Can Private Advice Save A Threatened Public Realm?

Mayor Bloomberg didn't invent the idea of privatization—or contracting out. The opening scandal in the second term of Mayor John Lindsay's administration was the discovery that the mayor had appointed Carter Bales, a principal at McKinsey & Co., to the position of assistant budget director as a thank-you for polling assistance during the campaign. At the same time, McKinsey itself had been awarded contracts worth at least $1.5 million, without competitive bidding. Part of the work that McKinsey did for the city was a glossy, high-end traffic report, with tissue paper between each page. It was an impressive product: "Their major finding was that traffic flowed into Manhattan in the morning and out of Manhattan in the evening," deadpans Martin Tolchin, who covered the Lindsay administration for The New York Times.

Sarcasm aside, there's nothing inherently wrong with asking a consultant to analyze a problem and offer solutions. Nor is there necessarily anything unwise about using private competition to provide better public services—as long as the solutions are good and the services are better and cheaper. The drive for privatization, though, has sometimes been fueled by the notion that the private sector always (or almost always) is the solution.

Bloomberg has pitched his businessman's approach to government as innovative; his rationale for changing the law to facilitate a third term was that only his private-sector financial acumen could steer the city through its latest fiscal nightmare. But there's nothing new about the notion that the biggest problem facing government is, well, government and that the private sector holds the answers. In fact, from Ronald Reagan's "government is the problem" in 1981 to Barack Obama's "we're looking to run the government a little bit more like you run your business" in 2011, the idea that business can provide the model for getting things done has been the latest fad for a long time.

Under Bloomberg the city spends more on outside work: Even adjusted for inflation, his government's spending on contracts is $3 billion more in 2012 than it was when he took office, and spending on "professional services" contracts has nearly tripled in that time.

But what's really changed is the ambition behind the out- sourcing, from multimillion-dollar IT contracts to consulting deals whose dollar-figure isn't stunning, but whose impact on city policy could be.

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That there are things the private sector does better than government is obvious. And private contractors offer much that is attractive to municipal policymakers. Often their workers come without the encumbrance of pension and retiree health care costs. There are fewer unions to placate or work rules to deal with. Some of the private providers bring products or advice that can help city agencies navigate the sometimes-labyrinthine rules of instituting federally mandated policies. All of these can be helpful to city agencies looking to meet the bottom line, without busting the bank.

But the rosy picture that's painted of the private options at government's disposal often differs from reality. For one thing, privatization is often not really about competition. "Privatization does not result in cost savings in general, because most local-government services do not have a competitive market of alternate market providers. Without competition, all you do is substitute a private monopoly for a public monopoly," says Cornell University professor Mildred Warner, a privatization expert. In a 2007 study of 1,400 municipal governments across the U.S. (New York City declined to participate), city managers were asked how many alternative providers they faced in their market for each of 67 different services, says Warner, who designed the survey. The answer: "The average was less than two."