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Creating
the Right Institutions for Privatization
When
it comes to privatization, one is thing is certain:
institutions matter. Nearly all successful privatization
programs we have examined have put in place
institutional structures and incentives to facilitate
privatization.
Splitting
the Purchaser from the Provider A central
problem with government organizations is "agency
capture." This refers to the tendency of service
departments to capture the policy advice process
from policy makers and top managers, using this
power to recommend themselves as service providers
and to bias policy advice toward increasing
the size of their budgets. One example: a housing
authority recommending staff and budget increases
in order to build and manage more government
housing.
To
counteract agency capture SE and facilitate
privatization, governments in Australia, the
United Kingdom, and New Zealand have separated
policy and regulatory functions from service-delivery
functions. Each of the functions has been transformed
into separate and distinct organizations. (See
figure.) The goal of this practice, termed "purchaser/provider
split" or "uncoupling," is to free policy advisors
to advance policy option - such as privatization
- that are in the public's best interest but
may be contrary to the self-interests of the
departments. Splitting policy functions from
service delivery creates incentives for governments
to become more discriminating consumers by looking
beyond government monopoly providers to a wide
range of public and private providers.
Kansas
has separated the purchaser and provider for
its child welfare services. The state's role
is now simply as a purchaser and monitor of
services. In the state of Victoria in Australia,
the government has separated policy and service-delivery
functions in the corrections department. A separate
entity called the Contract Administrator has
been established to administer arms-length contracts
with the private sector. The Contract Administrator
is charged with purchasing correctional services
and monitoring and evaluating the performance
of private and public operators on a neutral
basis. By doing so, the government is creating
a "market" for correctional services.
Preparing
Departments for Competition In Arizona,
former Governor Fife Symington developed an
innovative and effective program to train public
managers in implementing privatization projects
and ensuring consistency between various branches
of the state government. The Office of Excellence
in Government created an extensive training
program for managers and employees designed
to teach them the basics of competitive contracting,
such as determining in-house costs, writing
RFPs, and so on. The directors of the state's
51 largest agencies have all received privatization
framing, as have hundreds of staffers and managers
from the agencies.
So
far, 34 agencies have identified 60 competition
projects, 12 of which have been deemed "high
priority" by the budget office's competition
group. Phase One proposals are so-called "low-hanging
fruit," such as printing, copying, janitorial,
and other support services. In anticipation
of impending competition from private vendors,
the state data center has already cut costs
by 25 percent.
Generating
Data to Evaluate Privatization Proposals
Virginia has established itself at the cutting-edge
of privatization innovation with the development
of the Cost Comparison Program(COMPETE), a fully
automated, PC-operated decision-making tool.
COMPETE provides several key pieces of information
for evaluating a privatization proposal, including:
-
the fully allocated cost of a state function
or activity;
-
the activity cost of service units of output
in a state function;
-
a competitively neutral cost comparison of
operating a function in-house versus the private
sector;
-
steps needed to make a function internally
competitive.
This
information allows an agency to accurately compare
alternative proposals, with an emphasis on fully
allocated costs, and to set benchmarks for measuring
the performance of a contract. A number of other
states plan to emulate the Virginia model.
by
William Eggers and Adrian Moore
Eggers
directs the Privatization Center, and Moore
is the Associate Director of Economic Studies,
at the Reason Foundation.
The
Politics of Privatization...Excerpted from Privatization
'96, offers insights from Indianapolis mayor
Stephen Goldsmith, New Jersey governor Christine
Whitman, and Philadelphia mayor Ed Rendell
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