Privatization: Part 1

By Todd Cohen

Five years ago, flush with tax revenues in a booming economy and aiming to farm out social services under a federal policy designed to move people from welfare to work, state and local governments were fueling competition between nonprofit agencies and for-profit providers for services ranging from day care to job training.

The spike in competition triggered fears among some nonprofit leaders that people with urgent needs could lose services, and that charities chasing new business could lose sight of their social mission.

From the early to mid-1980s through the late 90s, nonprofits had lost a big share of the market in child-care and home-health-care jobs, for example, and in kidney-dialysis centers, rehabilitation hospitals, health maintenance organizations and hospices, according to The State of Nonprofit America, a 2002 report published by Brookings Institution Press.

Worried about such trends, nonprofit leaders wanted to ensure that commercial firms’ drive for profits would not leave people in need without services if the costs outweighed financial returns.

“The profit motive changes the climate in which decisions are made, goals are determined and progress is monitored,” a group of chief executives of 18 big national health-and-human-services nonprofits said in a “Statement of principles” in February 2000.

But those leaders’ worst fears have not materialized in the past five years, a period when big changes have reshaped the social-services market, nonprofit executives and experts say.

The economy has soured, tax revenues have shrunk and government outsourcing has proved troublesome, shifting the focus of concerns about the for-profit delivery of social services, they say.

“We really are talking about a fairly extreme contraction of resources,” says Jill Schumann, president and CEO of Baltimore-based Lutheran Services in America.

Instead of focusing on whether to contract with for-profit or nonprofit agencies, the “more pressing question for most governments is for whom do we purchase these services,” she says. “As the dollars are shrinking, governments must decide who will be denied services.”

Other stories in series:

Part 2: For-profit contractors turned to nonprofits to deliver social services.

Part 3: Outsourced social services fall short of expectations.

Part 4: Drive for profits can create gaps in delivery of social services.

Part 5: Nonprofits last resort for delivering social services.

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