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 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.
An analysis of the outsourcing of public healthcare in several hundred counties found that “Although primary care hours and access increased, the quality and quantity of well‐baby care and home‐care for the elderly fell. Costs of providing care did fall, but at the ‘price’ of less access and quality in some critical areas.”
When Shelby County Schools in Memphis contracted out janitorial services, what was supposed to be a more cost-effective labor arrangement collapsed when principals complained that that their schools were “not being cleaned properly,” and the contract workers complained that they had been shorted on pay. In the process, 750 school jobs were lost for a “cost cutting” contract that in the end, cheated workers and the community.
And private contractors often perpetuate regressive public policy. The outsourcing of incarceration to private prison-service companies, for example, has constrained public oversight over prisons and given the politically influential prison industry a perverse incentive, subsidized by taxpayer funds, to perpetuate mass incarceration nationwide.
Daphne Greenwood, economics professor and director of the Colorado Center, tells The Nation that many contract deals hover in a “halfway land” between private incentives and public interests, and ultimately, “might not give you the benefits of either.” While outsourcing might be billed as a market-oriented cost-control measure, ultimately, “The service is still paid for by taxpayers, and once you contract with some group, they've got a monopoly on it…. They've got this guaranteed source of customers.” Yet for the public whom these deals are supposed to benefit, she observes, “there isn’t the competition we associate with the ‘free market,’ and there isn’t the transparency and accountability we expect from government.”