Public agencies these days are feeling a financial squeeze. Voters are reluctant to approve new taxes, yet they do not want to give up any government services. At the same time, the aging workforce is increasing the burden of pension payments from government. It all adds up to a hefty price tag that public agencies are struggling to pay.
To solve this problem, many agencies are turning portions of their activities over to private contractors. But privatization is highly controversial. Some people see it as the magic bullet that will cure all of government’s financial woes. Others point out that privatization has inherent risks and pitfalls along with the potential benefits. Regardless of the perspective, privatization is becoming more common and is here to stay. The question seems to be not whether to privatize, but rather how to manage the process for minimum risk and maximum benefit.
This is tricky and requires a solid understanding of the issues at hand and the proper managerial tools to ensure that the process proceeds smoothly. The education to navigate the privatization maze can be obtained through programs such as Ohio University’s online MPA. This program can prepare candidates for many public administration career paths, many of which will include tasks related to privatizing the public sector or building public-private partnerships.
The American Legislative Exchange Council (ALEC), a non-partisan corporate-funded 501(c)(3) and longtime advocate of privatization, has examined the privatization issue in depth. The organization claims that transferring government functions to private for-profit entities can have a number of benefits:
- Lower taxes. ALEC points to the example of Wexford County, MI, which privatized its emergency medical service in 1994, resulting in an improvement in service, reduction in administrative services, and lower costs, saving county taxpayers more than $300,000 in the first year alone.
- Increased efficiency. Private organizations can often get more done than government agencies. An example is a privately-owned incinerator north of Boston, which turns garbage into energy for 20 towns at a fraction of the cost for the government to landfill it.
- Improved effectiveness. Again in Wexford County, animal shelters have been privatized after a state inspection revealed that cages were unsatisfactory. The private contractor is doing a better job of maintaining the animals’ environment.
- Lack of political influence. Transferring responsibility to a private entity with adequate supervision eliminates the chance of officials meddling in the provision of services.
Examples of Privatization
Nearly anything can be privatized, but some functions are more commonly outsourced than others. According to Money Crashers, some popular options for privatization include:
- Road and bridge construction and operation. Many states have licensed the construction and operation of private toll roads in lieu of using taxpayer dollars to build state roads.
- Administrative services. Sandy Springs, GA, a community of 90,000, outsources nearly all of its administrative services, excluding police and fire services. A number of states have outsourced the administration of public welfare.
- Utilities. Indianapolis bid out five dozen city services, including trash collection, pothole repair, and wastewater services. Philadelphia privatized more than 49 city services, including golf course management and printing.
- Prisons. Private, for-profit prisons are becoming more common.
Although private contractors offer potential benefits, public administrators must be cautious when going down this road. A PA Times article details several pitfalls to keep in mind when entering privatization agreements.
- Different goals. The goals of public and private agencies are inherently different. Public agencies are charged with acting on behalf of the public, always keeping the public’s best interest in mind. In the private realm, companies have no such concern. They are beholden to their owners and shareholders, and their primary motive is profit. They may seek to increase their profit even if it means risking the government’s goals and forfeiting the public good. Contracts must be worded with this eventuality in mind, and public agencies must keep careful oversight over contractors to ensure that citizens’ interests are being kept at the forefront.
- Rules and regulations. When public services become privately operated, contractors are no longer subject to the same laws and regulations that govern public employees and that benefit the public at large. Specifically, private companies that provide public services are not subject to the same transparency and accountability standards as public organizations and employees. This issue can pose difficulties, particularly if the contractor’s actions ever come under question.
- Conflicting roles. Private companies providing public services are obliged to operate within two distinct environments: the public and the private sector. These environments have different principles, values, beliefs and operating procedures, which can conflict with each other. Expectations must be clearly delineated up front to ensure that operations proceed as the hiring agency requires.
- Ethical issues. The lack of transparency inherent in private agencies can lead to a lack of accountability. This leaves the door open to ethical lapses such as corruption, manipulation and scandals. Public agencies must keep an eye on their contractors and their own employees to make sure these types of ethical issues do not occur.
These pitfalls, though real, should not scare public administrators away from privatization efforts. The potential benefits of privatization are huge if the process is done thoughtfully, correctly, and appropriately.
About Ohio University’s Online Master of Public Administration (MPA) Program
Ohio University’s online MPA program is dedicated to preparing professionals for a career in public administration. Through the university’s prestigious Voinovich School of Leadership and Public Affairs, students gain an overview of the scope of public administration work while building skills in policy, finance, leadership, business, management, and communications. The school occupies the No. 12 spot in the SR Education Group’s 2019 Best Online Colleges Offering MPA Programs ranking.
The program, which is 100% online, offers four concentrations: Crisis and Emergency Management, Public Leadership and Management, Non-Profit Management, and State and Local Government Management. Students can finish their degree programs in as few as two years. For more information, contact Ohio University now.
Financial squeeze and privatization definition – Forbes
Why privatize? – Money Crashers
Privatization examples – Money Crashers
Potential pitfalls – PA Times