Privatization: Part 2

By Todd Cohen

Federal “welfare-reform” policies in the 1990s increased the competition to deliver social services, said Stephen Rathgeb Smith, a professor of public affairs at the University of Washington who studies nonprofit social services.

Several big for-profit firms, like Lockheed Martin, and Curtis & Associates, moved into the niche of managing and administering government contracts, he said, but they tended to work with nonprofit subcontractors.

“For-profits were managing the contracts and relying on the existing nonprofit providers to provide the services,” he said.

And as government funding peaked in late ‘90s through 2001, he said, the number of nonprofit providers actually grew, sometimes in substantial numbers, and many nonprofit got bigger.

“Some nonprofit providers that had never contracted with government got into the business of providing welfare-to-work services,” he said. “It was a period mirroring the rising economy and rising federal dollars.”

And with new government regulations tightening eligibility for cash-assistance, many governments put the savings from cash-assistance into direct services.

“There was more money available,” he said. “So many nonprofits were in a position to provide these new services government was expecting to help people get off from the welfare rolls and get a job.”

But the economy stumbled in recent years, and tax revenues have plunged, he said, eroding the incentive that for-profit firms had to compete in the social-services market.

“For-profit providers tend to move into providing services when money is rising, when they can take advantage of changing government regulations or funding policies,” he said, citing recent research.

Other stories in series:

Part 1: Social-services market adapts to lessons of outsourcing.

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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