Wednesday, January 21, 2015

[NJFAC] no evidence of superior private sector efficiency in privatization or outsourcing

European Federation of Public Service Unions

It is often assumed that privatisation or PPPs will result in greater levels of
technical efficiency. That is, the private sector can always deliver a given level
of service with less input costs than the public sector.
Politicians, media, academics and consultants frequently refer to 'private sector efficiency'.
This assumption is often shared even by critics of privatisation.

But there is now extensive experience of all forms of privatisation, and researchers
have published many studies of the empirical evidence on comparative technical efficiency.
The results are remarkably consistent across all sectors and all forms of privatisation
and outsourcing: there is no empirical evidence that the private sector is intrinsically more efficient.
The same results emerge consistently from sectors and services which are subject to outsouring,
such as waste management, and in sectors privatised by sale, such as telecoms.

The importance of comparative efficiency

The comparative efficiency of the public and private sector is an important part
of the arguments over privatisation and outsourcing, for two major reasons.
Firstly, the empirical evidence undermines a fundamental part of the argument
for privatisation and use of the private sector. If private companies are no
more efficient on a technical level, then the usual case for privatisation collapses.
This is because privatisations, outsourcing and PPPs are at a clear disadvantage
in relation to most other economic criteria. The biggest single disadvantage is
that the cost of investment finance is nearly always significantly more expensve
with private operators, because of higher profits for shareholders, and
lower credit ratings–which means private companies pay higher interest
rates. Unless the private sector can deliver real substantial savings from efficiency,
then it is invariably worse value.

National Jobs for All Coalition

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