In the frozen depths of an unheated warehouse on Cherry St., eight men are standing on raised gangways, four on either side of a big conveyor belt carrying cardboard scraps at an almost dizzying pace.

Into this stream of garbage, the men are constantly thrusting their hands, pulling out plastic bags and bottles — contaminants unwanted in the giant bundles of old cardboard that will eventually be sold to paper mills for recycling.

Nearly all of the cardboard has come to this Turtle Island Recycling Corp. facility from downtown hotels and commercial buildings, whose rubbish Turtle Island handles under private contracts.

Half-owned by Whitecastle Private Equity Partners LP, Turtle Island is one of a handful of private-sector firms already shouldering major roles in the city’s waste management system. As it happens, Turtle Island also does the daytime, curbside pick-up of residential garbage in the former city of Etobicoke.

Toronto Mayor Rob Ford now wants to extend that idea to everywhere else west of Yonge St. He thinks the contracting out of garbage collection will save the city money, and he wouldn’t be alone in thinking that a private company could do the job a lot more cheaply than a bunch of city hall bureaucrats and unionized public employees.

There’s just one problem: Almost every assumption in that equation is doubtful at best.

“The notion that privatization is cheaper, take that off the table,” says Mildred Warner, a professor of city and regional planning at Cornell University who specializes in the delivery of local government services. “Do not assume that.”

It’s not that contracting out doesn’t have its attractions, but the fundamental ones mostly apply to smaller communities — those that can’t achieve economies of scale on their own, or can’t afford to upgrade to newer technologies in waste management.

Private contractors can achieve economies of scale by servicing several area municipalities, and they may be more willing to bear the capital costs of new processing plants with the latest technology.

But even here there are limits. Warner notes that several studies have shown that, once a municipality reaches a population above 20,000, there are no pure, scale advantages in contracting out.

Another potential drawback in Canada: Unlike municipalities, private companies pay sales tax on their trucks and other equipment, which they then have to factor into the price they charge.

South of the border, in fact, a growing number of cities that had previously used private firms to do their garbage collection are now bringing it back in-house.

The biggest single reason, according to surveys by the International City/County Management Association, is concern about the quality of service being provided by outside suppliers. That was cited by 61 per cent of the cities switching back between 2002 and 2007.

But 52 per cent also said that any cost savings associated with contracting out were inadequate, while 34 per cent cited improvements in the ability of local governments to handle the job themselves instead.

The problem with automatically assuming that private firms will be cheaper or better is that, when it comes to something like garbage collection, you’re really just replacing a public monopoly with a private monopoly. The private version might be cheaper at first, but Warner says that quickly erodes over time.

Whoever handles the garbage, there are going to be what economists call “monopoly rents” — the built-in, financial bonus of being the only game in town. So the question becomes: Do you want those monopoly rents effectively going to government workers, or do you want them accruing to the owners of private companies?

If private trash haulers aren’t offering advantages of scale or access to new technology that the local government couldn’t get on its own, then the only advantage left is lower cost through cheaper labour.

Loading... Loading... Loading... Loading... Loading... Loading...

“Just getting your savings from reducing wages and benefits is not socially efficient,” argues Warner.

“In the short term, this may look good, because you save money on your garbage bill. But if wages go too low, you’re going to see those costs come back to (local governments) through your social service programs. People will require housing subsidies, energy subsidies, etc., etc.”

That’s why the current trend in North America is toward a mix of public and private players in any given city, especially in the United States, where contracting out began in earnest in the 1980s.

Rather than simply handing waste management over to a single firm, cities instead divide garbage collection into several geographic areas, and put each one out to tender.

“Is the real savings mechanism privatization, or is it competition?” asks Ben Dachis, a policy analyst with the C.D. Howe Institute. His controversial 2010 report concluded Toronto could save $49 million by contracting out residential garbage collection now handled by the public sector. “It doesn’t really matter whether it’s a private or a public operator who ends up providing the service.”

Ottawa is a prime example. In 2005, the city divided itself into five zones, and put each one out to tender. But the city also teamed up with its public sector union to develop in-house bids in a managed competition against private firms.

The Canadian Union of Public Employees ended up winning the urban core of Ottawa, and a just-released auditor’s report puts the savings from that contract alone at $4.8 million over four years.

Keeping some garbage collection in public hands is actually key, says Warner.

It’s not just that municipalities retain the ability to step in and do the job themselves if there are problems with an outside contractor. The city also stays up to date on the whole cost structure of the business, making it a savvier client.

When a private bid comes in, says Warner, “you can adequately assess it because you’re still in the game.”