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As the 20th century has progressed, the public has come to expect the government to provide more services than in any previous era. It might be added that a greater number of services becomes economically feasible for the government to provide when large numbers of people are crowded into cities. For example, organized collection of trash would be prohibitively expensive in rural areas because of the dispersed population, but it is practical -- and necessary -- in big cities.
The rate of growth of government has been greater at state and local levels than at the federal level. From 1960 to 1990, state and local governments increased their employees from 6.4 million to 15.2 million, while the number of federal employees rose only from 2.4 million to 3 million.
Partly because of this growth, and the rising costs of taxes to pay for it, toward the end of the 20th century many thoughtful observers were questioning whether government was the most efficient provider of needed services. In fact, a new word -- "privatization" -- was coined and quickly gained acceptance worldwide to describe the practice of government turning over to the private sector some of its functions, which in the United States (because so little economic activity is directly under the control of the federal government) has meant primarily at the municipal and regional level. By 1991, such major U.S. cities as New York; Los Angeles, California; Philadelphia, Pennsylvania; Dallas, Texas; and Phoenix, Arizona had employed private companies or nonprofit organizations to perform a wide variety of activities previously performed by the municipalities themselves, ranging from street-light repair to solid waste disposal and from data-processing to management of local golf courses. With a projected 1991 budget deficit of $3.5 thousand-million, New York City, the largest U.S. city, was under particularly heavy pressure to privatize; it had already contracted out some $5 thousand-million of city services, and was seriously considering contracting out still more.
In fact, some American politicians and analysts have argued that the federal government should privatize such major activities as the U.S. Postal Service.
Yet, in the 1990s, privatization of public services remains a highly controversial subject. While advocates insist that privatization reduces costs and increases public-sector productivity, others argue the opposite, that private contractors need to make a profit and thus cost more, while not necessarily being more productive. The difficulty in measuring the effectiveness of a social service that has been privatized is one problem. If only one private contractor bids on a social service, there may be no cost saving. Public-sector unions, not surprisingly, are adamantly opposed to most privatization. They point out that there have been cases where private contractors submitted very low bids in order to win contracts, but later raised prices substantially.
The crucial element in privatization questions is not just who provides the service, but whether there is an element of competition present. In a privatization, this usually means there must be more than one bidder before a contract is awarded. And sometimes with the spur of threatened privatization, local government workers may become more efficient in order to hang onto their jobs.
Clearly, more than 200 years after the United States achieved independence, the question of what the proper role of government in the economy should be remained a highly debatable one.