Morton makes a critical distinction between true privatization and contracting; between "bailing out" and "contracting out." Contracting can certainly be a cost-effective way to provide public services, but it reduces neither the size nor scope of government. It simply substitutes consultants and independent contractors for municipal…
- Contracting is simply one tool among many. The trick is determining when it is appropriate. (No one expects the City to manufacture its own pencils; on the other hand, a private police force might raise some eyebrows.)
- When the City assumes responsibility for a service, it is responsible for that service, whether it uses its own employees or a private firm. It cannot avoid oversight responsibility; in fact, competent management of contracts often requires hiring employees with more sophistication and skill–and heftier pay demands. If oversight is ineffective, losses can quickly exceed projected savings.
- Cost savings depend upon maintaining a competitive environment. The City must always be able to change contractors to get a better deal. Competition thus implies frequent change, and management of change poses special problems in the public sector. Citizens have a right to know who’s in charge of particular services; neighborhood and nonprofit organizations need to maintain ongoing working relationships with City agencies and personnel; continuity and institutional memory can be critically important if costly mistakes are to be avoided.
- "Pinstripe patronage" can lead to corruption. Even if lucrative contracts are not actually traded for campaign contributions or other favors, the appearance of quid pro quo erodes public trust.
- Politics is short-term, while contracts can have long-term consequences. When voters seem to demand of elected leaders only that they keep taxes level, it is tempting to make decisions that defer necessary costs–to contract so that services will cost less during your administration and more during your successor’s. NUVO has reported that contractors on some large projects have been told to use cheaper materials, entailing higher maintenance and replacement costs, in order to keep current costs down. "Penny wise and pound foolish" as we used to say–but politically quite understandable.