. Important to selecting the right model is to carefully evaluate the need. Selecting the wrong model can unnecessarily increase the chances of failure. Here are a few models that have already been shown to work.
So what will the future look like? The socioeconomic forces driving change today are expected to evolve into the future, requiring practical mechanisms to harness the opportunities presented by PPPs. The broad PPP strategies above, while just starting to occur today, will likely become a standard component of government and business strategy over the next decade as the two sides work to address their complex challenges. Effective organizations understand the potential that partnership strategies offer not only to solve national challenges, but also to create opportunities for economic growth and business success. But to make partnerships work, they should match the partnership model to the appropriate context. Partnership opportunities can be identified and initiated in either the public or private sector, and to achieve their goals both organizations should:
By finding ways to balance their respective strengths and experiences, government and business can form effective partnerships to help resolve critical challenges, generate economic growth, and realize cost savings for the government. Some have estimated potential savings benefits of 20 to 50 percent.22 But PPPs are complex arrangements, and the difficulties of making them work should not be underestimated. Achievement of goals will likely depend on each side recognizing where it adds the most value and gains the greatest benefits: for example, when government engages business interests where it can now provide only limited financial resources; when business leaders proactively leverage government resources and guiding actions to better support the competitive needs of the United States; or when both public and private sectors partner with NGOs and the academic community to explore new realms and markets with innovative approaches. The door to new partnering opportunities is beginning to open even wider. Who will be the first to take full advantage of these opportunities?
Bill Eggers, Global Director, Public Sector Industry, Deloitte Research, Deloitte Services LP
We are experiencing a dramatic change in how societal challenges are tackled—a shift away from a government-dominated model to one in which governments are just one problem-solver among many. Over the last decade, a number of new players have entered the arena and operate within what we call a “solution economy.” Through dynamic partnerships, these innovators are closing the widening gap between what governments provide and what citizens want. This new approach intends stronger results, lower costs, and the high hope we have for public innovation in an era of fiscal constraints and unmet needs.
Paul Macmillan and I explore this collaborative economy in our forthcoming book, Solution Revolution: How Business, Government, and Social Enterprises Are Teaming Up to Solve Society’s Toughest Problems. We argue that public sector problems transcend the domain of traditional government and require a broad, collaborative approach.
As discussed in Partnerships for the Future, the rigid silos of traditional industry, government, and other public institutions often run directly against the ethos of how problems are being effectively addressed today. Partnerships among private, nonprofit, and public enterprises are critical to developing effective, multidimensional solutions.
Consider waste management, a problem the affects citizens in the developed and developing world alike. Eight thousand miles away in India, Parag Gupta, a social entrepreneur we profile in our book, chose to test a collaborative business model to clean up the 40 million tons of garbage his country produces each year. Gupta established Waste Ventures, working with international donor institutions and social impact investors to engage a segment of the Indian population known as “trash pickers.” For Gupta, it was quickly apparent that acting in isolation or through a government-only paradigm would be a path to failure. Instead, he worked with the “trash pickers,” local NGOs, and government officials to build an ecosystem to clean up some of India’s worst garbage-plagued urban areas.
Going forward, governments should look to business and social entrepreneurs as important partners in solving the world’s greatest problems. The solution economy thrives in this environment where a cadre of actors—from governments to business, from social investors to ambitious entrepreneurs—work in partnership to create positive change.