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Chapter Summary

Savas, E. S., ed. 1992. Privatization for New York: Competing for a Better Future. The Lauder Report; A report of the NYS Senate Advisory Commission on Privatization. New York.

Chapter 1: Introduction (E. S. Savas)


This chapter outlines some broad reasons for privatization and indicates the stance of the Commission on the subject. There are some relevant discussions of the general impact privatization will likely have on service delivery and the gains which may be expected. As well, the impact on employees is addressed and some ideas for ameliorating the consequences of privatization on this group are offered. Perhaps the most important statement in this chapter contributes to the overall theoretical debate: "Public agencies and public firms should have to compete for the privilege of providing public services and earning the taxpayers' money" (p. 9). Generating tax revenues to provide services is not a right of governments and its agencies, it is a privilege which should be questioned and evaluated regularly.

Rationale for Privatization

The Commission would like to see more competition take place for the opportunity to provide public services. There are many reasons for this that pervade the literature on privatization, taxation thresholds and demands for better services to name two, but, perhaps the most compelling reason is organizational:

...government services are so often costly and poor ...not because the people who work in government are somehow inferior to those who work in the private sector; they are not. It is because monopoly is generally inferior to competition in providing high-quality, low-cost goods and services, and most government activities are unnecessarily organized and run as monopolies. (p. 3)

Thus, encouraging an environment where competition is central to organizing the delivery of services will result in several measurable benefits and an overall improvement in productivity.

Sources of Improvements from Privatization

Several methods or techniques are discussed to achieve improved productivity from privatization; contracting, franchisement, subsidization, vouchering, deregulation, and the selling of government assets are proposed. However, the notion that productivity gains are a result of lower wages is misleading according to the authors. The observed improvement in output per employee is a result of:

  • less paid time off
  • the use of part-time and lower-skilled employees
  • a managers' ability to hire and fire employees
  • the use of incentive systems
  • a reduction in the overall use of labor

While this raises many concerns for public employees and administrators, several approaches may be integrated into the privatization process to ameliorate the consequences of privatization on certain groups of individuals. Some of these methods take the form of controlling the implementation of the process while others are related to hiring practices, retraining, early retirement and severance packages.

The goal of privatizing government services is increased productivity but the method for achieving this goal has to come from more efficient organizations.


The authors are careful to point out, several times, that prudence and caution should inform every discussion on privatization. Their recommendations are essentially that the New York State Legislature should enact legislation that introduces more competition into the delivery of government services.