Local Externalities, or why decentralized isn’t always better
(posted by Angelica)
In the comments to my post on “free” public parking, Quasibill said that he would rather have decentralized power because local cronyism is less damaging than centralized cronyism. Here is his argument:
All that I argue (and I think I speak for Kevin in this vein, but I could be wrong) is that the move from local cronyism to national cronyism is a move in the wrong direction, from a free market perspective. At least when the market distortion is at the local level, your exit costs are pretty cheap - you can go to the next town over, where, if they aren’t corrupt, they could outcompete your corrupt town. When the scale shifts to State cronyism, your exit costs increase, and you have to go to another state. But there’s another dynamic as well - the fewer governments there are, the easier it is for one person, or interest group, to co-opt them all, leaving no exit opportunity, and no possibility of competition rooting out corruption by out-competing it. Which leaves you with national and international cronyism, which is the fullest expression of no exit possibility monopoly. Hard to see how anybody who favors free markets could favor this final outcome over local corruption.
There is a lot of merit in that argument. If my town is doing a terrible job with garbage pickup, I might just grouse about it. Poor garbage pickup, poor schools (assuming I have children) and high property taxes? I might just call a U-haul. But Quasibill is forgetting forgetting that’s what’s good for towns on an individual level can be harmful if everybody started doing it. For instance, if my town gives Walmart a bunch of tax breaks and and get them to build a supercenter in my town, dollars starts pouring into my locality from all over. The “corrupt” town can indeed outcompete a non-corrupt town.
My area starts doing really well. However, the next town over now offers all those superstores even better deals. Now I’m sweating. What other sweetheart deals can I offer to get that business?
Eventually, every town is a loser.
Same with the public parking lots I mention in my post I think. I’m sure they make sense for the local municipality thinking from a purely local point of view. Bethesda, alone, cannot change car culture in America if it does not build that public lot. But it will lose out on $$$ that would be spent at that Barnes and Nobel to a town that has adequate parking if it does not.
Tags: decentralization, urban planning
April 30th, 2008 at 11:35 pm
I’ve thought a lot about this question of local cronyism vs. centralized cronyism over the last year.
One of the most important things - maybe even THE most important thing - about decentralization is that it creates something loosely resembling a free market of governments. Although costs of moving remain too high to make this a true free market, the costs are low enough that bad governance (e.g., excessive cronyism) results in fewer government “customers” (ie, taxpayers). (All this, by the way, is approximately what happened in many of the corrupt cities of the Northeast and old Rust Belt; a good comparison is between the area surrounding Buffalo, NY, which has suffered an exodus of mammoth proportions due to its corruption and incompetence, and the area surrounding the nearby City of Rochester, which, while not exactly avoiding suffering, has managed to stay on its feet in a way Buffalo could only dream about).
But since the costs of leaving a given town/locality remain relatively high as does the amount of goodies the local government can offer to cronies, there is a legitimate concern that people unable to pay those costs of leaving will get stuck in a cycle of competition between localities for cronies rather than for taxpayers. All of which is to say that you are correct that decentralization can spread problems.
That said, I think there is an important caveat to these concerns. That caveat is that when problems arise from decentralization, they occur gradually over time as the rent-seeking company bribes, blackmails, and extorts its way to ever-more concessions from ever-more localities. But when rent-seeking occurs on a centralized basis, it immediately effects all localities subject to the centralized government. So in the former case, the opposition has time to organize in order to reverse, stunt, or at least significantly slow the corrupt practices, while in the latter case, the rent-seekers are able to win on a mammoth, even national, scale in a matter of one or two legislative or administrative acts, possibly before opponents even have an opportunity to organize.
This isn’t to say decentralization is perfect, or even that there is no role for centralized powers. Local rent-seeking and corruption will obviously continue on a large, but mostly below-the-radar scale in a decentralized system. Because the rent-seeking and corruption are at a lower level unlikely to be exposed on a politically significant level, it is far easier to get away with corruption (and other invidious government actions) on that lower level.
Luckily, there is a ready and obvious fix to significantly mitigate these problems, which would be unavailable in a fully centralized system. That fix is to make oversight of local governments one of -if not the - primary power of the central government. In essence, the fix is to apply the broadest possible reading of the 14th Amendment as a means for the federal government to intervene to stop clearly invidious local government actions. This would mean overturning the Slaughterhouse cases and reviving Lochner, but as a libertarian, this requirement is a feature rather than a flaw.
A nearly-ideal conception of government from my perspective is one in which the centralized government’s primary responsibility beyond national defense is to ensure that subsidiary governments are respecting the rights of their citizens.
May 1st, 2008 at 7:05 am
Ah, but you’re leaving out some very, very important context in your box store analogies - what level of cronyism made their business models even possible?
Hint - Kevin’s got some good articles about who pushed for the national highway system over at his blog…
And even then, you’re leaving out the fact that many municipalities, even now, try to keep the box stores out.
May 1st, 2008 at 7:08 am
Just like the developed nations can use WTO rules and international trade regulations to exploit third world countries. Nobody denies that corruption is possible at any level of organization. What you keep ignoring, Angelica, is the issue of whether *scale* is of any importance in how these problems manifest. Given human nature, why not keep our problems at human levels, where individuals do not have to rely on distant institutions to participate in solutions?
Your Wal-Mart scenario relies on a centralized financial infrastructure, standardized legal rules of business and corporate governance, centralized transportation infrastructure (in the form of highway funds), international trade agreements helpfully provided by big business interests in the federal gov’t, etc. to allow Wal-Mart to play the towns off against one another. The larger problem here is that you can’t cut and paste a lifestyle based on centralized institutions onto a decentralized setting. Life would probably look quite different; but our current lifestyle isn’t sustainable anyway!
Before the WTO and other international organizations began standardizing rules and greasing the wheels of globalization, it was quite a bit more effort for corporations to pick up and move to another country. There’s no reason to believe that in a decentralized country it would be just as cost effective to move as it now is. A patchwork of legal systems and values is death for corporatism.
May 1st, 2008 at 11:33 am
Your point about local corporate welfare is a very good one. I recall a front-page feature in one of the national newsweeklies seveeral years back claiming that state and local “incentives” to business exceeded national corporate welfare, amounting to several hundred billion $$.
Still, quasibill and Jeremy raise some important points about the role of government in 1) promoting the kinds of large, centralized business organizations that are in a position to play localities off against one another, and 2) increasing the mobilility of capital.
If the typical manufacturing firm were a factory of a few dozen workers serving a local market, rather than a large oligopoly firm serving a national market and pushing a product marketed around national brand identification, it would be A LOT less feasible to pick up and move to a different part of the U.S. (let alone overseas).
And that would be even more true, if local economies were diversified on the Emilia-Romagna model, with much higher levels of self-employment and cooperative ownership. If there were many small and medium-sized employers in manufacturing, instead of one big corporation colonizing a locality, people would be a lot more prone to say “Fine–don’t let the doorknob hit ya on the way out.”
So maybe the answer to the problems of decentralism is more decentralism.
May 1st, 2008 at 7:38 pm
Mark,
I think it’s important to realize that I’m not arguing for more centralization per se. I’m merely pointing out that more localization brings problems of its own. It’s not an either-or thing. Localize, when appropriate.
One of the most important things - maybe even THE most important thing - about decentralization is that it creates something loosely resembling a free market of governments.
But this is the double-edged sword we’re talking about. Remember, the “corruption” in this case is not (well, not necessarily) local officials taking cash under the table. They can be making a good-faith effort to maximize the tax dollars going to their town and therefore giving residents the best municipal services and attracting even more people into their area. They’re just doing it to the detriment of other towns.
Luckily, there is a ready and obvious fix to significantly mitigate these problems, which would be unavailable in a fully centralized system. That fix is to make oversight of local governments one of -if not the - primary power of the central government. I
That’s probably harder than it appears to be.
Quasibill,
If you want me to read something, at least link to it. Of course, I would prefer if you just make your argument in the comment directly.
Jeremy,
A fundamental frustration that I’ve had with you (and a suspect vice versa, very much) is that you can contemplate changes that are a lot more radical than I can. A world with big biz is the kind of world we’re living in now. And I’m saying in this case, giving local municipalities more autonomy could result in more pandering to big biz. If you’re saying, “well, this wouldn’t be a problem in a world without big biz” what you’re advocating is turning the world we live in completely upside down.
By the way, it’s not that I am too small-minded to contemplate big leaps and changes, but I think the more radical the change you’re proposing, the more concrete details you need to provide for me to get onboard. Saying “more localization please” is like saying “go thataway” or “head in the north-east direction and you’re eventually get there.”
Kevin,
See my reply to Jeremy.
May 2nd, 2008 at 12:50 am
Angelica:
I think you misunderstood slightly what I was saying, which was largely in agreement with your point (which, as I understood it, was just that decentralization is not always preferable; I did not understand it to be an “either-or” proposition). I was more trying to get at what I think is the appropriate balance between centralized and decentralized power.
It’s my position that decentralization is usually, but by no means always, preferable. My fear about absolutely unchecked decentralization is that it can create a form of local majoritarianism or, on the other end of the spectrum, autocracy, that is indistinguishable from small scale tyranny. Just because that tyranny may or may not extend beyond the locality’s boundaries does not make it any more justifiable or in any way ease the suffering of those victimized by such a local tyranny.
Of course, if anyone adversely affected by the local tyranny could remove themselves from that tyranny with little or no cost, then we could say that the tyranny is not tyranny at all - everyone subjected to it will have actively chosen to submit to it. But such an ideal world does not exist, and likely never will exist (this is essentially a restatement of part of Federalist 10).
So as long as some number of people have little or no ability to take part in the “free market” of local government, some form of safeguard is necessary (I know, this is just restating that which is understood, but stay with me here…). That safeguard can clearly only come from a more powerful government. But eventually you reach a level of government above which one cannot go, and therefore above which there can be no realistic safeguards.
My argument is that once you reach this top level of government, the only way to permanently safeguard against tyranny is to effectively make the top level of government’s primary (and almost entire) responsibility the safeguard against tyranny on the lower levels of government. In some (though not all) ways, this was the original intent of the 14th Amendment. In my view (and I am fully aware that this view may solely be held by me), the only legitimate powers of a centralized government are powers vis-a-vis other government bodies (ie, making sure lower levels of governments are not overstepping their bounds, and protecting the residents of the broad nation against foreign governments). To the extent the centralized government’s powers are solely vis-a-vis other governments, I believe a powerful centralized government is a nearly-uniform good. But to the extent such centralized powers are held vis-a-vis persons (both legal and actual), I believe a powerful centralized government is most often (though not quite always) a uniform evil.
I’ll acknowledge that I waaaaaaaaaay overstated my case by claiming that my proposed fix is easy. Hell, I’m not entirely sure I could convince my dog that it’s a workable idea. Probably the better way to have stated it is that the tools for my proposed fix are already in the Constitutional woodchest; actually using those tools to successfully implement this change is about as likely to happen as a third party candidate winning the Presidency this year.
May 2nd, 2008 at 7:03 am
You’re absolutely correct. My politics, like several others’ here, are radical and revolutionary. They do not “fit in” with the current system. I really have gotten to the point where I feel reform just makes our rulers stronger and better positioned to dominate.
I think that’s fair. But there’s two issues here that make this difficult:
1. the more radical and different than the current order, the harder it is to provide concrete examples, by definition.
2. It’s not just about convincing you; it’s about convincing other readers.
Keep in mind that I was a pretty milquetoast liberal for a while. My radicalism grew slowly. It would be totally unreasonable to expect you to suddenly agree with me. The only thing I ask is that you offer good arguments so I can test my ideas.
What frustrates me is the dismissal out of hand that I feel happens so often, but I do realize that its inevitable when such irreconcilable opinions meet. We can both do our best to avoid that, hopefully.
May 2nd, 2008 at 11:15 am
It’s also worth bearing in mind that the centralized corporate economic system we have now, a little over a century old, itself came about through very radical changes that turned the world upside down. And it was never voted on. It was just presented after the fact as “natural” and “inevitable.”
May 2nd, 2008 at 12:33 pm
What Kevin gets at, to me, is the root of much of the latest anger about the status quo. Regardless of the level of understanding, from anarchists all the way to the average person who just asks once in awhile “why?”, the common theme is CONTROL — that is, the lack of it over ones condition. It feels like the world is running away from us.
No one suggests radical measures without the expectation that people will be receptive to them. While I have no illusions about decentralizing to the extent that Kevin, Jeremy or myself would see as ideal anytime soon, I do think that whatever shift DOES come about is going to be further than people currently suspect.
June 30th, 2008 at 1:34 pm
[...] back in April, Angela wrote (”Local Externalities, or why decentralized isn’t always better“): …if my town gives Walmart a bunch of tax breaks and and get them to build a [...]