Privatization of Public Services in Leipzig: A Balancing Act between Efficiency and Legitimacy

Since 1992, the budget deficits of larger German cities increased from less than one billion Euros to more than nine billion in 2005. The reasons for this fiscal collapse were a worsening economic situation partly caused by lower government revenue and higher costs of unemployment benefits. In order to reduce their deficits, the municipalities started privatizing and outsourcing large sectors of public administration. Leipzig rejected the path of privatization and became the pioneer in organizing large-scale municipal companies. This approach brought essential social benefits, most needed revenues, greater efficiency in delivering services and allowed the city to reduce almost by 50% the number of its administrative staff.