Welcome to the New—and Private—Neighborhood

Local government in a world of postmodern pluralism.

Local government has been increasingly privatized since the 1960s. I don’t mean government services; I mean government itself. In 1965 less than 1 percent of all Americans lived in a private community association. By 2005, 18 percent—about 55 million people—lived within a homeowners association, a condominium, or a cooperative. Since 1980 about a half of all new housing units in the U.S. have been built within such associations; in California, the figure now is at least 60 percent. Such communities can be as small as a single building or as large as an entire city, but they’re often about the size of a neighborhood.

This shift came as we entered the postmodern era, a time of increased suspicion toward the conventional narratives of scientific and economic progress. There is less convergence of basic beliefs about the best forms of society and less expectation of such a convergence. Instead, there is a preference for pluralism—for multiple, overlapping identities and communities through which individuals can find meaning and comfort.

Such trends augur well for social institutions, such as neighborhoods, that once played a larger role in Western society. Yet these will still have to exist within some broader political and economic framework. It’s far from obvious just what shape such an order might take, but it is likely to mark a return to the local independence that characterized the West before the rise of the modern nation-state.

The Private City

The legal scholar Gerald Frug proposed one postmodern model in 1980. Writing in the Harvard Law Review, he called for “a genuine transfer of power to the decentralized units”—regions, cities, and neighborhoods—of American society. One element of this decentralization, he wrote, would be to recognize “the rights of the city as an exercise of freedom of association.” This recognition would revive the premodern idea that cities were the legal equivalent of business corporations and “there was no difference between a corporation’s property rights and its rights of group self-government.”

For hundreds of years, the corporate legal status of a municipality—often no bigger than a neighborhood—limited attempts by higher levels of government to infringe on local prerogatives. This situation did not change until the 19th century, when the city’s legal status was reconceived to make it a creature of state government. Under “Dillon’s rule,” first formulated by the Iowa judge John Dillon in 1868, a state government could now abolish a municipality, redraw its boundaries, alter its taxing authority, and assign or withdraw public service responsibilities. In his 1980 article, Frug argued that shift should at least partially be reversed.

The business corporation’s private status has given it a large and unfair advantage in meeting many Americans’ needs for community, Frug wrote. To equalize the competition, he proposed that municipal corporations should have many of the same powers that business corporations enjoy. Municipalities should be free, for example, to operate their own local banks, credit unions, insurance companies, and retail food outlets, among other traditional private enterprise roles. More broadly, municipalities should have a new degree of governing autonomy; they should be free from outside governmental meddling in their affairs, as business corporations mostly are. In short (though Frug himself might not go along with this particular characterization), the municipality should have a newly “private” status in American society.

Surprisingly, Frug did not see the rise of the private neighborhood association as a promising step in his plan. Yet current neighborhood associations have much of the autonomy and freedom of action Frug advocated for his postmodern cities. To reconstitute the public municipality along Frug’s lines would require a minor revolution in legal views; a number of Supreme Court decisions would have to be overturned, and laws would have to be rewritten by legislatures. It would be much simpler and easier to build on the existing legal status of private neighborhood associations. Most of them already are established legally as nonprofit private corporations. If neighborhood associations increasingly adopt the political role of public municipalities, it might be possible to achieve a revolution in the role of American local government without drastically changing the U.S. constitutional order.

Writing in the University of Pennsylvania Law Review in 1982, the legal scholar Robert Ellickson proposed just such a course. Ellickson observed that “the private homeowners association…is the obvious private alternative” to enhance the autonomy and defend vigorously the rights of small localities, much as Frug proposed. Ellickson also suggested jettisoning some of the legal distinctions between local governments and private neighborhood associations. He recommended overturning the 1968 Supreme Court ruling in Avery v. Midland County and related decisions “to eliminate the current federal constitutional requirement that local elections be conducted on a one-resident/one-vote basis.” Then public municipalities, like existing neighborhood associations, would be able to adopt “some system that weighted votes by acreage or property value.”

Relegating a large part of U.S. local government to a private status would reflect the fact that much of what local governments do is business-like. The federal government spends most of its funds on two functions: national defense and redistribution of income. Whatever the Constitution might say to the contrary, state governments in many respects evolved in the 20th century to become the federal government’s administrative apparatus, controlled by significant federal funding and requirements. Local governments, however, engage in a much different set of activities—picking up the garbage, policing the streets, running the schools—that could be and often still are provided privately in other circumstances.

Dell Governments

The American computer manufacturer Dell bears little resemblance to traditional industrial giants such as AT&T, General Motors, and General Electric. Dell does not manufacture its own products. Most of the physical tasks associated with the production, distribution, and sale of Dell computers are outsourced, and the computers themselves are mostly made at plants outside the United States. Dell employees work largely to develop ideas and coordinate their implementation by others. The company works with advertising agencies to craft its image and arranges for the various stages of production and distribution of the end-line product. Many firms created in the last two decades operate in a similar “virtual” fashion.

Local government in a postmodern world might follow in Dell’s path. The main tasks of government could be conceptual and coordinating—establishing the “values” and “meaning” of a particular “community.” Issues of neighborhood scale would be left to private neighborhood associations, which in turn might outsource most services to private companies. Local governments would mediate between neighborhoods as needed; where they became involved in direct service provision, it would most likely involve arterial highways, water systems, sewer systems, and other services that require coordination across wide geographic areas and involve major economies of scale.

Neighborhood associations already have demonstrated that even basic governance tasks at this micro level can be undertaken privately. One adviser to neighborhood associations has said that an association is “both a community and a business to meet the expectations of the members” and appropriately functions privately in both these capacities. The result is a radical privatization of many local government functions, both in concept and in execution.

Mergers and Divestitures

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