Privatization: Dispelling the Myths

By Kelly McCutchen

In reaction to the state’s new emphasis on competitive contracting of services, the state employees’ union has begun a full-scale campaign to stigmatize and discredit the concept of privatization. Their horror stories are attempts to spread the myth that contracting with the private sector will fail to save taxpayers money, will reduce the quality of services and will result in widespread fraud and corruption. These myths, however, can easily be refuted.

Myth #1

Privatization well lead to widespread layoffs of state employees.

Most public employees do not lose their jobs as a result of privatization. In fact, many states require private contractors to give hiring preferences to current state employees, while other states go even further by transferring displaced employees to other areas of state government.

In a 1989 survey of 2,213 government workers affected by privatization, 58% were hired by the private sector, 24% were transferred to other government agencies, 7% retired and only 7% were laid off. Since the attrition rate in Georgia’s state government averages approximately 10% annually, Georgia could easily adopt a “no-layoff” policy, putting everyone’s fears to rest.

Myth #2

Employee wages and benefits will be drastically reduced under privatization.

In most states, state employee wages and benefits far exceed the compensation of similar employees in the private sector. However, the situation is quite different in Georgia. According to a 1994 study by the American Legislative Exchange Council, Georgia was one of only two states in the nation where annual state employee compensation (wages, salaries and paid fringe benefits) was lower than that of comparable private sector employees.

Myth #3

Private firms will compromise the quality of services in order to maximize profits.

One reason that the private sector is often more efficient than the government is that they are held financially accountable by their stockholders. This often means that they will find the least costly way to accomplish a given task. This does not mean, however, that they will skimp on quality. A competitive marketplace provides the ultimate quality assurance because customers will choose another service provider if the combination of price and quality is not acceptable. In contrast, there is no direct accountability or consequences for providing overpriced or poor quality services in the public sector because customers have nowhere else to go.

Myth #4

Privatization does not save taxpayers money.

The overwhelming evidence from over 100 independent studies shows that competitive contracting and privatization saves an average of 20% to 50% when compared to government-provided services.

Myth #5

Privatization will lead to corruption, health and safety violations, employee abuse and discrimination against minorities.

There are people in both the public and private sectors who are willing to engage in unscrupulous practices for private gain. However, a well-designed contract and an effective monitoring system can minimize, if not totally eliminate, these problems. It happens every day in the business world.

How about the horror stories?

Are there instances where private contractors have taken advantage of taxpayers? Of course, but the great majority of these situations occurred when governments rushed into privatization without establishing the necessary safeguards.

No one can guarantee that privatization will work every time. But, then again, government-provided services are far from perfect. Moving government services into a competitive environment will give Georgia citizens the highest quality services at the lowest possible cost. Taxpayers should demand nothing less.

Kelly McCutchen is executive director of the Georgia Public Policy Foundation, an independent, non-partisan organization dedicated to keeping all Georgians informed about their government and to providing practical ideas on key public policy issues. The Foundation believes in and actively supports private enterprise, limited government and personal responsibility.Nothing written here is to be construed as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.

© Georgia Public Policy Foundation (October, 1995) Permission is hereby given to reprint this article, with appropriate credit given.

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