"Competition improves the performance of both public and private garbage operations. ...The highest recorded cost was for a private monopolist."

THE PRIVATIZATION DECISION

John D. Donahue, 1989 (p. 68, 64)

These two quotes capture the dilemma with which effective municipal waste decision makers may be wrestling. With the dominance of privatization ideas facing them, they also now realize that there are now only two major waste collection haulers, Waste Management and BFI. These two corporations have admitted to price collusion in the past when there was more competition!

This makes it easy to understand why Waste Management's municipal waste expert predicted that cities will be going out of the waste collection business within ten years. An increase in business in major cities is a projected growth area for WMI. The StopWMI campaign opposes WMI growth in any way because of its corrupt, polluting, racist ways. We have found the book by John Donahue, THE PRIVATIZATION DECISION, a classic book which takes a moderate realistic position on privatization. It is still available in paperback even though it was published in 1989.

Donahue carried out specific studies in his evaluation of public vs. private services at both the federal and the local level. His studies of municipal comparisons are very relevant and incontestable. In addition he surveyed the studies during the Reagan administration (Privatizing the Public Sector by E. S. Savas; the Grace Commission) and among conservatives (Better Government at Half the Price by Manuel Johnson and Privatizing Federal Spending: A Strategy to Eliminate the Deficit (Heritage director Stuart M. Butler). Here are some general quotes to set a framework for understanding privatization:

"The privatization movement is not solely a response to late 1980s fiscal panic. ... Large fractions of federal, state, and local budgets have always gone to purchase goods and services from suppliers outside government. ... Privatization , as today's fiscally ambitious, ideologically charged phenomenon, began as a British import. English academics and Conservative party officials prepared a sweeping privatization agenda as Margaret Thatcher took office in 1979. ... Conservative intellectuals in the United States set out to emulate the British example." (p. 4)

In his chapter on "Local Service Contracting," Donahue's review of studies show that lower labor costs are a major part of the private contracting. As is well known public employees are more unionized, have longer tenure, have longer vacation time, and have due process in disciplinary matters. They also usually receive a living wage. Private workers often work for minimum wages without many fringe benefits. Donahue summarizes the privatization issue as primarily political.

"A proponent of aggressive contracting out declares that 'the purpose of local government is not to provide jobs; it is to deliver services to people.' A critic insists upon government's 'socially important role of providing good jobs to people who might otherwise not get them.' Is local service privatization a good thing, or not? The question is as political as a question can be." (p. 145)

Donahue reviewed studies of garbage collection as part of his chapter on "The Evidence of Efficiency." In summary he writes:

"The evidence on garbage collection, in sum, is fairly clear. Open competition and monopolistic private franchises are often plagued by inefficiency or illicit collusion. Contractors chosen by fair and honest bid contest typically outperform public monopolies. But competition improves the performance of both public and private garbage operations." (p. 68)

The problem today is that we have moved dangerously close to monopolistic private franchises. Studies show that monopoly by private contractors results in the highest prices. It therefore behooves that all larger size municipalities maintain the tradition of public waste collection. At least municipalities should continue to collect in a large part of their city service areas. If cities lose their capacity to collect waste, capital costs will make it difficult to reenter. Then they will be open to outright exploitation by the monopolistic pricing of WMI or BFI (usually their only choice today), Because of the recent mergers of large waste collection firms, Donahue's book is somewhat outdated. However, he readily declares that competition is very key. "The fundamental distinction is between competitive output-based relationships and noncompetitive input-based relationships rather than between profit-seekers and civil servants per se."

In Donahue's final chapter on "The Terms of the Privatization Decision," he asks "Is competition feasible? Can unsatisfactory contractors be replaced?" (p.84) This chapter, which is must reading for any policy official or professional, he looks at honor, pay, and the politics of public spending. Here are a few concluding quotes that raise some of the significant privatization issues.

"Government pay scales are quite compressed. Lower -level civil servants sometimes earn more than their private sector counterparts, while senior officials generally make less." (p.91)

"If nonowning managers enjoy substantial autonomy from dispersed shareholders, rents (pay) may take the form of inflated salaries and elaborate perquisites rather than higher profits." (p. 92)

Profit- seekers rents can be difficult to identify. A highly profitable government contractor may be earning rich returns because it is innovative and efficient. Or it may be collecting rents because it is unharried by competition and able to raise prices or cut quality with impunity." (p. 93)

"If a profit-seeker has large rents at stake, and if he is undeterred by moral scruples or the threat of discovery, he may be inclined to devote significant sums to induce officials to loose spending, to increase available rents through loose management, or to steer a contract away from more efficient or more qualified competitors. Individuals civil servants , with smaller rents at stake , should be willing to spend correspondingly less to defend or to expand them - probably too little to corrupt a politician." (p. 97)

"The more precisely a task can be specified in advance, and its performance evaluated after the fact, the more certainly contractors can be made to compete, the more readily disappointing contractors can be replaced (or otherwise penalized) and the more narrowly government cares about ends to the exclusion of means, the stronger the case for employing profit-seekers rather than civil servants." (p. 97)

The problem with privatizing waste collection is that competitors are rapidly disappearing. With the growing lack of competition and the complete history of a Waste Management's and BFI's lack of "moral scruples," privatization look like a very poor option for municipalites in the future.

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