Killing Local America
by Donald Devine
Issue 106 -April 23, 2008

So it is a conservative canard that government aid means government control?

Liberal New Jersey Governor Jon Corzine is out to prove the conservatives right. He recently announced in his state budget message that he would drastically cut or eliminate state aid to its 323 towns with populations of fewer than 10,000 if they did not consolidate themselves into larger, more “efficient” units. There is not much greater control than elimination.

Gov. Corzine won his reputation as a mergers and acquisitions chairman of the investment banking firm Goldman Sachs. He was into cutthroat capitalism and its engine of “creative destruction” and, after making his tens of millions in the investment field, he offered to take this same expertise into government, starting in the U.S. Senate. The old CEO became bored with legislation and left Congress to become top state executive. So in his first budget crunch he forced through an increased sales tax and in his second he demanded town consolidation. It’s just like Wall Street, right--the larger the unit the more efficient the organization—economy of scale, right? Wrong.

Corzine should listen to his own mayors. Mayor Edward Campbell of little Gibbsboro responded that the governor ignored the fact that small communities can escape the limitations of economy of scale by competitive bidding and contracting with private industry and by greater use of part time employees. Collingswood Mayor James Maley noted that many municipalities, including his town and nearby Woodlynne, already have cooperative agreements that cut costs. Somerdale Mayor Gary Passanante pointed out that of the New Jersey towns with the 50 lowest effective municipal tax rates, 48 have populations under 10,000. Moreover, while big cities are declining in population, people are flocking to smaller communities. Rousseau actually declared that 10,000 was the ideal sized community.

The Governor’s imperialistic attitude is noteworthy but even on the merits, where has this guy been—larger governments are more efficient? As early as the 1970s, the private sector learned that there was a limit to economies of scale and began breaking down and flattening large bureaucracies that could not compete efficiently. The last holdout was finance but even Corzine’s own field followed early in the new century. The Federal Government had actually debunked the idea of economies of scale for governments as early as the 1980s. The U.S. Advisory Commission on Intergovernmental Relations determined that contracting out to the private sector or other governments allowed the smallest local government to be as, or more likely, more efficient than larger local governments—since the later were typically dominated by public sector unions devoted to security rather than efficiency.

Where Corzine has been as governor, senator and investment-banker has been encased in the museum piece called modern “progressivism”—which is a corruption of both socialism and capitalism, not simply a moderate socialism as many on the right mistakenly believe. It combines the socialist value of equality with the capitalist means of economy of scale supposedly to create both capitalism with a heart and an efficient socialism. Unfortunately for the progressives, economy of scale was only one means used to create capitalist efficiency and not necessarily the most important, which is determined by what works best in a market setting, which neither socialism’s elimination of private property nor progressivism’s rule by the experts’ plan allows. As a result, progressivism was not only more inefficient than capitalism because its plan was too inflexible to control the market’s great complexity but even of socialism, which could use blunt force to break through the complexity, at least in the short run.

For many years after the market abandoned it as its talisman, economy of scale has been the dominant theorem of public administration. The virtual inventor of expert public administration in the U.S.--Woodrow Wilson—basically wrote the book on the subject as the dominant public intellectual of the early 20th Century, and then institutionalized them as governor of Corzine’s own state—what is in the water there?--and as president. But Wilson’s Federal Reserve did not prevent the Great Depression and may well have caused it.

Franklin Roosevelt made these ideas the center of his New Deal and they have been the dominant governing doctrine ever since. Yet, the Depression was not ended until World War II and his agencies could not prevent the ruinous stagflation of the 1970s—or today. As far as budgets, it is not small government that is threatening insolvency but Federal Medicare, Social Security and Federally-imposed Medicaid. As noted in its recent Trustees report Medicare, by far the largest, is already in the red and exhausts its trust funds as early as 2019 (and as John Goodman shows nearby, this is optimistic) and Medicaid is actually the greatest state financial drain.

Progressive ideology has not targeted local government for its expense but because it is too diverse and uncontrollable. Progressivism relies on “experts” to use concentrated government power to pursue the general welfare. Not only private markets but also what economists call the market of local governments diffuse power so the experts cannot control “problems.” Too much freedom gets in the way of the experts’ planning. So, public and private, diversity must be eliminated or controlled.

As recently as 1900, local government raised twice the revenue as the national government and six times as much as state governments. Then progressivism set out to eliminate small government diversity. From using the multi-service county rather than creating additional municipalities, to municipal consolidation reforms (creating one large city from scores of towns), to the encouragement of annexation of nearby unincorporated land, to simply making it difficult to create new municipalities, progressive reforms smothered new local governments. Today there are hardly more municipalities, townships and towns than there were at the turn of the last century, even with the incredible growth of population. For school districts, it is even worse. While there were 127, 000 independent school districts as late as the 1930s, now there are only 14,000.

But freedom has its own power. Local governments in the U.S. are still more powerful than in most of the rest of the world and most new settlement is in private local community associations. In New Jersey, Gov. Corzine’s threats may have actually the opposite effect. The small towns are revolting. William Dressel, the head of the state Municipal League, traces such opposition to colonial times, stressing that “people like that sense of community. They like their sense of home town. Bigger does not mean better.” Many are questioning the value of state aid if it can be cut so arbitrarily. The governor has made it obvious that state aid means state control. Most of the mayors claim they would rather give up the aid than lose their independence.

America became great as a nation of local government. When the great French social theorist Alexis de Tocqueville visited America in the early days of the republic, he reported that local and voluntary communities successfully solved their own problems and the national and state governments hardly existed locally. A rebirth of local independence is precisely what the U.S. needs today and Corzine’s abuse of government power may be just the shot needed to rouse its fervor for community.

Donald Devine, the editor of Conservative Battleline Online, was the director of the U.S. Office of Personnel Management from 1981 to 1985 and is the director of the Federalist Leadership Center at Bellevue University.