You Don’t Always Get What You Pay for: The Economics of Privatization

216 Pages·1998·2.95 MB·English

by  Elliott D. Sclar

THE ECONOMICS OF PRIVATIZATION
A CENTURY
FOUNDA TION ROOK
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YOU DON’T ALWAYS GET
WHAT YOU PAY FOR
THE ECONOMICS OF PRIVATIZATION
ELLIOTT D. SCLAR
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Today, nearly all public services—schools,
hospitals, prisons, fire departments, sanitation—
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are considered fair game for privatization.
Proponents of privatization argue that private firms
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will respond to competitive market pressures and
provide better service at lower cost. While this
assertion has caused much controversy, the
debate between both sides has consisted mainly M
of impassioned defenses of entrenched positions.
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in YOU DON'T ALWAYS GET WHAT YOU PAY FOR, r
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Elliott D. Sclar offers a balanced look at the pitfalls
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and promises of public sector privatization in the w
United States. By describing the underlying m
economic dynamics of how public agencies and
private organizations actually work together, he
provides a rigorous analysis of the assumptions
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behind the case for privatization.
The competitive-market model may seem appealing,
but Sclar warns that it does not address the
complex reality of contracting for government
services. Using specific examples, such as mail
service and urban transportation, he shows that
privatization ironically does not shrink
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government—the broader goal of many of its
own champions. He also demonstrates that there
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You Don’t Always Get
What You Pay For
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You Don’t
Always Get What
You Pay For
The Economics of Privatization
Elliott D. Sclar
A Century Foundation Book
Cornell University Press
Ithaca and London
The Century Foundation, formerly the Twentieth Century Fund, sponsors and supervises
timely analyses of economic policy, foreign affairs, and domestic political issues. Not-for-
profit and nonpartisan, it was founded in 1919 and endowed by Edward A. Filene.
Board of Trustees of The Century Foundation
Morris B. Abram James A. Leach
H. Brandt Ayers Richard C. Leone
Peter A. A. Berle Alicia H. Munnell
Alan Brinkley, Chairman P. Michael Pitfield
Jose A. Cabranes Richard Ravitch
Joseph A. Califano,Jr. Arthur M. Schlesinger, Jr.
Alexander Morgan Capron Harvey I. Sloane, M.D.
Hodding Carter III Theodore C. Sorensen
Edward E. David, Jr. Kathleen M. Sullivan
Brewster C. Denny James Tobin
Charles V. Hamilton David B. Truman
Matina S. Horner Shirley Williams
Lewis B. Kaden William Julius Wilson
Richard C. Leone, President
Copyright © 2000 by The Century Foundation, Inc.
All rights reserved. Except for brief quotations in a review, this book, or parts thereof,
must not be reproduced in any form without permission in writing from the publisher.
For information, address Cornell University Press, Sage House, 512 East State Street,
Ithaca, New York 14850.
First published 2000 by Cornell University Press
Printed in the United States of America
Library of Congress Cataloging-in-Publication Data
Sclar, Elliott.
You don’t always get what you pay for : the economics of privatization /
Elliott D. Sclar.
p. cm.
Includes bibliographical references and index.
ISBN 0-8014-3733-4 (cloth)
1. Privatization—United States. 2. Privatization—United States—Case studies.
I. Title.
HD3888 .S35 2000
338.973'05—dc21 99-055904
Cornell University Press strives to use environmentally responsible suppliers and materi¬
als to the fullest extent possible in the publishing of its books. Such materials include
vegetable-based, low-VOC inks and acid-free papers that are recycled, totally chlorine-
free, or partly composed of nonwood fibers. Books that bear the logo of the FSC (Forest
Stewardship Council) use paper taken from forests that have been inspected and certi¬
fied as meeting the highest standards for environmental and social responsibility. For fur
ther information, visit our website at www.cornellpress.cornell.edu
Cloth printing 10 987654321
Contents
Foreword vii
Acknowledgments xi
Chapter 1 The Urge to Privatize: From the
Bureaucratic State to the Contract State 1
Chapter 2 What Is the Public Buying? Identifying
the Contracted Public Good 20
Chapter 3 Public vs. Private Production:
Is One Better and How Would You Know? 47
Chapter 4 What’s Competition Got to Do with It?
Market Structures and Public Contracting 69
Chapter 5 All in the System: Organizational Theories
and Public Contracting 94
Chapter 6 Restructuring Work: The Relational
Contract 130
Chapter 7 The Privatization of Public Service:
Economic Limits of the Contract State 151
Bibliography 169
Index 177