neiljoshi_privatization of governmental services_finalpaper_

Neil Joshi PAA 601 Final Paper

The Hollow State: The Consequences of the Privatization of Governmental Services

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I.) Introduction:

The phenomena of what is called the “Hollow State” where government increasingly contracts various services such

as prisons, health services, water delivery, waste removal, defense, among many other services that we take for granted as

part of our modern society is not a new trend, but rather has a long history globally, in general, as many countries today

employ some form of contracting (Milward H. P., 2000). At the heart of it, economically speaking, a public service is

meant to satisfy an essential societal need (Shetterly, 2002). Members of society, individually or collectively, usually

cannot deliver these services. The contracting out of public services is one form of privatization where the production or

the provision of public services is commissioned to the market (Milward H. P., 2000). The result of this process is that the

role of the state changes from public provider to buyer of public services (Milward H. P., 2000). The belief behind

contracting out public services is that the introduction of market elements in the production of public services increases

effectiveness and efficiency. In reality directing the contractor to supply services according to the agency’s policies and

preferences in the deliverance of various services is both a difficult and costly challenge. More importantly, government

faces the dilemma in safeguarding public interests, in terms of value conflicts, especially the balance between

effectiveness and efficiency (Milward H. P., 2000).

In the U.S., after decades of state and local government experiments with contracting out, the benefits of private

delivery of public services have proven to be elusive (Milward H. P., 2000). The practice of contracting out services has

more often resulted in the opposite of intended results in terms of higher costs, poor quality of service, increased

opportunities for corruption and diminished government flexibility, control and accountability (Milward H. P., 2000).

Practices related to contracting out public services are rooted in a distrust of government and an often-reflexive preference

for markets or civil society (Terry, 2005). This literature review highlights some of the works published by scholars across

a spectrum of disciplines: economics, political science, public administration, law, among others sought to understand its

nature, characteristics, and administrative requirements as well as its implications for democratic governance.

The growing disenchantment with the performance of the public sector has set the stage for market reforms and that

privatization is an idea drawn out of “ideological moorings” and not so much out of historical experience as this literature



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review will discuss (Singh, 2003). The astonishing part about this worldwide movement away from government provision

to government procurement of these services is that there is little evidence that governments or academics know much

about how to govern or manage networks. (Milward & Provan, 2000)

II.) Key Points:

Subtheme 1: The Characteristics of the Hollow State:

The term “hollow state” is used to describe the nature of the devolution of power and decentralization of services”

from central governments to sub-national governments, in addition to third parties such as nonprofit agencies and private

firms to deliver public services. Government has several choices, it can produce public services internally, purchase public

services from external sources, or use some combination of the two (Gooden, 2008). This system raises important

questions about democratic accountability and the legitimacy of government. Alexander Hamilton warned of the danger

that the “hollow state” can bring about, long before the terminology was coined by writing that the American public's

confidence in government is "proportioned to the goodness or badness of its administration (Terry, 2005)" which deserves

serious consideration by current public administrators because it potentially threatens the long-term stability of the U.S.

constitutional democracy (Terry, 2005). These Market libertarians or whatever terminology wants to use for them stood in

sharp contrast to the Keynesian welfare state created during the previous historical era (In the US, this was the New Deal

era which expanded the size of government) (Terry, 2005). Proponents of market liberalism blamed the policies of the

state for slow economic growth, inflationary wage pressures, and a multitude of other economic and social ills (Terry,

2005). The only remedy in their opinion was to dismantle the traditional administrative management practices of the

Keynesian welfare state and replacing them with management technologies under the label of the NPM (Terry, 2005).

These trends in the development of the hollow state have led to a new term being devised the inter-sectoral administration

(Henry, 2002). This is defined as the management and coordination of the relations among government agencies and

organizations in the private and nonprofit sectors for the purpose of achieving specific policy goals (Henry, 2002).



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Contracting should be viewed as an economic exchange that requires for government institutions to align public

values, institutions, and service-market conditions. Public managers operate in an environment of changing social and

political values such as effectiveness, efficiency, accountability, responsiveness, equality of treatment, and service quality

(Zacchea, 2003). Critics of the reasoning justifying the hollow state phenomena believe that public management

approaches employed by government have undervalued the intangibles in public policy such as identity, pluralism, and

multiculturalism necessary for a democratic society (Zacchea, 2003). These scholars conclude now the argument put

forward by proponents of contracting services that the state needs to shed its extra baggage is now firmly entrenched in

public opinion, without specifying the complexity involved in such a task (Singh, 2003). Instead the concept of

continuous reform has been emphasized because "changing an institutional structure as large as a public bureaucracy is a

difficult chore; even changing one organization within it has been enough to defeat some experienced and skilled

practitioners (Singh, 2003)." Managers experience these values as pressures from internal or external stakeholders that

they must balance or optimize as they deliver services. There are always some conditions that lie beyond a manager’s

control. For instance, managers typically have little influence over the laws and rules governing service delivery, such as

those that allow the use of some management practices or service delivery approaches but prohibit others. (Brown,

Potoski, & Slyke, 2006) Still, all things being equal, services with inherently lower transaction costs are more favorable

contracting targets, freeing resources to lower costs or to purchase more service quality (Brown, Potoski, & Slyke, 2006).

On the other hand, services with higher transaction costs pose greater contracting problems, consuming more resources

and inhibiting a manager’s ability to optimize competing values (Brown, Potoski, & Slyke, 2006).

There has been extensive debate about what is NPM and the origins of the ideology of this movement among

scholars but there is general consensus on the theoretical foundation of NPM.

Scholars agree that public-choice theory, transaction-cost economics and principal-agent theory are important influences

that have contributed to the hollow state phenomena (Kennedy, 2006). But, what supporters of contracting out fail to

understand is that by eliminating rules and regulations disregards the important role that rules and regulations play in

strengthening the capacity and integrity of administrative institutions (Kennedy, 2006).



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Subtheme 2: Factors That Lead to Privatization:

A very relevant question for public administrators during these difficult financial times, where governments at all

levels have been forced to increasingly study whether to contract out services or in certain cases even share services

amongst each other to save costs, improve the quality of service, and improve efficiency. This article describes the results

of a ten year comprehensive study conducted from 1992 to 2002 using a variety of data sources (Zullo, 2009).

This research distinguishes between both private and inter municipal contracting. There is a distinction between

the motives for private contracting and inter-municipal contracting because “Private contracting…is partially driven by an

ideological preference for reducing the size of government, an objective that inter-municipal contracting clearly fails to

satisfy. Inter-municipal contracting is used to achieve economies of scale, to take advantage of overlapping geographic

jurisdictions, and to outsource when there are legal restrictions on the delegation of governmental powers (Zullo, 2009).”

In other words, one form of contracting, private contracting, is influenced more by ideological means and the other form,

inter municipal contracting is driven primarily by economic factors. The study concludes, despite the assumption that

financial stress could lead to contracting or sharing of services, there is no evidence that fiscal stress induces privatization.

It notes that those governments with high debt levels tend to reduce publicly delivered services. The county governments

surveyed were about as likely to partner with neighboring municipalities as they are with private firms if they took such

cost saving measures (Zullo, 2009). The strongest and most reliable predictor of both private and inter municipal

contracting was the creation of new public services, not political influence or economic reasons.

On the other hand, the public administration model states in contrast to the public choice theory that local

government officials are pragmatists who supply communities with cost-effective, quality services (Zullo, 2009). This is

not to say that this theory disregards the presence of interest group pressure, but this theory emphasizes accountability to

the public as an important motivator of the decisions taken by rational public administrators (Zullo, 2009). This ideology

believes that private contracting is conditional on labor and management relations. For example, when labor relations are

contentious and where the possibility of collaboration is low (Zullo, 2009). The public administration model makes a

careful distinction between private and public goods, and appreciates a role for government in providing the latter. This

theory views governmental agencies as organizations balancing competing demands from both within and outside of the



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agency, which is indeed very true in reality (Zullo, 2009). Therefore, with the proper talent, resources, and oversight

mechanisms ensuring accountability in place, public agencies can effectively deliver public goods. The conclusion from

this theory is that while fiscal stress sets in motion financial and operational reform, private contracting is not the default

option for public organizations nor it is a panacea for the shortcomings in the provision of public services from such

organizations, private contracting is merely just one strategy for service reorganization, that can be taken in lieu of

improving the existing public service workforce. It notes that governance, rather government, is a more appropriate

description of the reality of contemporary state structures, where an ever-increasing percentage of the state's work is

outsourced to for-profit, nonprofit, and faith-based organizations (Kennedy, 2006).

Subtheme 3: Criticism of the Hollow State Phenomena:

The hollow state can be traced back to the gradual expansion of government since the New Deal. The increasing

development of the hollow state has spurred rethinking the relationship between government power and fundamental

rights (Kennedy, 2006). This is because the hollow state has provoked scholars to create a new definition of government

because the boundaries between public and private sector are making are being blurred by for-profit and nonprofit

organizations that are being gradually incorporated into the fold of traditional government. A major dilemma is how this

system is affecting the constitutional system that forms the basis for American government and “depends on the

distinction between public and private to serve as a fundamental safeguard of private rights. (Kennedy, 2006)”

Critics, such as the authors cited in this literature review, state that because delivering public services has become

increasing complex, outsourcing brings with it inherent risks which include: The loss of expertise after an outsourcing

decision has been made because the government may no longer employ personnel with service delivery expertise (Brown,

Potoski, & Slyke, 2006). This in turn results in an increased dependence on service providers and possibly a reduction in

control over the delivery of a service if there are not the proper administrative procedures in place to ensure the job is

done. There is the potential for escalating costs which results from poor service delivery expertise from a contractor who

may incrementally raise the costs of providing a service as they see fit (Brown, Potoski, & Slyke, 2006). In many cases, it



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has been reported that contracting services has in general increased the risk of service delivery failures be it due to

deficiencies in the contracting process, or shortcomings by the service contractor, outsourcing brings with it a potential for

the non-delivery of critical services (Brown, Potoski, & Slyke, 2006). The obvious concern that remains for public

administrators is whether outsourcing can deliver services in the quality, quantity and timeliness required and at a

reasonable cost (Brown, Potoski, & Slyke, 2006). The fundamental question that must be carefully deliberated is therefore

whether outsourcing, or continuing to provide a service in-house, provides the level of service desired (Brown, Potoski, &

Slyke, 2006).

It is believed by many that thin regulative systems are believed to undermine the integrity of administrative

institutions and weaken their capacity to serve the common good (Terry, 2005). The effects of the hollow state are

apparent in how the federal workforce was reduced from approximately 2.3 million employees in fiscal 1990 to fewer

than 1.9 million in 1999 (Terry, 2005). Federal agencies were compelled to drastically reduced or froze their hiring efforts

for extended periods of time in line with the doctrine of NPM. One approach of NPM is the concept of liberation

management. This is based on the premise that public managers are competent and highly skilled individuals familiar with

good management practices. Proponents of this philosophy believe that the bureaucratic system with its burdensome rules,

controls, and procedures, is largely responsible for poor government performance (Terry, 2005). In other words,

bureaucracy has constrained the decision making processes, discretion, and actions of public managers by limiting their

freedom to improve government performance, so public managers must be “freed” from these bonds and “senseless red

tape” to achieve better performance (Terry, 2005). This principle provided a justification in the cutbacks in the 1990’s

under the Clinton Administration. However, these actions “reduced the influx of new people with new skills, new

knowledge, new energy and ideas (Terry, 2005)" Some agencies reported that downsizing in general led to such adverse

effects as loss of institutional memory and an increase in work backlogs hindering their ability to achieve organizational

mission (Terry, 2005).

This is not to say that the concept of utilizing performance measurement in government should be abandoned but

the literature studied indicates that in too many cases has selected the wrong targets or ignored non-quantifiable criteria



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that is essential to the operations of many agencies. A well known example is the unintended effects caused by the No

Child Left Behind Act (Anechiarico, 2007). This legislation has been criticized in many academic circles because it places

undue pressure on educators to “teaching to the test. (Singh, 2003)" It has been argued that this has created a system

whose output is children who are attaining acceptable scores on the test, with innovation and variation of material

suffering not to mention the professional discretion of teachers and school administrators (Anechiarico, 2007).

Various experts assert that the result of ignoring non-standard performance criteria in effect creates the erroneous

belief that there are “one-size solutions” to improve administrative efficiency and services. Many experts in general chafe

about the rigidity of the Government Results and Performance Act (GPRA) of 1993 or the Performance Assessment

Rating Tool (PART) that puts in their view unduly powerful emphasis on performance based standards (Anechiarico,

2007).

Elliot Sclar in his book about the economics of privatization argues that the decision to contract is complicated by

the nature of public services, which is also often overlooked by proponents of contracting services (Shetterly, 2002). His

analysis notes that the key to successful contracting is the ability for the service to be adequately specified. He states that

specifying work for residential refuse collection is much different than specifying work for a mental health contract in

which the production process is complex and uncertain, and effect on patients difficult to measure (Shetterly, 2002).

Therefore, the type of service contracted influences the contract relationship and the ease with which it can be monitored

(Shetterly, 2002). Sclar notes two of the elements that constitute the cost for contracted services. He cites the comparative

cost of service provision which compares the costs for the public and private sectors to do a particular task (Shetterly,

2002). There is also the transaction cost which is the cost incurred by a public organization to select and monitor a

contractor. Therefore, administrators can derive the true cost of a contract operation as being the production cost

(normally the annual payment made to the contractor) plus the internal costs incurred by having a contract operation to

provide a fair cost comparison (Shetterly, 2002). However, in many cases the transaction cost is rarely considered, which

may lead to incorrect analysis regarding contracting a public service. The relevance of the standard economic model of

competition to public contracting was also examined. The standard economic model, advocated by market libertarians



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assumes there will be “robust” competition for the services in question, but this is rarely the case in reality (Shetterly,

2002). Sclar notes that most contracting actions involve no or minimal competition and in certain cases the public sector is

the market. This is because the “effective markets” envisioned by proponents of free market principles by its very nature

requires large numbers of participants who are well informed about the quality, price, and availability of the goods being

exchanged. Such proponents fail to understand that many services tend toward monopoly provision, such as those

performed by government, because only the organization producing the service can afford the large investments in assets

that are specific to delivering that service (Zacchea, 2003).

Sclar also studied the two types of contracts that are most commonly used. One type is a complete contract

characterized as such because "...generally the contract terms effectively capture all present and future rights and

obligations between the parties. (Shetterly, 2002)" These complete contracts are in low frequency of contracting

transactions ( such as a one-time or infrequent need), where there is little uncertainty about the work to be undertaken (the

process is known and understood), and a there is a specific output desired within a specified timeframe (repairing potholes

or repaving streets) (Shetterly, 2002).The other type is the incomplete contract, which does not capture all of the present

and future rights and responsibilities of both parties. This is the most common type of contract used (Shetterly, 2002).

This type of contract is referred to as incomplete because the parties cannot predict and understand the effect of future

situations. Incomplete contracting can pose problems related to information asymmetry, which leads to two particular

problems in the principal-agent relationship governing a contract, moral hazard and adverse selection (Shetterly, 2002).

The first, adverse selection involves selection of agents in a manner adverse to the principal, for example if the

government lacks certain information related to the contractor selection decision). The other is moral hazard where the

agent acts in ways inconsistent with the goals of the principal (Shetterly, 2002). Both are caused by the principal's

inability to obtain or understand information relevant to selection of an agent and the agent's behavior in carrying out the

terms of the contract and could lead for example to “opportunistic behavior” on the part of the agent. Because of the fact

that opportunities for complete contracts are rare, and incomplete contracts are costly for government to award and

monitor, Sclar suggests relational contracting as an alternative (Shetterly, 2002). Relational contracting replaces the



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formal legalistic governance structure associated with incomplete contracting with a bilateral governance structure based

on trust and cooperation between organizations, replacing an adversarial relationship with one of cooperation and mutual

benefit (Shetterly, 2002).

Subtheme 4: The Pervasiveness of the Hollow State in Society:

The presence of contracted services in government is pervasive throughout American society, we can see

examples of it in our day to day lives. For example we see the presence of the hollow state in the government ability to

coordinate an appropriate response to disasters. The rise of “third party” government has been generally impeded the

effectiveness of government responses. For example in the case of the response before and after hurricane Katrina, much

has been made of the politics behind the decision making process behind government actions related to the construction of

storm defense systems and the government response to the disaster (misplaced attention, cronyism, partisanship,

patronage, class based indifference to the poor, special interest groups, etc. (Krane, 2007)) However, the point that is often

overlooked the government response was how third party government played a role in the inadequate coordinated

government response to this disaster. Katrina is yet another example of government that was complicated by inter-

sectorial politics (Krane, 2007). In this case, there was a raging debate over insurance coverage to victims. The states of

Louisiana and Mississippi were engaged in an argument with insurance companies over the settlement of damage claims

suffered by each state's residents (and the various jurisdictions within those states) in the form of lawsuits contesting the

insurance company actions related to the cause of damage, amount of compensation, and degree of negligence by the

property owner (Krane, 2007). Because of the layered nature of insurance coverage, this compensation is only a portion of

the total claims, and the remaining claims are in dispute as to the insurers that have responsibility for the payments

(Krane, 2007).

The Hollow State can also produce deadly results. For example, there is literature that chronicles the rise of

military contractors such as Blackwater, which can be considered the most powerful private army in the world (Bryer,

2008). As described earlier, private military contractors like Blackwater pose a serious dilemma regarding constitutional



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rights of an individual. Under current law both U.S. and Iraqi, security contractors are immune from lawsuits. The

Blackwater incident in 2007 has led many to question the logic of the immunity clause (Bryer, 2008). On February 27,

2007, a sniper employed by a security contractor opened fire and killed innocent Iraqi civilians (Bryer, 2008). The U.S.

Department of State had later cleared the sniper and the company of any legal wrongdoing, offering that the action taken

was within the scope of work of the contractor in its efforts to protect U.S. diplomats, which led to notoriety for

Blackwater (Bryer, 2008). The case of the Fallujah attack by the U.S. military raid is an example of how the lack of

coordination between military and private security can lead to devastating consequences (Bryer, 2008). In the Fallujah

case, military strategists had no interest in deploying troops in the city itself in order to avoid unnecessary hostilities with

city residents but the attack on civilian contractors employed by Blackwater forced a change in strategy (Bryer, 2008).

Therefore scholars have suggested placing more oversight controls on privatized military firms, such as Blackwater in the

form of “highly specified and transparent contracts that are focused on clearly defined results and permissible actions

(Bryer, 2008).”

Subtheme 5: Methods to Improve the Effectiveness of Contracting:

Once governments select a contractor, the most important task then involves monitoring and evaluating the

performance of vendors working under contract. This is because while there is truth that the practice contracting out

services under the NPM theory brings flexibility, “it is erroneous to think that without building institutions of public

accountability this would bring any substantial difference (Singh, 2003).” Well-monitored vendors are more likely to

perform according to contract specifications, thereby improving returns from contracting if there is the legal basis to do

so.

A common recommended for managers is to perform tactical and strategic planning and management in terms of

how something will get done how it will be achieved (Gooden, 2008). It is widely recognized that but without foresight

government falls behind in several areas such as technology, economy, and demography needed for operations. They



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concluded that several tools and such as geographic information systems, public involvement approaches, and forecasting

methods could be used to better understand the future (Gooden, 2008).

It has also been stated that because of the fact that management decisions and actions affect many parties it is

suggested that these players should be included in the planning, management, and decision-making processes (Allen,

2007). When diverse parties are included in the planning and decision making process, they are more likely to share in the

accountability and responsibility for the outcome (Gooden, 2008).

Some managers cite eight effective practices that have technical and relationship aspects that successful managers

use in the contracting process, which are (Gooden, 2008):

1. They emphasize pre-bid planning activities and multiple needs assessment methods to accurately reflect service needs

for the area and to more equitably distribute services for various populations.

2. They monitor waiting lists and utilization of services regularly to determine who uses and needs services.

3. They rely on a large number of participants to review proposals.

4. They use a standard tool to rate them to ensure fairness and competitiveness in the proposal evaluation step.

5. They conduct debriefings as training and mediation sessions and encourage bidders to become more capable to

participate in future bidding.

6. They negotiate rates on the basis of pricing ranges, not line-item details.

7. They assist providers with program and budget support.

8. They rely on experience and technical competence to succeed.



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One crucial example of various methods that have been suggested to improve the practices governing contracting

out public services is how the Obama administration done it’s part to recognize the detrimental changes that the increasing

contraction can bring about to government. His administration has attempted to produce a new "single consistent

definition" of inherently governmental functions that can be applied throughout the government (Burman, 2009/2010). In

a presidential memorandum dated March 4, 2009, he stated that: "Government outsourcing for services raises special

concerns." He goes on to say, "The line between inherently governmental activities that should not be outsourced and

commercial activities that may be subject to private sector competition has been blurred and inadequately defined. As a

result, contractors may be performing inherently governmental functions. (Burman, 2009/2010)" Obama personally

warned in his memo of the dangers associated with “over-reliance on contractors” which can weaken the “in-house

capacity that is essential to effective government performance." Obama’s actions are significant because it regards the

issue of extensively contracting public services as a real threat to government stability and authority (Burman,

2009/2010). The central issue put forward by the administration’s actions is that the issue is not so much about which laws

or policies determine the federal government’s responsibilities but how a “capable and robust” federal workforce can

effectively oversee contractor activities and facilitate communication (Burman, 2009/2010). The purpose is to give

flexibility to agencies regarding outsourcing services by providing guidelines that will allow them to choose which are to

be contracted. This means that each agency is to determine what their core competencies are, regardless of whether the

activity is widely found in the private sector (Burman, 2009/2010). For example, if meteorologists are critical to the

National Oceanic and Atmospheric Administration's mission, then it be wise to keep such staff and their operations within

the agency. Functions that are not critical to the agency operations and mission can be outsourced or shared among

agencies (Burman, 2009/2010). The guidelines put forward offer three categories of functions: Those that are inherently

governmental (e.g. determined by law or regulation or by OMB guidance), critical, but not inherently governmental

(determined by agency officials), essential, but not inherently governmental (determined by agency officials using a cost-

comparison approach to seek the "most cost-effective source of support for the organization") (Burman, 2009/2010).



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Another suggestion put forward for scholarly review is by Burnier DeLysa who advocates a care-based approach

to public management, which has feminist roots from the frontier settlements in the old West. She believes that a care-

based model is relevant now because of the "real world" collapse of the housing and financial markets that triggered the

current recession in lieu of the businesslike approach to government, which includes contracting (DeLysa, 2009). She

noted that for many public administrators, especially those working at the street and agency levels, care-centered

administration is already at the core of what they do (DeLysa, 2009). She believes that public administration should return

more towards it’s roots in providing quality public service that improves people's lives and stresses caring for others, not

efficiency, at the center of administration. This sort of view was embraced during the Progressive and New Deal eras, in

part due to the advocacy of Frances Perkins, the labor secretary to FDR. In stark contrast to contemporary rhetoric about

privatization and market-based government, Perkins believed that "government in a democracy is a service agency for

these essential activities of human cooperation (Burman, 2009/2010)." A care-centered public administration as

envisioned by some would adopt a relational leadership approach that attempts to establish caring relationships both

inside and outside of the organization through collaboration, caring, courage, intuition, and organizational vision (DeLysa,

2009).

A care based approach believes that diverse administrators from varied backgrounds should use care to find

meaning and motivation in their work experiences and to communicate those experiences to others (DeLysa, 2009). More

importantly, it is important to note that this discourse need not be viewed as inconsistent with public-sector requirements

for performance measurement. It can be argued despite the role of care and relationship oriented activities in public

administration, care work and emotional labor often go unrecognized. The collective care in the form of government

programs and policies was allowed to erode or disappear altogether, forcing individuals to bear an ever higher load of

individual care costs (DeLysa, 2009). For those with economic resources, the costs could be managed and quality care

provided for themselves and their families (DeLysa, 2009). For everyone else, it could not. It is argued by care-based

government advocates that with the private sector in disarray because of the financial crisis, many people who never

thought they would need government care programs have turned to them and found them wanting (DeLysa, 2009).



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The point behind these types of approaches is the emphasis to build more networks among contractors, suppliers,

within a government organization, across other departments, and external connections to the community to create an

atmosphere of greater accountability, trust, and cooperative work. In addition, there should be a rational approach to

decide which sources are critical to an organization and which activities have the best chances of improving effectiveness

if they were outsourced.

III.) Implications for Public Administrators:

The phenomenon of the “hollow state” has significant implications for public administrators in several ways. For

example, the practice of contracting out has caused numerous complications in constitutional accountability such as the

fact there is a lack of comprehensible rules defining the actions and responsibilities of the state (Kennedy, 2006). The

example of the Fourteenth Amendment is cited because this amendment had prohibited states from denying the privileges

of citizenship to persons otherwise entitled to them (Kennedy, 2006). In the subsequent years this amendment was

ratified, the courts have interpreted the content of this amendment in various different ways over time depending on the

situation. For example, the Supreme Court declared a distinction between “between state action or “public conduct” under

the procedure of due process, and “private conduct”, which falls outside of the jurisdiction of the amendment, “no matter

how unfair that conduct may be (Kennedy, 2006)." This distinction between public and private is rather vague so that the

Supreme Court has been pushed to develop rules that allow certain private acts to be attributed to government, but these

rules have proven tricky to implement. For example, there have been cases where a government funded program that is

conducted by private actor, but the courts has generally found such action to be deemed as state action (Kennedy, 2006).

In other cases, contracting can provide the means for evasion of the limits imposed by the Bill of Rights by the

government because due process scrutiny is delegated along with the authority to take actions on behalf of the government

to private partners (Kennedy, 2006). With contracting government services there are very serious constitutional and legal

issues involved. There are some characteristics of the relationship between government and private entities that help

determine whether an action can fairly be attributed to the state such as the existence, nature, and extent of government

funding; the nature and extent of government control of the activity in question; the extent to which government has



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authorized a contractor to exercise government powers in which it is up to the legal community to determine who is liable

(Kennedy, 2006). The bottom line should be when government acts, it should be accountable no matter how government

chooses to perform a specific action should not alter that requirement and with contracting government services there are

very serious constitutional and legal issues involved that public administrators must deal with. Public Administrators are

faced with value conflict challenges (ex: cost-efficiency v. responsiveness) and concerns brought forward by different

constituencies before they can contract public services to other organizations.

IV.) Conclusion:

While there is extensive literature that questions the assumptions made by proponents of free market principles

and New Public Management techniques that are intended to make government more responsive, effective, and business

like there is a continual debate on what direction governments at all levels should take to provide public services. The

contracting proponents typically have roots in economics and cite contracting as a way to reduce service costs through

competitiveness and economies of scale. On the other hand, the critics of the contracting practices that are leading to a

hollow state of government, have roots in traditional public administration fields and counter that contracting tends to

sacrifice key public interest values (e.g., equality of treatment) and reduces service delivery capacity (Gooden, 2008).

Regardless of the scholarly debate, the fact is that contracting is and will continue to be a reality that is facing public

managers. In many cases, public managers, such as at this present time, do not always have a choice about contracting and

may be required by elected officials to do so. It is safe to say that public managers charged with contracting services

operate in politically charged environments, challenged by multiple constituencies (citizens, elected officials, interest

groups, etc.) and must juggle value conflicts. For both critics and supporters, it has to be acknowledged that the notion of

so called “one-size-fits-all (Singh, 2003)” judgments about contracting are unrealistic because as many volumes of case

studies will attest to, contracting can improve service delivery or it can be a complete disaster, depending on the

underlying market conditions and management structures in place (Singh, 2003).



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The practice of contracting is not new globally and has been both a challenge and an opportunity for public

administrators, since it became more widespread for the last 30 years or so in this country, due to increasing distrust and

dissatisfaction with government (Kennedy, 2006). Scholars have also noted how the definition of the hollow state has

expanded beyond contraction of public services to private organizations as the dominant trend because the delivery of

public services involves so many different parties and overlapping functions. To some degree, it could be said that

“privatization is passé” because “the historic institutional environment of public administration is liquefying”, due to

forces, such as globalization and devolution, which are causing government to wither and be displaced by governance or a

blend of laws, policies, organizations, institutions, cooperative arrangements, and formal agreements that controls citizens

and the delivery of public benefits (Henry, 2002). There is now a clear distinction that can be made between government

is institutional; governance is institutional and networked, which has led to a new term for the current state of affairs, the

inter-sectoral administration as described in this review. In essence, we are still learning of what are the best methods of

incorporating the inter-sectoral administration into the fold traditional government in an effective manner.

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