Social welfare in Europe: Public-private cooperation offers a way forward

From isolated to coordinated action

The crises described above require huge investments for prevention and mitigation. Tackling them, as well as many of the other challenges Europe will face, requires a paradigm shift. The public and private sectors need to work together to respond.

• From the public sector, a green and more people-centric Europe calls for a strong and coordinated response by local, regional, national, and supranational levels of government.
• In the private sector, companies’ actions are increasingly global and wide-reaching. Hence, there are more stakeholders than ever before with a significant impact on the challenges Europe faces. Businesses, nongovernmental organizations, and other private entities must be involved in the response to the current challenges.

The benefits of public and private collaboration

When public and private actors collaborate, social welfare is higher, provided the right enabling conditions and incentives are in place. The benefits are:

• Externalities and market incentives: In general, the private sector has no incentive to consider the social cost and benefit of its actions. They need to be obliged to do so, for example, by environmental, social and governance (ESG) obligations. Their actions will be more transformational if they are aligned with the public sector.
• Development of emerging technologies: Developing new and innovative technologies is risky. R&D requires substantial funding. By deploying robust funding programmes to support research at its early stages, the public sector can reduce the uncertainty and accelerate the development of technologies, which can significantly contribute to address larger societal issues, such as the prevention of climate events.
• Deployment and scaling up of solutions: Many technologies that can address the climate crisis are already available, but they lack the financial, technical, regulatory, and political support to be scaled up. It is estimated that already mature climate technologies could eliminate 60% of the carbon emissions required to stabilize the climate by 2050.⁹ Public-private collaboration could accelerate the deployment process by maximizing financial, technical, and operational resources.
• Knowledge and resource pooling: Private companies have access to technical resources and sources of expertise and knowledge that are not available to the public sector. Collaboration enables the public sector to develop and implement more impactful projects, especially in the field of green technologies,¹⁰ and allows information and good practices to be exchanged. 

Not collaborating imposes costs on society

The benefits of public-private collaboration are mirrored by the costs of noncollaboration when players act in an isolated manner.¹¹ To fully grasp the origin of these costs, it is helpful to introduce the concepts of individual, synergistic, and social costs, and individual, synergistic, and social benefits (figure 2).

In essence, social benefits are the sum of individual and synergistic costs. Individual benefits and costs are those that players are aware of when acting in an isolated manner: they directly influence or impact the actions of the player. Conversely, synergistic benefits and costs are those that are not apparent to the players when acting alone and only become explicit when players collaborate.

The synergistic component is especially important for benefits because the nature of synergism is that the total effect of two players collaborating is greater than the sum of the individual effects. That is, an additional value arises from the joint action of the two.

We define the equilibrium as the point where benefits equal costs. Considering that external costs are imposed on society even if they are not apparent to the players, we only consider the social cost curve for the equilibrium. On the other side, there are two distinct benefit curves, depending on whether players collaborate or not. If players collaborate, they will consider all benefits. If they don’t, they will only consider those benefits that are apparent to them as individual players.

How collaboration saved lives in the pandemic

This rationale can be applied to the case study of the pandemic, where all players suffer the negative impacts, regardless of the individual benefits to mitigate the pandemic.

Therefore, two equilibria are possible – one where players do not collaborate (social cost equal to apparent benefit) and one equilibrium where players collaborate (social cost equal to social benefit).

Until we reach equilibrium, investments to address the challenges create temporary losses, as costs outweigh the benefits. From this point onwards, the net present value of these investments is positive.

In both the scenario of collaboration or the scenario of noncollaboration, there is a point where the investments to address the challenges start to pay off and the benefits outweigh the costs.  However, it becomes clear that when players collaborate an equilibrium is reached faster.

In the COVID-19 pandemic both the development of vaccines and the vaccination process were greatly accelerated by collaboration, as the public and private sectors pooled resources and scientists and industry combined. The support provided by the public sector to pharmaceutical firms and research institutions led to the development of vaccines in record-breaking time, and in many countries, the vaccination process was carried out with remarkable speed. As a result, nations were able to address this emergency more quickly and effectively. The loss of human life was greatly reduced, as well as the damage to the global economy.

Faster equilibrium means higher social welfare

The fact that an equilibrium is reached faster when the players collaborate implies higher social welfare. In this context, social welfare is intended as the net impact of players’ actions to address the challenges–the difference between the benefits achieved and the costs incurred. Social welfare is higher because collaboration prevents substantial costs–costs of noncollaboration.

The concept can also be demonstrated based on other examples:

• A world that is decarbonized sooner rather than later represents important gains in terms of social welfare–minimizing the economic (e.g., heat stress, damaged capital, lost economic income, agriculture loss) as well as the social (e.g., climate migrations and forced displacements, human health) and the environmental (e.g., biodiversity loss, sea level rise, natural disasters) impacts.
• A world that accelerates and strengthens the humanitarian response to geopolitical threats and natural disasters obtains important gains in terms of social welfare–minimizing the impact on those displaced by promoting stronger and coordinated integration strategies and deploying digital technologies that accelerate the process of providing shelter and safe conditions to those affected (for example, through a system to track vacancies and establishing an automated helpline).

Examples of beneficial public-private cooperation

Below we set out examples of where public-private collaboration has contributed to a quicker mobilization of funds, meaning that the most complex challenges are addressed, and technological development in critical and strategic areas is achieved faster. This collaborative approach drives innovation, overcomes obstacles, and delivers impactful support to the affected communities.

Case study one: The Dutch Fund for Climate and Development (DFCD)

The Dutch Fund for Climate and Development (DFCD) consortium,¹² established by the Dutch government in 2019, works with the private sector with the objective of increasing the climate change resilience of developing countries. The consortium is managed by the Climate Fund Managers, the World Wide Fund for Nature-Netherlands, and the SNV Netherlands Development Organisation, and is led by the Dutch Entrepreneurial Development Bank. Its primary goal is to attract public and private capital for projects that can have a measurable impact in the least developed countries which lack sufficient funding to address climate change challenges. The consortium focuses on three facilities: land use, water, and origination. Through both private and public funding, the consortium has already made significant contributions. For example, over 12.5 million people have gained access to clean drinking water and more than 100,000 hectares of forests, wetlands, and farmland are now sustainably managed. Over €500 million in private finance has been mobilized and 40,000 tons in CO2 emissions have been abated.

Case study two: The First Movers Coalition to reduce carbon emissions

The First Movers Coalition,¹³ formed by the US Department of State and the World Economic Forum in 2021, brings together companies committed to using their purchasing power to promote innovative clean technologies. Eighty-two coalition members share a commitment to reducing the world’s carbon emissions. In addition to private companies, government partners including the US, Japan, Canada, Norway, Denmark, Singapore, Germany, Sweden, India, UAE, Italy, and the UK are also significant members. The coalition's global efforts are concentrated on seven priority sectors for reduction in carbon emissions: aluminium, aviation, carbon dioxide removal, cement and concrete, shipping, steel, and trucking. This unique public-private collaboration seeks to integrate market incentives into the decision-making processes by forming a “buyers club” for emerging technologies with the objective of boosting their development and adoption.

Case study three: Windfloat Atlantic to generate offshore wind energy

The Windfloat Atlantic project¹⁴ is Continental Europe’s first floating offshore wind farm, being located in Viana do Castelo, Portugal. The company responsible for the development, construction and operation of the project is Windplus, S.A, whose sponsors are: Ocean Winds, an international company created as a joint venture between EDP Renováveis and ENGIE and dedicated to offshore wind energy; Repsol; and Principle Power Inc., a global energy technology and services company. Recognizing the project’s economic, societal, and environmental value, the European Investment Bank provided a €60 million loan¹⁵, through a special facility targeted at developing “first of a kind” projects. The wind farm already supplies electricity to approximately 25,000 Portuguese households annually, preventing the emission of 33,000 tons of CO2 per year. This partnership between public and private entities has not only facilitated the deployment of an innovative solution but has also supported the development of other emerging technologies capable of significantly reducing carbon emissions.

Case study four: Support Ukraine Now (SUN)–a public-private crowdfunding initiative

The Support Ukraine Now (SUN)¹⁶ initiative serves as an example of the transformative potential of public-private collaboration in addressing the challenges arising from the war in Ukraine. By bringing together actors from civil society, business, and government, including the Cabinet of Ministers of Ukraine, the Global Shapers Community, and the World Economic Forum, SUN has effectively responded to urgent needs on the ground. One of their successful crowdfunding campaigns has raised €54,858, providing 187 bulletproof vests for the Ukrainian Armed Forces. This collaboration not only offers immediate support but also nurtures a sense of shared responsibility and ownership, allowing for the mobilization of resources and innovative approaches to tackling the complex challenges faced by Ukraine.

Case study five: UNHCR and ICRC

The efforts by the UN High Commission for Refugees (UNHCR¹⁷) and the International Committee of the Red Cross (ICRC¹⁸) in addressing the humanitarian crisis in Ukraine highlight the significance of continuous and sustained support. Both organizations actively engage the private sector and governments, delivering aid to those forced to flee. This joint effort acknowledges the need for long-term engagement and collective action to meet the ongoing needs of affected individuals and communities.

Case study six: Turkey's Disaster and Emergency Management Authority

Turkey's Disaster and Emergency Management Authority (AFAD)¹⁹ exemplifies the power of public-private collaboration in tackling disasters and emergencies. By effectively coordinating efforts among universities, public institutions, the private sector, and nongovernmental organizations, AFAD has raised awareness about disaster risks and reached over 32 million citizens through awareness activities. AFAD’s integrated planning approach and modular structure has minimized operational risks as it coordinates Turkey's response to devastating earthquakes and floods. Additionally, AFAD has provided crucial humanitarian assistance to over 50 countries worldwide.

How to succeed at public-private collaboration

It is important to recognize that past public-private partnerships in Europe have encountered problems that prevented them from having the beneficial impacts they might have had²⁰. Consequently, it is essential to ensure that the right conditions are in place when the public and private sectors collaborate, learning from previous experience and understanding the best approach for governments and the private sector to take. It should be noted, however, that there is no one-size-fits-all solution since the conditions for a successful collaborative arrangement depend on the type of arrangement, the context of the collaboration, and the characteristics of each participant.

Based on a comprehensive analysis of examples, coupled with valuable insights gained from discussions with key stakeholders under the Reshaping Europe Initiative,²¹ we have derived several guidelines for promoting successful public-private collaboration arrangements.

• Robust institutional and legal frameworks:²² Adequate institutional and legal frameworks should be in place to support public-private collaboration. These frameworks should define the parameters of collaboration and protect the interests of all stakeholders.
• Align objectives and languages: Foster alignment between private and public stakeholders by promoting shared understanding of goals and effective communication. This ensures that all parties involved are working towards a common purpose and facilitates seamless collaboration.
• Expertise and knowledge-sharing: Bridging expertise and knowledge gaps between the public and private sectors is necessary for effective collaboration. Establishing platforms and mechanisms for sharing information, best practices, and lessons learned can enhance the collective problem-solving capacity and drive innovation.
• Align economic incentives: Aligning economic incentives for both the public and private sectors is crucial to ensuring their active participation in collaborative efforts. Identifying and creating mutually beneficial incentives can encourage sustained engagement and commitment to shared goals.
• Sustainability and long-term commitment: Public-private collaboration should be viewed as a long-term commitment, not a short-term solution. Sustainable partnerships that continue beyond immediate challenges can foster ongoing innovation, resilience, and impactful support to affected communities.
• Stakeholder engagement and inclusiveness: Meaningful engagement from all relevant stakeholders, including local communities, civil society organizations, and academia, brings their perspectives, expertise, and participation to the development of comprehensive solutions and fosters ownership of the outcomes.
• Effective governance models: Establishing clear governance structures and mechanisms is essential to facilitating smooth public-private collaboration.

10 steps for governments– the GEEAR framework

Public-private collaboration will be shaped heavily by the role governments play. Proactive action by governments promotes success and faster equilibria. A reactive approach reduces the impact public-private arrangements can have.

Here we summarize a set of actionable steps that governments should consider when making strategic decisions. The steps encompass a variety of domains relevant to ensuring success in public-private collaboration. As a result, Deloitte has developed the GEEAR framework²³ with an emphasis on governance, the ecosystems of the players involved, enablers of success, governmental approaches, and regulatory considerations. We set out the central principles below:

Governance

• Establish clear communication channels with the private sector²⁴ and other public organizations, working to understand one another’s language, assuming transparency as a core guiding principle, and defining a priori the level of legal partnership desired.²⁵
• Establish performance metrics and evaluation mechanisms for both private and public sector performance and re-evaluate the partnership conditions when necessary.
• Set up clear governance structures, assigning roles and responsibilities to each entity and defining how risk is to be shared.²⁶

Ecosystem

• Pursue the development of strong institutions in the country, with agile dispute-resolution mechanisms.²⁷
• Adopt the ecosystem approach as the new norm, leveraging collaboration and pooling of resources to address national and regional challenges.

Enablers

• Accelerate the establishment of public-private collaboration arrangements by creating contract standards that ensure the proper incentives to action are in place for all players and removing any incentives for distortion or misbehavior.²⁸
• Leverage documents and guidance on the establishment of public-private partnerships²⁹ and be up to date with European Union initiatives and the regulatory framework on the topic, as well as opportunities launched by the European Commission.³⁰

Approach

• In the preparation stages of the projects and initiatives, adopt rigorous project management office (PMO) and project preparation processes.
• Leverage experienced, cross-sectional teams to coordinate the collaboration arrangements; in the preparation stages, adopt rigorous project management office and project planning procedures and capitalize on private sector expertise.³¹
• Adopt a mission-oriented policy approach³² and define priority actions.³³

Regulatory

• Create a robust, innovation-friendly policy and regulatory framework in which intellectual property rights are protected and public and private funding mechanisms are well-dimensioned and frictionless so that private players are able to create, test, experiment, and develop new solutions.

All in all, the public sector should become more adaptive to a changing world, with a mindset that fosters more collaboration with the private sector. It means creating trust on both sides, a sense of commitment, alignment of priorities, and pooling resources together toward the most complex and pressing challenges we face. It’s an opportunity to reach the most socially desirable outcome sooner rather than later.