Conventional wisdom increasingly converges around the idea that, when it comes to dispensing certain services, governments are "good at steering, but bad at rowing:" good, that is, at collecting money, setting policy directives and cutting huge cheques, but bad at actually delivering the services. Government agencies need to be centrally located and highly hierarchical. This makes local service delivery more expensive, and management structures more dense, expensive and less responsive.
Ron Daniels and Michael Trebilcock, in their new book "Government By Voucher," have a radical solution. Wherever possible, issue people vouchers for public services that they can redeem with private sector providers. These vouchers can be fixed value, unlimited value or "topped-up," depending on what works best in the case. Instead of municipal governments providing trash delivery, they just cut everyone a bunch of coupons for, say, $50 worth of garbage collection, and let people subscribe to the collector of choice. This introduces competitive pressure, and also allows for diversification of the marktet. Let's say that some people are really keen on not using plastic garbage bags for environmental reasons, or want to use a collection service that uses more ecofriendly disposal methods. Instead of being forced to use a single service, they can patronize the collector of their choice.
Of course this isn't going to work in every situation. For instance, the massive sunk costs involved in plumbing and water distribution systems meant that issuing vouchers for sewage and tapwater services wouldn't make sense, because two competitors aren't going to come into one neighbourhood and built identical and parallel but separate water delivery systems just to compete for local subscriptions. Sometimes monopolies are just a necessary evil, and sometimes government monopolies are a necessary evil too, particularly where services are particularly dollar-sensitive, i.e. where small reductions in cost at the threshhold can result in dramatic reductions in quality, with possible health or welfare consequences. You don't, for example, want a private police service cutting corners on officer training and ending up hiring ex-cons or the violently insane. And there are certain services that you just don't ever want to contract out, i.e. there are obvious problems with a "guns for hire" militia instead of a military, or with allowing people to "opt out" of fire brigade services.
If it works well, it's a happy medium between public inefficiency and full-on privatization. The government still pays for services, but consumers have more choice, and it ends up costing taxpayers less in the long run thanks to market forces.
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I don't think this will work because I think a significant group of abusers will break it. For example, I can imagine some folks selling their vouchers for cash, then dumping their trash illegally.
These are definitely the sorts of "moral hazards" that need to be taken into consideration, and there are some cases, e.g. perhaps garbage collection, where vouchering might be more likely to create secondary markets -- although in the specific case of garbage collection, I don't think vouchers for garbage pick-up are highly fungible since WTP (willingness-to-pay) for pick-up "extras" is low.
Getting beyond picking apart specific hypothetical instances, though, what do people think of The Big Idea behind vouchering selected services? How about issuing rent vouchers instead of building social housing? Or tuition vouchers instead of directly funding state schools? Or long-term care vouchers instead of building rest homes?
I like the idea. It has always bothered me that government is the only business that does not have to show a profit to continue to stay in business. I particulary like the idea for schools. I understand that in some cases it would be vulnerable to corruption, but to say our present system isnt also vulnerable to corruption is absurd.
I like the idea of vouchers for certain services. However, I feel that services like trash collection should be almost entirely privatized.
For services that tend towards monopoly like water, sewer, gas, and local telephone service the Coop model works well.
Where vouchers would work best is in education and housing. Heck, we already have 'vouchers' for food in the form of food stamps.
As far as education goes, I see so many private schools educating students better at a fraction of the cost that removing kids from failing public schools into successful private ones would result in better educations for less money.