Question

1. What are the major arguments for and against privatizing public services? One argument that is used by both sides of the debate is that private firms can lower labor costs. Why is this seen as some as either a good or bad impact of privatization? How has the privatization of such services as fire-fighting and 911 worked out?

Answer 1

1. What are the major arguments for and against privatizing public services? One argument that is used by both sides of the debate is that private firms can lower labor costs. Why is this seen as some as either a good or bad impact of privatization?

Major countries across the globe have chosen some or the other form of privatization to allow for non critical services to be given to the private players and allow for the government to be involved in only those activities which involve critical processes respectively.

Further, this helps in eradication of those companies which are not financially competent enough of engaging in trade and at the same time, also help in providing a non union based labor force, the cost of which tends to be significantly lower respectively.

The major arguments in favor of privatization have been that they are more efficient in nature because of the fact that they consider profit as their main motive and would generally therefore take rational business decisions. On the contrary, public services when in the hands of the government tends to consider a lot of other factors such as distribution of income, public welfare etc as their goals than just making profits.

While it is long argued, that privatization would lead to lower labor costs, the phenomenon in itself is not seen as a good culture. Paying people lesser salaries because of non unionization has been a key trend why private players have been so successful but on the contrary this may have big impacts on public services which are essential for the overall survival of the country. Also minimum wages would need recalibration in such an event.

Therefore, specific to public services where workload is relatively higher, and maximum employees are paid relatively lesser privatization can further reduce costs of labor making it difficult for people to maintain a healthy living standard.

Though, this may be a good case in case of private services, when it comes to public ones this should therefore not be encouraged.

How has the privatization of such services as fire-fighting and 911 worked out?

Privatization works on a profit making model, and as such giving away critical services such as 911 or fire fighting services to the Private sector can result in significant losses to an economy.

Consider a situation wherein a decision is to be taken whether to serve an area with higher population of low wage earners or to serve a high profile area which offers higher returns for a fire fighting scenario happening at the same time.

In such a condition, private players may want to focus on getting more money. Such decision making should be left therefore to the government as public services involve larger social issues than just cost management and profits respectively.

Please feel free to ask your doubts in the comments section.