Article: Exploring the Limits of Privatization

Author: Ronald C. Moe

Date of Article: 1987

Moe, Ronald C. 1987. "Exploring the Limits of Privatization." Public Administration Review 47 (Nov/Dec): 453-460.

This article speaks to the much-ignored subject of legality and privatization. Moe's essay suggests the passivity of public administration in raising critical questions, respecting the limits of privatization, originated in the reality that public administration has largely forsaken its intellectual roots which are embedded in public law, not economics or the social sciences.

Moe argues that privatization proponents see public and private sectors as being alike. They are concerned with which sector can do the work most efficiently and don't bother with legal or organizational structure questions. Public and private sectors are alike in the nonessentials, but differ in the essentials. A line must be drawn between public and private and public law provides that line.

In 1819 the Supreme Courts decision on McCulloch v. Maryland taught us that a sovereign cannot be taxed by a subordinate unit since to do so would permit another body to determine the fate of the sovereign. The court reasoned if the government owned any part of an entity, the entire body became an instrumentality of the government. This ruling is significant because political actors, both executive and legislative, are assigning functions with a public character largely without criteria and with consequences that are expensive to both the public and private sectors. Such was the case with the Federal Assets Disposition Association who seeks to be private in its direction and interests but public in its rights and privileges.

The most important characteristic that separates public and private is sovereignty. Sovereign attributes include:

Legitimate right to use coercion to enforce its will.
Legitimate right to got to war with another sovereign.
Sovereigns are immune from suit except by their permission.
Sovereigns are indivisible.
Sovereign state may disavow debts but can't go bankrupt.
Sovereigns have the right to establish rules for protection and transference of property, both public and private (eminent domain).
This issue of sovereignty is important, because private firms that contracted by the government may fall into a legal limbo. Many questions arise, for example:

If "private" can a corporation declare bankruptcy if providing a public good or service.
Are employees, offices, and record protected by the privacy rulings based on the 4th Amendment or are they considered "public."

There are additional factors to be considered. Issues of accountability, public safety, national security, and corruption in privatization need to be discussed.