Pros and Cons of Outsourcing some public sector jobs Continued from last week.. One writer Benson argues that “private entrepreneurs are residual claimants”. That is, they accrue the profits and bear the losses of their business endeavor. It is this profit motive which provides an incentive for entrepreneurs to produce goods, or provide services, at good quality and low cost. As consumers (in the case of this outsourcing discussion, the state) are free to choose how they spend their money, the best way an entrepreneur can legally obtain customers and profits is by persuading potential customers that a quality service is being offered at a reasonable price. Private producers or providers of services are consequently unable to lower costs by sacrificing quality if they want to stay in business. Should they do so, consumers will invariably turn to substitutes that provide a service of a higher quality for the same price, or of the same quality with an even lower price. “Thus, competition forces private firms to offer relatively high-quality services at relatively low prices.” • Flexibility and innovation Private contractors have greater management flexibility than state departments. They can respond faster to changing circumstances, and tend to be more innovative. The state can terminate or decline to renew a contract if a private contractor is too expensive or delivers an unsatisfactory service. By contrast, it would be almost impossible to halt the activities of government departments which are staffed by tenured public servants. Experience in the United States has shown that it is extremely difficult to terminate a government department, or an established unit within a government department. Where the aim is to overcome the inertia that characterizes many existing state departments, or to move away from entrenched principles, outsourcing the provision of services can provide a catalyst for change by introducing new personnel and methods. The greatest promise of the private sector may lie in its capacity to satisfy objectives that might be difficult if not impossible to achieve in the public sector – introducing public sector managers to the principles of competitive business, quickly mobilising facilities and manpower to meet immediate needs, rapidly adapting services to changing market circumstances, experimenting with new practices, in satisfying special needs with an economy of scale not possible in a single public sector jurisdiction. Concerns about Outsourcing Critics of outsourcing argue that the outsourcing of state services can lead to security risks, accountability problems, labour-related disputes and the provision of unequal services. These are reasonable concerns, especially in developing economies where private competition is limited and government contracts are not always awarded in a competitive and transparent manner. While these concerns need to be taken seriously, on balance, private contractors have a greater incentive to avoid such problems compared to public service managers. • Security risk Outsourcing critics fear that private security or prison guards can place the safety of the public at risk by going on strike or being absent from work. Professor Charles Logan of the University of Connecticut, a specialist in crime and justice matters, is critical of this argument: “Unemployment as the result of a strike is a more credible threat to private than to public guards, because a strike or other disruption would allow the government to terminate its [outsourcing] contract.” Outsourcing contracts can make provision for emergencies such as strikes and labour unrest. For example, legislation permitting private contractors to build and manage sate owned institutions, grants the state the right to take over the management and control of any privately managed facility if the contractor risks losing control thereof.
Posted on: Wed, 26 Jun 2013 06:28:35 +0000
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