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POLI 370, Week 4

by: runnergal

POLI 370, Week 4 POLI 370 001

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About this Document

These notes cover what was discussed in class the week of 2/1/16.
Introduction to Public Administration
Dr. Xuhong Su
Class Notes
political science, Government




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This 5 page Class Notes was uploaded by runnergal on Sunday February 7, 2016. The Class Notes belongs to POLI 370 001 at University of South Carolina taught by Dr. Xuhong Su in Winter 2016. Since its upload, it has received 15 views. For similar materials see Introduction to Public Administration in Political Science at University of South Carolina.


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Date Created: 02/07/16
POLI 370 – Lecture 5 Privatization Forms (continued)  3 .     Vouchers: a subsidy that grants partial discretionary purchasing power to an individual  entity to choose among a certain set of goods and services. This choice is often based on  the positive externalities of these goods and services. An example is a voucher for a  different school, i.e. parents receive money from the government for school choice,  parents choose the school for their children that they prefer, and then they give that  money to the school. Vouchers theoretically stimulate competition and reduce both  government spending and inequity (poor people receive larger vouchers). Most of the  time, in the case of schools, vouchers merely worsen the situation: good schools get more money, since more students wish to attend those schools, and bad schools get less money, since no students wish to attend those schools.  4 .     Quasi­government entities: entities retaining both private sector and government legal  attributes. Some examples include Amtrak, USPS, Freddie Mac, etc. These entities  promote social values and economic benefits, such as home ownership.  5 .     Third­party financing: government and private firms create special purpose units that  own and manage facilities. These units then charge the government for the use of those  facilities. For example, the Washington D.C. Department of Transportation (DOT) asked  a company to build a structure consistent with the DOT’s requirements. The company  then leased the building to the DOT. There is no upfront investment for the DOT; the  construction company funds the initial investment. The lease, however, can prove very  expensive to the government over time.  6 .     Grants: were previously discussed in detail. One example includes a PELL grant for  higher education.  7 .     Volunteering: volunteers do not use public resources; instead, this type of privatization  relies on individual contributions from private parties or people.     Why Privatization? o Transaction cost explanation:  Asset specificity: whether or not specialized resources are required to  produce the service. The more specialization that is required, the less  likely that the government will privatize the service. Decisions are not  contracted out; only the service is contracted out.  Service measurability: services that are easy to measure are more  likely to be contracted out than services that are difficult to measure.  Service marketplace: the marketplace is more competitive in more  densely populated, urban areas.  Goal congruence: the government is more likely to joint produce with  other governments than with private companies if the private  company’s service traits are unfavorable.  Political Attractiveness of Privatization 1. Disillusionment with government: people that have stagnant incomes or that do not trust the government will support smaller government, aka  privatization. The three sins of government are waste, fraud, and abuse. 2. Governance problems: the government possesses limited resources for high  public demand. This results in corruption, employee strikes, escalating costs,  etc. 3. National deficits and lack of local revenues cause local governments to seek other, potentially inexpensive alternatives to public goods and services. 4. Private entrepreneurs want to expand their terrain: these private  companies lobby government officials for specific contracts. o Privatization is attractive to small government enthusiasts, even though  privatization may not be cheaper or better than government­controlled  services.  Privatization Controversy o The core business of government (public goods, collective problems, and  social values) should not be privatized since private companies’ primary goals are financial, not ethical. o Periphery business is more likely to be contracted out to private companies.  For example, the government may contract out who monitors the traffic on the road, but the government will not contract out the physical road itself. POLI 370 – Lecture 6  International Trends o The United Kingdom, Australia, and New Zealand were all privatizing pioneers. o Many countries, however, have taken a more moderate privatization position in  the last ten years, considering governments’ disappointment with lack of savings  and government’s realization that a service’s “best value” stems from a broader  set of parameters than mere cost efficiency. o Many governments are now reversing their trains of thought and contracting back  in, aka the contingent approach.  United States’ Privatization Trends o Public employee: government services. o Privatization for­profit: private companies that aim to make money off of  government contracts. o Intermunicipal cooperation: cooperation through contracts between different  counties or municipalities. Each contributes in some way, either through money  or resources. o Privatization non­profit: non­profits are tax­exempt, profits are not distributed  to stakeholders and/or managers, and non­profits file as 501(3). o Privatization trends are flat because some governments privatize many services,  while other governments privatize few services. o The government has always used private companies; privatization is merely the  new name for this process. o Government service is constantly changing, with services being contracted out  and contracted back on a regular basis. o Government managers ensure public service delivery in numerous ways:  Internal Reform (direct public delivery) – stable  Mixed public and private delivery – changing  Contracting out and contracting back in (reversals) – changing  New Trend – Contracting Back In o Government must play a market structuring role to use markets. Competition is  not secured; specific contracts and government monitoring are essential to  effective privatization. o Government is concerned about more than mere efficiency.   Government is concerned about equity and access to resources. For  example, many states have instituted Right­to­Work laws, which allow  people to work without joining a union.  Service quality and sustainability  Community identity and development  Political interests and individual voices o Contracting peaked in 1997; mixed and public delivery are rising now as  government starts contracting back in. Some services that are being contracted  back in are data processing, snow removal, and street repair, since it is hard to  control the cost and time of those services and others.  Why Contract Back In 1. Unsatisfactory service quality. 2. Insufficient cost savings: the government must also pay contract managers, which  eat up much of any cost savings. 3. Local government efficiency improved. 4. Strong political support to bring services back under government control; unions  are difficult to work with and the government wanted to protect social values. 5. Problems with contract specification: it is impossible to predict and define every  possibility within the contract.


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