A Political Perspective on Contracting Out: The Politics of Good Times. Experiences from Danish Local Governments

Privatization has been on the political agenda for the last two decades. The literature points to two major explanations of privatization. One explanation is political-ideological, considering privatization to be a Liberal-Conservative strategy. Economic crisis or fiscal stress is the other main explanation of privatization. The two theses are investigated by evaluating the determinants of contracting out in Danish local governments. The analysis shows that fiscal stress is strongly, but inversely related to contracting out, while Liberal-Conservative political leadership is not associated with higher levels of contracting out than Social Democratic governance. Thus, the richer a local government becomes, the more it contracts out. Although party politics is not decisive for contracting out, the motivation seems to be political rather than economical. Specifically, it is argued that in a strongly decentralized public sector with influential public employees, contracting out is possible in good times when revenue and public expenditure are easier to increase, which reduces public employee resistance to contracting out.