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Article Summary

Hebdon, Robert. 1995. "Contracting Out in New York State: The Story the Lauder Report Chose Not to Tell." Labor Studies Journal (Spring): 3-29.

The article analyzes critically the claimed benefits of contracting out as detailed in the Lauder Report on privatization in New York State. According to the Lauder Report, privatization not only contributes to efficiency, effectiveness, and equity, but also lessens the threat of strikes. However, the Lauder Report has serious flaws, described below:

  • Flaws in scientific research

    • The report's analysis of solid waste management, which is important because it provides the grounds on which privatization is deemed superior to public sector in terms of efficiency, is flawed. For each of the services, the sample size is too small to produce reliable statistical results.
    • It is not clear that the ten cities analyzed were selected by random sampling.
    • Savas's review, which was conducted from 1965 to 1977, is also not statistically significant based on accepted standards. Accordingly, the study's results cannot be trusted, and do not provide empirical evidence that privatization is more efficient than public sector.

  • Overlooking privatization failures

    • The report overlooked effects on employees: it did not look at pay, benefits, or working conditions of those producing good or service.
    • It ignored the fundamental difference between the public sector and private sector: the public sector is based on public law while the private sector is motivated by economics and behavior theory.
    • It overlooked the impact of privatization on the employment of women and minorities and the possibility of corruption.

  • Implications of contracting out for unions and collective bargaining

    • The Taylor Law prescribes strong penalties against public workers for all strikes and requires a formal bargaining process including union recognition and certification. It contributes to low numbers of strikes, social stability, and economic progress.
    • Contracting out is treated as mandatory subject of bargaining by the Taylor Law. After contracting out, there may be more strikes and social unrest because unionized employees of private contractors will acquire the right to strike.

In conclusion, the author believes that privatization is not a panacea. Rather, it may prove to be a disruptive, socially destabilizing, and ultimately harmful method of cost saving. The practical answer can be found in public sector reform through dialogue, discussion, and negotiation. The productivity improvements that government needs can be acquired by workplace innovations that combine substantial employees participation in decision making with the sharing of economic gains.