Setting the Privatization Record Straight

Misleading Information
One common anti-privatization tactic is to create and perpetuate misleading information. Opponents of privatization often distribute misleading examples, misinformation, and economic mythology to make their case. The guide shown here contains all three.

You can bet that when good-government policies meet rigid opposition, it's because someone's ox is being gored. Organized interest groups who benefit from wasteful government programs often show up at hearings, write denunciatory articles, and mount all manner of protests when their pet programs are scrutinized.

Privatization is one of these good policies. While it helps government provide higher quality services at lower costs, privatization also means suddenly requiring employees to be more accountable for costs and quality. This prospect does not always inspire good will, and many times stirs up opposition.

You can bet that when good-government policies meet rigid opposition, it’s because someone’s ox is being gored.

What follows are some actual examples of false and misleading statements made by individuals and organizations that do not relish the prospect of having to prove that they do their work efficiently. MPR's responses can help set the record straight so officials can make the right decisions about privatization.

False statement: "Privatizing public school services is gaining popularity even though there is no clear evidence that privatization saves money or improves services."

Facts: Privatizing school services is gaining popularity precisely because it does save money and improve services. Why else would so many school districts do it? According to the American School & University biennial survey of contracting and privatization, the top two reasons schools turn to privatized services is to improve operations and save money. The AS&E survey found that the number of school districts that outsource at least one service grew from 74.2% in 1995 to 82.5% in 1997.

Misleading statement: "Subcontracting is assumed to save money because private companies can somehow provide the same services more efficiently than public entities."

Facts: Private companies can and do provide the same services more efficiently than public entities because they face very real consequences for failure. The waste and inefficiency of many government programs does, in fact, create in people the expectation that private companies will do better, as well it should. Putting government services up for bids will prove whether or not this is correct. For some good examples, see "Private Food Service: School Districts Eat Up Savings," on page 8.

False statement: "Competition encourages low quality."

Facts: Think about some products where consumers report the greatest satisfactioncomputers, auto- mobiles, homes, and electronic equipment such as television and compact disc players. Now consider some things they report the least satisfaction withpublic housing, public schools, the U. S. Postal Service, and veterans hospitals, just to name a few. The first group is produced through private competition; the second group is provided by government. You be the judge.

Misleading statement: "[V]endors may offer initial service periods at substantial savings, perhaps at a loss to themselves, relying on the potential to escalate the cost once they are entrenched."

Facts: Opponents of privatization often try to scare officials with this "warning," without proof or examples. What they forget is the primary advantage of contracting with private vendors: If the contractors fail, they can be replaced. It is important to remember that public administrators have the responsibilityand the opportunityto clearly spell out the responsibilities, financial and otherwise, of each party to the transaction. Poorly performing or high-cost contractors should be replaced, not allowed to become "entrenched." For more information on bidding and monitoring contracts, see the Mackinac Center for Public Policy study, Designing an Effective Bidding and Monitoring System to Minimize Problems in Competitive Contracting.

False statement: "Contracting out work to nonunion, temporary, and part-time workers is taking place in both the public and private sectors with equally disastrous effects on career workers, their unions, and the ability of the American work force to perform their jobs."

Facts: The only way "contracting out" can be profitable for a business or government entity is if those currently providing goods and services aren't operating efficiently and satisfying their customers. Should a company or municipal government be prevented by law from "contracting out" in order to maintain employment for workers or managers or companies or government programs that don't do their jobs well? The "disastrous effects" of contracting out turn out to be merely the economic adjustments that normally take place when customers finally get what they demand: High quality products and services.

False statement: "Many people have faith in competition and the market . . . . However, experience with the unregulated market has caused most people to develop an aversion to corporate monopolies. Their predatory practices lead to a demeaning of values, high prices, low quality, deficient service, and a suppression of innovation. The so-called free market, unfettered by regulation, leads to monopoly and a reduction of choice."

Facts: Ironically, this myth is usually promulgated by those whose jobs are protected by government monopoly; a monopoly that has proved far more pervasive and damaging to America than any monopoly that ever existed in the private sector. In fact, the laundry list of "sins of monopolies" cited above are often observed in U.S. public schools, the U.S. postal service, and a host of other publicly run monopolies that are insulated from competition. Historically speaking, private-sector monopolieswhen they have arisen, which is rarelyhave been extremely difficult to maintain over time, and all have eventually collapsed. One can not say the same for government programs.

It is not easy to anticipate all the arguments that will be raised by those who oppose privatization. After all, many times these opponents are the very peopleor they are protecting the very peoplewhose inefficiency and waste caused privatization proposals to be put forward in the first place. But the myths and refuting facts shown here will help you recognize when privatization is being criticized from the perspective of objective public service, or of self-serving special interest politics.