Over the last half century, governments of all political complexions have increasingly embraced privatization-shifting some or all aspects of service delivery to the private sector. This is a strategy to lower the costs of government and achieve higher performance and better outcomes for tax dollars spent. Local policymakers in many jurisdictions in the U.S. and around the world have used privatization to better the lives of citizens by offering them higher quality services at lower costs, delivering greater choice and more efficient, effective government.
The reason for the widespread appeal of privatization is simple: It works. Decades of successful privatization policies have proven that private sector innovation and initiative can do certain things better than the public sector.
[Article continues below video, "Privatize It: Reason Saves Cleveland with Drew Carey, Episode 3]
Government managers use privatization to achieve a number of different goals:
Cost Savings. Competition encourages would-be service providers to keep costs to a minimum, lest they lose the contract to a more efficient competitor. As a conservative "rule of thumb," cost savings through privatization typically range between five to 20 percent.
Improved Risk Management. Through contracting and competition, governments may better be able to control costs by building cost containment provisions into contracts.
Quality Improvements. Similarly, a competitive process encourages bidders to offer the best possible service quality to win out over their rivals.
Timeliness. Contracting may be used to speed the delivery of services by seeking additional workers or providing performance bonuses unavailable to in-house staff.
Accommodating Fluctuating Peak Demand. Contracting allows governments to obtain additional help when it is most needed so that services are uninterrupted for residents.
Access to Outside Expertise. Contracting allows governments to obtain staff expertise that they do not have in-house on an as-needed basis.
Innovation. The need for lower-cost, higher-quality services under competition encourages providers to create new, cutting-edge solutions to help win and retain government contracts.
What to Privatize?
Privatization can be applied to most things government does. One privatization expert at the City University of New York identified over 200 city and county services that have been contracted out to private firms (including for-profit and nonprofit). This is a partial list, but some of the most prevalent areas of local government privatization include: