The Welfare Marketplace: Privatization and Welfare Reform

This provocative report examines the trend toward competitive contracting of government functions. By focusing on four jurisdictions that hired private firms to handle welfare-to-work services, The Welfare Marketplace reveals the ways in which increased contracting with the private and nonprofit sectors is changing the role and capacity of government, threatening accountability and responsiveness to groups with special needs. Encouraging improved performance through market mechanisms creates particular challenges for the nonprofits who must balance their missions with the bottom line.

The organization of service delivery to welfare clients has undergone significant restructuring as a result of the 1996 Welfare Reform Act, which encouraged states to contract with outside companies and for the first time allowed them to determine eligibility for welfare benefits. Seeking to assess the impact of this development, M. Bryna Sanger studied the competitive contract environment in San Diego, Milwaukee, New York, and Houston. Interviewing contracters, public officials, opinion leaders, and researchers revealed the comparative advantages of a variety of key players in the multi-sector service industry.

Sanger's conclusions paint a complex picture of how competitive contracting arrangements have changed the ways vendors and government agencies serve their clients. While performance and innovation have improved in some cases, all the players are finding that adequate accountability and contract monitoring are more difficult and expensive than anticipated. Both for profits and nonprofits are quickly draining talent and capacity as they compete for experienced executives from government and from each other.

Sanger argues that competitive contracting is here to stay, but it will require more--not less--government management and oversight. She urges scholars and practitioners to develop a more nuanced and sophisticated set of expectations about the costs and benefits of increased market arrangements for service delivery, especially when serving vulnerable populations.

M. Bryna Sanger is professor of Urban Policy Analysis and Management at the Robert J. Milano Graduate School of Management and Urban Policy, New School University, and a nonresident senior fellow at the Brookings Institution’s Center for Public Service. She is the coauthor of After the Cure: Managing Aids and Other Public Health Crises (University Press of Kansas, 2000) and Making Government Work: How Entrepreneurial Executives Turn Bright Ideas into Real Results(Jossey-Bass, 1994).