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'Contracting Out' Educational Services

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In the following excerpts from Privatization and Educational Choice, Myron Lieberman outlines potential advantages for school districts and states of "contracting out"--purchasing educational services from independent providers:

Management incentives under contracting out differ from the incentives that motivate public managers. The differences are conducive to greater efficiency under contracting out, at least if the contractors are for-profit organizations.

For-profit contractors generally try to operate as efficiently as possible. Their incentives to be efficient are their need to avoid losing market share to competing contractors, who could provide the service for less if they are more efficient, and their desire to maximize profits.

These incentives contrast4markedly with those of public officials, who typically do not share in the savings generated by increased efficiency. For this reason, they have less incentive than for-profit managers to foster or demand efficiency in the operations they manage.

As a matter of fact, public officials may have strong incentives to be inefficient. This happens often when the public employees under their supervision are politically influential. Public management may tolerate inefficiencies that benefit those employees in exchange for the political support the employees provide. ...

The arguments for contracting out emphasize the fact that it avoids single-supplier problems. ...

The employees of a monopolistic employer have more power to achieve concessions than employees in a competitive industry. ...

In education, the public is the ultimate employer. It would seem to be in its interest to avoid union/employee pressures based on the monopolistic nature of public services. In this connection, strikes by public-school teachers are often extremely effective because no alternative supply of teachers is readily available.

Even if a service is not contracted out, a realistic possibility that it might be helps to keep employee demands at a reasonable level. Just as the threat of strikes often achieves concessions, the threat of contracting out may also achieve concessions by public-sector unions.


From Privatization and Educational Choice by Myron Lieberman. Copyright 1989 by Myron Lieberman. Reprinted with permission of St. Martin's Press.

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