In response to the announcement by Deputy Mayor Stephen Goldsmith that the City will be in-sourcing jobs from outside contractors — itself a response to last week’s revelations about City Time — the Times rounded up some experts, and as far as we can tell most of them only seem to speak the same language. For sheer rigor, the remarks of Cornell city planner Mildred Warner were a standout.

Rigorous quantitative analysis of every published study from around the world of water delivery and garbage collection (the two most commonly privatized services at the local government level) finds no statistical support for cost savings under privatization. Economic theory would predict this result. Private firms have incentives to reduce quality to enhance profits. Hence careful monitoring is required. But monitoring is expensive and it requires continuing knowledge, within government, of how services are produced.

Many public services are natural monopolies. In these cases, monopoly provision is cheaper than competition. But monopolies require public control. Even in services which initially experience competition, a competitive market erodes after the initial contract. Fully 75 percent of contracts are given to the incumbent without rebidding. For most local government services the average number of alternative providers is less than two. Only one third of the 67 most common local government services have two or more alternative providers in the market. So in many cases, all privatization does is substitute a private monopoly for a public one. There is more potential for public control over a public monopoly.

Drop me a line at rjk@dailyblague.com
This entry was posted on Monday, April 4th, 2011 at 8:00 pm.