Privatization in Local Government
Practical Privatization: Lessons from Cities and Markets, Introduction
Daniel J. Elazar
The Milken Institute and the Jerusalem Center for Public Affairs are pleased to present this volume, the first of its kind, on how outsourcing and privatization can be used by Israel's local authorities to improve their ability to deliver quality services to their residents at lower cost. This book could hardly be more timely. The government of Israel, like those of so many other states, has found that it has reached the limits of its effectiveness in domestic service delivery and that it, perforce, must give most of its attention to those critical issues for which states are established, namely, foreign affairs, defense, and managing or regulating the economy. All other tasks must take second place, whether that is intended or not. For local government, on the other hand, those standard domestic tasks are matters of first priority. Indeed, even while hard and fast lines can no longer be drawn, we can say that local authorities exist primarily to serve their citizens in the delivery of those services.
Formally, Israel is a highly centralized state, yet, as this writer and others have demonstrated over the years, it never has been as centralized in reality as it appears on paper and indeed, the local authorities have had considerable room for maneuver in providing the services they are called upon to provide. Much of this flexibility has been gained through their independent efforts to fulfill the formal demands of state law. For example, if a state law requires a minimum number of classrooms per number of students in a municipality's schools, a local authority will borrow money them from the country=s banks, if necessary, to build them, when the Ministry of Education does not have the funds, and then will successfully demand reimbursement from the state.
This leads to a second truth, namely, that local authorities gain independence and maneuvering room not only by managing grants but by managing deficits. At the same time, unlike state governments which have far more flexible resources, they can print money as legal tender, local governments are seriously constrained from a budgetary perspective. Hence, to be successful, they must maximize their savings while delivering the services they are called upon to deliver.
To make matters even more complex, local authorities are not merely service delivery bodies but are designed to foster citizenship as well, a task perhaps more important. Indeed, in the complex modern world they represent the first line of civic activity and citizen involvement. Since fostering citizenship and civil connections -- what elsewhere I have labeled "civil community" -- requires local governments of sufficiently small scale, the ability of such local governments to outsource many of their service delivery tasks is not only a vehicle for lowering costs but also for enabling local authorities with small tax bases to survive as independent bodies within the larger body politic. By contracting with outside private and specialized entities that gain economies of scale by operating on business lines in many localities, offers small local authorities a means, perhaps the best means, for independent survival.
Not only that, but larger municipal size does not necessarily make privatization better, while we know that it usually makes civic life more difficult. Thus, the use of municipal government to foster a better civic life, made necessary by the growing size and complexity of the state, is much enhanced when privatization and outsourcing offer ways for cities, including small cities, to live within their budgets.
Outsourcing may be through traditional forms of privatization. It may be through allowing the present employees of a local authority to organize privately to take over the delivery of the services they have been providing governmentally in the past. Thus outsourcing and privatization can not only help in those areas where they are most efficient, but can relieve local authorities so that they can concentrate on areas where they are.
The Jerusalem Center has been intensively involved in the efforts to strengthen local government since its founding and in issues of privatization for over a decade. We are very pleased to have this opportunity to bring together these two concerns of ours in a workable effort to strengthen both. We are particularly pleased to be partners with the Milken Institute, our sister institute in Santa Monica, California, that in a relatively few years of existence has made a serious mark for itself on the American and world economic policy scenes. It has been a particular pleasure for us to work with Dr. Glenn Yago of the Institute and his staff in this program. Thanks to him we have also benefited from the active participation of Mayor Stephen Goldsmith of Indianapolis and the other participants. We thank them all.
Prime Minister Binyamin Netanyahu and Finance Minister Yaakov Neeman were particularly helpful in launching the effort that has led to this book. We are most grateful for their encouragement and help and know that their involvement is not only a sign of the importance of this effort but will be a major factor in its success in the field.
The Jerusalem Center bore primary responsibility for the organization of the conference on privatization in local government and for the publication of this book. The dedication and efficiency of JCPA Director-General Zvi R. Marom, always great, was especially vital in this effort, which he fully took upon his shoulders. He was ably assisted by our Program Coordinator, Chaya Herskovic, who invariably matches him in commitment and performance. I would also like to thank the other members of the JCPA staff, Mark Ami-El, Rachel Elrom, and Lilach Harel, who were mobilized for the occasion. It has been a privilege and a pleasure for me to work with them all over the years and on this project.