To Market, to Market: Legislating on Privatization and Subcontracting

46 Pages Posted: 26 Jun 2000

Date Written: 2000

Abstract

Privatization of public services is taking place at an unprecedented rate; however, virtually no states have enacted comprehensive legislation to guide privatization decisions. Logic and an objective assessment of market processes suggest that privatization is likely to have the sort of flaws all human institutions do. Indeed, increasing experience with privatization has already provided the opportunity for a better, more realistic understanding of public services and contracting out to which an overly simplified theory should give way. We know that spectacular privatization failures have occurred, costing taxpayers lost money and lost services. The question is how to use this knowledge to prevent failures and, where failure nonetheless happens, soften its impact.

Even those strongly committed to the market should not be opposed to creating safeguards for subcontracting. Certainly this is an area in which ideological lines are drawn. However, it is easy to see that blind ideological commitment to privatization creates a danger of victimization. Much is at stake when public work is subcontracted, so it is also easy to accept that it is wise to be cautious. On the other side, rigid opposition is not appropriate. Government has always contracted with the private sector for some services and goods it would rather buy than make, such as paper, computers, pens, and many other items readily available on the market. However, although some items can be successfully purchased by the market does not mean all can. The problem is ascertaining which can best be provided by the market and which can not. Law can help decision makers sort through the data involved.

The time is long overdue for comprehensive subcontracting law in every state. Privatization is likely to remain popular. If states continue to subcontract with no suitable law on subcontracting to provide guidance, experience tells us necessary waste and poor service are likely at best. At worst, there may be disasters. This article advances a template for those states considering subcontracting government services but only if they can protect the public interest. It does so by advancing procedures that states should establish for assessing whether to subcontract and by describing safeguards and oversight mechanisms to ensure that, if subcontracting takes place, disasters do not occur. Examples of current state legislation are used to assess how states are, in fact, meeting or failing to meet these fundamental requirements.

JEL Classification: H11, J45, K31, N3

Suggested Citation

Dannin, Ellen, To Market, to Market: Legislating on Privatization and Subcontracting (2000). Available at SSRN: https://ssrn.com/abstract=232401 or http://dx.doi.org/10.2139/ssrn.232401

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