The Advantages and Disadvantages of Privatization - Essay Example

Public Vs Private Table of Contents Contents Page number Introduction 3 Privatization an overview 3 Advantages of privatization 5 Disadvantages of privatization 7 Conclusion 8 Introduction: The paper aims at detailing the advantages and disadvantages of privatization along with insights on the various programs that can be privatized in the US economical structure. The paper will list and elaborate on the various aspects that involve in the privatization of a governmental program. Based on the study done on the pros and cons of privatization the paper will arrive at a consensus on the sectors that can be privatized and the ones that require federal governance. According to Paul Starr ‘Privatization is a fuzzy concept that evokes sharps political reactions.’(Starr. P 1992) It covers a great range of ideas and policies varying from the eminently reasonable to the wildly impractical.’ The debate the paper delves on is what are the programs or sectors that are currently under the governmental supervision that can be privatized and what are the pros and cons of such privatization. Let us first look at some positive and negative facts and opinions from two sources in order to gauge the depth of the subject. Privatization an overview: Michael Williams in his article on Public Vs private pay, states the flaws in the current pay structure of an employee working for the US Postal service. Pointing out this difference in California where the average salary of a CalPers employee in 2004 for was about $46000 and the average of salary of all average per capita income of all Californians was $35000. Since then he says,’ the gap has only expanded. He has proved this by stating the case of Postmaster General E Potter. “Congress will hold a hearing next month into why Postmaster General John E. Potter has gotten a nearly 40 percent pay raise since 2006 and was awarded a six-figure incentive bonus last year, even as the U.S. Postal Service faces a multibillion-dollar shortfall that threatens a day of mail delivery. ALLISON SHELLEY/THE WASHINGTON TIMES REWARDED: Postmaster General John E. Potter received a compensation package totalling more than $800,000 for fiscal 2008.”(Williams. M 2009) While the above information gives us a strong reason for privatization of the US postal service, the following facts will educate us on the public opinion of privatization. When privatization was at its full length and breadth under the Bush administration Congressman Jim Mc Dermott stated the following in one of the discussions “It has become increasingly clear that the Bush Administration cares more about big business than about the average citizen. If this trend toward privatization continues, I worry that the privacy and safety of our citizens will be sold off to the lowest bidder," Congressman McDermott said. "Are executives the only ones who have the right to liveable wages and retirement benefits? What of the rights of hardworking, ordinary Americans? Do they now need to add to the list of their worries whether the food they eat is safe and whether their personal private information will be treated with the confidentiality it deserves?" (McDermott. J 2003) While privatization was increasingly become the order of the new generation for efficiency, productivity and greater tax incomes for the government, Congressman Jim Mc Dermott highlighted the need for the debate of hidden costs in privatization and the need for planned privatization, and the fact of the lack of clarity in terms of cost to the tax payers of the country. To understand privatization as an essential change in today’s economic scenario it is important to list and detail the pros and cons of privatization. Privatization is a process unlike any other processes or policy that has its own strengths and shortfalls. However, it is sector based, and it is important to thoroughly analyze a sector or program, understand its importance to the public, whether the sector if privatized will perform better aiding and providing quality service to the people at large, or will the lack of state governance put the very functions and services of the sector at jeopardy. Listed below are some of the pros of privatization which enables a clear comprehension. Advantages of Privatization: 1. Save Tax payers money: The application of a variety of privatization techniques to state owned services the cost of these services is greatly reduced. The cost savings average between 20 and 40 percent. Competitive bidding and careful government oversight are important to sustained cost savings. Privatization creates a steady stream of new tax revenues to the government. It also puts an end to subsidies granted previously to government run organizations.(Eggers W.D. 1993) 2. Increase Flexibility: Privatization gives officials greater flexibility to meet its needs in terms of adding members during peak seasons and cutting back on services during off seasons. It also gives government the power to replace a non – performing firm. (Eggers W.D. 1993) 3. Improve service quality: A number of services have indicated that public officials believed that service quality was better after privatization. A survey of 89 municipalities conducted in the year 1980 had 63 percent of officials reporting better services arsing out of the contracting. Competitive bidding greatly induces better service quality for example in the laying of roads and infrastructure. (Eggers W.D. 1993) 4. Increased efficiency and innovation: Private management can significantly lower costs and manage operating profits, through flexible job practices and better streamlining of work. Privatization stimulates innovation the increase in competition enables firms to compete and provide the best of services there by increasing the productivity of employees. Redundancy of employees or “pay for sloth is completely eliminated” (Eggers W.D. 1993) 5. Allow policy makers to steer rather than row: Privatization allows state officials to spend rather less time in managing personnel and maintaining equipment is gives them the power to oversee control and enhance services provided to the public. (Eggers W.D. 1993) 6. Stream line and down size government: Private firms often sell their services of to smaller entrepreneurs if the segment is underperforming. Under the microscopic supervision of the smaller entrepreneur the segment can reach higher levels of efficiency. Privatization is one tool to make bureaucracies smaller and more manageable. (Eggers W.D. 1993) 7. Improved maintenance: There is strong motivation among private owners to keep their maintenance in order to preserve their asset value and the investment in the facility Public owners often defer maintenance due to political or bureaucratic considerations thereby increasing long term costs. (Eggers W.D. 1993) Disadvantages of privatization: Privatization in the US has been widely talked about ranging from the infrastructure services to water, waste management, social security, health and the postal department. If the above mentioned aspects can only be achieved through privatization, it is vital to look at the overall strengths of the government in managing the programs and those that are not a characteristic of a private organization. Listed below are the disadvantages or the cons of privatization. 1.From one monopoly to another: Large public services like the water , sewer and telecommunications service when privatized will give rise to very few and large private organizations bidding due to the heavy investment in infrastructure and in the long run lead to monopoly of that organization giving rise to ineffective service to the public at large. 2. Lack of government interference or governance: Once public sector units are privatized these organizations are strongly driven with a profit motive and will only look to deliver and concentrate on bottom line and increase share holder value which will lead to the interests of the general public being compromised at large. It is true that once governmental programs are privatized it will not be required from officials to go through the routine personnel and maintenance work and can concentrate more on productivity, controls and new initiatives of the government in areas that require their direct supervision. However, the lack of control or the lack of an agency or a strategic unit to supervise the firms can have long term irreparable negative effects. It goes without saying that if public sector units are privatized they can cease to function as service providing units for the public and become full fledged business organizations running for profit. In an article published by the Carnegie Council on privatization where James C. Miller states the following on privatization, “If your lawyer doesn’t do a good job, you can change lawyers. Knowing that could happen makes your lawyer stay on her toes. The same thing occurs with your grocery store: if your grocer doesn’t provide you with reasonable prices and fresh foods, you’ll go somewhere else. And knowing that keeps your grocer on his toes” (Miller J.C 1992) Privatization creates competition and therefore provides quality and better service. Conclusion: Privatization seems to have a great growing future in the United States. Its promise of promoting competitive markets and enhancing productivity is real. The privatization of the Postal system, the education system waste management and municipal services will definitely have a positive impact on the sector and a great improvement in the service levels at large. Privatization of municipal services especially in Newmark, New Jersey which comprises of solid waste collection, street sweeping, leaf collection, snow ploughing and salt spreading, sewer and water line construction have yielded significant results in both service and profits. The reason foundation suggests that the city of Los Angeles could save $ 120 million per year by contracting for six services.(Wessel H. R 1995) Sensitive sectors like the Health, Social security and water management must be retained with the government and made more competitive by aggressive initiatives and a clear strategic plan. Perhaps the greatest threat to a healthy development of this mode of economic organization is its possible overuse for quick gains in marginal situations and in unwise attempts to use it at all cases where it is clearly inappropriate. Planned privatization is necessary at all costs to ensure that the economy benefits all the positive aspects of privatization without loosing importance in public service. Vital sectors that are of extreme sensitivity like health, water and social security should be retained with the government to protect the interest of the public and safeguard the sectors from being run like an office of profit. References: 2006, The US Reform. Retrieved on May 28, 2009. from http://www.usreform.org/showpage.cfm?pageid=56051 C. J. Miller., 1992, Privatization in the United States. Retrieved on May 30, 2009. from http://www.cceia.org/resources/publications/privatization_project/0006.html/_res/id=sa_File1/6_James_C_Miller_III.pdf Eggers W.D., 1993, Advantages of Privatization. Retrieved on May 29, 2009. from http://www.mackinac.org/article.aspx?ID=7294 Mc Dermott .J, 2003, United States Congressman Jim Mc Dermott. Retrieved on May 29, 2009. from http://www.house.gov/mcdermott/pr030701.shtml Wessel H. R., 1995, Privatization in the United States. Retrieved on May 28, 2009. from http://findarticles.com/p/articles/mi_m1094/is_n4_v30/ai_17603706/pg_3/?tag=content;col1 Williams. M., 2009, Privatization. Retrieved on May 31, 2009. from http://www.mwilliams.info/archive/2009/02/public-vs-private-pay.php Read More