The most frequently given rationale for privatization is the belief that it will lead to better services and/or services being delivered more efficiently. This was referenced in all the study sites, and was one of the bases for the political support for privatization in Florida, Texas, and Wisconsin.
Privatization may lead to better and/or cheaper service provision via three mechanisms. The first is competition. Competition for contracts may motivate organizations to improve the quality and efficiency of service provision. Staff at Delawares Department of Labor, for example, argued that under privatization, when an agency fails to perform, it risks losing its contract and being replaced. In contrast, when a public agency shows poor performance, the only recourse is change within the agency, which may be more difficult.
Some argue that it is competition rather than privatization that leads to better or cheaper services, and that introducing such competition between public and private agencies or even among different public agencies could be effective (Nightingale and Pindus 1997). In Wisconsin this was recognized explicitly; public and private agencies were encouraged to compete for contracts. In fact, of the 64 entities that hold TANF contracts in Wisconsin, 54 are counties or consortia of counties. In San Diego County, TANF case management functions are provided exclusively by public agencies in two regions and are divided between public and private agencies in the other four. These public agencies did not compete with private agencies for contracts, but their performance is compared with that of the latter group. Depending on the quality of performance, currently privatized regions could revert to public service provision or vice versa.
The second mechanism by which privatization may improve services is by taking advantage of specific characteristics of private agencies. Some advocates of privatization argue that for-profit private agencies can be motivated to perform by linking payment to their performance, but that it is more difficult to motivate government agencies with performance standards. Others cite the greater flexibility of private agencies. They may have smaller bureaucracies. The lack of civil-service regulations and the absence of labor unions also increase private agencies relative flexibility in hiring, firing, and compensating workers. In San Diego, for example, county administrators pointed to the cumbersome and lengthy process involved in hiring county employees. In contrast, contractors can hire and fire staff and adjust operations relatively quickly if they perceive shortcomings in their services.
The third mechanism by which privatization may lead to better service delivery is through the exercise of client choice. In a privatized system with multiple providers, welfare recipients can be allowed to choose the service provider, encouraging competition between providers and increasing the likelihood of a good match between the services and the client. In Hennepin County, contracting with many different agencies was seen as an effective way to avoid a "one size fits all" approach and to match services with clients needs. Wisconsin is considering creating an "open district" in Milwaukee, in which clients could choose their service provider.