With many cities and states struggling to balance their budgets and financially strained taxpayers unable to sustain liberal spending sprees, elected officials are being compelled to choose between raising taxes and service fees or cutting back on the quality and quantity of services provided.
Now that we’re more than a generation away from the days of President Reagan and Prime Minister Margaret Thatcher, many may have forgotten that there is a third way that relieves the pressure on voters’ sorely squeezed wallets without requiring cutbacks in quality of the services.
Privatization, the transfer of an enterprise or industry from the public sector to the private sector, enables residents to keep receiving the government goods or services they enjoy and need—such as recreational parks and trash collection—at a significantly lower cost to taxpayers.
Until about 30 years ago, the conventional wisdom dictated governments were the only entities capable of properly running important services, simply because they were assumed to be too important to allow private businesses to perform. Governments had to be forced into considering this option, and the rising cost of government services did exactly that.
There are many different types of privatization, and what might be best for one city may not be best for another. With so many options available to lawmakers, the benefits are readily accessible. Some of the many different pro-consumer ideas cities are trying out include: outsourcing contracts for providing services; entering into joint ventures and collaborating with businesses on projects; participating in competitive-bidding auctions; and competing against businesses for contracts.
Turning to the private sector to help connect people with services allows government to tap the wealth of institutional knowledge held by local entrepreneurs. Harnessing this “knowledge capital” can increase government agencies’ efficiency, allowing governments to do more with fewer resources.
Also, private sector businesses often have more access to newer technologies and practices and better funding sources, allowing for more flexibility and innovation when it comes to figuring out how to get the job done.
In addition to more-familiar examples of successes, such as the maintenance and operation of hundreds of miles of toll roads in Indiana or the many cities contracting out trash services to private companies, governments are experimenting with privatization in other ways.
In Sandy Springs, Georgia, lawmakers took things a step further and contracted out all government services except public safety. This bold step allowed the city to cut taxes by 30 percent without service cutbacks.
In 2005, the University of Georgia estimated the city would require 828 employees to serve its citizens solely through government agencies, whereas in reality only 471 employees handle the city’s services, thanks to the efficiency of the private contractors. Excluding police and fire department employees, Sandy Springs has a public sector workforce of just eight full-time workers, and a significant, regular budget surplus that allows them to prepare for unexpected fiscal shocks.
With government-worker pensions pushing many states and localities perilously close to bankruptcy, expect this trend to intensify.
Some on the Left are critical of privatization of government services, fearing that it could lead to insider dealing. Take, for example, the situation with parking meter service privatization in Chicago. There are many in Chicago’s progressive politics who pointed out that the contractor who won the job had very close ties to current mayor Rahm Emanuel and previous mayor Richard Daley. Clearly, a system of checks and balances needs to be in place before services are privatized. Privatization should be transparent, so that ethical questions, like the ones in Chicago, do not emerge.
Chicago’s political contracting is notoriously opaque. But there’s no reason why a smaller town, without the Windy City’s history of corruption, could not, if it wanted to privatize parking meter services, hand the function over to a board of trustees, appointed for the task, who have business or policy expertise, but no business relationships with the mayor or other city leaders.
Every day, we interact with and benefit from private contractors providing government services, often without realizing it. Having to decide between higher taxes or fewer services from government is a false choice, and lawmakers should continue to experiment with privatization and other ways of using market principles to improve the quality of service for taxpayers without taking more and more of their hard-earned money.