Privatization, Part 1

Part 1: Privatization Downsizes Government’s Role

Adrienne Pauly, LWVMPC Privatization Study Chair

Do not confuse privacy with privatization. One is strictly for the individual. The other relates to the common good.

Individual privacy is well protected in the United States by the Constitution and myriad supporting laws at all levels of government. Privatization, in contrast, involves the transfer of an asset from public to private ownership or the transfer of the management of a public service or activity to private entities. Its proper function requires full transparency and accountability to the public and is best closely monitored by representatives of the public.

Historically, the United States has lagged other nations in the use of privatization. This is largely because our government owns proportionately fewer assets than in other countries. Broadly speaking, the U.S. held a rather liberal bias from the time of Franklin Roosevelt up to the 1980s, and government services expanded considerably during that time. However, the election of Ronald Reagan in 1980 began a conservative tide that has dominated in the years up to the present, with a resulting call for more privatization at all levels of government–federal, state, and local.

Privatization takes many forms

Privatization is a complex subject and its implementation can take many forms. There are five basic ways to privatize. Complete privatization entails the outright sale of a government asset or property to private interests. This form of privatization is used almost exclusively by emerging countries that need help to build basic systems such as water supply. Another form of privatization is having the operations of a public service provided by private operators. The management of city-owned sports stadiums is often in private hands.

Perhaps the most common privatization technique is to contract with individuals or groups to perform a public service. Contracts are often let for waste management services, security services, and consulting work. There is a trend today to turn into private hands the management of national parks, some state universities, even libraries. Franchises give exclusive rights for a private company to operate in a specific geographical area; for example, airwaves are allotted to various television companies to operate in certain areas. Finally, privatization can be achieved through an open competition process. Again, television and telephone companies compete for the use of airwaves in various regions of the country.

The most common areas for privatization to date have been toll roads, utilities, corrections facilities, lotteries, airports and, in recent times, the military.

There are several reasons to privatize

The reasons most often cited for the need to privatize include cost reduction–the private sector can perform a function more economically. Risk transfer absolves the government’s taxpayers from liability if a project fails or incurs large cost overruns.

Privatization can also prove a revenue source for the government. And often the need for expertise not available within government is cited as a need go outside and contract with private experts for specific projects.

It is a mistake to think of privatization as all good or all bad. It can be either. Many public-private arrangements produce positive results. Some have resulted in disaster. (We will look at one local example–Salem’s transit mall.)

The way to ensure a privatization project’s success is to be very, very careful when drafting the original contract. It must deal in detail with two key issues: transparency and accountability. To ensure transparency, officials should include clauses that ensure oversight rights. The people have an inherent constitutional authority over government. They have the right to know and they have the ultimate say because the goal of privatization should be to provide the best possible service for the common good.

In future articles we will look more deeply into transparency and accountability, and we will look at examples that worked very well and some that did not. These real life stories will help League members clarify in their own minds what makes privatization work and what doesn’t.

League members will discuss the Privatization of Governmental Services, Assets and Functions at unit meetings in January and February and will also come to consensus on the topic. The following background papers prepared by the LWVUS study committee make interesting reading.