Book Review: The Economics of Privatization by Elliot Sclar

Introduction

Elliot Sclar's influential book You Don't Always Get What You Pay For: The Economics of Privatization examines the process of privatization in depth. In a struggling economy, it has become fashionable for communities to consider privatizing what have historically been public services, in an effort to economize and streamline governmental operations. Sclar examines the advantages and disadvantages of this trend through the use of strongly supported data, but his conclusions, in the end, may be flawed.

Sclar's Central Arguments

In his book, Sclar essentially arrives at two conclusions. First, he argues that privatization does not result in greater or more efficient production. On occasion it might be successful, but on the whole, he contends there is little benefit to the process. Second, Sclar takes issue with economists who view privatization as the cure for all governmental ills, arguing that such economists are narrow-minded in their approach to possible solutions and are promoting a remedy that, in reality, falls short.

Sclar examines the popular belief that anything operated by a government is typified by waste and inefficiency, and he attempts to downplay the idea that allowing private businesses to take over public functions is the obvious solution. He argues, to the contrary, that privatization carries costs — both social and economic — that are often overlooked in the rush to remove governments from the process.

The movement toward privatization, Sclar argues, is the result of an overall disillusionment with government. This disillusionment began in both Canada and the United States in the years following the Vietnam War and Watergate, when the public began to view governments as largely ineffective and corrupt. That disillusionment was reinforced by the election of politicians such as Ronald Reagan in the United States and Brian Mulroney in Canada, who openly advocated reducing the size of government and spearheaded the movement toward privatization of public services.

Where Privatization Succeeds and Fails

Sclar's view of successful privatization is highly simplistic in that his primary standard is whether the process results in reducing the costs of production. In this regard, Sclar does not dismiss privatization as a total failure. He notes a number of highly successful examples, but points out that these successes occur where the work involves a combination of private-firm delivery with strict public supervision. Additionally, Sclar argues that successful privatization programs work best when the services being privatized utilize lower-skilled labor.

The reason for this, Sclar argues, is that the discrepancy between what governments traditionally pay such employees — in both benefits and salary — is much higher than what private employers pay, creating a larger marginal value for private firms to get involved. As the skill level required for a job increases, the salary difference between private firms and government narrows considerably. Accountants and lawyers working for the government, for instance, are paid on an almost equal basis with those in the private sector. As a result, the privatization of such professional services provides governments with far less financial advantage.

Conclusion

Sclar's book raises some interesting questions that bring into question the wisdom of the recent push for privatization of government services. He attempts to bring into perspective the fact that this push has been largely 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 advocate what is popular and that the popularity of a proposed solution should not dictate its adoption.

Sclar advocates for restraint and reflection, and proposes that the privatization process withstand rigorous scrutiny before being adopted on a wholesale basis. Regardless of his reasoning and the possible flaws in his analysis, there is genuine value in his decision 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, practical solution can be found for the efficient delivery of the public services that governments have historically been expected to provide.