Privatization Term Papers

While privatization can mean different things to different people, it generally involves contracting with private sector firms to produce and/or provide goods and services that previously were provided by the public sector.  It usually takes one of four forms including:

1. Sale of a government enterprise to a private organization;
2. Contracting with a private organization to provide a service;
3. Charging user fees to recover the cost of a publicly provided service; and
4. Providing vouchers to low-income persons so they can afford to purchase goods or services from private providers.

One of the virtues of privatization of public works is that it allows for competition by opening the door for entrepreneurs.  There is ample evidence that just as a variety of grocery stores or an array of auto dealers available to consumer leads to competition in prices and quality, a variety of public service providers can offer the same to the public.  Consequently, it is better to not contract with just one provider or to have period re-bidding for the municipal contract to ensure that the competition remains strong.  There is not evidence that having a single contractor is the best option for the provision of services.

The use of public payment for private services defeats a major objection to privatization: fairness.  Under privatization the poor may not be able to pay for the service if it is provided by private firms that would charge the full price of the service.  The voucher system meets this objection.  In addition it recognizes that often “free” public services are used only because they are free.  Certainly choice is maximized when consumers can select their own service provider.

Given that state and local taxes are generally regressive, bearing more heavily upon low-income than high-income individuals, it may be more equitable to establish users’ fees and supply vouchers to those with low incomes than to provide the service on a “free” or reduced cost basis to all individuals regardless of their ability to pay.  If the government feels that a service or good is so essential or desirable that people should not be excluded from consuming because they lack funds, then the use of vouchers is an excellent alternative.

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