From what ive read, consumers are definitely not the beneficiaries in such arrangements. Why do governments do this then? Why give up ownership and control of vital stuff (e.g. water, utilities, highways, etc.) to private – and often – foreign entities?
In: 142
It depends on how much of the work the government was doing before, and how well they were doing it.
For example, the government typically outsources highway construction but they keep the traffic management and safety inspections in-house.
When this kind of stuff gets privatized, it’s essentially just another contract that’s larger in scope – for example, instead of outsourcing the construction of a water treatment plant, the government outsources the entire water treatment process, including (and this is the part that people care about) customer service and billing.
There is a small ‘sweet spot’ of city size where for medium sized cities, having a private utilities company handle the utilities will be more efficient than having the city handling it themselves (due to economies of scale). For cities that are super small, the potential profit is too small for private companies to even bother, and for cities that are super large, the city can handle it themselves for cheaper (due to economies of scale).
However, some other services like roads and airports do not really have a business model that makes it possible for a private owner to make a profit. As a result, these services are typically managed by the city and they hope to recoup costs through higher property/sales taxes.
Latest Answers