A joint sector is an area of the economy with a formal partnership between the government and private industry. Joint sectors became more prominent after the creation of the modern welfare state. Under the pressure to either expand government or shrink it, many policy makers have attempted to take a middle path, encouraging partnerships between the public and private sector. Knowing the disadvantages of such arrangements will help you to better understand current debates.
TL;DR (Too Long; Didn't Read)
The disadvantages of a joint sector are corruption, a reduction in the quality of services, a difficulty in evaluation, reduced wealth creation and the danger of a monopoly.
The Risk of Corruption
A joint sector can open the door to corruption. Unscrupulous people may use agreements with the government to make money for themselves at the public's expense. The lure of large sums of money can itself be a cause of corruption.
People will seek to influence the political process in order to gain the money from joint sector agreements, and may make the government more dysfunctional through their actions. Corruption will limit joint sector usefulness.
Quality of Services
One reason for the creation of a joint sector is that it can be a way to reduce the costs of government. By contracting with private providers, a government can eliminate some of the costs of bureaucracy that typically accompany government services. While costs may be reduced in this way, it can also lead to a reduction in the quality of services, as private entities will be chiefly concerned with maximizing their own profits.
Biases in Evaluation
It can be difficult to evaluate the success of a joint sector project. If a purely private company fails to provide adequate services it will lose its customers and run out of money. Joint sector projects do not run this risk, and can often be run at significant losses.
Parties with stakes in the ventures will be inclined to advocate for them even if they mostly fail at their mission. It can be difficult to close a joint sector project, even with considerable political will and support.
Reduced Ability for Wealth Creation
Another consequence of having a joint sector is that it may crowd out private companies that are more adept at wealth creation. Wealth is mostly created in the private sector. Joint sector ventures have an advantage over private businesses because they do not have the same need to turn a profit. This can allow them to push private companies out of markets and reduce their ability to create wealth for the greater society.
The Risk of the Creation of a Monopoly
Because of the advantages that publicly funded companies have over their private rivals, there is always the danger that they will create a monopoly in any industry that they become involved in. Competition between private firms is usually a cause of improvement in an industry and of the reduction of costs. To the extent that a public partnership limits competition, it could lead to a reduction in the quality of any service or good.
- University of Michigan: Effects of Privatization and Ownership in Transition Economies; Saul Estrin, et al; June 2007
- Institute for Studies in Industrial Development: Joint Sector Enterprises in India; M.R. Murthy
- Economic and Social Committee of the Regional Government of Madrid: Privitization and Public-Private Partnerships; E. S. Savas; 2000