Three Questions of Privatization

Daphne Barak-Erez*

Introduction: The Challenge of Privatization
Privatization policies have become dominant in a manner that cuts through borders and cultures –
motivated by complex factors, partially ideological and partially economic. In many countries all
over the world privatization leads to the creation of new forms of government action. As a result, it
should serve as a major focus of interest for public law - including both constitutional and
administrative law. With this consciousness in mind, the current article discusses the challenges
posed by privatization initiatives to public law.1 Privatization is indeed a matter of public policy,
but it is important to unfold the relevance of law to its discussion as well. Interestingly, the opposite
phenomenon – of nationalization – has always been discussed not only as a matter of public policy
but also as a matter of law (due to its clear impact on property rights). This understanding should
serve as a catalyst for a further study of what has been so far neglected.
It is worth adding that the focus on privatization is still important despite the tendency to adopt
certain nationalization initiatives against the background of the economic crisis which started in
2008. Nationalization is still perceived as an exception and such initiatives are considered
provisional steps, with the long term intent to return to privatization when the time is ripe.
Moreover, this crisis is yet another illuminating example of the necessity for regulation of private
activities; one of the focuses of the proposed analysis of the implications of privatization for public
law.
Indeed, legal scholarship has already started to discuss the implications of privatization for public
law. However, so far, the discussion did not profess to offer a general framework for addressing
privatization as a central component for the understanding of public law. In contrast, the view
offered here is that privatization is not only a phenomenon that merits some doctrinal adjustments,
but rather a central process that calls for a re-evaluation of area of public law, which would lead to

* Professor of Law and Stewart and Judy Colton Chair of Law and Security, Faculty of Law, Tel-Aviv University, email: barakerz@post.tau.ac.il. I thank Omer Netzer for his research assistance.
1
It is worth noting that privatization may be a subject matter for discussion also in other legal areas, such as labor law,
with respect to the rights of employees when their work place is privatized. In addition, privatization also poses a
challenge to private law, in the sense that the growing role of private entities in the public sphere may lead to a growing
demand for social responsibility of businesses. In the area of criminal law, new questions touch on the application of
offenses which have been traditionally limited to employees of public agencies, such as bribery, to the employees of the
private contactors of the government. See: Crim.F.H. 24/08 Barak Cohen v. The state of Israel (2.3.2009, not yet
published).

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the development of a new sub-area focusing on the public law of privatization.2 Accordingly, the
article offers an initial outline for the development of the public law of privatization.
More concretely, the article offers a model for analyzing questions of privatization from a public
law perspective. This model is intended to reflect the complexity of the social and economic
challenges posed by privatization policies. It is aimed at dealing with the various implications of
privatization decisions which have to be considered not only with regard to their managerialutilitarian aspects, but also with regard to their social and distributive implications, as well as their
potential effect on human rights.
The approach suggested is based on distinguishing between three different questions raised by
privatization decisions. The first question considers the boundaries of privatization: are there any
limitations on the types of actions or types of powers that can be privatized? The second question
relates to the administrative process of privatization: what are the constraints that should apply to
the implementation of a privatization decision (for example, is there a duty to set a privatization
policy before proceeding with a concrete privatization initiative, or is there a duty to disclose
information regarding privatization initiatives)? The third question refers to the outcomes of
privatization and its regulation: which legal regime should apply to privatized activities, and will
they be subject to special regulation or special duties?
The article does not present a normative viewpoint on the proper scope of the privatization
phenomenon. As explained later, this is usually determined by ideology and political philosophy3.
Accordingly, the decisions on the scope of privatization will usually be left to the public arena. In
other words, it is important to maintain the distinguishing line between presenting a policy view on
operations that should not be privatized and a legal view on this matter. However, as explained
below, this deferral to the political arena may also have its limits.
Following this introduction, Part I of the article will present the different patterns of privatization.
Part II will present the traditional approach of the public law to privatization. This approach has
indeed recognized that privatization might raise specific legal questions, but mainly sided with
limited judicial intervention in decisions in the area, while focusing principally on the aspect of
equality in competition for business opportunities created by privatization. Part III points out the
‘blind spot’ of the traditional discussion in this subject, while referring to additional juridical
questions that need to be examined regarding privatization initiatives. The article will conclude by
offering directions for developing the public law of privatization.

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Such sub-specialties have been developed in other areas, e.g. with regard to government procurement.
At the same time, in some cases, legal analysis may also reflect one's value judgments. For instance, one's view
regarding privatization initiatives of social services will probably reflect one's political philosophy regarding the status
of social rights. However, it is important to stress that it is also possible to protect social rights by supplying social
services by private bodies with state funding.

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47 (1993). 6 (1988) 6 The answer to the question which services the government considers itself obliged to supply would vary both in accordance to one’s political philosophy as well as the economic categorization of some of these services as "public goods". LEGAL STUD. and privatization is expressed only in the transfer of the supply of social services to private entities. & ECON. and as a consequence it has no universal accepted definition. Firstly. Traditionally. L. based on the recognition that they will be served better if left to the market. such transfers were usually the first expressions of privatization policies. 17 J. In other cases. The Lighthouse in Economics. the unsatisfactory analysis of the phenomenon of privatization derives from the fact that the privatization terminology is used by different authors with regard to different forms of action. see: Chapter 8-1 of the Government Companies Law. the observations in this article are more detailed and different in some of their details from those that appeared in these former writings. privatization is a policy that aims to reduce governmental intervention in social and economic life. The Many Faces of Privatization In order to offer a comprehensive framework for discussing privatization it is important to start by characterizing this phenomenon and describing its scope. ISRAELI REPORTS TO THE XVI INTERNATIONAL CONGRESS OF COMPARATIVE LAW 47 (2006). 7 The categorization offered here of the different formats of privatization is based on a report prepared for the International Conference for Comparative Law that was held in 2002. the lighthouse is traditionally considered a classic example of a public product. privatization was identified by the transfer of ownership – transferring government assets (land. Due to the pace of the developments in the field of privatization. It is worthwhile to stress that even this categorization may be controversial. David E.5 Generally speaking. See also: Daphne Barak-Erez. This aim may be reached through the use of diverse means including. in other cases. Van Zandt. The Privatization Continuum (Simon Chesterman and Angelina Fisher eds. 1975 (Israel). Secondly. contracting with private companies for the supply of services which the state believes that it is obliged to supply. Yet. 4 For example. responsibility and even management remains in the hands of the government. 22 J. For example.6 and opening the door for private activity in new sectors through governmental passivity. In some cases. defining a phenomenon and identifying its scope in the social and public reality are preliminary conditions for developing a suitable form of legal regulation to apply to it. it entails also a withdrawal from the obligation to supply services on an equal and universal basis (since they are provided only to those who can afford paying for them). holdings in government-owned companies) to private hands. 357 (1974). without paying attention to relevant distinctions. yet this classification has since been criticized. and connected to the first point.Coase. The Meaning of Privatization. & POL’S REV.7 Awareness as to the different expressions of the privatization phenomenon is essential for several reasons. the privatization phenomenon is much more complex. The Lessons of Lighthouse: “Government” or “Privats” Provision of Good. See Paul Star. Applying Administrative Law to Privatization in Israel. 4 However.I. 5 3 . 2009. forthcoming). See Ronald H. See Daphne Barak-Erez. while pointing to examples of privately operated lighthouses during history. privatization entails the complete withdrawal of government from operating in certain fields. 6 YALE L. The discussion below is intended to present the many faces of the privatization phenomenon. in fact. Indeed.

Establishing companies for business-nature operation The first signs of a privatization policy are usually connected to the practice of establishing companies for initiating business operation by the authorities . historically. Indeed. Firstly. it is rearranged in a format aimed at gaining profits. and the application of private market logic to government action. later the activities of such companies served as a basis for additional privatization initiatives. the government companies’ law in Israel clarifies that a government company. When an operation is transferred to the management of a company. Selling government-owned corporations 8 In other words. Government withdrawal from operating in sectors in which it used to operate in the past will be considered acts of privatization8. However. the way to achieve this goal is to collect fees for services that were supplied for free in the past. 4 . Some of them are closer to the core case of privatization policies. Second. when speaking about operation of the central government. In this spirit. 1. or municipal companies when speaking about local authorities. there are important points of resemblance among the different cases.10 In this case. a convenient first step in this direction is to organize it in the framework of a government-owned corporation. The discussion takes as a starting point existing governmental traditions regarding the extent of government involvement in different sectors. which reveals the many faces of privatization. the establishment of government-owned corporations was also a form of government involvement in economic life. should usually instruct itself in light of commercial considerations. when the policy of selling assets to private bodies is ripe. 2. intensive cooperation between the government and private bodies. 10 This was the model adopted in the privatization of British Petroleum. whereas others are more peripheral. broadening the role of private bodies in social and economic life.The analysis which follows offers a wide range of cases. 9 Earning profits is the main ethos of companies’ management. When a government operation which is selected for privatization does not operated through a company. they all entail. in contrast to an administrative authority. the most convenient way to implement it is to sell the stocks of government-owned corporations to private investors. the selling of the company’s stocks is intended to be next phase in the process. the existence of such companies creates a constant temptation to transfer sectors of operation from government authorities to the companies they control. even if by doing so through the business activity. However. the presentation of the different aspects of privatization is not based on a normative assumption regarding the scope of government action.government-owned corporations.9 In many cases. as explained below in more detail.

who undertake not only to execute the construction work but also to invest in the project and then operate the infrastructure through special concessions which apply to the period which follows the construction phase. L. school bussing and computer services. British Petroleum. ensure a profitable return on their investment by way of long-term administration of the project.The policy of selling companies that are owned by the authorities. 13 See e.11 3. and Entrepreneurial Government. L. together with a growing inclination to hire private contractors to carry out government activities. and in the end. 1285 (2008).g. Privatization of State Administrative Services 68 LA. IAN HARDEN THE CONTRACTING STATE (1992). contracting with external entities gradually expanded to matters that are technical by definition but contain discretionary elements. The concession-owners. Privatization by outsourcing is currently a major feature of privatization. as promised to him in advance. Construction of public infrastructures by private investors (BOT Initiatives) A unique form of contracting with private entities centers on the construction of new infrastructure by means of private entrepreneurs. 1128. Carrying out of governmental activity through private contractors (outsourcing) Another format of privatization is expressed by the gradual reduction of administrative activity performed by the authorities themselves. as in the case of privatizing the training of public service professionals. operates it over an extended period of time. as in the cases of the operation of welfare-to-work programs13 and the establishment of privately owned and operated prisons. such as collection services. REV. is probably one of the most known expressions of privatization policies. who bear the costs of the project. 5 . 75 N. In this context. REV. transfers ownership or 11 For example.Y. Discretion. government collaboration with private entrepreneurs stems principally from a desire to secure private funding for construction at the initial stage.12 This type of privatization began with the transfer of technical activities to private contractors in such areas as construction. In the framework of this model. 1198-99. known as buildoperate-transfer (BOT). Jaguar Motors and Rolls-Royce. the government sold its shares in Cable & Wireless. this type of privatization has the potential to indirectly influence public service. 1121 (2000). 12 See e. garbage collection.U. The next stage involved the transfer of governmental functions that devolved a significant measure of discretion to private entities. mainly government-owned companies. 4. In time. in Britain. during which they charge the public a fee for use of the infrastructure. Dru Stevenson. Occasionally.g.: Matthew Diller. The Revolution in Welfare Administration: Rules. the private investor builds the infrastructure at his expense.

438 (1996).16 As noted above. This type of privatization has been used for transportation projects and water infrastructure. 6 .15 In some cases the missing governmental operation is not the result of a retreat from a service that was supplied at a better level in the past. 14 BERKELEY J. 16 See. Laura A Malinsky. 6.control of the infrastructure to the state. sometimes this phenomenon is combined with the transfer of an area of activity from the government to a 14 See. 73 DENVER U. INT'L L. Thus. REV. but derives from the abstention of the government to furnish an answer to a new public necessity that did not previously exist. 15 For a discussion of the opting out problem. Rebuilding with Broken Tools: Build-Operate-Transfer Law in Vietnam. 14 5. privatization through licensing is generally conducted in areas in which the government does not see itself as responsible for the supply of the service. The areas of education and health are illustrative of this particular process.g. Opting Out of Public Provision. In contrast. it still recognizes its basic responsibility to supply the service. Licensing and giving permits in new sectors The expansion of private activity at the expense of government action has also been made possible by the granting of licenses to private service providers. more parents opt for private education. The central difference between privatization through outsourcing and privatization through licensing is that when the authority turns to outsourcing. 1185 (1996). HCJ 8676/00 Adam Teva V’din-Israel Union for Environmental Defense v. the state’s contribution to privatizing certain activities is the result of the failure of the government and other public authorities to act effectively in that area. licensing private companies to operate cellular phone networks (as this new technology became available) was a similar example of privatization. for example. Municipality of Raanana 59(2) PD 210 (2004) (as follows: the Rannana Park case) . in the area of education. see Clayton P Gillette. e. Accordingly. although no transfer of shares or other assets was involved. for example. Privatization by omission through limited governmental activity At times. for instance. a growing tendency to privatize could manifest itself in the licensing of new private schools and universities (thus partially avoiding the need to establish more public schools and public universities).. Provision of services for a fee The privatization of areas of government action also occurs when the relevant agency continues to operate the same activities but decides to collect a fee for the services it supplies (a growing phenomenon in various public places such as museums and parks). L. In the area of telecommunications. thereby making room for private initiatives. when the public education system provides fewer hours of study or a poorer quality of teaching. 7.

ILL. Generally. L. when the authorities collect fees for advertising on signs.company it controls and operates as a separate budgetary unit. Klint Alexander and Kern Alexander. Partners. 1131 [2004]. Vouchers Systems The government may choose to provide services by subsidizing the buying of these services from private suppliers (such as private schools or private health care providers). the fee is required for services that are provided at a higher level than the usual public standard. U. Government by Voucher. and Malcolm Thorburn. which used to be immune to the commercial market. among other factors. Ronald J Daniels. 9. like in the context of private health services in public hospitals. and Secular and Religious. Non-Profit and Profit. REV.NGOs) . occurs. Consequently. they actually privatize the public space. U. For instance. Not Rivals?: Redrawing the Lines between Public and Private.for the fulfillment of duties that the government should have fulfilled by itself had it not been pressed by budget limitations. in conditions of budgetary restraints authorities gradually introduce commercial aspects to the public space. 8.17 10. The Traditional Approach to Privatization 17 See Martha Minow. Examples include cooperation with private associations which help the poor. 80 Boston University Law Review 205 (2000). privatization of this type can also be effected through the direct collection of fees by the agencies themselves. based on commercial profit considerations. this constitutes a partial privatization of the public space of the school. Similarly. 18 Michael J Trebilcock. Cooperation between the third sector and the authorities may not always be perceived as privatization. 1061 (2000). Cooperation with third-sector bodies Another type of privatization is the institutionalized cooperation between the government and associations and funds from the third sector (Non Governmental Organizations . when advertising in education institutions is permitted in exchange for consideration. but it should be considered as such when it is institutionalized and constitutes part of the standard operation of the agencies. L. 7 . REV. by the wishes and the preferences of bodies that can afford paying for advertising in the public sphere. However. Commercialization of the public space Traditional government activity created a zone free from commercial activity.18 II. 80 B. Vouchers and the Privatization of American Education: Justifying Racial Resegregation from Brown to Zelman. However. the face of the public space is determined.

outdated. and therefore the law should minimize its intervention. Justice Barak contended that the basic laws of the state could live both with a capitalist legislator and with a socialist one. as detailed below. as long as the economy activity – which harms the human rights – will fulfill the demands of the limiting section”. The question is not whether the law is good. Advisors v. the traditional approach regarding the boundaries of privatization was that the decision to privatize does not raise legal questions. The question is whether it is constitutional. the new patterns of the privatization phenomenon renders the approach that privatization does not raise legal questions. Indeed. SOCIETY AND LAW (2001) 209. the basic laws are not a plan for concrete policy. The boundaries of privatization: loose limitations In general. or justified. I was willing to share the view that as a rule constitutional law should not limit the decision to privatize. As explained below.19 This viewpoint seems reasonable as long as privatization regards only the selling of assets. There is no doubt that the selling of many government companies has no constitutional meaning. in order to expose the need to reassess this partial perspective on privatization. in some instances constitutional law has been used also in order to promote privatization initiatives. when privatization changes its nature. efficient. This part of the article will introduce the “narrow” manner in which the privatization phenomenon was addressed in traditional public law. when the privatization phenomenon was more limited. It checks the legitimacy of the law. but these will be confined to economic and ideological issues. the assumption that constitutional law is extraneous should be subject to a reassessment. and is applied also to social services and even core government functions. On the other hand.20 Another perspective on the alleged constitutional neutrality regarding privatization policies is that. Minister of Finance 51(4) PD 367. 8 . Privatization and nationalization could both exist in their framework. 1. which will all fulfill the demands of the limiting paragraph. HCJ 1715/97 Bureau for Inv. Decision on such issues may be the subject for disputes. without addressing it as a centra challenge to public law. but rather only questions of economic policy. the legal discourse on privatization was limited to “islands” of limitations. A ‘socialist’ legislator and a ‘capitalist’ one might legislate different and contradictory laws. Accordingly. as explained below. The few limitations that were applied to privatization decisions were caused by addressing specific concerns. (A) Constitutional Neutrality The traditional baseline of the discussion assumed that privatization does not raise any constitutional concerns. Constitutional Limitations on Privatization in Israel. Daphne Barak-Erez. In Israel. but rather focus only on questions regarding the consequences of privatization. in fact. 20 In the past. such as conflict of interests or self-defense from hostile bodies. 386 (1997). ISRAELI REPORTS TO THE XV INTERNATIONAL CONGRESS OF COMPARATIVE LAW 317(1999). Human Rights in an Age of Privatization 8 LABOR. See: Daphne Barak-Erez.The traditional starting point for the debate on the privatization phenomenon was that it is a matter of policy. This has been the case when petitioners have brought arguments aimed at pushing the state to open the possibility for a private market in areas in which in the past 19 According to Barak: “the court applies judicial review. Market economy or central management of the economy can both find a living space. not its wisdom.

in contrast to technical functions such as transportation. 24 See the Raanana Park case. 791.24 In many cases.22 It has been pointed out that also European law has not been neutral to privatization trends. In other words. L. when it was added to its regular activity – in the context of collecting fees for entering a public park that was built as an addition to the regular parks that are operated in the city. 23 Amaryllis Verhoeven. it seems that legislators are willing to support the possibility to delegate the exercise of functions to external actors.only public services were legally available – in the name of promoting their freedom of choice or other liberties. for example. However. legislatures were open for promoting privatization enabling statutes. In Britain. 46(1) PD 410 (1992). supra note 16. (C) Limitations on delegations to private bodies Another source for specific limitations on the framework of privatization may be a presumption against delegation of government powers to private bodies. Attorney General of Quebec [2005] 1 S.23 (B) The ultra vires principle Theoretically. See: HCJ 2303/90 Filipovitz v. More specifically.C. At any rate.25 This limitation can be relevant to privatizations which entail government powers or discretion. Q. be made exercisable by any person (or employee) authorized by either the officer or the minister.26 21 Chaoulli v. no express authorization for action through privatization was expected.R. the ultra vires principle could serve as a potential limitation on privatization. even without imposing constitutional limitations on the scope of privatization. Privatization and EC Law: Is the European Commission 'Neutral' with Respect to Public versus Private Ownership of Companies? 45 INT'L & COMP. 25 Such presumption exists in Israeli law. (1996) 861. This does not apply to judicial or legislative functions. the Deregulation and Contracting Out Act 1994 any statutory function of a minister which is exercisable 26 by an officer of his may. this aspect of the ultra vires principle was not addressed. In Israel. under the assumption that administrative authorities can exercise their powers also by way of contracting with private actors. the court held that the prohibition infringed the rights protected by section 7 of the Canadian Charter in Liberties and Freedoms (which protects the security of the person). An illuminating example in this regard is the Canadian case of Chaoulli21 in which the Supreme Court of Canada held that the prohibition on private health insurance in Quebec violated the basic rights of the petitioners. in practice. garbage collection etc. and that in fact it has served as a driving force which encouraged member states to introduce privatization initiatives. assuming that privatization decisions should be based on legislative authorizations. thus insisting on basing privatization on express legislation. who were interested in such insurance against the background of an unsatisfactory level of public health care. if any order of the minister so provides. or to powers 22 9 . usually. the Supreme Court adopted a permissive approach regarding the development of market activity by an administrative authority. The Registrar of Companies .

through a sale to the purchaser that will offer the best price for governmental property). SUSAN ROSE-ACKERMAN. special mechanisms designed for limiting the transfer of assets of national interest to third parties. but refrained from doing that in the electricity area. for instance.27 or legislation that defines conditions for the transfer of ownership in the stocks of the privatized company. 2005.(D) Limitations on the transfer of rights to foreign bodies Other limitations. the main question is how to ensure that the new opportunities created in the privatization era will be allocated in the optimal way – both from the aspect of the right for equality and from the aspect of maximizing the economic benefit of the privatization (for instance. The initial phase of sale is easier to control because the authorities can subject it to specific terms (i. In most cases it later on dispensed them. even in the phase when the ownership is already private. TONY PROSSER LAW AND THE REGULATORS 170 (1997). or at least mandatory competition between a few potential affecting personal liberty or search or seizure of property. or bodies that may be controlled by citizens of foreign countries. purchaser’s citizenship).e.28 2. because the ownership is no longer in the hands of the state. 27 "Golden shares". were developed. Those mechanisms are “the golden share” which gives the state (or its authority) a right to veto future business transactions. 10 . A similar act applies also in the area of local government – Local Government (Contracts) Act 1997. restrict the free movement of capital and therefore is liable to be struck down in the context of European law. The decision-making process on privatization: equal opportunities and fairness The traditional discourse in the area of privatization was focused on issues of equal opportunities and fairness. In this context. 28 For example. Controlling later transfers of the assets is harder. 29 See.) to hostile bodies.29 Accordingly. CONSEQUENCES AND REFORM 35-38 (1999). see. For this purpose. unless justified on public policy or security grounds. See: Case C-98/01 Commission v. in Israel: Security The Security Corporations Law (Protection of Security Interests) Law. however. CORRUPTION AND GOVERNMENT – CAUSES. originate from concerns about the transfer of ownership of assets which are vital for the economy or for the security of the state (electric infrastructure etc. UK (13 May 2003) (Golden share in British Airport Authority held a breach). The debate on this question was heightened in recognition that decisions to privatize create real temptation to base such decision on irrelevant and inappropriate considerations – deriving from bias to close associates or even corruption based on bribes. the main emphasis used to be on developing mandatory bidding rules.The British government frequently held ”golden shares” in privatised companies.

“the disintegration of the state from the duty of supplying services and necessities must be followed by supervision on the supply of services and necessities by the private sector. the answer to this question is based on the definition of the term "public authority" for the purposes of section 6 of the Human Rights Act. The regulation of privatized functions and activities A crucial aspect of the discourse around privatization consists of the norms that apply to the privatized activity.35 However. Accordingly. Economic power can also corrupt…especially in conditions of free market the state is required to protect the weak".32 Indeed. but rather on the norms that will apply to the private bodies which are involved in operating government-like functions. Janna J.34 In Israel. and was later only raised in several contexts. comprising of both private and public aspects simultaneously. the Inspector of Insurance 55(3) PD 625. 33 See: Daphne Barak-Erez. 32 See HCJ 7721/96 Union of Insurance Assessors v. Originally. The Electricity Corporation 41(2) PD 449 (1987). the case law touched on the question whether privatized activities should be subject to the "state action" doctrine. 34 In Britain. see: Delhi Science Forum v. Hansen. 35 See HCJ 731/86 Microdaph Ltd v. Limits of Competition: Accountability in Government Contracting 112 YALE L. the reason for the implementation of public law in such cases was not the governmental ownership itself. 2465 (2003) (addressing the focus on competition and discussing competition in government procurement in New York. in varying degrees. 11 . according to which it applies also to "any person certain of whose functions are functions of a public nature" (section 6(3)(b)). which was narrowly interpreted and hence was limited to "traditional functions" of the state.33 In other jurisdictions. A State Action Doctrine for an Age of Privatization 45 SYRACUSE L. For a narrow application of this definition with regard to its applicability to a private care home providing accommodation to elderly residents under contract with a local authority. the first decision of the Supreme Court in this area related mainly to government-owned corporations.g. In the United States. but rather 30 See e. 1992 (Israel). Public Interest Litigation v. 1998. this doctrine could apply to private prisons but not to private housing for the elderly and other privatized social services. 31 And accordingly many attacks on privatization decisions were focused on issues of corruption and preference of cronies. Union of India AIR SC 1356 (1996). the focus here is not only on the regulation of the economic aspects of the privatized activity. the courts tended to be hesitant in applying public law norms to private bodies.REV 1169. the care home was not bound under section 6(1) of the Humam Rights Act to act in accordance with rights protected by the European Convention on Human Rights. while pointing at the limits of the focus on competition rules). see: YL v Birmingham City Council and others [2007] UKHL 27. 650 (2001). (1995). For challenges to privatization on this basis in India. This matter was not discussed in a systematic manner prior to the initiation of privatization policies. Union of India 8 SCC 606 (2000). to its regulation. Accordingly.30 and on rules concerning conflicts of interest (to prevent those who may have interest in the privatization tender to be involved in selecting the contractors). The open market gives the private sector an opportunity to accumulate a great economic power.31 3. Mandatory Tenders Law. As explained by Justice Zamir.J. these bodies were defined as hybrids in order to express their combined character. like the Israeli electric corporation.contractors.

limitations on privatization decisions. This premise warrants reconsideration. My analysis will recognize the contribution of scholars that have already started to address substantive questions raised by privatization. the most important questions remained at the periphery. Indeed. it also illustrated that for many years public law did not offer a comprehensive analysis of privatization but rather specifically addressed certain aspects of this phenomenon. 1. The New Public Law of Privatization So far. for example the nature of the function fulfilled by the company or its monopolist status. At the same tine. In other words. The institution-based analysis focuses on the question of whether there are certain activities that cannot be privatized because they are an integral part of the state. should not be removed from the political arena to the constitutional sphere. 464 (1992) 12 . The boundaries of privatization (A) Constitutional boundaries As noted earlier. normally. it is necessary to challenge the convention that a decision to privatize is solely a matter of policy. 294/91 The Burial Society “Jerusalem Community” v.36 III. The question of the boundaries of privatization should be addressed through two discrete forms of analysis — an institution-based analysis and a rights-based analysis. Kastenbaum 46(2) P. Moreover.other substantive considerations. even given this premise. it is indisputable that privatization decisions are an expression of policy and. the discussion has shown that privatization is partially addressed by public law doctrines.A. This article seeks to propose a more comprehensive analysis of the matter following the three stages presented above . The rights-based analysis focuses on the question of whether the privatization initiative includes safeguards against infringements of fundamental rights by those private actors vested with the responsibility to execute functions formerly performed by public officials. 36 See C. it will add to their writings by locating their discussion in the framework of the broader picture offered by the distinction between the three stages described. the traditional premise of public law has been that the choice of activities for privatization is a matter of policy and not of law. The issues that received most attention concerned the relationship between the privatizing agency and the participants in the privatization process while the public aspects of privatization were relatively neglected.D. However. the process of privatization and the regulation of privatization.

or with supplying public goods.Institutional analysis .38 In contrast. asserting that the values of equal and democratic civil education are likely to be eroded if educational services are supplied by private entities. but also at the ongoing administrative level. with activities that signify sovereignty. in the area of education. advocates of privatization insist that instruction and educational services can be supplied by private entities. For example. The difficulty in formulating a legal stance on this matter also stems from the different understandings of the public missions being privatized. it is clear that given the relatively diverse traditions regarding the functions that have to be carried out by the state. 67. those opposing privatization emphasize the spirit of education.’ MILTON FRIEDMAN. There is no universal definition of the core activities of the state. under state supervision.39 Nevertheless.37 to rich notions of a developed welfare state. the legislature and the judiciary — and these provisions may be interpreted as implying that it would not be possible to completely privatize their functions (for example. ‘[t]he analogy implies that our common educational standards consist only of preventing schools from physically harming children or fraudulently claiming to educate them. for example.’ Ibid. 39 Realization of the civic-democratic objectives of education is contingent on the way in which schools are run. The educational services could be rendered by private enterprises operated for profit. whose primary task is to secure personal safety. because they perceive education as a product. CAPITALISM AND FREEDOM (Chicago: Chicago University Press. with a wide spectrum of approaches in-between: identifying the state with the use of violent force. it would be hard to explain why we should subsidize schooling for every child. A necessary condition for justifying public subsidy of schools — but not of restaurants — is the fact that citizens have an important and common interest in educating future citizens. It is a common feature of constitutional texts that they include provisions defining the main branches of government — the executive. 1987) 66-68. education is in itself a social objective.Setting the boundaries of privatization from the institutional perspective is a complex task. DEMOCRATIC EDUCATION (Princeton: Princeton University Press. much as it now inspects restaurants to insure that they maintain minimum sanitary standards. and therefore state intervention cannot be limited to the prevention of harm or fraud with regard to the quality of the service provided. 1962) 89. even under state supervision. in the US context. 37 See ROBERT NOZICK. the distribution of students into different classes and learning groups. in contrast to Friedman’s example of state regulation of restaurants. STATE AND UTOPIA (New York: Basic Books. The role of the government would be limited to insuring that the schools met certain minimum standards. who espoused the application of free-market principles in education as well. from the ‘night-watchman’ conception of the state. or by non-profit institutions. Were our public interest in regulating schools as analogous to our interest in regulating restaurants as Friedman suggests. 38 13 . the definition of core government functions that cannot be privatized under any conditions would be relatively narrow (and hence the majority of privatization initiatives will not be constitutionally precluded). See AMY GUTMANN. etc. ANARCHY. Under this approach. such as the inclusion of a minimum common content in their programs. not only in its formal aspect of accepting students into the school. Some constitutional provisions may be interpreted as precluding privatization of certain activities. As Gutmann explains. There is a wide range of views on this matter. proposed an action outline for running private education as follows: ‘Governments could require a minimum level of schooling financed by giving parents vouchers redeemable for a specified maximum sum per child per year if spent on “approved” educational services. 1992). Parents would then be free to spend this sum and any additional sum they themselves provided on purchasing educational services from an “approved” institution of their own choice. This includes the way in which integration is achieved in schools. but even they may leave room for experimentation in privatization. Milton Friedman.

FRIEDMAN. David Mullan and Antonella Ceddia. 1151 (1997). The privatization of prisons is based on the distinction between the allocation of punishment (in the judicial process). a constitutional analysis of this sort is problematic in the area of corrections. GLOBAL LEGAL STUD. Beermann. Privatization and Political Accountability. 28 FORDHAM URB. The Proper Scope of Government: Theory and an Application to Prisons.g. 14 . CAPITALISM AND FREEDOM. even the administration of imprisonment involves discretionary decision-making that affects prisoners’ everyday life and discipline.: Jack M. See e. 199 (2003) (discussing the Canadian Charter of Rights and Freedoms). This view implies that there should be limitations on the possibility of privatizing judicial functions. 1509-1519 (2001) (discussing the US Constitution). Outsourcing. and Downsizing: A Canadian Perspective. 42 Commentators have tried to offer interpretations that will infer from Constitutional texts some limitations on privatization despite the lack of specific provisions on the matter. health. the definition of the meaning of property rights. 45 For an overview of the history of the privatization of prisons in the United States. J. such as education. ECON. J. 112 Q. J. since the privatization of prisons is already a living reality. Vishny.The Impact on Public Law of Privatization. VERKUIL. L. and its administration. or can it also rely upon provision by private schools). which may be privatized. it is clear that such an argument may be made only with regard to some ‘core’ activities (such as policing and intelligence services). in fact.41 At the same time. OUTSOURCING SOVEREIGNTY – WHY PRIVATIZATION OF GOEVERNMENT FUNCTIONS THREATENS DEMOCRACY AND WHAT WE CAN DO ABOUT IT (2007) 125-7. through the government. See also: Oliver Hart. which espouses minimal state intervention in social and economic life. 44 See PAUL R. Thus. the interpretation and enforcement of such rights. and the provision of a monetary framework’. 27.45 Rights-based analysis . 10 IND.the Constitution probably implies that article III courts cannot be privatized. which uses this terminology to define the limits on contracting-out. see Martin E Gold. 1507. However. should the government guarantee the provision of education through a public education system. defining the ‘core’ of executive actions poses the risk of indirectly legitimizing the privatization of all remaining functions that do not fall within the scope of the definition. The Privatization of Prisons 28 URBAN LAWYER 359 (1996) 359.40 and that the power to legislate cannot be delegated to private professionals. under his view. the question of which functions are ‘inherently governmental’ is not asked at the constitutional level.43 In the US. He claims that coordinating economic activity through a free exchange is based on the premise that we have ensured. ‘maintenance of law and order to prevent coercion of one individual by another. the question should be whether privatization initiatives are liable to cause infringements of fundamental rights. and welfare. 1127.42 The relatively obscure nature of constitutional texts on such matters can be illustrated by reference to the example of the privatization of prisons. but rather is situated in the context of applying Circular A-76. 41 It is possible that the non-delegation doctrine would apply here.44 At any rate. which is not privatized. Deregulation. these general provisions do not refer to the scope of the functions that the executive has to execute (for example.From the perspective of the protection of human rights. Should constitutional texts on executive power be interpreted as implying that functions traditionally associated with sovereignty cannot be executed outside the executive branch? This argument was raised in Israel in a petition wishing to challenge the first initiative aimed at establishing a private prison in Israel. In the US. but not with regard to many other matters that are at the centre of current privatization initiatives. one of the prominent functions of the state is to define and interpret property rights. Andrei Shleifer & Robert W. 40 It is interesting to note that despite Milton Friedman’s capitalistic approach. Moreover. the enforcement of contracts voluntarily entered into. 43 HCJ 2605/05 The Human Rights Section of the Academic College in Ramat Gan Law School v The Minister of Finance (Supreme Court of Israel) (pending).

549 (2005). This is the case when the police wish to charge demonstrators for the expenses of policing their demonstration.48 2. There are also ‘mixed’ examples in which the potential for infringement of rights involves both a civil rights aspect and a social rights aspect. see Gillian E Metzger. 47 A noteworthy example in this context is the failure of the American authorities to supervise the administration of the Abu Ghraib prison facility in Iraq. it is necessary to consider whether the decision-making process that led to the decision to privatize took into account the ramifications of the privatization decision on the 46 On the aspect of supervision as a condition of the constitutionality of a privatization initiative. Contractor Atrocities at Abu Grhaib: Compromised Accountability in a Streamlined. it is vital to develop legal doctrines that will guarantee that privatization decisions are made in a framework which ensures public debate. and which involve a high degree of discretion and immediacy (such as policing). REV. it will be necessary to examine whether the privatization of services in the area of health or education is conducted in a way that guarantees universal access to those services and prevents discrimination. privatization may have an effect on the realization of social rights. privatization that entails charging fees for certain social services is likely to have ramifications for social rights in systems that recognize such rights. This will ensure that privatization is based at least on a democratic decision-making. 15 . Arguably. the privatization of enforcement and punishment powers has significant potential to infringe liberty and dignity (because the powers would be wielded by corporations guided by economic incentive vis-à-vis people who are removed from society and often even despised by it).46 However.for example. it is difficult to conceive of effective modes of supervision with regard to actions that are conducted on a daily basis vis-à-vis other individuals. In other words. Though. this concern can be addressed by effective administrative supervision over the operation of the private prison (or any other privatized activity of this kind). As explained. the traditional application of the ultra vires principle did not insist on specific authorizations for privatization decisions. Thus. which was operated by a private contractor. 1367 (2003). In this context. since in many cases privatization decisions were indeed based on legislative schemes which enabled them. 48 The Israeli law that enables the establishing of a private prison was accepted almost without any public debate. This view should be reassessed with regard to actions which include discretion.47 (B) Legislative boundaries and the ultra vires principle The view that privatization is an important policy matter should be reflected also in the adherence to the view that privatization initiatives should at least be based on express legislative authorizations. this is only a procedural safeguard. See Steven L Schooner. it is clear that not every privatization of a social service will necessarily result in a constitutional violation (as in circumstances in which the service is supplied by a private entity but through state funding or subsidization). (12 December 2006) (Supreme Court of Israel). At the same time. Outsourced Government 16 STANFORD L. Another example comes from the area of workfare legislation which was enacted in Israel with very litter public debate prior to its enactment. L. 103 COLUM. It is worth adding that in other contexts. For example. The decision-making process on privatization The process by which the decision to privatize is made is of great importance. ‘Privatization as Delegation’. broad participation and public access to relevant information. & POL'Y REV. See HCJ 2557/05 Majority Headquarters v Israeli Police.

Thus. However.8. public participation. this decision was especially problematic because of the religious characteristics of the private network. it is necessary to recognize an administrative duty to formulate a policy on privatization in a certain area of activity before promoting a specific privatization initiative in that area. However. Ministry of Education. traditionally. see: Steven Rathgeb Smith. the authority will have to formulate a principal policy in the matter of handing public schools for private bodies before it could sign a contract regarding the privatization of a specific school through making a connection with a private education network. the procedural concerns that should be addressed include the requirement to ground privatization decisions in a pre-formulated policy. the agency should be obligated to formulate a policy regarding the idea to transfer public schools to private management before it can enter into a contract with a private education network for the privatization of a specific school. to a duty to justify the change (even when the state continues to provide the required minimum). In contrast. In order to guarantee meaningful 49 So. HCJ 7947/05 The Chairman of the City of Sderot Parents’ Committee v. on ensuring that the decisions were not aimed at benefiting government cronies. Generally speaking. rules of bidding and contracting proved to be important. As explained before. it is appropriate that the ministry of education will formulate a principal stance regarding the policy which guides the authorities in this issue. the current discussion calls for scrutiny of the preliminary decision to privatize — not only of the implementation of the decision to privatize in a fair and equal manner vis-à-vis other potential competitors for the privatization initiative. The duty to formulate a policy on privatization shifts the focus from the question of the ‘minimum’ that the state must do. 50 For the potential of privatization to curtail participation.for instance. for example. 213-16 (Helen Ingram & Steven Rathgeb Smith eds. for instance. and freedom of information rights. The New Politics of Contracting: Citizenship and the Nonprofit Role. in PUBLIC POLICY FOR DEMOCRACY 198. From the appellants’ point of view.2005). 16 . This additional requirement is consistent with the general trend towards reinforcing the democratic dimensions of the administrative process. 28. 1993). by starting in a limited and experimental framework. the discussion of the decision to privatize tended to focus on the facet of competition.quality of the services provided to the public and enabled public scrutiny.49 (B) Participation Rights It is important to ensure public participation in the decision-making process that leads to privatization50. Culture and Sports (not published. The necessity for this development in the Israeli case law rose from the debate regarding the decision to hand over the management of the only public high school in the city of Sderot to the hands of a private school network. The court rejected the petition in a very contextual manner. in this situation it is necessary to define the objectives of the first phase and the process in which the question of whether it succeeded will be examined. (A) A Duty to Formulate Policy To ensure informed decisions regarding privatization. A word of caution: The obligation to formulate a policy is not necessarily contradictory to the option of including in the policy gradual steps and experimentation. that is. it did mention that “it is necessary to be very cautious when a municipal education authority hands out its responsibilities and the management of an educational institution to the hands of an association…in this issue. while referring to the declaration of the respondents regarding their intention to maintain the school’s secular character. From this perspective.

it is important to know the quality of the diet which the privatized prison operator is obliged to provide the prisoners. It is important to stress that public participation in the formal stage of rule-making is not enough with regard to privatization conducted by contracting out. For example. 55-62 (1999). (C) Administrative Transparency and Information Rights Participation in the substantive sense must be based on information. Thus. privatization initiatives should be publicized well in advance. See Jack M. In order to promote the democratization of the privatization process. Disclosing those details to the public is crucial for both the evaluation of the appropriateness of the consideration offered in a transaction that transfers public assets or public services to private hands. Therefore. Privatization and the Freedom of Information Act: An Analysis of Public Access to Private Entities Under Federal Law. To some extent. in addition to guaranteeing meaningful participation. the democratization of the privatization process must be based on the sharing of information regarding the details of transaction made with the private body. and the monitoring of the execution of the contract by the private party and the supervision over the services it provides to the public. the democratization of privatization initiatives must be based on full disclosure of the details of the contractual relationship with the private entity (both the terms of the proposed contract and the terms of the contract as finalized). with the public. J. the tender and proposed contract must also be publicized properly. who offers to expand the implementation of the Freedom Of Information Act (FOIA) to "private entities controlling information of interest to the public". Therefore. This is an issue suitable for public debate. COMM. or at least guaranteed access to them. 49 UCLA L.participation. many significant details are not set in the framework of a statute or regulations. 17 . corporate law may also serve basis for disclosure (as far as publicly traded companies are concerned). Beermann. including the details of the designated transaction and the details of the transaction as done in practice. Feiser. 1721-1724 (2002). REV. agencies may be reluctant to disclose the 51 Compare: Craig D. 21. In this context. Administrative-Law-Like Obligations on Private[Ized] Entities. L. in order to enable the submission of comments and objections.51 Providing the public with information regarding privatizations must be conducted both actively — through publications initiated by the government — and passively — in response to specific requests for the disclosure of information. but rather in the contract with the private entity (and perhaps even in the tender that preceded it). it is not sufficient that the public could participate through the submission of responses and objections. the terms that define the living conditions of the inmates in a privatized prison and the quality of education and professional background of their guards). (when the privatization initiative does not include merely the selling of assets). because at least some of their terms are likely to include matters of public significance (for example. 1717. In practice. before their execution. 52 FED.

A petition on this issue was submitted. 18 . transparency should also prevail in the context of privatization. In contrast. Thus. however. As long as the 52 An example could be given by the Israeli case of the tender for establishing a privatized prison.52 Indeed. App. it is important that courts will be willing to review the value of the consideration. but the litigation ended without a principal ruling. In addition. In the majority of cases. provisions regarding the separation of control in different aspects of the privatized activity such as production and delivery) in addition to the application of general antitrust law. the details of the contract with the private entity must be open to public scrutiny in order to facilitate public debate and supervision over the privatization initiative. since it is hard to identify people who are directly affected by inappropriate consideration in privatization transactions. see Adm. The Association for Civil Rights in Israel which requested access to the tender documents was given access to only part of the documents in the tenders committee offices without receiving a copy. and therefore when the government seeks to prevent disclosure it should be required to provide detailed reasoning in support of its position. there is a greater danger that the consideration will not be satisfactory. 3637/05 The Association for Civil Rights in Israel v. especially since political decisions have the tendency to prioritize short-run revenues. principally in order to protect the trade secrets of their contracting party or confidential public information (for example. such as those in the stock market. The presumption should always be in favor of disclosure of the contracting details. the details of the security system in a private prison). When the transaction is competitive. in a similar vein. The goal of promoting competition in the privatized market may be in conflict with the interests of the government as an asset owner interested in privatizing it for a maximal price.details of their contracts with private entities. at least in extreme cases. Pet. Therefore. The Finance Ministry (19 December 2005. (E) Securing competition Another important perspective on the process of privatization is the importance of taking actions that will guarantee the existence of this may be specific laws regarding this area of activity (e. when the transaction is performed in the absence of competition. It is also important that they will be apply to such petitions relaxed standing rules.g. transparency is the accepted norm in the commercial world with respect to transactions involving a broad public interest. (D) Judicial Review regarding the Terms of the Tenders and Contracts A major concern is that the privatization transaction will not secure adequate consideration. like in the framework of a tender. not published). judicial review should address also the question whether the privatization contract guarantees requirements of minimum wages and appropriate standards of service. the appropriateness of the consideration is guaranteed – at least partially – due to the existence of competition.

one should examine whether the government checked if the educational needs of the city’s residents are answered in the private institutions. The regulation of privatized functions and activities Finally. places the government in a situation of conflict of interest – between its ambition to maximize its profit from the sale and the public interest in competition – it is appropriate to confer the power to define the parameters applicable to the competitive aspects of privatization to the antitrust agency. due to the fact that the decision regarding the sale of a company which enjoyed aspects (whether many or few) of exclusivity when it was governmentowned. while simultaneously enabling a private hospital to start operating. Accumulated experience shows that privatization initiatives proved as successful or as failures due 53 In fact. Hence. what would happen if the government decides to shut down the only public hospital of the area. In addition.53 (F) Privatization by omission and the special difficulties it arises The silent form of privatization by omission. One possible option may be to establish a duty to present a professional opinion regarding the consequences of the planned privatization initiative in order to ensure that this issue will receive attention.selling of governmental assets is accompanied by privileges and exclusivity granted to the purchaser. For example. 3. one may ask. For instance. 19 . In order to cope with these difficulties it is necessary to acknowledge the importance of judicial review even in situations of administrative passivity. when the government wishes to maximize its profits from assets selling. and not to the government. An even more complex case is where the government intentionally abstains from building new schools in light of the adequate supply of private schools. it is important to develop rules that will balance the incentive of the government to sell activities without making provisions for competition. with respect to a decision to privatize a public hospital. the fear from exploitation of the monopoly grows when a private body operates it. It is harder to review inaction than to review action. the regulation and supervision of the privatized bodies and functions are of paramount importance as they touch upon the ongoing operation of activities that have undergone privatization. this conflict of interests is aggravated in situations of privatization. rather than directly transfers it to a private owner. raises special questions. the revenue from their sale is expected to rise (and it is expected that the purchaser will supply the public services for too high a price or at a non-satisfactory level). the potential conflict outside the context of privatization. meaning privatization which derives from administrative passivity that leaves the ground for private operation. despite the fact that the actual implications of the two are similar. In addition. Judicial review may be based on findings regarding lack of fact-finding by the government regarding the education needs of the population. However.

59 See Barak-Erez. Civil Rights in the Privatized State: A Comparative View. the way to achieve this goal would be to use the state action doctrine. note 1. Secondary Sch. Partners. the US Supreme Court declined to apply to employees of a private prison the qualified immunity that would have been applicable in similar circumstances in the context of a government prison. Rendell-Baker v.g. 840-43 (1982) (finding no state action on the part of a private high school to which almost all students had been referred from public schools. and specific regulations requiring periodic reassessment of patients' needs). Kohn. Athletic Ass'n. in accordance with their view with respect to the application of constitutional principles to private actors. statutory regulation and regulation through conditions in the tender and in the contract. The U. 288. The objective of this part of the debate is to examine the potential of the “publicization” of privatized bodies. See: Brentwood Acad. but unfortunately this would not be the case (in the US) with respect to many other privatizations. Supreme Court treats private actors as state actors only in rare cases.S. 457 U. In this case. REV. 57 For an action for infringement of rights in the context of a privatized prison. See e. see Minow. despite extensive state regulation and funding of the private school). The regulation of privatized activities should take various forms: direct application of constitutional duties. which also applies to private actors that perform traditional functions of the government or work in close connection with it. 457 U. 56 An interesting question in the context of criminal law is whether employees of private corporations who execute public functions should be considered subject to the special offenses that have traditionally applied only to public officials (such as bribery). 28 ANGLO-AMERICAN L. extensive regulation of facilities.S.54 Assuming that notwithstanding the controversy over privatization. The Challenges and Risks of Creating Independent Regulatory Agencies: A Cautionary Tale from Brazil 41 VAND.to the quality of the regulation that followed them. 1285 (2003).55 This regulation should set the standards for the operation of the privatized activities.g. J. they should be subject to duties similar to those that would have applied to the government had it performed the same activities. 531 U. L. supra note 33. in other words subjecting them to public norms and public supervision. 521 US 399 (1997). which enables its application only to a relatively small core of governmental activities. 116 HARV. Not Rivals. 991. 503 (1999). their long-term regulation is crucial. considerable areas of public activity will be privatized. supra note 17. REV.S.S. see Richardson v McKnight. Blum v. This narrow interpretation would not pose a barrier to the application of constitutional standards to private actors performing traditional military functions. 291 (2001) 20 . 830. 435 (2008). 55 For an argument in favor of focusing on the supervision over privatized bodies in the American context.58 (A) Regulation through constitutional standards When private actors function as de-facto substitutes of the government in the fulfillment of important public functions.60 Substantively. See: Barak Cohen case. v.59 The problem with using this specific doctrine is its relatively narrow interpretation in the case law. Yaretzky. 60 Daphne Barak-Erez. The potential for criminal sanctions56 and tort actions57 in cases of grave infringements of rights is important. In the US context. 58 Compare: Jody Freeman. a private corporation should be considered a government54 See e. The doctrinal way to achieve this goal may vary among legal systems. Extending Public Law Norms Through Privatization. Tenn. but does not suffice. Mariana Mota Prado. licensing. TRANSN'L L. 1008-12 (1982) (holding that a private nursing home's decision to discharge or transfer Medicaid patients to a lower level of care without notice or an opportunity for a hearing did not constitute state action. despite state funding.

Ensuring the possibility of effective review of the decision-making processes in the privatized bodies has to be one of the factors to be considered when evaluating the constitutionality of the privatization initiative. the privatized activities are operated by large corporations which are not subject to domestic control. 61 This standard requires a material perception of the issues that should be defined as public. the statutory provisions dedicated to privatization initiatives should address the decision-making processes within the privatized bodies with respect to matters such as. granting the right to a hearing (to those dependent on the decisions of the privatized body). In my perspective a private operation constitutes a substitute for a public operation when it is responsible for a service the supply of which is considered a basic social right (for example education or health). 21 .62 Another issue that requires regulation by legislation is the management of public databases by computer systems and private information technology companies. the operation of a complementary education in private frameworks in the afternoon). acquiring assistance from private bodies for database management belongs to the technical and allegedly non-problematic sector of privatization (as opposed to the transfer of decisions that involve discretion to private (holding that a private association incorporated to regulate an athletic competition among public and private secondary schools can be considered a state actor for First Amendment purposes). In addition to establishing supervision mechanisms. as a replacement for public operation (for instance.affiliated entity when it serves. Indeed. It is likely that such corporations will not be mindful of public criticism unless this criticism is grounded in binding legal rules. the preparation of a detailed statutory regulation with regard to the activity planned for privatization is valuable as the efforts invested in drafting the legislative scheme are likely to expose the difficulties in guaranteeing effective supervision. This definition will enable the application of public law to private bodies that replace government operation. Public Service Law: Privatization's Unexpected Offspring. such as the privatization of utilities. de facto. through meaningful funding of the private operation). Another factor to be considered is that in many cases. (B) Legislative Regulation Statutes that open the door for privatization should include provisions stating the duties and the supervising mechanisms that would apply to the activities of the private actors. for example an emphasis on equal access and universal provision. 62 In other contexts. See Toni Prosser. In addition. when it is the only private school in a settlement where there is no public school)61 or when the extent of the authorities intervention in the management of the private body is significant (for instance. and the right to receive information (in order to enable public debate on the operations of the privatized body). the content of the regulation may have other focuses. without infringing the freedom of operation of corporations that operate in the public sphere alongside the authorities and not instead of them (for an example. and can even lead to a reconsideration of the decision to privatize. LAW & CONTEMPORARY PROBLEMS 63 (2000).

Furthermore. it is important to guarantee to ability of citizens to correct inaccuracies in their files as managed by the private contractors.64 It is important to define the duties of the private entity (especially with regard to the protection of human rights) in the framework of the tender and later on of the contract itself. An additional matter that should be regulated by the privatization contract is the compensation to be paid to the private contractor if and when the government decides to terminate the contract. it is important to recognize a broad standing in order to challenge the decisions that renounce some of the original terms of transaction or tender. rights to examine information etc). Indeed. in many instances. Relational Contracts in the Privatization of Social Welfare: The Case of Housing 24 YALE L. or alternatively. 22 .bodies). It is important to ensure that the efficiency of the privatization project does not flow from violations of employees' rights. However. The contract should include also detailed instructions regarding the procedural rights of the privatized services receivers (hearing rights. Secondly. Secondly. 64 For an analysis of privatization contracts as relational contracts. see: Nestor M. As far as the tender is concerned. the contract should also include detailed provisions regarding the procedural rights of the recipients of the privatized services (such as a right to a hearing). there are several important points to make. the privatization contract should also create a supervision mechanism for the prices charged by the private entity. the privatization endeavor is intended to release the government from the need to operate in the area of price setting and to transfer this process to the market.63 (C) Contractual Regulation The privatization contract should also play a central role in the regulation of the privatized activity. the privatization contract should include instructions with regard to equal access to the privatized services. the private operation of governmental databases could produce a situation in which public requests to examine information will be denied due to lack of access to this information. Indeed. In the context of social and welfare-related services. However. Davidson. With respect to the contract. there is a danger that the prospect of paying significant compensation in the event of withdrawal 63 See also: Robert O’Harrow Jr . the privatization contract can set the employment terms and wages of the workers employed by the private contractors. in fact the control of information has significant consequences for the public sphere. The breach of any one of these conditions would constitute a breach of contract. In some cases. it is important to guarantee the supply of vital services even for those who cannot afford to pay. 263 (2006). & POL'Y REV. there are privatized activities performed in areas in which there is no market (or at least not a sophisticated market). is not based on the possibility to hire employees lacking proper training and skills.NO PLACE TO HIDE 125-129 (2005) (addressing the problem of non-reliable private databases in the US). Firstly. First.

for example. privatization contracts in this area provide for a step-in right for the state. This article proposed to do that by distinguishing between three spheres of discussion: the boundaries of privatization. the privatization process. In principle.from the privatization initiative may prevent the government from taking this action even when it had established that the initiative did not achieve its goals or led to other unwanted consequences. Public law has to address it as such. and the regulation of privatized actions. but rather on the impact of privatization policies on full citizenship and on government-citizens relations. 23 . 65 This consideration places at risk. the possibility of effective supervision of the operation of a private prison. In addition. However. the government may be deterred from relying on this provision if the expected scope of compensation to the private concession holder is excessive. This focus should be the core of the "new" public law of privatization.65 Conclusion It appears that privatization will continue to be a central phenomenon in the economic and social life of many countries. it called for an analysis of these questions with an emphasis not only on the commercial and efficiency aspects of privatization policies (the focus of what was described here as the "old" public law of privatization).