Privatization of Welfare Services: A Review of the Literature. Survey Findings on the Extent of Social Service Privatization


While a number of surveys have collected information on state and local governments' use of privatization, few focus specifically on social services. These assessments employ a variety of methods and definitions, making comparisons among them difficult. They do reveal, however, a general trend toward increasing privatization for social service delivery. The findings of three previous studies are particularly informative:

  • Survey data collected in 1992 and 1993 by the Reason Foundation summarize the extent of social service privatization in the period before welfare reform. Agencies in 29 states and 15 counties responded to the survey, with almost all (94 percent of state agencies and 88 percent of county agencies) confirming that they used some form of privatization in providing social services. Nonprofit organizations were the usual provider of these services, receiving about 80 percent of all contracts. Services most commonly privatized included day care, drug and alcohol treatment, child welfare and adoption, programs for the elderly, and employment training (Eggers and Ng 1993).
  • Although the Council on State Governments 1997 privatization survey elicited responses from social services agencies in only 27 states, more than half of those who responded indicated that they had privatized at least 15 percent of their programs and services, and nearly nine out of ten reported that privatization activity had increased since 1992. Indeed, an analysis of the survey's findings concluded that "social service agencies were the most likely to raise their level of privatization" among the 15 types of agencies covered by the study (Chi and Jasper 1998). Only three state agencies reported that they had privatized "welfare services," but eight said they had contracted for "client assessment" and 10 or more had outsourced services such as child care, drug and alcohol treatment, employment, and Food Stamp issuance. Three-quarters of the agencies responding to the survey expected the trend toward increased contracting out to continue.
  • Research by the GAO (1997b) also found increased privatization of social services. Experts from organizations such as the National Governors' Association, the National Association of Counties, and the National Conference of State Legislators told the GAO that the percentage of state and local social service budgets paid to contractors had grown in recent years. Representatives of state and local governments concurred, noting that since 1990 contractors had both received an increased share of social service budgets and performed a greater number of government functions. The GAO report highlights wide variation in the share of specific program budgets paid to contractors, however, because individual localities operating similar programs make different decisions regarding the extent of privatization.

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