Privatization: Moving Beyond Laissez Faire

The growing fiscal crisis confronting governments in the United States and elsewhere has generated increasing interest in the “privatization” of government functions by contracting out to private businesses. In essence, arguments contend that privatization saves money because the private sector is more efficient in minimizing costs than is the public sector due to the discipline of the market, or laissez‐faire economics. Ironically, this privatization movement is occurring at the same time that the laissez‐faire model is being challenged as overly simplistic by studies of international economic competitiveness. Here, we argue that the theory of privatization should extend beyond minimizing costs to include recent changes in corporate strategy that emphasize qualify, change from mass production to flexible production techniques, empower employees, and form long‐term strategic alliances in what has been termed “network production.” Such an approach, we believe, should be valuable in restructuring government and in creating public‐private partnerships that allow the comparative advantage of both government and business to emerge.