Crafting successful privatization programs depends on capable governments. Even in countries whose institutions are flawed or underdeveloped, we often see public units at subnational levels acting as pockets of good government capabilities. This chapter advances the argument that privatization depends on good governments that not only set performance standards in dimensions that may not be prioritized by private firms but also guarantee that the whole process is diligently crafted and monitored. In other words, private firms and capable governments are complementary. With improved government capabilities, plurality ensues: capable governments not only experiment with outright privatization but may also use multiple forms of delivery, including hybrid public–private collaborations and even improved state-owned operations.

This chapter offers a practical decision-making framework describing conditions that will favor the adoption of alternative ways to deliver key services: generally speaking, privately managed activities, public–private collaborations, and public (state-owned) organizations, in their multiple forms and varieties. The chapter compares these forms based on their relative ability to generate effectiveness and inclusion, as well as with respect to their perceived legitimacy.

This chapter explains the concepts of effectiveness and inclusion as key determinants of the successful performance of public services. Effectiveness is assessed in terms of social benefits (as a function of service “quality”) relative to costs, while the assessment of inclusion observes whether disadvantaged populations have access to quality services. Alternative methods to compare policy options are presented: utilitarianism (the creation of social value whereby benefits must surpass service costs) and social contractualism (when inclusion is taken as a priority), with critical implications for the choice of private versus public delivery.

Although it is often assumed that private firms will have the required skills to generate impact, in many contexts governments actively sponsor new private capabilities via targeted industrial policies. Government capabilities are again critical here, as poorly designed policies may end up wasting public resources with unproductive firms that might request continuous support even when their initiatives fail. This chapter applies the decision framework presented in Chapter 3 to explore whether governments should expand their boundaries to include development banks with a mandate to improve private capabilities. The chapter also presents additional applications such as how private capabilities can be developed to deal with pandemics, taking COVID-19 as an example, and to promote the supply of affordable, frugal products and services.

Although private actors are generally depicted as profit maximizers with little concern for social impact or inclusion, this chapter shows how this assumption can be relaxed with the emergence of private owners with socially oriented preferences. Yet the chapter also acknowledges that such owners may not accept the inherent financial trade-offs in activities with critical service attributes or that target highly vulnerable beneficiaries. Private investors may also misrepresent their social contributions, leading to what is known as the practice of greenwashing. The chapter concludes by reinforcing the importance of corporate owners as ultimate decision makers pursuing and supporting socially oriented strategies that reduce the potential hazards of private delivery.

Beginning with an illustration of the potential and perils of engaging private operators to run prisons, this introductory chapters lays out the focus and argument of the book: the need to pursue a comparative analysis of the pros and cons of public, private, and public–private forms of service delivery, and the importance of government capability to successfully scrutinize and implement plural arrangements.

This chapter outlines potential failures of privatization and presents a sequence of steps to successfully design, implement, and monitor privatization processes. Regarding cases where proposals for offering privatized services face strong opposition and become unfeasible, the chapter also examines how various reform initiatives can lead to better and more effective public organizations, which may also interact with and complement the services of private firms. The chapter concludes by observing that, over time, societies have learned to propose and build on diverse experiences, often exploring multiple paths of improvement where public and private organizations coexist and experiment with plural solutions.

Previous chapters noted that a key source of hazard when profit-maximizing actors are involved in private services is the presence of social service attributes that are difficult to contract for. This chapter relaxes this assumption by examining a novel trend of measuring and contracting for social service attributes via outcome-based incentive contracts (such as social impact bonds). The chapter explores alternative contracting arrangements and outlines the perils of outcome-based contracting when outcomes are poorly measured, examining potential failures of measurement and potential remedies. The chapter also discusses the possibility of using outcome-based contracts as coordination devices alongside their more familiar objective of incentivizing superior service performance.