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Private Partners

Can the privatization trend help your company grow?

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This story appears in the November 2003 issue of Entrepreneur. Subscribe »

For decades, essential services like drinking water, sewage collection and education have been the job of state and local governments. But over the past decade, the private sector has increasingly taken on some of these tasks. With state and local governments desperately short of revenue, the privatization of public services is likely to increase at a faster pace. In some sectors, small businesses that get in on privatization early can reap the rewards.

Drinking-water and wastewater management are two of the main services being privatized. Many cities' water and wastewater systems are in dire straits, with pipes dating back 100 years; a report by the EPA estimates that the U.S. water system needs more than $140 billion in repairs. Yet America's cities can't afford these upgrades. Privatization allows city governments to have a contractor do the upgrade and manage the systems, often for far less, since private firms are given incentive-laden contracts that push them to work more cheaply, says Clay Landry, a principal at WestWater Research LLC, a water economics research firm in Laramie, Wyoming. "The cities and states are in fiscal crisis, and the Bush administration's answer to them is to look to the private sector to handle services, so we'll see more of this," Landry says. What's more, as water scarcity increasingly becomes an issue, privatization will become even more attractive, since handing water management to a private firm that can set market-oriented rates helps manage scarcity.

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