Privatization – The Wave of the Future?

Commentary:

The notion that private sector providers can do a better job than those who actually work for the government has been a position adopted by critics of the government role in the economy for a very long time. The advocates have often charged that the government is inherently inefficient and therefore the private sector will always be better at providing a given service while those who oppose the privatization approach assert that the government entity loses control of the service and the private provider may not have the best interests of the public in mind. The transitions back and forth have taken place over the last few decades and now the privatization argument is back and this time it isn’t a matter of pressing for more efficiency although that is still part of the argument. The motivation is simply one of money or
the lack of it in many states and municipalities.

The discussion is now over what the core role of government really is. The majority of the functions that are being outsourced are considered less than core by those who are proposing their privatization but this is far from the only interpretation. Others disagree vehemently and question what the future of government will be as these tasks are assigned to the private sector.

The tasks that have been most often privatized are those that are seen as support services and not those that involve direct contact with the public but as budget cuts get deeper, the distinction is getting harder to maintain. Thus far they seem to fall into three categories. The first group is the pure support task – janitorial service, payrolls, IT services and the like. Many of these have been outsourced in prior years just to get the expertise needed but also to gain more flexibility to react to less demand at some times and more demand at others.

The second category gets slightly more controversial as this includes management of government facilities and systems. This has included everything from prisons to state parks and buildings. This category also involves the management of communications and technology and many of the systems used by the employees of the government – pension plans and health plans.

Finally there is the newest frontier – the provision of services directly to the public and this is where the debates get intense. There have been experiments in providing private security to supplement the police and resources to bolster fire and medical services. There are many communities that are hiring contractors to engage with people on almost every level. Perhaps the most controversial of all have been the use of contractors to conduct military operations. The billion dollar question is whether all this really saves money. The use of contractors reduces the expenses involved with providing benefits and insurance to the employees and certainly adds flexibility but the jury is out when it comes to the cost savings.

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