Privatization, Part 2

Part 2: Privatization Requires a Complicate Procedure 

Adrienne Pauly, LWVMPC Privatization Chair

Today many nations are faced with financial challenges. In the United States these problems are apparent at the federal, state and local levels. Encouraged by proponents of a conservative political philosophy, many people look to privatization as a simple answer to these financial challenges, a way to shift the burden of government to the private sector while reducing the size of government itself. However, privatizing a government function or service is not simple, nor is its outcome assured.

To work successfully, privatization requires expertise at the design level and throughout the process with capable governmental oversight.

Three Crucial Components

Three elements must be present throughout a successful privatization program. 1) The goal of privatization must be “for the common good.” 2) The program must be subject to transparency, allowing the general populace full access to its performance history. 3) And those administering a privatization effort must be accountable at all stages of its existence. It could be a mantra: the common good, transparency, accountability.

The common good represents a goal beyond mere efficiency or economics to include a reflection of the goals of a society. What actions best serve the citizenry at large?

Today’s modern practice of open government is considered a key feature and necessary condition of the contemporary democratic state, according to Gretchen Knell in her paper on transparency (see web link). In this thinking, only the people have the constitutional role as overseers of government action. For that purpose a number of public transparency laws have been enacted throughout the United States at both the federal and state levels. Such laws include sunshine or open meetings laws and the Freedom Of Information Act (FOI) giving public access to government documents and records. The conflicting rights to privacy or transparency often lead to legal wrangles unless clearly defined when designing a privatization project.

Accountability cannot be separated from transparency. From design of a project through completion each person or group exercising a function or service must be accountable for their actions and open to public scrutiny.

More Thorny Issues

In addition to these basic functions, there are many other issues that arise in a privatization program. A few are listed below; they will be expanded upon in the unit meetings.

● What happens to public employees when their service or function is privatized? ● Who designs the contract? (Hopefully, veteran lawyers who know the process.) ● How is ownership of assets defined? ● What’s involved with a franchise? ● When and how are open competitions held and for whom? ● Who assumes the risk of cost overruns or other malfunctions? ● Is there an exit strategy?

Time magazine in a disturbing article in its December 19, 2011, issue, reported drastic cuts in the postal service–up to 200,00 jobs to be lost (counting attrition) and thousands of post offices closed. But that will only reduce the post office debt load by two percent. As some point out, that’s a penny-wise, pound-foolish solution. In the end, the article states, “The debate about the USPS is simple: It’s about privatization of a service that is supposed to be universal.” Enough privatization could well redefine a nation’s character, so citizens need to consider the ramifications.

Privatization Is Everywhere

Don’t think the subject of privatization is abstract or for others: there is a lot of it in Oregon and Salem itself. In fact a recent study reported in the Statesman Journal indicates the whole issue of state contracts has been poorly reported and is currently under legislative review. Among a few of the questionable contracts that came to light are a number of lucrative contracts with former state or government employees for consulting work in areas where they previously worked as government employees. Some of these contracts may well be justified, but they should be reviewed. Conversely, the Oregon Department of Transportation has been praised for its controls and oversight of highway construction projects that have kept on budget.

Clearly, privatization has to be judged on a case-by-case basis, but it should be approached with a sense of caution. Many who have studied the subject find that, although privatization works in some cases, more often it fails to achieve the expected cost savings and efficiency. Sometimes it can be an outright disaster.

One who has reservations is Paul Starr who, at the end of a lengthy study of The Meaning of Privatization (see website address below) published in the “Yale Law and Policy Review,” writes: “To alter the public-private balance is to change the distribution of material and symbolic resource . . . in the process we are likely to narrow our involvements, interest, and vision of a good society and a good life.”

So the subject is timely and important and promises to be with us for the foreseeable future.

The League’s website ( has three excellent articles:

◆ Government Privatization:  History, Examples, and Issues
◆ Paul Starr, The Meaning of Privatization, Yale Law and Policy Review 6 (1988): 6-41.
◆ Privatization: A Seattle League Study 

If you only have time to read one paper, choose the Seattle League Study.

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