The question whether certain services should be provided by the government or by a private provider is controversial.

I argue that the decision to privatize is a case-by-case decision. Often privatization is beneficial, but certain requirements that are evaluated in the following evaluation have to be met. There are certain functions that are inherently governmental and not appropriate for privatization. In the decision making process two different layers have to be considered. First, practical considerations, i.e. especially economic aspects, are of importance. This refers in particular to the structure of the sector, which is a fundamental aspect of the decision. Policy makers have to identify whether the market has the potential for competition or whether deregulation in the form of privatization might create a monopoly. If the latter is the case politics should abstain from privatization. This risk is especially present in markets where large firms are advantageous (economies of scale etc.), such as telecommunications and railway. Monopolies imply price setting power and therefore have to be regarded as a market distortion. The second, more fundamental and less practical layer is the philosophical component of privatization. Historically, the main reason why services are in the hand of the government is the security for supply. This holds true for almost all fields in which the state acts as an entrepreneur. Public infrastructure businesses guarantee mobility, public utilities guarantee supply of electricity, water etc., and services like police and fire protection guarantee safety and security. In order to determine which of these functions from a philosophical point of view can be privatized, it has to be determined how essential the functions are for the daily life of the population. The more important or essential the services are, the less liberal the government with the decision to privatize services should be. Administrative practices such as payroll services are not essential for the daily life of the population; accordingly privatization does not pose a problem in this case. The argument for public transportation is similar. This function plays a more visible role in daily life; however, its provision is not essential if the service is not properly provided the result might be inconvenience but does not represent a real threat. The privatization of public utilities is more controversial; privatization in this case should be treated with caution. Electricity and sewer, but especially water supply are of great importance and directly affect the health of the population (e.g. risk of tainted water). Even more important are emergency services such as police and fire. These services are the most essential; the functions should be inherently governmental and are not appropriate for privatization. Part of the philosophical discussion for privatization is the question of what happens if the private company suddenly cannot provide the service anymore, for instance because it went bankrupt. If the result is a supply shortfall, then the decision for privatization is questionable. If, however, in such a situation the state can easily guarantee the supply (e.g. take over the business by using present capacities) then the decision for privatization can be made. Again the importance of the service is relevant for the decision making process. A supply shortfall in public transportation, for example, is less severe than a shortfall in water supply, since public transportation is not as essential for daily life. Moreover substitutes are available (car, bike, etc.). Generally it can be expected that the ability to immediately take over the private services differ from city to city; this again makes privatization a case-by-case decision. Whenever privatization is discussed the consequences have to be evaluated. Privatization is only an option if the provision of needs is not worse than before. Public services are a philosophical decision to guarantee a basic set of services to all parts of the population. A main criticism of privatization is the decline of that function (e.g. lower service quality). Some part of the function might not be profitable, such that private companies have an incentive to cut expenditure for maintenance or stop the supply. An example is electricity supply. Electricity supply for industrial regions promises the highest rates of return; revenues easily cover expenses for infrastructure (quality and safety issues). However, the supply for densely populated residential areas might be unprofitable, since the high cost for infrastructure is not met by the low returns from electricity consumption. In those cases, the guarantee of service provision is a necessary prerequisite for privatization. The decision for privatization can only be made if the company agrees (by contract) to fulfill the supply obligations.

In summary, privatization is a case-by-case decision. The more essential the function is, the more cautious and conservative the decision maker should behave. Certain functions (e.g. payroll) can be privatized easily, while others should be inherently governmental (emergency services). Generally privatization should only be allowed under strict restrictions; regular surveillance by public authorities should guarantee the safety and quality of the privatized services.