Issue #234

When the government outsources to private companies, inequality gets worse

State and local officials nationwide are responding to budget crunches by siphoning off public services to private contractors—the classic “market-based solution” for a fiscal crisis. But on balance, the savings of these supposedly cost-saving outsourcing measures often turn out to be less than advertised. A new report from the Colorado Center for Policy Studies out of the University of Colorado outlines the true price of outsourcing government functions like sanitation and healthcare: weakened social infrastructure, deepened economic inequity, and hollowed-out civic institutions. Contracting out a service, like managing bridge tolls or a healthcare website, might make financial sense on paper for a state or local government. And certainly, the recession has produced real fiscal pressures on local policymakers. But the study’s analysis of patterns of contracting and privatization nationwide shows that in many cases, when officials turn to private firms to serve the public on the cheap, hidden costs surface eventually in the form of economic decline, mismanagement, and poor quality of services. The benefits of this kind of “private-public partnership” largely accrue to contractors, while communities bears the costs of insufficient oversight and limited public control over the use of taxpayer resources. In contrast to the neoliberal rhetoric touting the efficiencies of privatization and injecting “free enterprise” into government, when providing critical public services, lower inputs often lead to worse results. The Nation, 3-24-14.