Changes between state and market production of public services can be analysed as 'pendulum' swings, reflecting political struggles. The extensive re-municipalisations in the water sector in France and the energy sector in Germany provide evidence on this question. This is not the result of a coordinated institutional initiative, but a reflection of common political and economic factors. The most important of these are the greater efficiency of public sector provision, and the greater degree of control over the effective achievement of public policy objectives. These are closely related to the historic factors driving public ownership in the nineteenth and twentieth centuries. A distinctive feature of this twentyfirst century tendency is the prominent role of green parties and environmental policies. The public sector paradigm has historically shown a remarkable resilience, underpinning the development of European public services for almost a century, compared with the three decades of domination by the market paradigm and its currently vacillating foundations.

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Based on empirical evidence, this paper looks at experience with privatized water supply and sanitation concessions and operating contracts in transition and developing countries, with particular reference to Latin America. The paper is an attempt to address the complexity of issues affecting private sector participation in the water sector from a dynamic point of view, taking into account how the interests, objectives and resources of private sector operators continuously shape their relationships with local stakeholders, citizens and local governments alike, and how the interaction between multinational companies and other actors affect the developmental impact of private sector participation. It is argued that the introduction of commercial considerations into the system and the profit-seeking behaviour of private water operators are major determinants of the economic, social, political and environmental results of public -private partnerships (PPPs). Such factors may explain the discrepancy between the theory pointing at private sector participation as the way forward and the results of private sector participation in practice.

Based on empirical evidence from developed, transition and developing countries, the article looks at how the introduction of private operators’ interests into the water supply/sanitation and energy sectors may conflict with public interests in socio‐economic, environmental and political dimensions. Case studies are used to illustrate the dynamics of these interactions, covering phenomena such as unsolicited proposals, misrepresentation and corruption; the exploitation of established positions by taking advantage of asymmetry of information and negotiating capacity in relation to public authorities; and exit from contracts or concessions when acceptable profitability cannot be attained. This experience indicates that the introduction of private companies into these sectors creates the permanent possibility of conflict between private and public interests. The services are too vital both socially and economically to rely on corporate self‐regulation, and countries lack effective capacity to regulate such corporations. The authors conclude that policies relying on corporate activity in these sectors are unnecessarily risky, and that policy development should focus on building strong public sector institutions to provide these services.

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