The NY Times has a number of opinions from experts on the privatization debate in an article titled "Is Privatization a Bad Deal for Cities and States?".
It's definitely worth a read.
Intro to the discussion:
Stephen Goldsmith, the deputy mayor of New York, recently said that it's time to get rid of costly private contractors and have city employees handle more of the city's technology services. Mr. Goldsmith, known as "the prince of privatization" when he was mayor of Indianapolis in the 1990s, said he found $41 million in immediate savings by taking the work of the city's data center and wireless network back in-house.
A few quotes:
"We would do far better if we started with the recognition that the public sector is a highly complex and socially vital operation staffed by hundreds of thousands of highly trained professionals. Like all organizations, public ones require competent management and continuing investments in improving operating capacity.
Utopian schemes to contract away these problems through privatization efforts is a form of magical thinking, which leaves taxpayers to pay for the mistakes."
and
"[The International City County Management Association] also tracks the reasons why local governments bring back in-house previously privatized work. The reasons are problems with service quality (61 percent), lack of cost savings (52 percent), improvements in public delivery (34 percent), problems with monitoring (17 percent) and political support to bring the work back in house (17 percent). It turns out citizens prefer local services to be locally controlled and publicly delivered.
Rigorous quantitative analysis of every published study from around the world of water delivery and garbage collection (the two most commonly privatized services at the local government level) finds
no statistical support for cost savings under privatization. Economic theory would predict this result. Private firms have incentives to reduce quality to enhance profits. Hence careful monitoring is required. But monitoring is expensive and it requires continuing knowledge, within government, of how services are produced."
and
"
Contracting out is simply a policy tool, and like any tool, it can be used well or poorly. There are two critical ingredients to successful government contracting. First, public managers should think carefully about the service quality standards they want to achieve, and then develop strong, performance-based contracts that hold contractors accountable for meeting them. Measurable performance standards should be built into contracts, along with incentives for exceeding standards and penalties for underperformance.
Second, once a performance-based contract is in place, government managers must monitor and enforce the terms of the contract to ensure that contractors perform."
and
"There are services that have been proven easy to privatize, such as garbage collection. The task is simple and well defined: drive the truck, pick up the cans, dump the trash and don’t spill it on the street. How do we ensure high quality service? Citizens will complain if it isn’t.
Conservatives like to say that “privatization provides good services at low costs,†while many liberals will claim that “privatization reduces quality and costs jobs.†Both can be right or wrong, depending on the particulars of the service involved.
The trouble is that political agendas seldom align with the cost-benefit analysis required for good privatization policy decisions. The tough part is strategically choosing the right projects and services for privatization that have a good chance of avoiding outsourcing’s pitfalls. "
