This is privatization in the sense that the government gives up responsibility for deciding how private individuals and firms can employ their resources. Instead of hiring the workers, buying the equipment, etc., it hires a private company, or several companies. Contracting out means liquidating this activity and buying trash collecting services from one or more private trash collecting companies. For another example, consider a government department of transportation that, at first, is responsible for repairing roads. A legislature may decide to contract out their work because it has discovered that the cost per mile repaired is lower in some other country or jurisdiction that uses a private contractor.
Complete privatization involves one step liquidating the bureau that has been supplying the service.
In many of the newer democracies, the government buys services under contract but there is no, or little, competition. The contract is given to members of the chief executive's political party, to his friends or family, or to the firm that pays the highest bribe. This kind of contracting is simply a means of granting special privilege to particular individuals. When we write about contracting out in this chapter, we are referring to a process in which the suppliers are chosen impartially according to a competitive process . We call this competitive contracting .