Economies of Scale Don’t Apply to Government

SACRAMENTO – As government costs soar, and revenue remains low because of the poor economy, some politicians and academics are trotting out an old idea that promises to increase efficiency and save money. It’s called municipal consolidation. In their view, combining multiple cities or agencies into a smaller number of bigger entities provides improved economies of scale that will squander less money on multiple city managers and other redundant staff.

“The proliferation of ‘small’ government in California is helping break the bank,” said Fred Smoller, director of Brandman University’s public administration program in Irvine, which, admirably, detailed eye-popping compensation packages paid to city managers at some smaller cities. As he told The Orange County Register in a recent blog mulling whether O.C. needs 34 independent cities, “We can argue about whether individual city managers make too much money. But what we really need to talk about is the proliferation of local government entities.”

A variant of this debate is hot in the city of Sacramento, where Mayor Kevin Johnson – fresh off his failure to replace the city manager system of governance with a “strong mayor” alternative – now wants to expand his city’s boundaries to encompass various unincorporated county communities. Expect this debate to spread to wherever there are clusters of independent cities, in places such as the Bay Area and San Diego County.

Although I’ve spent my career writing about the abuses and venality in local government, I find this to be a dangerous idea. Sure, local government is a den of vipers, but smaller government that’s closer to the people is going to have fewer and less-deadly vipers than a big government far from home.

Consolidation is an affront to democratic accountability. Let’s say you have a problem with potholes in your city of 30,000 people. Chances are you know the name of your council member, or, if you don’t, it won’t be that hard get in touch with her. If you live in a city of 3 million or even 300,000 people, what are the chances that council member will return your call? You can be sure, though, that union local presidents and corporate executives have the council member’s cell number on speed dial.

The bigger the governmental entity, the harder it is for an average citizen to have any contact with officials or to influence local elections. Look at some city council election results – races often are determined by dozens of votes. A local activist can help get a candidate elected. In big cities, the elections are won or lost based on the power of interest groups that can drop large sums of dollars into a race.

Furthermore, consolidation does not increase efficiency. If you think so, ask yourself whether you would rather have your kids attend their neighborhood school or a school in the Los Angeles Unified School District, the biggest, most bureaucratic, ill-performing, monstrously inefficient and expensive district in the state and second-largest in the nation? Would you rather be governed by the council and staff in your burg or by those who run San Diego?

“There’s no evidence that consolidation reduces costs,” said Wendell Cox, an urban planner who helped stop consolidation plans in Pennsylvania, New York, Indiana and Toronto. When you combine, say, six cities, you do not get rid of six fire chiefs, he explained. One of those chiefs becomes the superchief, and the others stay on as deputy chiefs. Public employee unions do not willingly shed jobs or chop salaries and benefits. In practice, quite the opposite happens (as opposed to academic theory).

“Everything goes to the top,” Cox told me.

Cox dismisses the idea of duplicated services. One city isn’t really duplicating the services in another city. City A is not providing planning services for neighboring City B. Both cities have separate departments, but there’s no chance that combining the cities would eliminate unionized workers in either department. So where are the improved efficiencies?

A city can’t offer a different level of service for different neighborhoods, Cox said, so when cities consolidate services, costs again rise to the top. The most spendthrift governments in the nation, even on a per capita basis, are the big ones, such as New York City and Los Angeles. Bigger cities spend more because they are most easily dominated by unions, contractors and other interest groups.

There’s a reason special interests love consolidation. It’s a lot easier to control one city council than multiple city councils. Planners love metro governments because they can then impose their Draconian development plans on one vast area rather than having to fight it out in smaller fiefdoms. Freedom suffers, of course, when the ideologues – think of Portland, Oregon’s Metro government, which stifles property rights in order to impose its Smart Growth strategy on the region – can control a single entity. Freedom at least has a fighting chance where there is competition.

If Escondido passes some outrageous development restrictions, business owners and residents might migrate west to Oceanside. If Orange becomes a haven for crime because of poorly provided policing services, then Tustin might become a magnet. It’s not a perfect system, but it’s better than everyone living under one large entity that is impossible to influence and difficult to flee. If the centralizers and consolidators are right, then why don’t we dispense with state governance and let the feds take over everything? Better yet, why don’t we cede national sovereignty to the bureaucrats in Brussels, Belgium, and let them implement their economies of scale?

I’m exaggerating, but the logic of consolidation doesn’t hold up even if the consolidators aren’t calling for one big entity, but rather for somewhat bigger ones. But bigger isn’t better when it comes to government. The only way to control government costs is to cut it down to size and allow the private sector to pick up more of the load. In the meantime, I would rather live under a small regime than a big one.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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