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New York Times Room for Debate


Is Privatization a Bad Deal for Cities and States?

April 03, 2011

By Nicole Gelinas

To save money, New York is turning the clock back on outsourcing by replacing private contractors with city workers.

Privatization of government services can be a tool for competent governments but it’s not a cure for incompetence.

CityTime, New York’s private-sector project for a new payroll system, is an example of privatization gone wrong. The endeavor didn’t do what privatizations should aim to do: encourage savings and better service through competition. All New York did with this contract was allow a monopoly contractor to exert immense power over Bloomberg administration officials.

The lesson learned here: privatization doesn’t obviate the need for government competence and honesty, as well as for the democratic checks and balances that encourage these traits.

In general, too, whenever cities and states sell or lease a big asset to the private sector to reap some short-term cash to cover budget deficits, as Chicago did with its parking meters, taxpayers get a bad deal. Bidders know when a government is desperate for money. They stand ready to enable government officials to enter into decades-long contracts, which only magnifies the effect of any mistakes in calculating potential profits and costs.

But there are good examples of privatization. Take London, for example. New York would be wise to, like London, competitively contract out public bus service, with transit officials choosing bidders based on the lowest public subsidy they require while maintaining uniform safety standards, schedules and payment from customers. Individual contracts would be for a couple of years and cover no more than a few lines, so no operator could gain a monopoly.

Indeed, done well, such deals help break monopolies. In London, recent transit strikes shut down subways, but bus lines still ran, easing union power over the public.

Such a system here would require more government competence, not less, though, to ensure that corruption, collusion and other risks don’t take New Yorkers for a ride.

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