Analysis of Privatization

Abstract

In this paper we look at the Indianapolis privatization case that was initiated by the former Mayor of the city of Indianapolis Stephen Goldsmith. In the first section we define privatization and look at it its forms as well as alternative policies and criteria for privatization. The second section of the papers examines the case of Privatization of Indianapolis International Airport. In this section we look at the effect of privatization on the service of the airport and changes caused by the privatization. The following section is comparative case of solid waste management in San Diego and Indianapolis. This section looks at different approaches that were taken by the two cities in addressing the solid waste management issue. The fourth section of the paper is concerned with the privatization of wastewater treatment management in Indianapolis. It is an overview of assessment on the wastewater treatment after the privatization. The fifth section is a summary of some issues related to privatization in the US with particular focus in Indianapolis case.

Introduction

For the last decades many government of different level and different countries around the world have attempted to privatize the service and functions that were traditionally public. These efforts were aiming at decreasing the size of the government, reducing the burden on public purse, while increasing efficiency; maximize consumer choice and series of other goals pertinent to specific circumstances. Privatization is defined as a shifting of a function, either in whole or in part, from the public sector to the private sector.

Privatization as a public policy has divided observes and researches and public policy specialists and practitioners into groups of supporters and opponents, as well as those that are neither opposing it and nor supporting while being "cautiously interested in the issue" (Privatization and Its Alternatives, 1991). According to the supporters, privatization conjures up visions of a small, better-organized public sector, reliant on the private marketplace for delivery of public services, with more reliance of private marketplace. On the other hand, the critics maintain that privatization is the government's ceding responsibility for the essential public services to unreliable private sector. In its best the privatization can reduce the cost of government and introduce new possibilities for better service delivery. At its worst privatization can raise costs and has the potential to undermine other important values, such as equity, quality and accountability.

1. Privatization: Forms, Alternatives and Criteria

Privatization is being implemented in different forms of which in the United States the most frequently used one is contracting out. Contracts are awarded to for-profit firms in some instances and non-profit organization in others. Another form of privatization is a voucher, whereby certain consumers are authorized to purchase earmarked goods or services from the private market. The government in this case specifies who is eligible to purchase the services and who is eligible to provide them. Food stamps and housing vouchers are an example this technique. Sale of assets is also a form of privatization, which is more popular in other countries. Sales of assets are complete transformation of property and function to the private sector. Another form of privatization is tiled as "load shedding", which involves the government's abandoning some activity, which may or may not be picked up by the private sector.

Considering the concerns about success of privatization in different policy arena, there are several alternative policy consideration that were proposed as a substitute for privatization. Among those alternatives increasing the accountability to beneficiaries or customers - which implies that holding the public agencies accountable, by providing feedback from clientele, will positively influence the quality of service delivered by the public agency. Another proposed mechanism is making the public service delivery system more accountable to the politicians, who are in their turn accountable to the electorate. Lack of control over executive bureaucracy negatively affects the efficiency and quality of service delivery. On the other hand, more vigorous legislative oversight has potential to improve the service delivered by the public agencies. In addition, many observers suggest encouraging agency worker to participation in agency policy formulation. This idea originated form the private sector experience in Japan.

In some instances, more radical solutions may be warranted. Instead of abandoning hierarchical thinking, one could abandon hierarchical structures, in other words decentralize service delivery. As a result, local structures would be given a greater freedom of taking independent decision that is appropriate to their specific locations. Also traditional policy analysis and audit are required to enable public agencies to save money, improve their performance through better collection and analysis of data, as well as audit will uncover whenever public funds are misspent.

Privatization and its alternatives are evaluated against certain criteria. It is possible that the importance of these criteria is deferent depending upon the policy area, priorities set by the initiator of the privatization, as well as judgments coming from the values laced on each of the option with consideration of local and alternative specifics.

Efficiency is standard benchmark for the economists, and widely used by many policy analysts in evaluating the outcome of privatization. The main aspect of these criteria is that the benefits can be delivered efficiently and by doing so everybody will be better off with no one being worse off. Another criterion is effectiveness- which implies that despite the incurred cost some goals are to be achieved. It is to the nature of some public services that, a particular goal is to be achieved even though the cost is high. Privatization initiatives in many instances and according to some evidence in Indianapolis involve equity issues, which holds, that even change in the function and delivery of services in some public service area should still ensure equal access for the member of concerned community. Many public services are so vital that it require almost absolute reliability and permanent continuity. In view of this, privatization of certain types of services should consider reliability of private partners. Practical experience urges that fully relying upon single private contractor is bound