The workers for the private firm are compensated at a level that is barely livable and these workers place a greater burden on the communities' social services.
Sclar's arguments comparing the differences between why privatization works in jobs involving low-skilled and high-skilled jobs merit some consideration and are easily understandable but there are some considerations that Sclar overlooks that should raise some concern as to the validity of his approach. As previously noted, Sclar's basic premise is that the goal of privatization is to reduce costs and that unless costs are lowered privatization has been a failure (Sclar p.63). Using this as a premise, Sclar argues that the overall benefits of privatization are largely negligible but what Sclar fails to consider is the benefits accrued due to true free market conditions existing as a result of true privatization.
Sclar's study and theorizing was done on a model where privatization was a hybrid between government and private providing services. Under such system contracts for providing services were still subject to government approval and supervision and there was no real competition as there is in the real world
. Instead, the private company winning the bid is working to satisfy the government entity and not the consuming public and so the quality of the work is not placed into question. The private firms hired through privatization become essentially de facto public firms. Arguably, the only way that it can be determined whether privatization actually works is through the adoption of a system where free market influences work exclusively free from government intervention. Under such a scenario, competition would dictate which firms would survive and which would succeed. A totalized privatization system would allow not only costs to be reduced but also allow the quality of those services to be improved through the process of competition. In...
He attempts to bring into perspective the fact that this push has been unsuccessful and that alternative approaches must be considered. The value of Sclar's treatise is that it effectively warns that restraint in the move toward privatization must be exercised. He points out that politicians will do and say what is popular and that popularity of a proposed solution should not dictate its adoption. Sclar advocates for restraint and reflection and proposes that the privatization process withstand scrutiny before being adopted on a wholesale basis. Regardless of Sclar's reasoning and possible flaws in his analysis, there is value in his deciding to review the concept. Perhaps through the impetus provided by his book, others will take the time to examine the issue further and a reasonable and practical solution can be found for the efficient delivery of the services that have been historically provided by governmental agencies and intstitutions.
Notes
Elliott D. Sclar and Richard C. Leone, You Don't Always Get What You Pay for: The Economics of Privatization. Ithaca: Cornell University Press (2001).
E.S. Savas, Privatization: The Key to Better Government. Chatham, NJ: Chatham House (1987).
William L. Megginson and Jeffry M. Netter, From State to Market: A Survey of Empirical Studies on Privatization, Journal of Economic Literature: pp. 321-389 (2001).
Shaker A. Zahra, R. Duane Ireland, Isabel Gutierrez and Michael A. Hitt, Privatization and Entrepreneurial Transformation: Emerging Issues and a Future Research Agenda, The Academy of Management Review: pp. 509-524 (2000).
Critical Book Review
