Privatization of Welfare Services: A Review of the Literature. Involving Community-based Organizations

05/01/2002

The entrance of for-profit corporations into the market for social service contracts raises questions among some observers about the viability of nonprofit organizations in a newly competitive environment. While local nonprofits often contribute in important ways to their communities, they might not have the financial or organizational wherewithal to compete successfully against well-capitalized corporations. A lack of financial assets is especially problematic when the government does not reimburse the full cost of the employment services until the client is placed in employment. The small size of most community-based organizations also can prevent them from realizing the economies of scale and cost savings of larger companies. Some community-based organizations perceive a conflict between their core missions, which emphasize responsiveness to client needs, and pressures to establish new priorities--such as accurately measuring performance and improving cost efficiency (Sanger 2001; Saxon-Harrold and Heffron 1999). Sanger (2001) expresses the concern that for-profit corporations will capture a sizable portion of government funding that formerly supported community-based organizations, a shift could that weaken the social infrastructure in needy communities and put the traditional clients of community-based organizations at risk.

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