Secession, Competition and Private Action

Los Angelenos are among the most highly taxed Americans. In return, they receive public services that are mediocre at best. The performance of L.A.’s schools, police department, and transportation agencies are nothing to boast about. L.A.’s approvals process for new development is bizarre and likely responsible for housing affordability problems.

Quite predictably, many Angelenos—particularly those residing in the San Fernando Valley and Hollywood—are casting an envious eye at some of the area’s well-run smaller cities (Culver City, Hermosa Beach, Burbank, South Pasadena and others) and wondering if secession from the City of Los Angeles is worth a try.

Their opponents are shocked, accusing secessionists of “breaking up” L.A., (confusing the city’s government with the more profound idea of the city and cityhood, i.e., belonging to a group whose members share certain presumptions of civility). Others are threatened because they see L.A. as a not-so-mini-welfare state. It appears that what both sides agree on is that the city of Los Angeles has gotten away from the basic functions of local government.

What do we know? There is an emerging consensus among those who have studied the problem that—in government—smaller is often better. In life, private provision is usually better than the politicized alternative. Can secessionists, and those who remain behind, benefit from both smaller government and the private delivery of some traditionally municipal services?

Of the countless activities most of us engage in day-to-day, the odds are that we are better served when private individuals and firms serve us for the simple reason that profit-seeking providers have an intense interest in improving the lot of their customers. This is how and why markets have been responsible for stunning improvements in humanity’s material condition.

It is where markets are absent that conditions deteriorate; everyone, including the poor, gets poorer. This explains the reason for the worldwide movement to privatization.

To be sure, progress in the market occurs in fits and starts. And, there exist many inspiring and heroic individuals in the public sector, such as school teachers, cops, fire fighters, and mail carriers that go out of their way to be helpful. There are also frauds in the private sector.

Yet, markets are quick to punish failures and miscreants. Private failures—where they exist—are self-correcting. But whereas market discipline closes most badly run businesses, the same cannot be said for government agencies. Under-performing public entities are subject to little discipline. When the U.S. Postal Service or Amtrak do badly, they brazenly demand (and usually get) ever more public support.

Not surprisingly, where given the choice, most consumers opt for private transportation, private schools, private medical care, private mail delivery, and so on. We do this even though we have already paid for the public services that we avoid. (Imagine what the balance would be if, as Milton Friedman has suggested, consumers who chose not to use government services received a refund of what they were taxed to pay for those services!) Most people know the score.

It is odd that when it comes to discussions of governance, there is still the hope that one more round of top-down reforms that will finally deliver “good government.” This was the essence of the Progressive movement that spread through the U.S. well over 100 years ago.

Yet, it is hard to find evidence that such reforms have lived up to billing. Who can count the number of efforts to reform government. The things that are easily countable—the pages of the Federal Register of laws and rules, the bulk of the IRS tax code and the sheer size of government (federal, state and local)—do not offer grounds for optimism. It is time for bolder approaches.

When it comes to local government, many people simply give up. Most do not vote in municipal elections. However, many do “vote with their feet” by moving to far-flung newer cities where special interest groups are less entrenched.

Since the early 1970s, more than 40 million Americans have chosen to live in some sort of housing cooperative where the rules of governance pass a market test. Most of us shop in the nation’s more than 45,000 shopping centers, which are also run like private communities.

Most people are self-serving as well as altruistic. They form businesses that prosper when strangers are well served; they also choose to engage in charitable activities and benevolent associations. They do both of these things best when they are not restrained by politics.

Despite the common perception that services can be easily divided between those that can (or should) be provided by private and public entities, the division is not so simple.

We are finding that many presumably “municipal” functions have in the past been successfully administered privately, but were crowded out when special interests managed to capture the levers of power. An auspicious example is low-cost housing, once well provided in the market but now a province of the state in most places—and scarce.

A successful San Fernando Valley secession will send a nationwide signal that governments have to compete. The message will be doubly powerful if the newly formed City of San Fernando and City of Hollywood and a smaller City of Los Angeles compete by offering the kind of private and non-profit initiative and innovation that have historically benefited their citizens.