Privatization: An International Review of Performance

By Graeme A. Hodge | Go to book overview

dled politically is one aspect of this. In Australia, conservative political leaders currently follow the belief that employment changes are not the responsibility of a minister, but simply a matter for the markets. In Canada, anecdotes from defense provide a very different picture. Howard ( 1998) paints the Alternative Service Delivery Program as a hot public policy issue, and one which ranked high on the political scale of interest once employment implications of efficiencies were made explicit.

Lastly, and at the risk of repeating the point, it cannot be stressed too much that much of the rhetoric accompanying calls to contract out or subject public sector services to competitive tendering have at their root the privatization ideology. The call to outsource "in line with world best practice of the private sector" is one strand of the privatization belief structure. To the believers, the call to compete with superior private sector efficiency is self-evident. To opponents, the simplicity of this mantra and the underlying assumption that economic efficiency is the only important element of the decision amounts to simplemindedness.


CONCLUSIONS

After this review of privatization as contracting out, what do we now know? Where are we left after a brief narrative review of the literature and a meta- analysis of two decades of studies measuring contracting performance?

A massive distribution of findings is available from the literature. Literally, we can find what we wish to find and quote from dozens of studies justifying our own predetermined beliefs about contracting. Focusing in on those research studies that had reported the statistical characteristics of measurements taken, I came to more definitive conclusions. Looking at the measurements themselves, it was observed that they were mostly from local government, mostly U.S. in origin, and mostly from refuse collection, cleaning, and maintenance services. A significant association between cost savings and contracting was found corresponding to a level of around 6 to 12 percent, depending on how the average was taken, and assuming a few percent for the cost of contracting process. Overall, therefore, it was found that contracting resulted in cost savings, although the precise figures were subject to some important qualifications.

The largest cost savings found were in cleaning, maintenance, and refuse collection (19 to 30 percent), and each of these was highly significant. No significant reductions were found for other services (which varied from average savings of 8 percent to a 24 percent cost increase). Statistically, services were also found to be heterogeneous--meaning that we must treat services as if they are all quite different, statistically speaking. The meta-analysis indicated that both contracting out services and contracting services in-house produced cost savings. Focusing on the picture of how effect sizes appeared to differ, several moderator variables were examined. It was found that the sector providing the service (i.e., the "privatization" of service provision itself) had only a weak impact, if any. Other variables moder-

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