Thursday, August 30, 2012

Privatization and Learning

This is the second in a series of articles inspired by a couple of stories that appeared on this blog recently -- one the Dorfman and Harel article about prison and military privatization, and the other just yesterday on privatization in the Nebraska child welfare system.  My purpose is not to put a stake through the heart of privatization (since I am a participant in that field), but to tease out lessons for successfully structuring and limiting privatization efforts.

2.  Structuring Privatization for Learning

In states that have parks agencies that are short of funds and facing closures (which is basically all of them), I am often asked to come in to discuss our private operations model with state legislators.  After I describe what we do and the potential savings, the more gung ho members of the group nearly always say something like, "well, we should just get rid of the parks agency entirely and turn it all over to private companies."    

While I appreciate the enthusiasm for what we do, I have to slow them down, for at least two reasons.  The first I discussed in my previous article -- that certain decisions related to parks and public lands need to remain in public hands.   The second reason has to do with learning -- while this model is very familiar to my company, it is completely new to their agency.  How do they write contracts?  How do companies get paid and how does the agency enforce accountability?  Is there a quality vendor pool with real experience and performance history?  Laying off the entirety of an agency's experienced staff, no matter how expensive or inefficient they may be, before these questions are answered is fraught with peril.

Which seems to be exactly what Nebraska did in its child welfare department.  The exact problems are hard to tease out, as it's hard to tell what were pre-existing problems unsolved by privatization and what are new problems brought on by the effort.  As an aside, I can say from some personal experience that there are some inherent problems making child welfare departments work, to the extent that I could likely go to any of the fifty states and document two or three horror stories today, irrespective of their management approach.  Never-the-less, it seems Nebraska went all-in, turning the entirety of the caseload over to five inexperienced companies (if these companies had experience in other states or if other states have tried this model, the author does not tell us this).

The successful privatization efforts I have been a part of have all been implemented in a staged approach.  The US Forest Service today is the world leader in using private companies to manage their public recreation areas, with over a thousand or their largest sites under private management.  But when they began this program 30 years ago, it was in just a few locations that represented less than 1% of their total recreation operations.  

This was fortunate, because the program had to overcome numerous hurdles in its early years. The field recreation staff had no experience managing contracts of this sort.  The agency didn't know how to write a contract for this kind of operation, or how to solicit bids -- today, they have good model contracts but these are third and fourth generation versions that have been refined based on substantial learning in the field, some of it painful.

Perhaps most importantly, there were no private operators with experience in this type of arrangement either, and early on the US Forest Service had problems with contractor performance and financial instability very similar to problems in the Nebraska child welfare program.  But the agency persevered, and today US Forest Service recreation contract offerings tend to attract bids from as many as five or six private companies that have decades of experience working with the agency.

One danger of this approach of starting small and planning for learning and improvement is that it does not always play well in the political process.    While private companies are comfortable expecting mistakes and then learning from them, mistakes in the public world are typically used as ammunition by opponents in political food fights.  It is sometimes hard to give public agencies the protection and space they need to learn and develop.

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