Privatization of Welfare Services: A Review of the Literature. Definition of Privatization


The term "privatization" can mean several things. For the purposes of this study, we focus on the most common form of privatization  contracting out services to private organizations. However, privatization can also refer to the complete government withdrawal from the function, including the sale of government assets such as rail systems or banks to private companies. In addition, it can include the use of vouchers to allow customers to "shop around" for services, as used, for example, in providing training services under the Workforce Investment Act (WIA) (GAO 1997b; Nightingale and Pindus 1997).(1)

In this study, we focus on the contracting out of services that are funded by public agencies, irrespective of whether the services are provided by nonprofit or for-profit private organizations. Some observers make a distinction between government contracts with not-for-profit organizations and those with for-profit companies, arguing that the differences in their missions and incentives will lead to different strengths and weaknesses in service provision (Cohen 1998; Nightingale and Pindus 1997; Sanger 2001; Osborne and Gaebler 1992). However, others argue that making a sharp distinction between for-profit and nonprofit privatization is not particularly useful because, in many jurisdictions, for-profit and nonprofit organizations subcontract with each other, making it difficult, if not impossible, to draw clean operational or contractual lines between them.

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