Newspapers and journals carry reports of efforts by local, state, and national governments to privatize government agencies or services. Privatization initiatives are being considered and carried out in nation-states around the world. Privatization is an idea that has attracted both strong adherents and vociferous critics. Privatization reached the federal policy agenda in the United States more than two decades ago, and each Congress features new bills proposing to either expand or halt the movement of federal governmental activities to the private sector. In recent years, President George W. Bush has advocated the privatization of military housing and the expansion of opportunities for private organizations to provide social and community services as part of his government management agenda. Moreover, the President supported the provision of housing and schooling vouchers to persons displaced by Hurricane Katrina, and the creation of a Medicare prescription drug benefit provided by private firms. Congress, however, has been of mixed mind regarding privatization, enacting policies that both limit and expand the private sector's access to federal funds to provide governmental services. Congress has enacted statutes (e.g., P.L. 104-193 , sec. 104; P.L. 106-554 , sec. 1) that permit private groups—including not-for-profits and religious organizations—to apply for grants to provide social services, such as substance abuse counseling and employment training, previously offered by government agencies. During the 110 th Congress, the House approved a bill that would impose a one year "moratorium on conversion to contractor performance of Department of Defense functions at military medical facilities" ( H.R. 1538 , Section 301). Privatization, however, is not a recent phenomenon. Since the founding of the Republic, the federal government has hired or contracted with private firms to provide public goods and services. For example, Congress enacted a statute in 1789 that declared that it shall be the duty of the Secretary of the Treasury to provide by contracts, which shall be approved by the President, for building a lighthouse near the entrance of the Chesapeake Bay, and for rebuilding when necessary, and keeping in good repair, the lighthouses, beacons, buoys, and public piers in the several states...." (1 Stat. 54) Hence, privatization has been of perennial interest to Congress and likely will continue to be so. Economists, political leaders, and government officials tend to define "privatization" differently. The breadth of activities covered by the term "privatization" varies greatly. The Congressional Budget Office (CBO), for example, has defined "privatization" narrowly to refer to activities that "involve a genuine sale of assets and termination of a federal activity." The Oxford English Dictionary , meanwhile, defines the term more broadly to mean "the policy or process of making private as opposed to public." Perhaps most commonly, "privatization" is used to refer to "any shift of activities or functions from the state to the private sector." All three of these definitions have value. Arguably, though, it may be possible to define privatization more precisely. Privatization might be defined as the use of the private sector in the provision of a good or service, the components of which include financing, operations (supplying, production, delivery), and quality control . This definition is useful to policymakers for three reasons. First, it enables policymakers who wish to improve the provision of a good or service to see that privatization is not an either/or proposition. Rather, privatization is a matter of degrees and there are myriad means, as this report explicates, through which the private sector may be brought into the process of the provision of a good or service. At minimum, an agency might purchase office supplies, such as printer paper, pens, and folders, from a private sector firm (supplying). Alternatively, a government agency may more heavily utilize the private sector. It might also hire a not-for-profit corporation to raise operating funds and contract with private firms to assist in the provision of a service (supplying, financing, delivery). Taken furthest, an agency might be abolished and private firms allowed to provide a good or service (financing, supplying, production, delivery, and quality control). Second, utilizing this definition also may enable policymakers to see that a fundamental values question lies beneath the issue of privatization. Whenever government must provide a good or service, the question arises, "Which components of provision ought to be done by the government and which might be done by the private sector?" Different approaches to privatization of the components of an agency's provision of goods and service may provoke more or less controversy. For example, permitting an agency to hire a private firm to assess its performance (quality control) may elicit some concern; permitting this same agency to acquire funds by charging citizens fees (financing) may provoke widespread criticism. On the whole, then, the definition employed in this report may highlight for policymakers both the instrumental (e.g., "how") and normative (e.g., "ought") questions involved in privatization. The sources of the salience of privatization are manifold, but likely include privatization's rhetorically potent rationales, purported benefits, and political attractiveness. A host of rationales has been employed to advance privatization as a policy. Collectively, though, these arguments amount to a criticism of the purported failures of "big government." In great part, the contemporary privatization movement has its intellectual roots in free market economic theory and public choice theory. Philosophically, free market theory is skeptical of government and is sanguine toward markets. As one renowned exponent of markets has written, Economic arrangements play a dual role in the promotion of a free society. On the one hand, freedom in economic arrangements is itself a component of freedom broadly understood, so economic freedom is an end in itself. In the second place, economic freedom is also an indispensable means toward the achievement of political freedom. From this perspective, the great danger to freedom is the concentration of power in the hands of government. Economic freedom protects individual freedom by limiting the extent of political power. Free market theory, generally speaking, argues that markets—not governments—are the most efficient means for the production of goods and services. In arguing for markets and against government provision of goods and services, free market advocates argue that government tends to behave as a monopoly provider of goods and services. As such, it is inefficient, inattentive to public wants, and slow to reform and innovate. Public choice theory is a near relation to free market economics. One of public choice theory's criticisms of government is that public bureaucracies should not be viewed as neutral vehicles for delivering government goods and services. Rather, it posits, individual bureaucrats should be viewed as self-interested actors, not public-spirited civil servants. As each bureaucrat strives to achieve what he desires, he helps produce collective organizational pathologies, often termed "government failures." For example, according to public choice theory, the head of each administrative division of an agency should be expected to seek to obtain the maximum possible funding for his division. In order to justify this budget request, he will devise ways to increase projected costs. When each administrative head does this, the collective result is a greatly enlarged agency budget with funding priorities that are neither rational nor necessarily related to achieving the goals assigned to the agency by statute. Both free market economists and public choice theorists typically believe that the nature of the goods or services to be produced determines whether the private sector or government should produce it. If the good is "non-excludable" (meaning that persons cannot be prevented from using it) and "non-rival" (meaning that one person's use of it does not diminish another person's use of it), then it is a "public good" and government should produce it. An example of this sort of good is national defense. As for goods that do not meet these criteria (e.g., computers, bullets, housing priced at below-market rates for occupancy by low-income persons), free market economists and public choice theorists tend to hold that private firms should be left to produce these items because they can do so most efficiently. Since public goods tend to be few, this perspective amounts to an advocacy of minimalist government, and one that would have the government use private firms as much as it can to help it produce public goods. There also have been political and philosophical arguments that have encouraged privatization implicitly and explicitly. Primarily, these arguments have come from conservatives and libertarians who wish to shrink the federal government. Some of these critics have complained about the growth of a "behemoth" federal government that accretes power at a cost to the liberty of citizens. Other detractors of "big government" complain that the federal government has overstepped the bounds set for it by the Constitution. In both cases, the argument is that government is doing things that it should not be doing and that it should desist from doing them. These activities, then, would be left to the private sector, which may or may not perform them. Still, other critics of big government have explicitly advanced privatization as a means for reducing the size of government and the federal deficit: It is the demand for public services that powers the growth of the government, and there is a systematic political imbalance between those who desire more spending and those who desire less—an imbalance consistently favoring the pro-spending lobby.... [A] powerful coalition of beneficiaries, service suppliers, political activists, and bureaucrats tends to develop around each federal spending program. It is in the interest of those coalitions to press [Congress] for an expansion of the federal role. Privatization, according to this perspective, can diminish these political pressures by taking an activity out of the hands of those with an interest in its expansion. Bureaucrats would be replaced by private sector entrepreneurs, and recipients of government goods and services would be transformed into customers.