Proponents of Privatization Often Cite the Following as Reasons to Privatize:
Cost Saving Measure
- Private enterprises are more efficient than government.
- Competition among private enterprises provides an incentive to offer the best services at the lowest price.
- Taxpayers will save money because the private sector may not require as many employees to provide a service and will pay less in employee benefits.
- Privatization offers options unavailable to government for financing expensive construction projects.
- Privatization can help meet demands that exceed existing government capacity.
- Private enterprises can respond to market conditions more quickly than government.
Increase Choice Among Providers
- Clients usually have fewer options for services when the services are provided only by the government.
- Alternative approaches for service delivery such as vouchers and non-exclusive franchises give clients more service delivery options (provider, level of service, location).
- Outsourcing can provide a quicker response to changing demand for labor and services.
- Private enterprises can implement cost cutting measures that may not be available to the government.
- Greater efficiency often leads to faster completion times.
- Private enterprises have a profit incentive to increase productivity.
- Privatization allows public administrators to focus on planning instead of managing day-to-day operations.
- Private enterprises often have more leeway than government managers to increase productivity.
Lower Startup Cost
- Private enterprises having capital investments in equipment, facilities, and/or training can often implement new programs quickly and without significant capital outlays.
Lower Unit Cost
- Large private firms can take advantage of greater economies of scale and centralize the purchase of supplies and equipment.
- Private firms can procure and employ new state of the art equipment and management information systems better than public agencies.
Greater Risk Sharing
- Risks to the taxpayer (e.g., cost overruns) can be shared with the contractor.
- Private enterprises may offer services that are not provided by the government.
- Private contractors may provide specialized skills that are not normally required by the government.
- The expense of recruiting, hiring and retaining government personnel with specialized skills may be too costly compared to outsourcing.
- Privatization can create jobs in the private sector.
Less Government Bureaucracy
- Private enterprises are not required to adhere to as many restrictive procedures and policies.
- Private enterprises can respond more quickly to the market because the private sector is less restrained than the government.
Increased Tax Revenues
- Private businesses are taxed and generate revenue for municipal, state, and the federal governments.
- Outsourcing provides a competitive pressure on public employees that remain following privatization.
- Competitive pressures tend to motivate competitors to lower their prices and improve service quality.
- Privatization reduces the size of “big government”.
Mark J. Rosen, Researcher, “Privatization in Hawaii,” p27-30 (Honolulu: Legislative Reference Bureau, December 2007).