Privatization of Government Services: An Overview and Review of the Literature

Article excerpt

ABSTRACT. Privatization continues to receive serious consideration at the federal, state, and local government levels. The most frequent reason cited for privatizing services is to reduce the size and cost of government. While many government entities have privatized services, it is often up to academic researchers to determine if the goals of privatization have been realized and to shed light on the organizational and service characteristics that make it more likely that the results of privatizing a particular service will be positive. This paper seeks to provide a background to those researchers interested in examining the privatization of government services. The paper reviews and synthesizes prior privatization research and discusses future research directions.


Privatization continues to be an important consideration for many government entities. Limited resources force federal, state, and local governmental units to seek out methods of providing services in the most efficient manner possible. Privatization is one method that government officials utilize to reduce the size and cost of government. A partial list of services that are often privatized includes: airport operations, data processing, fleet or vehicle maintenance, hospitals, parking lots or garages, public safety or corrections, residential solid waste collection and/or disposal, transit or transportation, water and wastewater utilities, and vehicle towing or storage. While many public services are privatizeda in the United States, some services possess characteristics which increase their attractiveness to private sector firms. For example, residential solid waste collection (RSWC) is a likely candidate for privatization because the necessary inputs to production are abundant in the economy (e.g., unskilled labor and specific capital). Also, the costs for private sector firms to enter into (and exit from) the RSWC market are relatively low. This propensity for private sector firms to enter into the RSWC market is apparent from the results of a 1987 survey of privatization in America, sponsored by Touche Ross (now Deloitte Touche), the International City Management Association (ICMA), and the Privatization Council:

... the services most frequently contracted out in the last five years have been solid-waste collection or disposal (nearly 60%), vehicle towing or storage (45%), and building or grounds maintenance and service (nearly 45%) (David, 1988, p. 47).

According to David (1988) these same services are expected to remain among the most frequently privatized.

Privatization is a topic that concerns public officials, public employees, citizens, and scholars. Each of these groups has an interest in the privatization decision. Public officials are concerned with the economic as well as political costs associated with privatization. Public employees fear they will lose their jobs because of privatization. Citizens are interested in the impact of privatization on the taxes they pay as well as the quality of services they receive. Finally, scholars seek to understand the economic and political impact of privatization, as well as the factors that influence the decision to privatize.

The literature is replete with articles that relate the privatization experiences of individual governmental units. For example, McMeekin (1999) describes how fleet management was privatized in Allegheny County, Pennsylvania; Brunsdon and Corssmit (1998) discuss the privatization of the Fairbanks Municipal Utilities System in Fairbanks, Alaska; and Dean, Moskowitz and Cipriani (1999) discuss the implications of privatizing the Student Loan Marketing Association (Sallie Mae) from a government-sponsored enterprise to a private organization. Other articles discuss the incidence of privatization (e.g., Thai and Kim (1998) report the incidence of information systems work outsourced by cities in the state of Florida). Still other articles evaluate the economic impact of privatization decisions. …