Universe Books, 381 Park Avenue South, New York, NY 10016 1988 * 330 pages * $24.95 cloth
By the time I got halfway through the introduction to this book, I wanted to send a copy to the mayor of the town where I live. Randall Fitzgerald documents literally hundreds of ways that local and national governments can cut costs without cutting services by turning over government functions to the private sector. Nearly every line contains useful information for anyone interested in learning ways to shrink the size of government. Fitzgerald shows that there is a third alternative to either cutting back on services or raising taxes—privatize.
The “bottom line” of this book is that the private sector can do just about anything better and cheaper than government. The reason? Incentives, which are unleashed by breaking the government monopoly and opening up the service in question to the competitive forces of the marketplace. A secondary theme of the book is that privatization is an idea whose time has come. Numerous municipalities are turning to privatization to reduce costs and provide better service. Some cities have been able to completely eliminate property taxes by privatizing everything. More than 50 countries have also been bitten by the privatization bug and have started turning over functions previously provided by government to the private sector.
Privatization has many faces—at least 22 have been documented so far. Government can sell or give away state-owned enterprises, as Britain has been doing. Services can be contracted out to one or more private companies. Enterprises can be turned over to employees and allowed to sink or swim. State monopolies can be repealed, thus opening up the way to competition. User fees can replace taxes. Numerous methods have been tried and they all result in reduced cost and/or better service. Here are some examples:
When Central Park’s Wollman Skating Rink was closed in 1980, New York City officials estimated it would take two years and cost $4.9 million to repair. Six years and nearly $13 million later they estimated it would take another $3 million and two years to complete the renovation. Businessman Donald Trump made a deal with City Hall and did the job in 31/2 months for slightly over $2 million. Trump was able to circumvent New York State’s Wicks Law, which requires the use of separate contractors for construction, plumbing, electrical, and ventilation work. Mayor Koch was so shocked at the result that he ordered a study to determine how Trump could beat City Hall so badly.
North of Boston, a privately owned and operated incinerator turns garbage into energy for 20 towns having a combined population of over a half million. The towns now pay only $22 per ton to have their garbage taken away, compared to $100 a ton that is charged by the government-operated landfill.
A study prepared for the U.S. Department of Housing and Urban Development examined eight municipal services, comparing the cost of having government provide the service to the cost of having the service contracted out. It found that asphalt paving cost 95 percent more when done by municipal workers, janitorial services cost 73 percent more, and 5 of the other services cost at least 37 percent more when performed by government workers. Payroll preparation costs were about the same regardless of who performed the service. The study also showed that the savings were not due to lower wage rates in the private sector the private sector employees earned an average of $106 a month more than the government workers. Savings were made possible because of the inherently more efficient structure of private, competitive enterprise.
Prisons are also being privatized. A prison in Florida was turned over to a private company when the company offered to provide the service for $24 a day per prisoner, compared to the $37 a day offered by the sheriff. Shortly after taking over, the private company raised guards’ salaries from $8,100 to $13,500. California contracts out to the private sector for more than a dozen detention facilities. Prisoners who were temporarily housed in a private Pennsylvania jail did not want to return to the state-owned facility they came from because the conditions at the privately run prison were much more humane.
Even streets are being privatized. At least 1,000 streets in St. Louis and adjoining areas have been privatized. The result has been skyrocketing property values, as deteriorating neighborhoods reversed the trend toward decay. Neighborhoods became stabilized and safer, and community pride increased. Houston sold some of its streets to homeowners to raise money and experienced similar results.
There seems to be almost no limit to what can be privatized. The U.S. military could save billions by contracting out numerous functions now performed by military personnel such as lawn-mowing, cooking, and selling groceries. Selling the post office and privatizing social security could save taxpayers and consumers bil lions more. Selling off surplus government assets would enable the federal government to make the social security system solvent and could provide enough funds to wipe out the deficit, were it not for the fact that Congress sets up road blocks to prevent such sales from happening.
If you have time to read only one book on privatization, this book would be a good choice. It summarizes what has been happening in the privatization revolution and cites numerous books and articles that can be referred to for further investigation. The index is also quite thorough.
(Professor McGee holds a law degree and teaches accounting at Seton Hall University.)