Joint Venture

In broad terms, a joint venture involves a partnership or alliance among two or more businesses or organizations based on shared expertise or resources to achieve a particular goal. The term is often used for commercial activities undertaken by multiple firms, which abide by contractually defined rules for sharing their assets and the consequent risks and gains of their joint action. The public sector often plays the role of a partner in a joint venture, developing agreements with outside firms or organizations to achieve particular goals.

A joint venture is distinct from other forms of partnerships among organizations, such as mergers or simple contractual arrangements. Partners in a joint venture maintain a separate legal identity, but are bound by agreements about how to share equity, liability, and profits of their partnership. When the public sector is involved in a joint venture, it is often called a public-private partnership and involves public-sector investment and expertise in conjunction with a private-sector partner. Public-private partnerships may involve a range of activities from the construction of infrastructure, scientific research, to more ongoing collaboration in running an organization. Although these types of partnerships have long existed, they have become increasingly prevalent in recent years, and a number of advanced industrial countries have embarked on significant joint ventures with the private sector to construct hospitals and mass transit systems and to invest in new technologies. Joint ventures are also widespread in developing nations, and indeed, are often explicitly promoted by foreign governments and nongovernmental organizations in granting aid and earmarked funds to developing nations. Joint ventures are often attractive to the public sector because they allow an infusion of private money and expertise in pursuit of public aims.

However, joint ventures involving the public sector raise issues about the nature of accountability and the scope of public governance. In entering a partnership with a private firm, the public sector's role is defined as both an investor and a partner. Rather than directly producing the good or service or acting through an arm's length contract, the public sector is engaged in a more extensive contractual arrangement with a firm. As a result, the “publicness” of the venture is often opaque—the good or service may be co-owned and managed by both the public and private sectors. This situation can raise questions about the nature of political accountability and the scope for public action in unforeseen circumstances. Joint ventures substitute direct forms of accountability for the good for a more market-based form of accountability operating through contracts; however, the longer-term or more extensive nature of the contracts means that the public sector is not simply playing the role of a buyer of a good or service but that of a market player. Critics maintain, though, that this dual role is difficult to sustain because the government bears political responsibility for its actions that extend beyond the contractual [Page 504]structure, which means it may continue to bear risk with reduced mechanisms for political control.