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Prague November 2012 1

Business and Government Relations

(Bus 401)

The Public/Private RelationshipChapter Two

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the past two decades "privatization" has become a

label for several governmental reform movements.The debate over it is complicated by the fact that it

has at least five different dimensions and can be

supported from diverse political perspectives.

Privatization

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Rationales for pr ivatization

The Smaller Government Argument

Members of privatization view the marketplace asable to allocate money natural resources, and humantalent more efficiently than any government agency,having the 'bottom line' of profit as a standard for

success. One segment of the privatization movementfavors sharp reductions in the size of government andmaximum freedom for private enterprise.

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Rationales for privatization

The "Business Enterprise" Argument

The group embracing this argument (libertarians)contends that there is no reason for states and cities to

operate hospitals, waste treatment plants, toll highways

when private companies can run them at least as well.

The logic behind this viewpoint is that the profit motiveforces business enterprises to be more efficient, while

competition in the marketplace compels them to render

the best service possible.

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The "Citizen Choice" Argument

The third group argues that some forms of privatization

would allow citizens more choices in the providers of

services on which they depend. People could choose

from several options the one that best meets their needs.

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The "Efficient Government" Argument

The fourth group favor retaining government authority where it

best serves the public purposes, but are open to whateverarrangements but fit each situation. Large agencies, with their

bureaucratic rules and hierarchies, sometimes lack the flexibility

and speed to respond to new challenges. Furthermore, business

are already carrying on functions that governments need notduplicate. Government agencies cannot objectively evaluate the

costs and quality of their activities if they are the sole providers

in their areas. Competition can offer a yardstick by which to

measure, and thus increase efficiency.

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Dimensions of Privatization

1- Pure Privatization

This has occurred in many European countries, which

sold their government-owned utilities over the past two

decades. Ex: the United Kingdom divested itself of

British Telecom, British Gas, Water Supply Agencies

and many similar enterprises.

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In such actions, the authorities ordinarily retain some

control over the private provider, for example, settingstandards for service quality and paying low-income

patients hospital bills.

Ex: sale of public hospital or plants and organizations

or big stores and outlets.

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2- Vouchers

Are certificates provided by a government agency that

enable people to buy specified goods or services in the

private market. Consumers with several providers to

choose from select the one that is most convenient or

best meets the need.

Sellers then turn in the vouchers and receive

reimbursement (money or product).

Ex: Rental housing, food and nutrition and education.

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3- Co-provision and Co-production

a)Co-provisionis "voluntary action by citizens and

organizations in financing publicly provided goods andservices as a means of maintaining (or even increasing)

current public service levels".

The contributors may be individuals, charitable

foundations, voluntary associations, or business firms.

Co-provisionis also of growing importance to public

education.

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b) Co-production is the active delivery of public goods

and services by private individuals and organizations,working with or parallel to governments.

What co-provision and co-production accomplish

depends to an important extent on government

agencies relations with the contributors andvolunteers. The work of co-providers cannot be

programmed as readily as that of public employees.

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They may be effective in one endeavor but not inanother. Administrators must be flexible, ready to enlist

volunteers when available but not entirely dependent onthem.

Ex:Health, and social services, neighborhood crimeprevention; foundation contributions to public service.

Ex: Street and highways construction, management ofgovernment facilities, weapons and military services,health and counseling services.

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4-Contracting

Relationships in which government is a customer are

familiar to nearly every administrator. Contracting isperhaps the oldest form of privatization. The contract

may be for a set term or an indefinite period. Often,

several hopeful vendors compete for the contract, and the

government agency selects the lowest-priced bid that

meets the qualifications. Such competition ideally

produces the most cost-effective arrangement.

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The four basic Steps of Contracting

I- Deciding to contract

This occurs when the government realize that contracting

will save time, effort, and maybe money as well. Also,

when it is lacking the skills and expertise and it makes sense

to contract when an agency's workload varies such that itwould not have full-time work for a group of specialized

civil service employees.

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II- Framing the contract

This step starts with choosing the specifications for the

goods or service, and then several methods of payment

can be specified, too. Once the requirements are specified

and competition is expected, the government agency

advertises the request for bids.

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Bidding Steps

1. The governments announces its decision of

choose the contractor in the official gazette.

2. The government also declares the projects

specifications and date of offers submissions, and

date of offers discussions and results announcement.3. A highly technical, diverse committee meets to

discuss offers and decide the winning bidder.

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Continuing Bidding Steps

4. Then the committee chooses the winner; the decisionshould be based on best quality and lowest price.

But when bidders have personal, or financial links

with officials or lobby intensively, as is common

among major defense contractors, the award may goto one with less merit but more influence.

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III- Choosing a contractor

Selecting a contractor, assuming that several compete,

follows submission of bids. Ideally, the agency selects

the lowest cost bid from a responsible supplier that

meets that specifications. Although, political pressure

on behalf of a given contender may be applied if the

contract is large.

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IV-Monitoring and evaluating performance

During the life of the agreement, the agency must

monitor performance or product quality, either

continuously or with spot checks. This requires

careful training of government personnel and the

readiness to take remedial action when necessary,including termination of the contract and legal

penalties.

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5-Public-Private Partnerships

The most complex from of public-private collaboration is

the partnership, a joint venture in which one or moregovernmental units and non-governmental entities blend

resources and authority for a project over a sustained period

of time. Its rationale is that a shared effort can accomplish

what neither partner could do, or do as well, by itself. It

goes beyond the contractual form in that government acts

not just as a buyer but also as a contributor and manager in

the joint venture. Each has some resources to apply, yetneeds what the other can rovide.

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Summary of the Dimensions of

Privatization

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ExamplesDimension of Privatization

Sale of public hospital or

sewage plant.

1- Pure Privatization

Rental housing, food and

nutrition aid, education.

2- Vouchers

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Summary of the Dimensions of

Privatization

Volunteer firefighting,

nonprofit efforts in housing,

health, and social services;neighborhood crime

prevention; foundation

contributions to public

service.

3- Co-provision and Co-

production

Weapons and military

services, foster and nursingcare, health and counseling

services, street and highway

construction, management of

government facilities.

4- Contracting

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ExamplesDimension of Privatization

Housing and urban

renewal, economic and

industrial development,

education and job training.

5- Public/Private Partnership

Documents

Bus 401 Ch. 2