Make or Buy? E. S. Savas. 2005. Privatization in the City: Successes, Failures, Lessons. Washington, DC: CQ Press. 335 pp.

One of the highlights of my graduate school experience was reading the classic article by E. S. Savas, “The Political Properties of Crystalline H₂O” (Savas 1973), which detailed the discovery by the administration of Mayor John V. Lindsay of New York City that the old public administration bromide that “there is no political way to fill a pothole” was a fallacy and there was a political price to be paid for not quickly removing snow from all the streets of the city after a major snowstorm. Since that time, Savas has been a force in public management as a scholar, practitioner, and advocate of privatization.

Privatization in the City describes privatization efforts in nine large U.S. cities and attempts to assess the successes and failures that resulted. As one would expect of a book with a foreword by Rudolph Giuliani, the bulk of the book details the Giuliani administration's efforts to privatize services in New York City. The book tries to do many things: it tries to assess evidence, provide definitions and examples, and give hagiographic descriptions of bold, purposeful mayors—Giuliani and Stephen Goldsmith of Indianapolis among others—who worked tirelessly to use competition and privatization to revitalize their cities.

A policymaker would never complain that Savas is a “yes, but” social scientist. Savas is sure that markets work best with the appropriate and minimal necessary amount of government regulation, and he is certain that nongovernmental organizations are better than governmental bureaucracies at dealing with social problems such as drugs and teen pregnancy (7). These are strong assertions, and in a serious work of scholarship it is incumbent on the author to put his cards on the table. Savas states, “Numerous careful studies of government outsourcing in many countries show that average savings range up to 30 percent, depending on the function, for the same level and quality of service” (8). He cites himself and several authors for this claim. However, the most careful and comprehensive of the authors cited, Graeme Hodge, views the evidence (including a number of studies conducted by Savas) quite differently in a meta-analysis of 129 empirical studies of contracting out of governmental services: “Looking at the measurements themselves, it was observed that they [the studies] were mostly from local government, mostly U.S. in origin and mostly from refuse collection, cleaning, and maintenance services. A significant association between cost savings and contracting was found corresponding to a level of around 6 to 12 percent.… No significant reductions were found for other services” (Hodge 2000, 155).

Privatization in the City is a book that does not engage the literature on privatization and contracting out in a scholarly way. It ignores much of the recent work on local government contracting that argues that support for the benefits of contracting are mixed. Aside from Hodge's work, which is cited incorrectly as supporting Savas's assertions, there is no mention of works by Boyne (1998), Hirsch (1995), and Lavery (1999) that raise serious questions about the claims made for privatization's unmixed benefits. Also missing from the discussion are concerns that the complexity of contracting leads to coordination and accountability problems (O'Toole 1996; Wise 1990). Excellent new studies of contract-management capacity in city government are ignored as well (Brown and Potoski 2003). However, this book really is not about the empirical study of privatization in city government. The connection to the empirical literature begins and ends in chapter 1. What follows is a description of what a new breed of mayors did and in particular what Mayor Rudolph Giuliani of New York did to revitalize city government through privatization and contracting out.

Chapter 2 describes what these mayors (other than Giuliani) did in Indianapolis, Phoenix, Philadelphia, Chicago, Charlotte, Milwaukee, Atlanta, and Washington, DC. The Indianapolis case is the most extensive and is drawn largely from the well-known Kennedy School Cases on Mayor Stephen Goldsmith of Indianapolis (Kennedy School of Government 1995) and from Goldsmith's own book (Goldsmith 1997). Goldsmith's attempt to restructure Indianapolis is an interesting story from which one can learn a lot about political leadership. The emphasis on competition rather than privatization is important (the city departments could compete with outside vendors for the contracts). Goldsmith's “Yellow Pages test” that a presumptive case for contracting out exists if you can find at least three firms in the phonebook offering a service the city produces has always struck me as a useful rule of thumb for outsourcing. The problem is that most of the story is told by the principal or his amanuensis (the case writer). I am inclined to think that Goldsmith was an excellent mayor, but whether the city government is more efficient and effective than before his administration is impossible to know. There simply are no data and no independent analysis. Savas does briefly discuss the criticisms of the mayor's contracting program and why most were unfounded.

Phoenix, a city with a reputation for excellent governance, and where Savas was a consultant, also engaged in an ambitious experiment to contract out services while allowing city departments to compete as well. The protagonist in this story is not a mayor but the city public works director. There are some data presented that show the cost of refuse collection going down over time and customer satisfaction going up. In the case of emergency ambulance service, the city won the contract, and customer satisfaction went up. When I read this, it brought to mind one of my most embarrassing moments as a doctoral student. Several of us were asked to conduct a citizen survey of ambulance service for Columbus, Ohio. We did it and found that there were very high levels of satisfaction with the service. When we presented the results to our professor, he laughed and said that he was not surprised at the results since those most likely to complain were dead. Like Indianapolis, Phoenix has an excellent reputation for good governance under innovative leaders, but the other cities in this chapter are not as well known for innovation and are described so briefly that it is impossible to know what happened in any detail. Claims are made for money saved and efficiencies implemented, but there are no data deeper than that found in a newspaper article or city press release.

Chapter 3 begins on page 97, and from here until page 240 the book is about privatization in New York City. Chapter 3 discusses the evolution of privatization in New York from the Dutch colonial government of New Amsterdam through the administration of Mayor David Dinkins and establishes the well-known fact that New York City, as a bastion of liberal Democrats and a strong unionized workforce, was not a propitious place for privatization efforts.

Chapter 4 discusses the plans for privatization in the Giuliani administration. As a Republican, not supported by labor unions, Giuliani was the first mayor to embrace privatization in a significant way. This chapter lists the “Privatizations Recommended in the Transition Report for Mayor-Elect Giuliani,” “Guidelines for Public-Private Competition,” and “Initial List of Planned Privatizations.” This attention to detail sets the tone for the rest of the book.

Chapter 5 is titled, “The Extent, Pattern, and Outcomes of Privatization.” The lists continue so that we can determine the extent and pattern of privatization; unfortunately, outcomes cannot be determined. As Savas says, “Information on proposed privatizations was obtained from official records and from media reports, but the results, cost, and benefits were not always available. Officials did not conduct before-and-after comparisons of effectiveness, responsiveness, and equity rigorously or routinely” (135). If neither these officials nor the author conducted this research, what is the point of listing privatizations one after the other? How can we know whether there is any accuracy to the claim that these privatizations saved any money when there was no study and we have no idea of its accuracy? Savas makes a one paragraph “back of the envelope” attempt to measure the financial impact of the privatizations (150). This may be fine fodder for a political campaign, but as social science it is ludicrous.

Chapter 6 is a laundry list of “Selected Successful Privatization Initiatives” that are successful only in the sense that they were implemented. While this information is perhaps useful in an official history of the Giuliani administration, it serves to teach no lesson or enlighten the reader. Chapter 7 is another laundry list, this time of “Contested and Thwarted Privatization Initiatives,” that also belongs in an official history. Chapter 8 is a short summary, followed by an 81-page appendix that describes each of New York City's 82 privatization initiatives in brief and in detail. After reading the appendix, I was reminded of the box that we found after my grandmother's death that was labeled “pieces of string too small to save.”

Privatization and competitive sourcing are terrifically important policy issues that need a great deal more serious study. Given the degree to which governments have already committed themselves to this path, there is no going back. What we need much more of are studies of what types of contracting work under which types of conditions. Contracts do not implement themselves, and we also need serious work on how to oversee networks of contracts. While we may know a lot about simple services like garbage collection and building maintenance that are often contracted out, the number of serious academic studies of complex services like mental health or child welfare systems that have a joint production function is very small. I wish that this book added to our knowledge of privatization and competition in a significant way, but unfortunately it does not.

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