Business and Government Relations

(Bus 401)

The Public/Private Relationship

Chapter Two

Prague November 2012

Privatization

the past two decades "privatization" has become a

label for several governmental reform movements.
The debate over it is complicated by the fact that it
has at least five different dimensions and can be
supported from diverse political perspectives.

Rationales for privatization

The Smaller Government Argument

Members of privatization view the marketplace as
able to allocate money natural resources, and human
talent more efficiently than any government agency,
having the 'bottom line' of profit as a standard for
success. One segment of the privatization movement
favors sharp reductions in the size of government and
maximum freedom for private enterprise.
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Rationales for privatization

The "Business Enterprise" Argument

The group embracing this argument (libertarians)
contends that there is no reason for states and cities to
operate hospitals, waste treatment plants, toll highways
when private companies can run them at least as well.
The logic behind this viewpoint is that the profit motive
forces business enterprises to be more efficient, while
competition in the marketplace compels them to render
the best service possible.
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Rationales for privatization

The "Citizen Choice" Argument

The third group argues that some forms of privatization
would allow citizens more choices in the providers of
services on which they depend. People could choose
from several options the one that best meets their needs.

Rationales for privatization

The "Efficient Government" Argument

The fourth group favor retaining government authority where it

best serves the public purposes, but are open to whatever
arrangements but fit each situation. Large agencies, with their
bureaucratic rules and hierarchies, sometimes lack the flexibility
and speed to respond to new challenges. Furthermore, business
are already carrying on functions that governments need not
duplicate. Government agencies cannot objectively evaluate the
costs and quality of their activities if they are the sole providers
in their areas. Competition can offer a yardstick by which to
measure, and thus increase efficiency.
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Dimensions of Privatization

1- Pure Privatization
This has occurred in many European countries, which
sold their government-owned utilities over the past two
decades. Ex: the United Kingdom divested itself of
British Telecom, British Gas, Water Supply Agencies
and many similar enterprises.

Dimensions of Privatization
In such actions, the authorities ordinarily retain some
control over the private provider, for example, setting
standards for service quality and paying low-income
patients hospital bills.
Ex: sale of public hospital or plants and organizations
or big stores and outlets.

Dimensions of Privatization

2- Vouchers
Are certificates provided by a government agency that
enable people to buy specified goods or services in the
private market. Consumers with several providers to
choose from select the one that is most convenient or
best meets the need.
Sellers then turn in the vouchers and receive
reimbursement (money or product).
Ex: Rental housing, food and nutrition and education.
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Dimensions of Privatization
3- Co-provision and Co-production
a) Co-provision is "voluntary action by citizens and
organizations in financing publicly provided goods and
services as a means of maintaining (or even increasing)
current public service levels".
The contributors may be individuals, charitable
foundations, voluntary associations, or business firms.
Co-provision is also of growing importance to public
education.
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Dimensions of Privatization
b) Co-production is the active delivery of public goods
and services by private individuals and organizations,
working with or parallel to governments.
What co-provision and co-production accomplish
depends to an important extent on government
agencies relations with the contributors and
volunteers. The work of co-providers cannot be
programmed as readily as that of public employees.
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Dimensions of Privatization
They may be effective in one endeavor but not in
another. Administrators must be flexible, ready to enlist
volunteers when available but not entirely dependent on
them.
Ex: Health, and social services, neighborhood crime
prevention; foundation contributions to public service.
Ex: Street and highways construction, management of
government facilities, weapons and military services,
health and counseling services.

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Dimensions of Privatization

4- Contracting
Relationships in which government is a customer are
familiar to nearly every administrator. Contracting is
perhaps the oldest form of privatization. The contract
may be for a set term or an indefinite period. Often,
several hopeful vendors compete for the contract, and the
government agency selects the lowest-priced bid that
meets the qualifications. Such competition ideally
produces the most cost-effective arrangement.
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Dimensions of Privatization
The four basic Steps of Contracting

I- Deciding to contract
This occurs when the government realize that contracting
will save time, effort, and maybe money as well. Also,
when it is lacking the skills and expertise and it makes sense
to contract when an agency's workload varies such that it
would not have full-time work for a group of specialized
civil service employees.
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Dimensions of Privatization

II- Framing the contract

This step starts with choosing the specifications for the
goods or service, and then several methods of payment
can be specified, too. Once the requirements are specified
and competition is expected, the government agency
advertises the request for bids.

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Dimensions of Privatization
Bidding Steps
1. The governments announces its decision of
choose the contractor in the official gazette.
2. The government also declares the projects
specifications and date of offers submissions, and
date of offers discussions and results announcement.
3. A highly technical, diverse committee meets to
discuss offers and decide the winning bidder.
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Dimensions of Privatization
Continuing Bidding Steps
4. Then the committee chooses the winner; the decision
should be based on best quality and lowest price.
But when bidders have personal, or financial links
with officials or lobby intensively, as is common
among major defense contractors, the award may go
to one with less merit but more influence.

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Dimensions of Privatization

III- Choosing a contractor

Selecting a contractor, assuming that several compete,
follows submission of bids. Ideally, the agency selects
the lowest cost bid from a responsible supplier that
meets that specifications. Although, political pressure
on behalf of a given contender may be applied if the
contract is large.

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Dimensions of Privatization

IV-Monitoring and evaluating performance

During the life of the agreement, the agency must
monitor performance or product quality, either
continuously or with spot checks. This requires
careful training of government personnel and the
readiness to take remedial action when necessary,
including termination of the contract and legal
penalties.
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Dimensions of Privatization

5- Public-Private Partnerships
The most complex from of public-private collaboration is
the partnership, a joint venture in which one or more
governmental units and non-governmental entities blend
resources and authority for a project over a sustained period
of time. Its rationale is that a shared effort can accomplish
what neither partner could do, or do as well, by itself. It
goes beyond the contractual form in that government acts
not just as a buyer but also as a contributor and manager in
the joint venture. Each has some resources to apply, yet
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needs what the other can provide.

Summary of the Dimensions of

Privatization
Dimension of Privatization

Examples

1- Pure Privatization

Sale of public hospital or

sewage plant.

2- Vouchers

Rental housing, food and

nutrition aid, education.
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Dimension of Privatization

Examples

Summary
Dimensions
of
3- Co-provision
and Co-of the Volunteer
firefighting,
production
Privatization nonprofit efforts in housing,
health, and social services;
neighborhood crime
prevention; foundation
contributions to public
service.
4- Contracting

Weapons and military

services, foster and nursing
care, health and counseling
services, street and highway
construction, management of
government facilities.
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Dimension of Privatization

Examples

5- Public/Private Partnership Housing and urban

renewal, economic and
industrial development,
education and job training.

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