Reason Writers Around Town: Room for Debate on Privatization

The New York Times’ Room for Debate blog sets up their latest topic: “Is Privatization a Bad Deal for Cities and States? To save money, New York is turning the clock back on outsourcing by replacing private contractors with city workers.”

Reason Foundation Director of Government Reform Leonard Gilroy, editor of the Annual Privatization Report, writes:

Contracting works by introducing competition into an otherwise monopolistic system of public service delivery. Governments operate free from competitive forces and without a bottom line. Agency and program budgets are too rarely tied to results, so poor performance in government is often perversely rewarded with budget increases.

Contracting usually generates cost savings for taxpayers between 5 and 20 percent on average, though the benefits of competition extend far beyond cost control. For example, service quality improvements, improved risk management, innovation, and access to outside expertise are other benefits often cited by satisfied government customers.

Contracting out is simply a policy tool, and like any tool, it can be used well or poorly. There are two critical ingredients to successful government contracting. First, public managers should think carefully about the service quality standards they want to achieve, and then develop strong, performance-based contracts that hold contractors accountable for meeting them. Measurable performance standards should be built into contracts, along with incentives for exceeding standards and penalties for underperformance.

Second, once a performance-based contract is in place, government managers must monitor and enforce the terms of the contract to ensure that contractors perform.

Government contracting needs to be seen as part of a larger fiscal management toolkit that includes performance assessment, priority-based budgeting, sunset reviews, and many other approaches to reform.

Full Gilroy take here. The rest of the Room for Debate discussion is here. Stephen Goldsmith, deputy mayor of New York, helped prompt this topic and you can catch him in’s Reason Saves Cleveland video “Privatize It.”