Public-private Partnerships Under Weak Institutions: Co-investment and the Case of Vocational Education in Russia’s Regions

Abstract: How and when are governments able to convince firms to engage in costly co-investments in the absence of strong institutional constraints on the state? This paper draws on evidence from a particularly costly form of public-private co-investment: the use of public private partnerships (PPP) to create institutionally complex, costly forms of vocational education designed to promote a high skill labor market and alleviate skill shortages. In much of the literature on professional education, credible commitment is the key to co-investment between different firms, between capital and labor, and between the broader business community and the state. This is generally achieved through the joint efforts of civil society – employers’ associations and labor unions – and the state within a democratic context, resulting in institutionally complex, cooperative forms of Vocational Education and Training (VET). Russia’s regions present a paradox for this literature, however. On the one hand, many regions are characterized by institutionally complex, costly forms of PPP that require close cooperation between firms and schools, as well as significant investments of time and money by firms. On the other hand, civil society is weak in Russia, the state generally poorly constrained, and political competition heavily circumscribed, making co-investment more risky for firms. This paper tests two theories that might explain the emergence of costly forms of PPP in Russia’s regions – state capacity and political accountability (both via elections and the integration of firms into the dominant party). We test these theories using unique data on all PPP in VET undertaken by over 1,654 secondary vocational education schools across Russia’s regions and find support for both. These results complement existing work on investment in settings with weak institutions and have important implications for work on the political economy of investment, bureaucracies, and vocational education.