Going Private

Privatizing the Public Sector, by E.S. Savas, Chatham, N.J.: Chatham House Publishers, 1982, 164 pp., $15.00.

Four years ago when I was writing Cutting Back City Hall, the editor winced at my use of the term privatization. Today, the term appears in the title of a book endorsed by people such as David Stockman, and nobody bats an eye. And when you learn that the book's author is an assistant secretary of the Department of Housing and Urban Development, you can see how far the idea has come in just a few years.

Steve Savas is a man who learned about privatization from experience. Plucked from IBM to serve as first deputy city administrator of New York City under John Lindsay in the late '60s, Savas encountered first-hand the bureaucratic syndrome of our municipal monopolies. As he studied ways to make city government more cost-effective for the taxpayers, he noticed that nearby suburbs frequently used private, profit-making firms to pick up their garbage—at a fraction of the per-household cost of New York City's sanitation department.

Though he got nowhere in introducing the idea of privatizing New York's garbage pickup, Savas took another crack at the subject several years later. As a professor of public systems management at Columbia University, he headed a nationwide study of government versus private garbage collection, funded by the National Science Foundation. The overwhelming weight of evidence of the superiority of private enterprise and competition persuaded Savas that privatization could hold the key to revitalizing our cities.

His experiences in city government, as an official, as a researcher, and as a consultant, expressed in numerous articles, papers, and talks, led to his appointment in 1981 as HUD's assistant secretary for policy development and research—essentially, HUD's idea man. It has also resulted in this splendid new book.

In Privatizing the Public Sector Savas brings together the results of hundreds of studies, books, and journal articles all bearing on the issue of how best to provide various public services. While making rather broad policy recommendations, he carefully distinguishes between what has been documented by sound research and what remains merely speculative. As a guide to what has been learned about the limitations of government as a service provider, the book has no equal.

Savas's book also provides a useful conceptual framework for categorizing and thinking about public services. In addition, he provides the most complete overview yet of the whole range of alternatives to conventional government provision of service-user fees, contracting out, franchising, vouchers, volunteers, etc. Savas applies these ideas across the full spectrum of government—local, state, and federal. And he lays out specific strategies and targets for reform.

Savas has a knack for illustrating his points with provocative examples. Did you know, for example, that in a study of nursing homes operated by the Veterans Administration, the average cost per patient day was found to be 83 percent higher than the cost of comparable care for patients placed by the VA in private nursing homes? Or that two-thirds of the people in Sweden get their fire protection services from private firms under contract to government? Or how about this: "While Wall Street is cleaned by a government bureaucracy, the streets in Communist Belgrade are cleaned by a worker-owned enterprise that has a contract with the city government."

The book does have its limits. For all his familiarity with the free-market literature, Savas occasionally seems to be strangely accepting of government as an appropriate service provider or regulator. At one point, for example, he seems to take it for granted that government must enforce monopoly in the provision of cable TV, electricity, and water service. And his discussion of what are usually called "public goods" neglects the growing literature pointing out that "government failure" is just as much of a problem as the alleged "market failure" leading to the decision to make government the service provider.

Some may even object that Savas's call for "privatization" will do little more than make government more efficient, rather than fundamentally reducing its scope. What this sort of objection overlooks is the difficulty of effecting large-scale social change. It would be nice if simply presenting people with the evidence that markets work better than government would induce them to abolish ineffective agencies. Sadly, the world doesn't seem to work that way. People have to see private firms actually delivering public services in their neighborhood—even if temporarily on an exclusive-franchise or voucher-supported basis—before most of them will be willing to take the next step toward complete replacement of government bureaucracies with private enterprise. Thus, Savas's privatization proposals are a kit of tools for demystifying government as the monopoly provider of service—an essential step in the process of social change.

Privatizing the Public Sector is not a blueprint for a libertarian utopia. But if we are ever to break the spell of continual government growth, it will be books like this that we have to thank.

Robert Poole is editor in chief of REASON and author of Cutting Back City Hall.