Research & Commentary: Privatization

Published August 26, 2010

The concept of privatization is relatively simple: a shifting of a government-provided service or aspects of it to a private business subject to the rigors of a competitive marketplace. In many cases, similar services are already being provided more efficiently in the private sector.

Privatization is an important option for state and local governments facing massive budget deficits. Privatization has been successful in streamlining government services, reducing costs, and creating more private-sector jobs. State and local governments across the country already have privatized thousands of services and have successfully made government services more effective and efficient.

A study by the Reason Foundation found privatization typically brings a cost savings of 20 to 50 percent. It can help remedy deficits while preventing deeper service cuts or tax hikes, providing better-quality services at a lower cost.

The Heartland Institute’s “Ten Principles of Privatization” cautions that “privatization is just a policy tool—a means of accomplishing a goal in changing services from public to private. Like any tool, you get the right result if you use it the right way. If badly conceived, structured, or executed, privatization can fail, like any other policy, with great cost to the taxpayers.”

State and local government officials should seriously consider privatization as part of the solution to their fiscal problems and to make existing services more efficient.

The following articles offer additional information on privatization.

Ten Principles of Privatization
The seventh installment of The Heartland Institute’s Legislative Principles series addresses state and local privatization, noting, “In recent decades, privatization has gone from a concept viewed as radical and ideologically based to a popular and well-proven public management tool.”

Local Government Privatization 101
Leonard Gilroy of the Reason Foundation gives a primer on why and how local governments could utilize and benefit from privatization. His conclusion: “When implemented with care, due diligence and a focus on maximizing competition, privatization is an approach that puts results, performance and outcomes first to deliver high-quality public services at a lower cost.”

Research & Commentary: How to Privatize Airports … and Why
The late Ralph Conner, former local legislation manager for The Heartland Institute, notes privatizing airports has already succeeded in nations other than the United States and outlines nascent efforts here: “Commercial airports are attempting to reduce their reliance on government support, eliminate inefficient civil service and patronage employees, and cut back on the use of ‘inside contractors’ who run up operating costs.”

Six Steps to Privatizing Local Government Services
John Stainback, president and CEO of Privatization for America, describes how to privatize government services. “Traditional methods of solving budget crises such as tax increases, deep service cuts, or issuing short-term debt have significant economic or political pitfalls. Comprehensive privatization programs offer city governments a way to maximize revenue, cut costs and make greater use of private capital for public services and facilities,” he writes.

Privatization Could Reduce Government Deficit
Columnist Cal Thomas praises New Jersey Gov. Chris Christie’s privatization efforts. Thomas notes that after Margaret Thatcher’s successful privatization efforts in the UK, “The first question became: can the private sector run these things better, more efficiently and at less cost than government? In most cases, the answer was a resounding ‘yes’.”

Chris Edwards, director of tax policy at the Cato Institute, identifies federal government assets that should be privatized, including standalone businesses owned by the government, transportation infrastructure, and land, buildings, and equipment. He concludes, “Privatizing federal businesses and infrastructure would allow new managers to extract greater efficiencies out of existing assets and to improve customer services. Private entrepreneurs can often innovate where government workers cannot, and they can more easily end unneeded and failed activities.”

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit The Heartland Institute’s Web site at and Budget & Tax News at

If you have any questions about this issue or The Heartland Institute, you may contact Legislative Specialist John Nothdurft at [email protected] 312/377-4000.