Privatization of Welfare Services: A Review of the Literature. The Public Administration and Management Perspective


A second type of literature has approached the question of whether services should be contracted out from the perspective of public administration and management, sometimes taking a "how-to" approach (Cohen 1999; Cohen and Eimicke 2000, 2001; Yates 1997b; O'Looney 1998). This literature tends to address pragmatic considerations such as the extent of political support for privatization, the potential cost savings, the administrative structures necessary for effective contract implementation and oversight, management goals such as service integration, and strategies for making the transition from a public to a private workforce. In particular, this literature emphasizes the need to make the bidding and selection process competitive and open, to design effective contracts, and to provide adequate monitoring and oversight (GAO 1997c; Yates 1997b, 1997c; Cohen 1999; Cohen and Eimicke 2000, 2001; O'Looney 1998).

One approach argues for "functional matching," in which decisions about what to privatize and how to do it are determined pragmatically and based on an analysis of the specific details of the services and the larger environment in which they are provided (Cohen 1999). It emphasizes a number of issues, including:

  • The political or social constraints on contracting out, particularly with for-profit companies
  • The essential goals of the program, which might at times be in conflict or inconsistent with each other (such as lowering welfare caseloads and moving families out of poverty)
  • The specific tasks that must be performed to meet the program goals, how these tasks will be designed, and who will be involved in doing this
  • Whether the government currently has the capacity in-house to perform these tasks or whether nongovernmental organizations have more experience with them and seem likely to perform them more efficiently or effectively
  • The extent of competition in the market, the depth of the local market, the potential to create an expanded market through privatization, how capital intensive the activities are and how available capital is, and the potential efficiency and other gains from privatization
  • The extent to which an activity's outcome or results are measurable, whether data on these outcomes can be collected in a feasible way, and whether it can be verified independently or if contract monitors must rely on the veracity of the contractor
  • The degree of risk entailed in the activity and what the risks are, the impacts if the services are performed badly and how reversible or irreversible they might be, and the potential political, social and economic impacts of failure

This approach suggests that a careful analysis, incorporating questions such as these, can help jurisdictions decide appropriately whether to embark on privatization for specific functions, and if they do, to do so more effectively.

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