Welcome to the New—and Private—Neighborhood

Local government in a world of postmodern pluralism.

Robert Nelson from the April 2006 issue

(Page 3 of 3)

Beyond Monopoly Governments

Bruno Frey, a Swiss economist, has noted that local government historically has held a territorial monopoly over collective service provision within its geographic boundaries. This outcome, he argues, is neither necessary nor desirable. Unitary governments may once have been suited to the collective tasks of the rural village. But modern communications and other developments have greatly reduced the transaction costs associated with divesting functions from unitary local government to a diverse range of service providers.

Frey thus suggests that many current tasks carried out by local government should instead be performed by what he calls “functional overlapping competing jurisdictions.” An FOCJ, unlike a traditional local government, would be more specialized by function and could overlap with the territory of another FOCJ; two FOCJs could find themselves in competition with one another. Consumers would choose among competing jurisdictions in much the same way they now choose between Wal-Mart and Home Depot. But an FOCJ would differ from an ordinary business because it would employ a collective form of purchasing activity; the purchasers would own the business and FOCJ management would be overseen by a democratic process of purchaser/owner decision making. Frey argues that FOCJs, resembling private clubs but extending beyond golf and tennis to include a wide range of local collective services, would be genuinely “governmental,” partly because they would have “enforcement power” and could “levy taxes.”

Frey sees a worldwide proliferation today in the forms of governance. At the global level, the International Olympic Committee might be regarded as a form of “government” that is limited to one particular function—conducting the Olympics every four years. Washington Area Girls Soccer, a private, nonprofit organization, oversees advanced soccer competitions for girls 10 to 18 years of age, crossing many jurisdictional boundaries throughout the Washington, D.C., region. Elsewhere, a similar local soccer league might be organized and coordinated by a large city’s public recreation department. In another domain, education, the school choice movement has adopted an FOCJ stance: the establishment of overlapping jurisdictions for public service providers. Charter schools and private vouchers go farther still, in the first case allowing schools to operate with considerable independence from traditional education rules and regulations, in the second providing for the direct private operation of schools with at least partial public funding.

The evolution of the long-distance telephone industry during the last 20 years shows another transition from a single geographic monopoly to a system of competing and overlapping telephone companies. (Although AT&T, which held the monopoly, was private, it operated under tight government oversight.) The case of the telephone industry illustrates how technological innovation can alter the desirable organizational forms of public service delivery. Yet the first new competitor in long-distance telephone service, MCI, had to struggle long and hard in the courts before it was permitted even to compete with AT&T. Local telephone monopolies survived into the 1990s. Today, the emergence of cell phones and voice-over-Internet technology has further encouraged the proliferation of competitive telephone services.

Already partially realized, Frey’s vision of functionally oriented forms of “local government” that overlap and compete with one another could expand into the territories of other public monopolies. Moreover, although Frey puts FOCJs in the category of “public” government, there is little about them that prevents their functioning as entirely private entities. The rise of the private neighborhood association has shown that even many tasks previously considered exclusively public and governmental can in fact be carried out privately.

The German economist Jurgen Eichberger offered two criticisms of Frey’s vision. First, he argued that some aspects of government involve defining the rules of the game and may therefore require an exclusive territorial jurisdiction. Second, he questioned each FOCJ’s need for “direct election of management by members.” Frey proposed that FOCJ “constitutions” should “encourage members.…to participate actively in the management of FOCJ affairs.” But Eichberger suggested that we need not automatically presume “the general superiority of [a] participatory membership rule,” arguing that “the appropriate form of FOCJs will vary with their functions.”

Another German economist, Wolfgang Kerber, agreed with Eichberger that an “underlying legal order” would still be needed to provide, among other things, “a set of metarules that ensure that a system of FOCJs is really able to enhance the welfare of the citizens.” But Kerber argued that a competitive process could enter the legal order as well; it may be possible, he wrote, for “individuals or firms [to] have the right to choose between legal rules or whole legal orders. This will lead to competition among legal rules or legal orders, a phenomenon that can already be observed. If firms do business on an international level, they have the right to choose which kind of contract law they want to use, e.g., German, British, or U.S. law.” With “the FOCJ concept,” Kerber concluded, Frey revealed that “we do not have ‘the’ government but a multitude of governments.”

A Postmodern World

Put together these trends and speculations—the rise of private communities and Dell governments, the push for more-flexible municipal boundaries, the possibility of FOCJ-style governance—and what picture of the postmodern political order emerges? We’d have a world where the size and functions of local government would be determined by a trial-and-error process of competition. Different institutional forms would contend with one another; rather than following a central administrative plan, the nature and tasks of local government would be determined by a private market. The “governments” themselves would be more private than public, facilitating a routine flow of mergers, breakups, divestitures, and other organizational rearrangements.

Speculating more boldly, we might see the total privatization of American local government. Postmodern local government would fall under a brand-new legal category: the exercise of a collective private property right in the manner of a private club. We would return, in effect if not exact form, to an older model, under which local “governments” were private institutions operating for many centuries under the same basic legal status as private business corporations. Radical though it sounds, such a revolution is already quietly emerging in thousands of condos, co-ops, and homeowners associations across the United States.