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What are the relative advantages and disadvantages of privatizing key government services and functions?

Advantages of privatizing key government services and functions include that it can improve efficiency and save money in the short term, and disadvantages include that it can reduce the quality of services and lead to inequalities based on wealth.

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Privatization of government services is a contentious issue. Many people argue that government-run services can be inefficient due to lack of competitive pressures and also can be expensive. Privatization allows businesses to hire cheap hourly workers rather than full-time employees with benefits, sometimes reducing the cost of providing services. Some argue that private companies have greater incentives to streamline costs and are more flexible and innovative than governments.

Also, privatization over the short term reduces costs on the books of the government. Selling off an asset such as a railroad can make a given administration look as though they are reducing a budget deficit but on the long term may reduce future income; this future income reduction, though, will occur in the next election cycle and thus often be blamed not on the administration that did the privatization but on their successor.

On the negative side, government services are not profit centers and have fundamentally different goals. For example, having a postal service that delivers to rural areas and can handle mail-in ballots and individual letters and packages is a benefit to society as a whole; what returns profits to shareholders is not necessarily what is good for citizens. Private companies have fundamentally different goals than the public good and charge for their services. Every dollar of profit made by a private company running a service is a dollar not contributing to serving the public.

Even worse is the moral hazard of state capture in which private companies running government services become de facto rent-seeking monopolies, lobbying to maximize their profits in ways that undermine the fundamental missions of the services. Also, privatization means lighter regulation, often with a decrease in quality. Finally, private employers emphasize reducing costs over providing high-quality jobs with benefits and pensions.

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