Local Government Structure, Devolution, and Privatization

The rules of the game have changed for rural local governments. The explicit policy of devolution has placed greater responsibility on the door step of local governments at a time when the intensity in the cry for tax reductions has increased. The trade-off between greater local responsibility and the risk of higher costs due to scale and managerial inefficiencies has renewed the debate over local options. One policy option that is receiving significant attention is privatization, or the contracting with private companies to produce or supply the government service. A critical review of our current thinking is reported in this article. Specific attention is paid to alternative local government structures, the experiences governments have had with privatization, and the unique problems rural governments face when considering privatization. In the end, privatization may not be a viable option for smaller rural governments where cooperative arrangements to jointly supply the service across local jurisdictional boundaries presents meaningful opportunities.