The Father of Privatization and Competitive Sourcing

An early pioneer in the study of government outsourcing, Steve Savas discusses how far the

by Joseph Vales, Kerry Ann Vales

I first met Professor Steve Savas in 1999 when he was a finalist for the prestigious Outsourcing World Achievement Award sponsored by PricewaterhouseCoopers. He received this recognition because of his profound impact in leading the privatization movement across the globe.

To many, he is the intellectual father of privatization and competitive sourcing and its most passionate advocate. He is professor of public affairs at Baruch College of the City University of New York. Savas is the author of countless articles, and his books have been published in 21 foreign editions. He was appointed first deputy administrator of New York City by Mayor John Lindsay and assistant secretary of the U.S. Department of Housing and Urban Development by President Ronald Reagan. In his groundbreaking book, “Privatization in the City: Successes, Failures, Lessons” (CQ Press, May 2005), he examines the evolution and implementation of former New York City Mayor Rudolph Giuliani’s aggressive privatization program. In this interview with Savas, he discusses the evolution of the privatization movement around the globe and its positive impact on the delivery of government services.

JV: Before the term “outsourcing” became popular, you were the visionary that shaped the privatization movement in the public sector. What led you to research and passionately promote the value of privatization and competition in the public sector?

SS: As first deputy city administrator of New York under Mayor John Lindsay, I wanted to improve the performance of city agencies. It became clear to me that the biggest problem was the absence of competition, a major motivator for the private sector. When it came to collecting trash or fixing potholes in the street, there was no alternative to the city agency. So I started thinking about what it would be like if we introduced competition into the delivery of many public services. That was in 1969, the start of my career in privatization.

JV: Looking at it on a macro basis, what was the state of privatization across America when you first started to champion the value of privatization?

SS: When you look at it on a grand scale, the first example of early privatization in America happened in 1492, when Queen Isabella hired an Italian contractor to explore the western ocean; she didn’t turn to her foreign ministry or her ministry of war. But in more modern times, American cities have long been hiring private contractors for projects like the construction of public buildings and schools. The difference with what happened in 1969, when I started, was the concept of introducing competition in order to improve performance efficiency and effectiveness.

JV: What were the early success stories in privatization?

SS: In 1974 I was working as a professor and was awarded a $1 million research grant from the National Science Foundation for a proposal I submitted in the general field of public service delivery. I conducted a nationwide study over the course of two years comparing the performance of public and private agencies in the very common and very expensive area of solid waste management. We established conclusively that contracting was as effective as municipal service but much more efficient, and our results were widely published. The study received even more recognition when the National Solid Wastes Management Association published the results in flyers and brochures distributed all across the country. This resulted in a huge wave of interest, and I began giving speeches all over the country and even abroad regarding this new idea.

JV: What drove the National Science Foundation to sponsor this research?

SS: While I was still in city government, the National Science Foundation put together various panels of officials and academics to give advice on what kind of research should be examined in the future. As a panel member, I presented the idea of evaluating how local government could benefit by introducing competition and contracting. From that they developed a program specifically for examining competition in the public sector.

JV: Were you able to quantify success stories?

SS: Absolutely. I realized that it was not good enough to pick a city to privatize and show that it did better because the labor unions could always find a city to privatize that would do worse. Therefore, we conducted a large-scale study in which we visited 102 cities across the United States with a uniform cost analysis framework that we developed. We compared municipal collection, private collection, and franchise collection as well as measured the effectiveness and overall public satisfaction with the work. Our data stated quite authoritatively that it cost the public sector 30 percent more than a private competitive arrangement to do the same work for the same effectiveness and the same level of public satisfaction.

JV: From your perspective 36 years later, has privatization become a worldwide practice? Is privatization directly associated now with reinventing government?

SS: Yes, the two are definitely connected. Privatization is one of the major tools used in reinventing government. There is even a new term for reinventing government now used throughout the world, “New Public Management.” NPM is utilizing market forces and market principles as a main feature. It encompasses market principles such as privatization, competition, the application of user charges, and the use of pricing to change people’s behavior, as in congestion tolls on bridges, tunnels, and highways.

JV: The concept of introduced competition is very compelling, but let me go back to the resistance factor in the political establishment or in the union movement. How did the early pioneers overcome that internal resistance?

SS: There are a couple of things that were involved in overcoming internal resistance. It wasn’t always the case, but nowadays the in-house workforce is in fact able to compete with the private sector. Allowing the in-house unit to compete with the private sector gives them a chance to face the threat and show that they can provide improved performance. There is even a term used now within the federal government for this precise process: competitive sourcing. The second factor with overcoming resistance is a clear numbers game. If the numbers were large enough and the data were strong enough, the public would be forced to recognize the need for improvement. Large cities have generally not moved as rapidly as smaller ones towards privatization as their public employee labor unions present bigger problems. However, when the differences are large enough, the public officials can win that battle. With enough public attention, they can gain public support and reduce the power of public employee unions to block it.

JV: That’s great advice. What do you think is the future of privatization? Will it continue to grow? What are the new challenges?

SS: In public services, it looks as though there is a plateau occurring where 30 to 40 percent of common municipal services are being outsourced. There’s kind of a natural limit as to how much you can do and in some not all cities that may have been reached. The target areas are in transportation, bus operations, highways, and private toll roads. There is a movement towards private air traffic control, Canada already does it. Postal services in various countries including Australia, New Zealand, and even Germany are already being privatized. The other push is in volunteer organizations coming in and taking over and doing things for the public sector. Central Park in New York City is operated under a management contract with a private volunteer organization called the Central Park Conservancy. They raise a lot of money through charitable donations but also receive some city money. As a result of being managed by them, Central Park has greatly benefited, and I think it’s only the start of similar contracts in the future.

JV: What’s next for Steve Savas? What issues are you now focusing on in your research and teachings?

SS:
I am focusing more on the “new public management” that utilizes market forces and emphasizes getting back to core functions and getting rid of functions that governments should not be doing. This also means placing greater emphasis on civil society and the role of non-profit organizations including faith-based organizations. These all fit within the basic definition of privatization: relying more on the private institutions of society the market, the nonprofit organizations, and the family and less on government to satisfy people’s needs. People are finally recognizing that the breakdown of the family unit has been the principle cause of the social problems that we’ve had in the United States in the past 40 years. There is a much greater focus now on directly or indirectly repairing families through private and government programs. Preparing the next generation by recognizing the role of the family in the process is an interesting area that I will be following very closely in the future.

Steve Savas is professor of public affairs at Baruch College of the City University of New York. For further information, he can be reached at Prisect@aol.com

This article was co-authored by Kerry Ann Vales of the Vales Consulting Group. For more information, she can be reached at KAVales@aol.com.

Posted December 10, 2005 in Contributors

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