privatization
Source: makewealthhistory.org

By Shabu Varghese, University of Central Florida

Organized societies experienced dramatic changes in their methods of solving public problems since the mid-nineteenth century. Salamon (2002) has described this movement as a “revolution” that has taken place in the United States and in other countries that has been going on for more than 50 years. During this period, one of the key changes has been a shift from government to governance in the provision of human services—or more specifically, a shift from having government to directly providing human services to a system within which these services are provided by third parties via methods such as contracting, public-private partnerships, purchase-of-service contracting, performance-based contracting, and privatization. This paradigm shift has equipped the service organizations with tools that not only helped them in resolving complex public problems with efficient and customer oriented services but also to formulate measures to improve their performances.

Different paradigms such as the government, the market, new public management, and participatory government dominated public management during the 1980s. According to Frahm & Martin (2009), in the United States the advent of and shift from the government to the governance approach started in the 1990s. The tools and delivery systems that have developed accordingly created new terms in public management. Direct government involvement decreased with the advancement of the new approach. Salamon (2002, p. 8) stated that the new approach, known as “new governance,” brought in and evolved new sets of public management and problem-solving methods including the institution of “third-party.” The governance approach brought in opportunities for dealing with complex problems, incorporating tools, third parties, and their expertise.

Differences in the Government and Governance Models

The government approach is generally viewed as the bureaucratic and hierarchical model with different government organizations delivering public services in order to fulfill public policy goals (Goldsmith & Eggers 2004). Salamon’s (2002) reference to government illustrates a classical view of characteristics that includes a hierarchical bureaucratic array of executing powers with different levels of chains of commands immersed within the rules and regulations. The important characteristics of bureaucracy as envisaged by Max Weber include hierarchical structure, centralization, differentiation of office and officials, remuneration, and a separate social class for the bureaucrats (Tijsterman & Overeem 2008). The Weberian theory delineates the bureaucratic model as the fundamental aspect of public administration, which constitutes the basis for the government approach.

According to Salamon (2002), in the last fifty years, a basic shift in the paradigm has occurred that has impacted the manner in which public problems are addressed in the United States and in other countries. According to Salamon, the shift to the governance approach has gone through five key transformations: (a) the agency and the program driven approach shifted to tools approach, (b) the hierarchy approach in the organizations shifted to network approach, (c) new perspectives to the public-private relationship, (d) command and control models shifted to cooperative actions, and (e) the public management embracing more mediation and persuasion skills.

In the government approach, government plays a major role in the implementation of policies by addressing public problems (Frahm & Martin 2009). In contrast, in the governance model, the government role is limited because other actors in the network play equivalent roles. Daly (2003, p. 116) defined governance as “the changing nature of government and the public sector and how each articulates the distribution of power and control in society.” In contrast with government, Daly (2003) pointed out that governance implies the process with its control mostly vested in the network with all the different agents that constitute the association.

The shift from the government approach to the governance approach is described as a dramatic change in the methods through which society solves its public problems. In comparing and contrasting the principles of government and governance, Vries (2013) stated that governance is pursued as a substitute to government that drives approaches for societal enhancement. Governance is expounded as a big blow to the hierarchical methods of the government that can no longer be considered useful in steering society and solving problems. Comparing it with the hierarchical form of government functions, Vries (2013, p. 2) observed that, in the governance concept, “societal actors” play the major role using the principle of networking. In “good governance” the government plays a role next to all other “societal actors” in a collaborative approach, instead of a hierarchical one.

According to Goldsmith and Eggers (2004), the days of the bureaucratic and hierarchical models of government agencies providing public services have ended. The authors asserted that this has been replaced by models characterized by a network of multiple groups of organizations, including governmental and nongovernmental organizations, also known as modern governance. The shift presumably devalued the existence of government agencies as straight service providers or public problem solvers.

The differences between the government and the governance approach are more explicit when comparing the following dimensions as stated below:

 

Table 1.htm

Paradigm Shift in Human Services

In the 21st century, more and more democratic countries are departing from the trend of bigger government by instituting and shifting to a governance approach in public management, and politicians are becoming more aware that the bureaucracy is not the answer for most complex public problems (Kamarck 2002). The paradigm shift in human services leads to the advent of the governance approach, which replaced the traditional government agencies that have the bureaucratic, hierarchical, and strict command and control with open systems of public, private, and nonprofit agencies (Salamon 2002).

In Flazar’s The American Partnership and Brown’s The Public Relief (as cited in Terrell, 1979, p. 58), it is stated that the federal government instituted direct aid (a land grant) in 1819 to private institutions caring for handicapped children in Hartford, Connecticut. The authors indicated that the federal government instituted land grants to educational institutions and many other welfare organizations early in the nineteenth century before organized public welfare came into existence in the United States. Even before organized public welfare was established, governments relied on voluntary organizations to provide services to the vulnerable.

Privatization, Public-Private Partnership and Service Contracting

In the 1960s, because of a growing need for skilled workers, the United States federal government implemented the Manpower Development and Training Act, the Economic Opportunity Act, and the Emergency Employment Act to provide employment training (Terrell 1979). With the implementation of the above legislation, the federal government entered service delivery contracts with governmental and nongovernmental private organizations. In 1972, combining many of those pieces of legislation, the federal government enacted the Comprehensive Employment and Training Act, which paved the way for “community-based organizations” to occupy a major role in delivering services in the human services field—with a greater recognition for public-private partnerships in the human services field.

Wedel (1974) defined a social services contract as “an agreement between a governmental agency (the contracting agency) and another organization or individual (the contractor) for the purpose of providing care or services to clientele of the governmental agency.” Even though contracting for social services has a long history, the amendments in 1962 to the public welfare laws of the Social Security Act officially authorized service contracts in the social services sector. Further amendments to the act in 1967 authorized contracting services to private and nonprofit organizations. According to Wedel (1974, p. 61), contracting during the early 1970s became “a large-scale operation.”

According to Martin (2004), the private sector was providing publicly funded human services in the early 1970s. Martin further indicated that the private sector was providing more services than the state and local governments in the human services sector during that period. Martin emphasized that the private sector played a key role in providing human services even before the privatization of human services became a commonly accepted public policy in the United States. By analyzing the pertinent literature from the 1960s to the 1970s and comparing it with those between 1980 and 2000, Martin delineated the shift in human services from the government paradigm to the governance paradigm. The author critically analyzed the existing literature on how public administrators and social workers critiqued and reacted to the privatization of human services in the early 1970s in comparison to a change in the literature that supports the opposite view in the early 2000s. The argument that privatization was the cause of all the ills in the welfare system was documented as early as the 1970s and was supported with the changing view in the literature with the rise of the governance model during the 1990s and 2000s.

According to Martin (2004), for-profit organizations were providing services in the human services sector even in the 1970s, and therefore it was a myth to state that they only began doing so in the 1990s with the passage of welfare-to-work laws. Martin (2004) pointed out that, after the U.S. Congress approved the day care services under the Aid to Families with Dependent Children and in-home services for the elderly under the Social Security Act, the federal and the state governments chose to contract with for-profit and nonprofit organizations for service delivery rather than setting up bureaucratic agencies.

Kettner & Martin (1986) analyzed the empirical studies in the 1970s based on purchase of service contracting (POSC) and found that most of the measures of and policies on POSC were implemented in a short time. In conceptualizing the findings, the authors found three important factors of POSC: (a) appropriate delivery methods, (b) delivery approaches (mix of POSC and direct delivery or POSC itself), and (c) administrative tools in the market and partnership models. The authors concluded that these three factors should be taken into consideration in maximizing the objectives of POSC, and POSC was used as major source for the delivery of human services at that time.

An exploratory study of the nonprofit agencies in 1993 that engaged in POSC with the government was conducted by Kettner & Martin in 1996. The purpose of the study was to explore the status of the nonprofit agencies with respect to their resources, POSC, revenue and costs of services, and their decision-making process. The authors found a decline in funding, increase in client demand, and inadequate service costs paid to the nonprofit organizations by the government. The authors emphasized the need for addressing the issues and warned the trend may cause declining quality and quantity in the services provided by the nonprofit organizations. The authors found that, even though funding declined, POSC gained popularity and became a major method to provide human services.

Service Contracting and Performance Measurements

When service contracting became the way to provide human services, performance measurements and accountability became more important. Out of the two, performance measurement is a broader term than the accountability, and performance measurement was getting much attention at all governmental levels (Martin & Kettner 1997). Performance measurement includes all the perspectives of accountability, uses “programs” as the unit of analysis, and is gaining more popularity in the federal and state governments. The authors emphasized the need for human service agencies to be aware of the performance measurements in their programs, which would serve them better in their future.

Peat & Costley (2000) conducted a study of purchase-of-service contracts issued between 1994 and 1996 between the state and the nonprofit human service organizations. The focus of the study was on performance and contractor characteristics. The results of the study show that the different steps in the contracting process influence the performance of the service contractors. The authors further found that any change to the service categories during the stages of the service proposal affects the performance and the geographical distance between the funding agency, and that the service contractor has a direct impact on the performance. In addition, the proposal rating has a direct relationship to contract performance. The study showed the importance of the contracting process itself with its implications for the performance of the contractors in the human services field.

Martin (2002) analyzed the experience of human service agencies involved in performance-based contracting and found that the service contracts influenced the contractors to focus more on their performance. Martin concluded that performance-based contracting has achieved its objective—a greater focus on organizationational performance—and it helped to change the behavior of the organizations. Supporting the use of performance-based contracting in human services, Howard (2009) articulated many of the advantages and merits that lead to improved service delivery. According to Howard (2009), the merits include improved performance of the service contractors, flexibility of the private sectors to adjust to changing demands, motivated human service agencies to improve the business process, and outcome focused operations, among others.

Conclusion

Notable changes have happened in the field of public administration and the traditional method of delivering services and solving public problems. The tradition of bureaucratic and hierarchical government agencies providing direct services to its citizens has shifted to an era of “third-party government” whereby these services are contracted out. Salamon (2002, p. 8) termed this approach as the “new governance.” As public problems become more complex, the governance paradigm with its collaborative and networking features and its reliance on multi-organizations—in addition to the government—become the future for solving them.

The paradigm shift from a government to a governance model in human services has a long history in the United States. Martin (2004, p. 178) stated, “The private sector was the major provider of human services before privatization existed as a defined public policy.” The paradigm shift went through many stages in the human services sector to create more efficient and a customer-oriented delivery of services. Purchase contracting for services was another initiative that made radical changes in public administration of human services. The increased use of purchase-of-service contracting tools in human services has evolved into the formation of performance-based measures, which in turn has helped providers improve the quality of their services. To solve increasingly complex societal problems and challenging situations, it is imperative to cultivate an atmosphere that promotes the governance approach in the human services sector.


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