Bus 401 Ch. 2
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Transcript of Bus 401 Ch. 2
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Prague November 2012 1
Business and Government Relations
(Bus 401)
The Public/Private RelationshipChapter Two
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the past two decades "privatization" has become a
label for several governmental reform movements.The debate over it is complicated by the fact that it
has at least five different dimensions and can be
supported from diverse political perspectives.
Privatization
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Rationales for pr ivatization
The Smaller Government Argument
Members of privatization view the marketplace asable to allocate money natural resources, and humantalent more efficiently than any government agency,having the 'bottom line' of profit as a standard for
success. One segment of the privatization movementfavors sharp reductions in the size of government andmaximum freedom for private enterprise.
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Rationales for privatization
The "Business Enterprise" Argument
The group embracing this argument (libertarians)contends that there is no reason for states and cities to
operate hospitals, waste treatment plants, toll highways
when private companies can run them at least as well.
The logic behind this viewpoint is that the profit motiveforces business enterprises to be more efficient, while
competition in the marketplace compels them to render
the best service possible.
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Rationales for privatization
The "Citizen Choice" Argument
The third group argues that some forms of privatization
would allow citizens more choices in the providers of
services on which they depend. People could choose
from several options the one that best meets their needs.
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Rationales for privatization
The "Efficient Government" Argument
The fourth group favor retaining government authority where it
best serves the public purposes, but are open to whateverarrangements but fit each situation. Large agencies, with their
bureaucratic rules and hierarchies, sometimes lack the flexibility
and speed to respond to new challenges. Furthermore, business
are already carrying on functions that governments need notduplicate. Government agencies cannot objectively evaluate the
costs and quality of their activities if they are the sole providers
in their areas. Competition can offer a yardstick by which to
measure, and thus increase efficiency.
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Dimensions of Privatization
1- Pure Privatization
This has occurred in many European countries, which
sold their government-owned utilities over the past two
decades. Ex: the United Kingdom divested itself of
British Telecom, British Gas, Water Supply Agencies
and many similar enterprises.
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Dimensions of Privatization
In such actions, the authorities ordinarily retain some
control over the private provider, for example, settingstandards for service quality and paying low-income
patients hospital bills.
Ex: sale of public hospital or plants and organizations
or big stores and outlets.
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Dimensions of Privatization
2- Vouchers
Are certificates provided by a government agency that
enable people to buy specified goods or services in the
private market. Consumers with several providers to
choose from select the one that is most convenient or
best meets the need.
Sellers then turn in the vouchers and receive
reimbursement (money or product).
Ex: Rental housing, food and nutrition and education.
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Dimensions of Privatization
3- Co-provision and Co-production
a)Co-provisionis "voluntary action by citizens and
organizations in financing publicly provided goods andservices as a means of maintaining (or even increasing)
current public service levels".
The contributors may be individuals, charitable
foundations, voluntary associations, or business firms.
Co-provisionis also of growing importance to public
education.
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Dimensions of Privatization
b) Co-production is the active delivery of public goods
and services by private individuals and organizations,working with or parallel to governments.
What co-provision and co-production accomplish
depends to an important extent on government
agencies relations with the contributors andvolunteers. The work of co-providers cannot be
programmed as readily as that of public employees.
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Dimensions of Privatization
They may be effective in one endeavor but not inanother. Administrators must be flexible, ready to enlist
volunteers when available but not entirely dependent onthem.
Ex:Health, and social services, neighborhood crimeprevention; foundation contributions to public service.
Ex: Street and highways construction, management ofgovernment facilities, weapons and military services,health and counseling services.
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Dimensions of Privatization
4-Contracting
Relationships in which government is a customer are
familiar to nearly every administrator. Contracting isperhaps the oldest form of privatization. The contract
may be for a set term or an indefinite period. Often,
several hopeful vendors compete for the contract, and the
government agency selects the lowest-priced bid that
meets the qualifications. Such competition ideally
produces the most cost-effective arrangement.
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Dimensions of Privatization
The four basic Steps of Contracting
I- Deciding to contract
This occurs when the government realize that contracting
will save time, effort, and maybe money as well. Also,
when it is lacking the skills and expertise and it makes sense
to contract when an agency's workload varies such that itwould not have full-time work for a group of specialized
civil service employees.
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Dimensions of Privatization
II- Framing the contract
This step starts with choosing the specifications for the
goods or service, and then several methods of payment
can be specified, too. Once the requirements are specified
and competition is expected, the government agency
advertises the request for bids.
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Dimensions of Privatization
Bidding Steps
1. The governments announces its decision of
choose the contractor in the official gazette.
2. The government also declares the projects
specifications and date of offers submissions, and
date of offers discussions and results announcement.3. A highly technical, diverse committee meets to
discuss offers and decide the winning bidder.
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Dimensions of Privatization
Continuing Bidding Steps
4. Then the committee chooses the winner; the decisionshould be based on best quality and lowest price.
But when bidders have personal, or financial links
with officials or lobby intensively, as is common
among major defense contractors, the award may goto one with less merit but more influence.
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Dimensions of Privatization
III- Choosing a contractor
Selecting a contractor, assuming that several compete,
follows submission of bids. Ideally, the agency selects
the lowest cost bid from a responsible supplier that
meets that specifications. Although, political pressure
on behalf of a given contender may be applied if the
contract is large.
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Dimensions of Privatization
IV-Monitoring and evaluating performance
During the life of the agreement, the agency must
monitor performance or product quality, either
continuously or with spot checks. This requires
careful training of government personnel and the
readiness to take remedial action when necessary,including termination of the contract and legal
penalties.
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Dimensions of Privatization
5-Public-Private Partnerships
The most complex from of public-private collaboration is
the partnership, a joint venture in which one or moregovernmental units and non-governmental entities blend
resources and authority for a project over a sustained period
of time. Its rationale is that a shared effort can accomplish
what neither partner could do, or do as well, by itself. It
goes beyond the contractual form in that government acts
not just as a buyer but also as a contributor and manager in
the joint venture. Each has some resources to apply, yetneeds what the other can rovide.
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Summary of the Dimensions of
Privatization
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ExamplesDimension of Privatization
Sale of public hospital or
sewage plant.
1- Pure Privatization
Rental housing, food and
nutrition aid, education.
2- Vouchers
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Summary of the Dimensions of
Privatization
Volunteer firefighting,
nonprofit efforts in housing,
health, and social services;neighborhood crime
prevention; foundation
contributions to public
service.
3- Co-provision and Co-
production
Weapons and military
services, foster and nursingcare, health and counseling
services, street and highway
construction, management of
government facilities.
4- Contracting
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ExamplesDimension of Privatization
Housing and urban
renewal, economic and
industrial development,
education and job training.
5- Public/Private Partnership