The New Frontier

The Pros

Bad news aside, the good news is clear: There is money to be made. Since contracting out started making headlines in the 1970s, governments have turned to the private sector to help them acquire a better product or deliver a better service, for a cheaper price. The common wisdom among government officials is that much of the public is no longer willing to tolerate tax increases--regardless of what they're for. "We operate in a fish bowl," says Mark Hughes, public information director for Phoenix, where privatization proceeds full steam ahead. "If we don't do the best possible job and provide the best possible services, the public won't be satisfied. And if the public isn't satisfied, they're probably going to vote against the next bond issue. One way or another, they can put us out of business."

Delivering the best service includes virtually everything imaginable--from accounting to zoo management. While many services, such as waste-water treatment and airport management, are enterprises too enormous for small-business owners to tackle, there is an infinite number of projects they can get their hands on. "It's spreading everywhere," says Simon Hakim, a professor of economics and co-director of the Privatization Research Center at Temple University in Philadelphia. "There's probably nothing you can name that someone isn't privatizing somewhere."

"There's no end to the opportunities with the federal government," agrees Davis. "It's the single biggest buyer of services in the world, bar none. If you want to go where the money is, that's where you go."

Other sizable potential payoffs await at the other end of the municipal food chain. Moore says sharp-eyed entrepreneurs are setting their sights on Small Town America. "When you look at cities and states, I would say the overwhelming majority of business is in the small towns," says Moore, whose institute produces periodic reports and newsletters on privatization. "There's a lot more going on in towns with less than 50,000 people. I think you'll find huge potential there."

What's more, this potential seems ideally suited for small businesses. "The most common complaint I hear from officials in small city governments is that they can't find enough bidders," says Moore. "I get calls from [officials] all the time saying the big companies don't want to bother with them."

Another advantage for business owners dealing with smaller cities is the lack of union opposition. "Politics at the big-city level tend to be dominated by unions and special interests," Moore says. "It takes too much for a company to even get a bid in at that level. In small cities, it's just about business."

Still, many large cities and counties have had great success with privatization. Under the leadership of current Mayor Stephen Goldsmith, Indianapolis has reduced its annual budget by $31 million--and lowered the tax rate three times since 1992. Philadelphia contracted out 46 activities from 1992 through 1997. Phoenix put its solid waste operations out to bid, and Mecklenburg County, North Carolina, has privatized everything from the management of a tennis complex to substance abuse recovery programs--totaling $85.7 million of annual services, or about 15 percent of its budget as of 1996.

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This article was originally published in the May 1998 print edition of Entrepreneur with the headline: The New Frontier.

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