Privatization of Welfare Services: A Review of the Literature. Improved Quality


Dissatisfaction with the quality of public services and the perception that privatization will result in higher quality services have provided another impetus for privatization (Eggers and Ng 1993; GAO 1997c). The belief that the marketplace and competition will discipline organizations that provide low-quality goods or services by driving them out of business is prevalent and contributes to support for privatization and contracting out.

The perception that government agencies have failed consistently to provide high-quality services, particularly in areas such as education, child protection, child support enforcement, and welfare, has motivated some jurisdictions to pursue privatization of social services. Kansas privatized its entire child welfare system, in part in response to a widespread sense that under the publicly managed system, children were remaining in foster care too long after removal from their families (Gurwitt 2000). In 2001, the state of Pennsylvania announced it would take over and privatize the Philadelphia school system, where 57 percent of students failed required state math and reading tests and the drop-out rate was about 50 percent (Fletcher 2001).

Government systems and government workers are often seen as too slow, too inflexible, too focused on process, and too indifferent to results (Gurwitt 2000; Walters 2000). The common belief that the AFDC system was hampered by an inflexible focus on the benefit process, rather than encouraging recipients to leave welfare for jobs, was part of the impetus for privatization and other changes in the welfare systems that states such as Wisconsin, Texas, Ohio, and Colorado undertook during the 1990s (Walters 1997).

The private sector is often seen as simply better at providing services than the public sector. Private nonprofit organizations are often believed to be motivated by a strong sense of mission, which may lead them to offer higher quality services, especially social services for vulnerable people (Sanger 2001; Blank 1999). For-profit companies are generally held to be well-managed, the assumption being that if they are not, they will be driven out of business. They are often able to offer higher salaries and better benefits and working conditions than government; this contributes to the belief that they attract more productive employees. Private for-profit firms, especially large ones, might also have easier access to capital, which can allow them to move into new service areas, expand capacity quickly, or enhance the quality of services (Sanger 2001; Nightingale and Pindus 1997).

Research on the quality of privatized social services is very limited, but, like that on cost savings, it appears to be mixed. A number of experts argue that the different sectors will have different relative strengths, depending on the primary goals of the services (Nightingale and Pindus 1997; Osborne and Gaebler 1992). The empirical evidence, limited though it is, suggests that the quality of privatized services might generally be the same or somewhat higher than when these services are provided by the public sector. However, experts note that these analyses may be somewhat biased in favor of the private sector because privatization often occurs only when public services are particularly ineffective, providing a point of comparison that might not be typical of public-sector provision (Nightingale and Pindus 1997; GAO 1996). The results of several research efforts reflect this complicated picture of service quality:

  • The 1996 GAO child support enforcement study concluded that the privatized operations achieved performance levels as good as or better than those of public child support enforcement operations. Outcomes, such as the success in locating noncustodial parents, establishing paternity and support orders, and obtaining collections, were compared between private and public offices, controlling for differences between the offices in the composition of the caseload. In Arizona and Tennessee, the GAO found no significant differences in the outcomes between the privatized operations and the public operations. In Virginia, the GAO found that the privatized office performed significantly better than the public comparison office in establishing paternity and support orders and making collections (GAO 1996).
  • A California evaluation of two contracts for the GAIN employment and training program in one county found that one contract resulted in good service quality, while the other contract, which dealt with case-management services, resulted in lower performance than county workers on some measures, but comparable performance on others (GAO 1997b).

Some observers take issue with the common assertion that private-sector services are likely to be of higher quality, arguing that the management of private organizations and the quality of their services are not always good. The nonprofit sector has come under some criticism for poor management practices (Cohen and Eimicke 2000). At times for-profit companies have been cited for mismanagement or for providing lower quality services in order to reduce costs and increase profits (Service Employees International Union 1997; Rodrique 1997; Hartung and Washburn 1998). Some suggest that quality may suffer with privatization because the public sector loses some of its accountability (Milward and Provan 1993). Others suggest that it is too soon to know if any single sector will consistently provide the highest quality social services, and they stress the importance of careful program implementation, regardless of whether public or private agencies are the providers (Nightingale and Pindus 1997; GAO 1997a).

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