Strategies for Best Practice – Potential Advantages of Privatization

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.

Greater Flexibility

  • 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).

Greater Efficiency

  • 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.

Greater Productivity

  • 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.

Increased Services

  • Private enterprises may offer services that are not provided by the government.

Specialized Skills

  • 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.

More Jobs

  • 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.

Competitive Pressure

  • 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).


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