Chapter 6: Applications in Physical and Commercial Services

Savas examines various studies to show the ability of the private sector to deliver services that make up the "physical amenities of modern life" in a more efficient and effective manner than government can, especially when government has a monopoly with regard to those services. Savas uses the following criteria to analyze the relative merits of public versus private service provision: efficiency, effectiveness, and equity. He defines efficiency as the economically appropriate allocation of resources. Effectiveness has to do with the arrangement whose output satisfies the need. Equity has to do with the fair distribution of the service.

Savas breaks down his analysis by citing studies and specific examples in the following categories:

• Solid Waste Management:
  Studies found municipal workers were less efficient due to government monopoly of this service. Privatization saved costs, but cities should seek competitive bids from both private sector and their own solid waste departments.

• Street Services: Private sector had lower costs yet paid higher wages. Firms could do so due to greater knowledge of the work which led to more efficient and cost-saving practices.

• Transportation: Urban buses and subways are transport modes where privatization reduces costs, although competitive bidding is the key to this. Studies in US, UK and Germany have shown that subsidies to public provision of these services produces inefficiency and private firms can save costs without sacrificing quality.

• Water Supply and Treatment: Again, private firms can provide this traditionally public service at lower cost.

• Electric Power: Public providers had higher costs due to lower user rates. Private firms charged more but worked more efficiently.

• Commercial and Administrative Activities: Traditionally taboo area for privatization (printing, secretarial, janitorial, etc.) Many government activities in this area could be effectively privatized. Reduced worker salaries and fringe benefits contribute to the savings.

• State-Owned Property: Studies show government can manage its land assets more effectively and efficiently by privatizing the management of forests, range land, etc.

• State-Owned Enterprises: Privatization can turn around inefficient and/or heavily subsidized enterprises including: power utilities, railroads, postal service, airports, consumer and business loan services, etc. Many developing countries have established these as state-owned enterprises, only to privatize then later because they were so inefficient.

• Miscellaneous and Prospective Applications: Savas cites such examples as weather forecasting, bank deposit insurance, even money supply as candidates for privatization.

In sum, Savas states that government in general should no longer own, operate, and franchise monopolies in the services listed above. Instead, he sees government's role to facilitate, coordinate, purchase contract or market services, and to inspect and enforce the provision of these services by the private sector.