Design and Health World Health Design

Standpoint: Financial Folly

The international sub prime crisis lays bare PPP’s popular delusions.

Things fall into place in the strangest ways. Last November I gave a friend a book of Don McCullin’s photographs for her birthday. It’s a record of England in the 60s and 70s. Full page black-and-white plates illustrate a country of terraced houses, bleak urban landscapes and pinched-faced people, a land which was much closer to the nineteenth century than today – not only in its architecture but the economic model which these images represent.

For someone who still files these decades under current affairs, this was like turning white-haired overnight. The Shadows and the Beatles may have provided the soundtrack to my schooldays but the economic models we were taught were still essentially Victorian. We knew then how Britain worked. Every town made something – worsted cloth in Huddersfield, ships in Newcastle, beer in Burton and biscuits in Reading. This model had a visible physical structure with an easily understandable historical causality which, in turn, allowed us clearly defined and polarised political opinions. I had a much better understanding of this country’s economy as a 12-year-old than I do today.

This is not a grab for the comfort blanket of past certainties. My ignorance is probably shared by the vast majority of the population. The last 12 years of growth and stability have given us the empirical evidence we need to believe in an unregulated global economy. It has been good for architects in the UK. But is our complacent ignorance little more than a mature form of cargo cult, in which our need to believe masters any sense of rational enquiry? Like death, the economy has become too scary a subject on which to dwell for very long.

That is why the current sub-prime crisis is so important.  For the sake of argument let us ignore the cupidity, the social irresponsibility and even overlook the absolute lack of self or governmental regulation. For sure there’s a little pain out there at the moment but normal service will be resumed. No, the really shocking aspect for many of us was the extent of the derivatives market. Any service or commodity – a yacht, the mortgage on our house or the equity in a hospital – can be parcelled, wrapped and traded with so slender a connection between these packages and their origins that, six months after the crisis began, banks are still unclear about the extent of their liabilities. We now trade in trades.

Nothing has any intrinsic value any more. Welcome to the world of post-modern ironic economics, where one of the UK’s more successful service exports is public private partnerships (PPP) or PFI as it is known in the UK. There is nothing inherently unethical about using institutional funding to procure public buildings or social infrastructure projects and make a return on your investment in the process. It unlocks capital which was hitherto unavailable for social investment, encouraging development and reducing the pressure on public sector borrowing. For a short period of time five years ago, it looked as though the PFI market could mature into a responsible form of public investment. This has not happened.

One of the main reasons, I believe, is that treasury departments are acutely aware of the huge profits which can be made from trading public health equities and are fully justified in regulating these. Unfortunately they are also constitutionally averse to what they perceive as risk and seek to mitigate all possible threats to the public purse.

On the other side, private construction capital has imposed its own conditions on this process, always suspicious of doing business with government because programmes are rarely maintained and promises are often broken. As a consequence, the risks to all parties have been magnified out of all proportion and the procedures which have been devised to accommodate these concerns are of labyrinthine complexity. Procurement systems are very expensive, protracted and transfer most of the risk onto the unsuccessful bidders and all the construction and design teams.

Nobody in the UK is making any real money out of healthcare PFI other than the equity holders and the lawyers, yet every participant is compromised by their involvement.

This a ruthless system, in which government and the equity investors collude to mitigate public sector risk and ensure substantial profits, at the expense all of the other participants, including the end user clients. It is ironic that, if the banks which have lost billions in the derivatives markets had applied a fraction of the due diligence on their own operations that they exercise on their PFI investments, they would not be in the mess they are today. Process is all, separating the designer from the end-user client and discouraging investment.

The final piece of the jigsaw fitted last month. I was with a UK contractor/developer who confirmed that traditional procurement was a much better development route and would cost £700 per square metre less than PFI with a much shorter programme. Peddling a discredited PPP system to the rest of the world is only marginally better than selling powdered milk to African mothers.

John Cooper is a director of Anshen + Allen

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