Outsourcing in the public services: a comparative analysis of practice,capability and impact

This article analyses thinking and practice concerning privatization and outsourcing in the public services and compares recent trends with the findings of an extensive comparative survey of outsourcing conducted at Cranfield School of Management. Particular attention is paid to the systems and processes being outsourced, their importance to the organization and the impact of outsourcing on public service organizations. The results of the survey suggest that public service managers are more skilful than managers from the private sector at handling the transactional aspects of outsourcing. However, managers from public service organizations, unlike managers from the private sector, assert that outsourcing is damaging the running of public service enterprises. It is concluded that until the political and administrative processes are more closely aligned public service managers will continue to hold a more negative view of outsourcing. Copyright © 2001 John Wiley & Sons, Ltd.     

Is Activity-Based Costing Up to the Challenge When It Comes to Privatization of Local Government Services?

After its initial success in the private sector, activity-based costing (ABC) has been embraced by the public sector as an analytical tool that can be used to improve the efficiency of government operations, especially in the area of the privatization of operations. Despite claims that ABC can greatly enhance the evaluation of how to most efficiently deliver services, there are significant obstacles that must be overcome before ABC can be effectively implemented. In order to underscore the challenges facing successful ABC execution in the public sector, the use of activity-based cost accounting by the City of Indianapolis for its privatization initiatives is discussed. Generally ABC is not up to challenge of providing local governments with the tool necessary to comprehensively evaluate direct services and determine which are candidates for contracting out or privatization.     

Reassessing Privatization Strategies 25 Years Later: Revisiting Perry and Babitsky's Comparative Performance Study of Urban Bus Transit Services

Privatization appeals to citizen and politician desires for more cost-effective methods of service delivery. For this reason, it is important for public administrators to know when gains can be made by contracting out or privatizing services and when it is better to keep service provision in house. This article assesses the viability of contracting out and privatization of transit services. Following up on the 1986 work of James Perry and Timlynn Babitsky, which used data from the early 1980s, the authors revisit whether certain service delivery arrangements are more efficient and effective than others in the provision of transit services. Twenty-five years later, they find results similar to those of Perry and Babitsky's original study. Neither the type of government nor whether an agency contracts out has much impact on the efficiency and performance of urban bus services. The main difference between the two studies is that private transit agencies are no longer more efficient or effective than public providers.     

Privatization of public-sector services in theory and practice

The last ten years have seen a marked increase in the analysis and implementation of private-sector alternatives to the production of public-sector services. The impetus for privatization has two sources: (1) opposition to further growth of the public sector, and (2) the belief that the private sector would be a more efficient producer. Yet as privatization moves beyond the acquisition of intermediate goods and services (payroll processing and housekeeping services, for example) to more complex public outputs (such as education, social security, public safety, the postal system, for example), it is subject to increasing challenge on both efficiency and equity grounds. Nonetheless, private alternatives to public production are finding increased acceptance.     

A Review of: “Corruption by Design: Building Clean Government in Mainland China and Hong Kong by Melanie Manion”

ABSTRACT

The impact of privatization on public service quality is an enduring issue in public policy and management. Advocates of privatization suggest that market forces prompt private firms to provide better quality services, while opponents point towards the potential for quality to be traded off against profits. Drawing on incomplete contract and capability theories, we explore a more nuanced possibility: that private providers of public services perform better on dimensions of public service quality that are easier to measure and monitor, and vice versa. Using panel data on service quality in prisons in England and Wales in the period 1998 to 2012, we find that privately managed prisons do perform better on dimensions of quality, such as confinement conditions and prisoner activity, which are more easily measured, whereas public prisons perform better on dimensions of quality, such as levels of order and prisoner safety, which are less easily measured and managed.     

Exploring Public Sector Communication Performance: Testing a Model and Drawing Implications

Despite its importance to agency effectiveness, communication performance is an understudied topic. This is partly attributable to the "performance predicament," which arises because costs of communication are easier to measure than its benefits. In this study, we develop and test an exploratory model of public sector communication performance that is synthesized from the literature on public–private differences and organizational communication. This model is statistically significant and explains the variation in interpersonal, external, and internal communication performance. This is perhaps the largest empirical study on public sector communication to date. Our findings have two key implications for public managers. First, the constraints of red tape on communication performance can be overcome if key performance-enhancing conditions—goal clarity without rigidity and a culture that supports communication—are in place. Second, external communication poses more challenges and may require additional effort.     

On economic values in policy analysis

Analyses of public policy are rooted in the economic theory of the private sector. How relevant is this approach to the public sector? Specifically, where the organization is generally viewed as a controlled variable it often exhibits the characteristics of an independent variable working to constrain the feasible solution space. An illustration of this phenomenon is discussed, using a state rehabilitation agency as the case in point. Conclusions of an analysis based mainly on maximizing the economic value of return on investment conflicted with the agency professional values of individualized client service. This external/internal value conflict led to the apparent inability of the agency to implement the study conclusions in the near term. The substance of this conflict is seen as the main problem facing many public administrators. Recognition of economic values as but one element of public agency analysis is suggested as an approach superior to sole concentration on maximization of the return on public investment. By taking a broader view, the analyst may be able to encourage more rapid implementation of his recommendations.     

Accountability in the Privatized State

As well as better efficiency and improved services, privatization has also often promised improved accountability. But how does the empirical evidence on this look and what are the lessons here? This article looks at the notion of accountability and the degree to which privatizing public sector activities might improve or worsen such mechanisms. It then looks specifically at the different systems of accountability existing following three privatization activities in Victoria and compares these against that existing previously under public operation. The sale of electricity sector enterprises, the operation of urban rail service franchises, and the implementation of a public–private partnership project to supply transport infrastructure are adopted as case studies. For each case study, accountability systems are articulated and the operation of these systems is discussed. Overall, the article analyses the effectiveness of accountability systems now operating in the privatized state from the perspective of stakeholders. Importantly, the degree to which trade‐offs may have been made under new accountability arrangements is also discussed. Finally, the article draws together some general lessons on accountability for future privatization activities and proposes a conceptual model for a pyramid of accountability.     

Is private production of public services cheaper than public production? A meta‐regression analysis of solid waste and water services

Privatization of local government services is assumed to deliver cost savings, but empirical evidence for this from around the world is mixed. We conduct a meta‐regression analysis of all econometric studies examining privatization of water distribution and solid waste collection services and find no systematic support for lower costs with private production. Differences in study results are explained by differences in time period of the analyses, service characteristics, and policy environment. We do not find a genuine empirical effect of cost savings resulting from private production. The results suggest that to ensure cost savings, more attention be given to the cost characteristics of the service, the transaction costs involved, and the policy environment stimulating competition, rather than to the debate over public versus private delivery of these services. © 2010 by the Association for Public Policy Analysis and Management.     

Privatization of public-sector services in practice: Experience and potential

Privatization—the transfer of assets and service responsibility from the public to the private sector—has been expanding at the state and local level. Empirical studies document significant cost savings, apparently due to incentives introduced by competition. The outlook is for continued expansion of privatization, including such areas as highways, transit, water supply, and education.     

US state government privatization: Implications for social equity and inequality?

Privatization of state government services is commonplace, but our understanding of its effects is limited by data availability. We study the relationship between American state government contracting and public sector wages. Governments have used public sector employment to support a variety of goals, including social equity and economic development, but privatization, as a new public management (NPM) reform, may shift the focus. Our empirical analysis shows that state privatization of service delivery is associated with decreases in the public sector wage premium, but that these effects are not driven by gender, race, or low-levels of educational attainment. The fidelity of the implementation to NPM values conditions these effects. We also find that contracting service delivery is associated with a lower public sector wage premium for middle-class workers.     

Privatization and Regulatory Reform of Toll Motorways in Europe

This article analyzes current trends in toll motorway privatization in Europe as an illustration of the paradox of simultaneous deregulation/privatization and reregulation. Changes in the form of government intervention are identified as transitions from internal control on processes and inputs to external control on performance outputs. The state guarantees its capability to intervene and seek its own objectives even when giving up public property. In fact, output regulation is a partial substitute for public ownership. We analyze the hypothesis that privatization of motorways spurs price regulation. Indeed, we observe that toll regulation becomes more detailed as the private sector increases in size, which is a regular reaction across different institutional frameworks. This result is consistent with the literature on the rise of a regulatory state, which emerges with a new mode of governance based on indirect government. Moreover, the study provides evidence of the importance of temporal context in modeling public sector restructuring.     

Reinventing Amtrak: The politics of survival

This article argues that Amtrak's design as a “quasi-public, for-profit” corporation was seriously flawed from its beginnings. The corporation was isolated from America's private railroads, and isolated from trust-funding financial mechanisms that supported highways, airports, and mass transit. It depended on powerful Democratic congressional patrons and labor union support for protection from Republican executive budget cuts. But these allies pushed Amtrak into running far more costly service than was good for its bottom line. The corporation was already engaged in an internal reorganization designed to bring it closer to its customers, when the Republican victory in the 1994 congressional election launched an external effort to reorient and restructure Amtrak. There are three possible outcomes of the two-sided reinvention process: status quo and continued slow decline; partnership based on new relationships between Amtrak, federal and state governments, and the private sector; and privatization which might still require substantial public expenditures for some time. Synchronizing the opportunities created by both the internal and the external reinvention efforts is the key to whether Amtrak can emerge as a viable and valuable provider of rail transportation in the 21st century.     

A contractual framework for new public management theory

This paper evaluates the potential for institutional economics to help us frame choices for the design of institutional arrangements aimed at improving public sector performance, and the lessons it offers for the development of a new public management theory. It defines the key elements of transaction cost and principal agency theory and their application to the public sector. Local government contracting, fiscal decentralization, and performance budgeting, applications that share problems resulting from divergent objectives, information costs associated with policy making and implementation, and risks to public sector accountability, are analyzed. This analysis demonstrates that institutional economics can illuminate how public management can effectively utilize private sector solutions by providing the theoretical underpinnings for government reform initiatives.     

The Challenging Business of Long-Term Public–Private Partnerships: Reflections on Local Experience

Many widely publicized arrangements bearing the popular "public–private partnership" label are complex, long-term contracts between municipalities and private companies. In theory, these innovative contracts offer substantial public benefits, including improved service quality, risk sharing with the private sector, and cost savings. In practice, however, the challenges that long-term contracts pose can undermine their successful implementation at the local level. Drawing on illustrative cases, this article explores some practical impediments to achieving market-driven competition, equitable risk sharing, effective performance guarantees, and appropriate transparency in innovative long-term contracts. It examines the inapplicability of the partnership model to most commercial transactions between government and business, the risks of uncontrollable circumstances, the impact of local resource constraints, and barriers to transparency in long-term contracts. It concludes that local governments embarking on long-term contracts must invest in specialized expertise, effective contract management, and strong governance structures.     

Private Provision of Services and Infrastructure – An Expanding Industry of the Nineties

A conference devoted to the public sector a decade ago is unlikely to have paid any attention to the private provision of public services and infrastructure, as at that stage such activities had had very little impact on the operations of governments in Australia. This article argues that private provision is an important emerging element of public sector service delivery.While generally supportive of such developments, the article presents reasons why governments have increasingly turned to private provision including the benefits involved, but also raises potential management and accountability considerations.     

Public Enterprises and the Budget in Developing Countries

Public enterprises have a substantial fiscal impact in developing countries. This has led to the enterprises impinging on the budgetary process of the government while public enterprises are burdened by budget policies and macroeconomic policies. Such difficulties may necessitate the restructuring of public enterprises, either through privatization or reform to make them more competitive with the private sector.     

Local Government Restructuring: Privatization and Its Alternatives

Local government restructuring should no longer be viewed as a simple dichotomy between private and public provision. A 1997 survey of chief elected township and county officials in New York shows that local governments use both private and public sector mechanisms to structure the market, create competition, and attain economies of scale. In addition to privatization and inter‐municipal cooperation, two alternative forms of service delivery not previously researched—reverse privatization and governmental entrepreneurship—are analyzed here. Logistic regression on the 201 responding governments differentiates the decision to restructure from the level and complexity of restructuring. Results confirm that local governments are guided primarily by pragmatic concerns with information, monitoring, and service quality. Political factors are not significant in the restructuring process and unionization is only significant in cases of simple restructuring (privatization or cooperation used alone). Fiscal stress is not a primary motivator, but debt limits are associated with more complex forms of restructuring. Restructuring service delivery requires capacity to take risks and is more common among experienced local officials in larger, higher‐income communities. Restructuring should be viewed as a complex, pragmatic process where governments combine public and private provision with an active role as service provider and market player. © 2001 by the Association for Public Policy Analysis and Management.     

The challenge of evaluating systemic change: the case of public management reform

At what stage of reform in the public sector does it become possible to conduct a thorough appraisal of results and how does one know when this stage has been reached? How should such an assessment be undertaken? By what methods can comprehensive and far-reaching systemic reforms be evaluated in the arena of public management during recent decades, particularly in countries like Australia, Britain and New Zealand? Most assessments have focused upon specific changes in management practice including the introduction of performance pay, the move to accrual accounting, the growth of contracting-out, the separation of policy and operations or the devolution of human resource management responsibilities. Alternatively, they have dealt with management changes in particular policy domains –such as health care, education, community services or criminal justice –or within a particular organization (department, agency or private provider). By contrast, there have been relatively few macro evaluations –comprehensive assessments of the impact of root-and-branch changes to the system. The problems of evaluation in the arena of public management are inherently complex and the way ahead is by no means clear. This article offers some broad reflections on the limitations to policy evaluation in the field of public management, and more particularly explores the obstacles confronted when assessing the consequences of systemic management reforms. It focuses on recent changes in the New Zealand public sector to illustrate the general themes because these reforms constitute one of best examples of systemic change anywhere in the world.     

An Evaluation of Private Sector Provision of Public Infrastructure in Australian Local Government

Private sector provision of public infrastructure in Australia at all levels of government, including local government, has steadily increased over the past twenty years. Nevertheless, this method of providing public infrastructure remains controversial. This article seeks to provide a critical review of the arguments surrounding private sector provision of infrastructure in Australian local government. It examines both the case for private sector provision of municipal infrastructure in Australia and the major arguments advanced against this approach to infrastructure development. Given the conceptual argumentation and empirical evidence on private municipal infrastructure provision, it is argued that policy makers should employ a nuanced performance evaluation framework to assess the benefits and weaknesses of private provision on the basis of the specific type of infrastructure in question and the kind of services it provides rather than simply endorse carte blanche privatization.