Privatization
One policy movement, often referred to as privatization, has worked against the tendency of governments to grow. Privatization is the transfer of governmental activities and/or assets to the private sector. In many industrialized countries, including France and the United Kingdom, and also in Latin America, privatization has been the norm for about 30 years. It involves not only sale of state enterprises to the private sector but also contracting out certain kinds of public services paid for with taxes to private firms (such as management of prisons and hospitals). U.S. cities and localities have used five methods to privatize services: contracting, franchising, vouchers, subsidies, and tax incentives.
The advantages of privatization are that it reduces government spending and is politically feasible because it does not eliminate the service. Privatization may
- introduce competition and the resulting efficiencies,
- enable smaller localities to join together into more efficiently sized units for purchasing services,
- remove government from labor negotiations and retirement commitments, and
- transfer revenue-consuming activities to private firms that pay taxes and produce revenues.
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