One of the chief lessons for states in the 1980s and early 1990s was that short-ten-n fixes such as tax increases do not necessarily lead to fiscal stability. Rather, tax increases typically have resulted in higher state spending and lower economic growth, thereby causing yearly fiscal crises.

More fundamental changes in state government need to be undertaken that will restrain spending growth and ensure that essential services are maintained.

Comprehensive state privatization programs can help achieve this end. By subjecting salaries and benefits to competition, states will be able to constrain rapidly escalating labor costs. By selling selected state assets to the private sector, states will be able to turn dormant physical capital into financial capital that can be used to invest in new infrastructure or for tax relief. Lastly, by systematically applying privatization techniques to a wide range of state services and assets, policymakers can realize the full potential of privatization.