Rethinking Municipal Privatization

Oliver D. Cooke

• Publisher: Routledge
• Year: 2007
• ISBN:
  9781135897901
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This book examines one of the most high-profile municipal privatizations the privatization of New York City's Central Park. The fiscal crisis of the 1970s established the political and cultural opening for privatizations, which were justified on the basis of increasing efficiency. However, as Cooke demonstrates, these justifications were deliberate

Chapter One
Municipal Privatization

An Introduction

The private production of municipal goods and services has a long history in the United States. Contracting-out, the most common form by which public goods and services are privately produced, existed long before the Constitution.¹ Corruption has often plagued the private production of public goods and services, and thus the public sector has often been forced to resume production following failed attempts at private production. Indeed, as far back as 1895 the Mayor of Detroit stated, “Most of our troubles can be traced to the temptations which are offered to city officials when franchises are sought by wealthy corporations, or contracts are to be let for public works.”² Hence, responsibility for the production of municipal goods and services in the United States has long resembled a pendulum, swinging (sometimes slowly, at other times more quickly) back and forth between the public and private sectors. Many cities have swung between these two poles numerous times, experiencing first hand the benefits and disadvantages of each.³

Though debate over the extent of the growth in the privatization of municipal goods and services continues, much of the evidence suggests that, at least during the last two decades of the last century, the pendulum swung strongly in the direction of the private sector. As Jeffrey Henig notes, “The rapid dissemination throughout the world of the language and programs of privatization has been likened to a revolution or a boom.”⁴ Ronald Moe’s comment that, “When administrative historians some years hence study the 1980s, they are likely to conclude that “privatization” was the single most influential concept of the decade,” strikes a similar note.⁵ Figure 1.1 shows increases in the use of contracting by city and county governments in the United States between 1988 and 1997 across several goods and services. As shown, the types of public goods and services that have been privatized vary widely and include: the operation and management of gas and electricity production units, hospitals, and daycare facilities, rodent control, and solid waste disposal.

The movement toward increased privatization of municipal goods and services in the United States during the past two decades reflects, in part, political trends dating to the Reagan era that ushered in a new federalism—one that significantly altered the relationship between the various levels of government. Subsequently, the movement was reinforced by the Democratic Party’s efforts to “reinvent” government during the 1990s.⁷ Others locate the movement’s roots in the urban fiscal crisis that swept the country during the 1970s. Under serious fiscal duress, or in some cases nearly bankrupt, many cities were forced to adopt severe austerity and restructuring programs. Such programs often included the partial or full privatization of many publicly-produced goods and services.

Today, the movement towards the privatization of municipal goods and services continues. This movement’s import (or, at least public consciousness of it) becomes especially apparent in times of economic distress, when local governments confront fiscal pressures. Attempts to balance budgets amid declining employment, income, and tax receipts, in a political environment increasingly hostile to tax increases, often expands the list of publicly-provided goods and services thought eligible for privatization. The privatization movement remains critically important even outside locales experiencing fiscal stress, however. In fact, privatized water has fast-become the latest municipal-level privatization buzz issue, as hundreds of American cities have hired private companies to manage and upgrade their aging waterworks systems over the recent past.⁸ The first-term proposal from the Bush administration to privatize nearly half of the federal workforce was yet another indication of the movement’s continued salience on the national policy agenda.

Good/Service	% governments using contracting*
	1988	1997
Gas operation/management	12	60
Operation/management of hospitals	24	71
Operation of daycare facilities	34	79
Electricity operation/management	11	43
Operation of homeless shelters	43	66
Drug and alcohol treatment programs	34	56
Solid waste disposal	25	41
Programs for the elderly	19	34
Ambulance services	24	37
Utility meter reading	7	18
Child welfare programs	17	27
Insect/rodent control	15	21
* The number of local governments varied with each survey and the number of local governments reporting varies within each service. Variations also existed in surveys' formats.

Figure 1.1 Increases in the Use of Contracting by Local and County Governments, 1988 to 1997⁶

It is this backdrop—the rapid expansion of the privatization of municipal goods and services in the United States over the past two decades; the continued mounting fiscal and budgetary pressures confronting many municipalities across the country; and, the apparent increasing likelihood that local governments will turn to the private sector to help provide vital public goods and services—that frames this book and underscores its current and future import.

1.1 INSTITUTIONAL FORMS AND CONCEPTIONS OF PRIVATIZATION

Among the most pressing problems in the discourse on privatization is the need to define precisely what the word means. Similar to many ideas or terms (e.g., globalization), the proliferation of meanings assigned to the word privatization, as well as the endless contexts in which it is thought to apply, has rendered the discourse’s terrain exceeding difficult to navigate, while making communication difficult. The following remarks offer a primer on the most common (institutional) forms privatizations take. This primer is followed by brief comments on broader conceptions of privatization.

Privatizations take many forms at the municipal level. Indeed, subtle differences often lead to confusion about precisely what type of privatization is implemented in a certain locale. Nevertheless, the forms detailed below are common and are used across a broad range of service categories in a host of municipalities across the country.⁹

Asset sales and Long-Term Leases. The government divests an enterprise or property. Privatization qua asset sales is often the centerpiece of state-sponsored privatization programs. Long-term leases involve a government selling an asset to the private sector and then leasing it back.

Contracting-out. A government contracts with private for-profit or non-profit entities or another government (or government agency) to provide a public good or service. Contracting-out is the most common form of municipal privatization in the United States.

Franchise Concessions. The government awards exclusive or nonexclusive rights to private firms to provide a public good or service in a particular locale.

Incentives. Governments use incentives to encourage the delivery of public goods and services by the private sector. For example, a government may change zoning laws or provide zoning waivers to encourage the construction of low-income public housing.

Internal Markets. Government agencies or departments are encouraged to purchase various goods or services from either in-house or outside providers. In-house providers are thereby forced to compete with outside providers.

Managed Competition. A government continues to provide a public good or service, but competes with one or more contractors who also provide the same public good or service.

Management Contracts. The operation of a publicly-owned facility, e.g., an airport, arena, or convention center, is contracted out to a private firm.

Public-Private Partnerships (PPPs). The government finances, manages, and risk shares with the private sector to produce and/or provide a public good or service.

Self-Help. By encouraging individuals and community groups to participate in an activity for their own benefit, the government reduces the amount of government production that would otherwise be required.

Subsidies. Governments may provide financial or in-kind contributions to private organizations or individuals to encourage the delivery of public goods and services. For example, the government may provide space rentfree for a private-run senior citizen recreational center.

User fees. The government charges for services provided by the public sector.

Volunteers. Many governments regularly receive free help from individual citizens in producing and delivering various public goods and services. For example, in many smaller, rural municipalities, fire protection is regularly provided by volunteers.

Vouchers. The government distributes vouchers with a specified value that can used to purchase specific goods or services from qualified private providers.

In addition to the various forms privatizations take, there are several widely-held conceptions of privatization. As Walzer and Johnson write, privatization, “invariably means transferring responsibility for public services from government to the private sector in some fashion. The private sector can include nonprofit organizations, volunteers, and other public groups.”¹⁰ While this conception underpins most understandings of privatization that prevail in the public domain today in the United States, the many others that pervade public discourse deserve brief comment.

Upon its arrival on the national policy agenda in the early 1980s, the privatization issue became...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• List of Figures
• Acknowledgments
• Chapter One Municipal Privatization: An Introduction
• Chapter Two The Evolution of the Municipal Privatization Discourse
• Chapter Three A Class Approach to Municipal Privatization
• Chapter Four A Class Analysis of Central Park’s Privatization
• Chapter Five The Class Analytic Implications of Central Park’s Privatization
• Chapter Six Rethinking Municipal Privatization
• Chapter Seven Rethinking the Privatization of State-Owned Enterprises
• Notes
• Bibliography