Franks on proposed super-cities

I agree with Stephen:

...it is puzzling that business has not watched the Canterbury experience, and the extent to which Canterbury has been saved from presenting unrelieved incompetence by the safety valve councils of Selwyn and Waimakariri.  You’d think they might have asked Hugh Pavletich to come up and report. Christchurch has been hostile to business ever since Christchurch City was jammed together as a prototypy ‘super-city’ two decades ago.

Many Wellington business reps have an intuitive faith in  ’bigger is better’ territorial government. I say ‘territorial’ because it would be a lie to call Uber-City Wellington and Super-City Auckland “local government”. Two councils governing half the population of New Zealand may be government, but it is certainly not ’local’ government, on any measure.

This faith based policy development by business reminds me of the business elite of Britain on the Euro.

I think folks in central government are grasping at straws here, trying to find ways to make local government suck less. My preferred approach instead suggests fixing councils' incentives by changing local government finances, then letting small councils compete with one another for residents, businesses, and industry.

Previously:

• Auckland SuperCity
• Auckland SuperCity Part 2

Wobbly

Rodney Hide writes in the Herald on Sunday in his inaugural piece last Sunday:

My history is as a centre-right politician. But I have no desire now in persuading you to vote this way or that. I have done that for years. I also have no desire to bag one political party over another. There's enough of that already.

Besides, my particular political philosophy was always too radical even for the Act Party.

I started in Parliament a libertarian. That means I wanted government nice and small and confined to just a few keys tasks such as protecting us from the thugs and bullies.

I ended up an anarchist. I have concluded we would do better with no government at all. New Zealand before 1840 had some downsides. But the downsides were small beer compared to the social and economic devastation wrought by big, bloated and out-of-control bureaucracy.

I reckon we could fix the down sides of no government without having to give a small bunch of people enormous power over the rest of us. I have no doubt I was the first Anarcho Government Minister. It is a great contradiction.

I am out of step politically. I know of only two New Zealanders who agree with my political philosophy and one of them is wobbly.

I'm only an anarchist 3 days out of 7, so I'm not sure whether I make the wobbly line.*

Hide's proudest achievement?

I am proud of what I got done. The best for me was sorting out Auckland's governance. Auckland now has one mayor and one council to provide the vision and the leadership the city and region badly needed. Len Brown and his team are doing a good job.

I wonder whether in a future column Rodney will reconcile anarchism and Tiebout competition with city amalgamations. I'd assumed that the Auckland Supercity project was one he'd been handed rather than one that he'd wanted and that he'd taken it mostly to raise ACT's Auckland profile and to demonstrate competence over a complicated project.

I don't live in Auckland, but mergers elsewhere have tended to result in ratcheting up of tax rates and expenditures to match those that obtained in the higher-spending prior urban units rather than in great administrative efficiencies yielding better services or lower rates, though that may be a function of more pernicious union rules in places like Winnipeg circa 1971.

Hide's second column, a defence of Kim DotCom and an excoriation of Key's handling of the American-demanded prosecution, is a barn-burner.

Our Government should have stood up for Dotcom as a New Zealand resident and simply told the US Government to prove it. Dotcom would still be in business and other digital entrepreneurs would be attracted to New Zealand for the lifestyle and for a government that sticks up for its people.

New Zealand can't build a new economy defending old technology and old business models. We could do well to become a safe haven for the new entrepreneurs.

Hear hear.

* The other four, I worry the risks of winding up with bad anarchy are too high given the costs of that outcome. And, there are illiberal anarchies even where market-chosen law doesn't degenerate to Mafia, Inc.

Tiebout and Auckland: Sir Roger gets it

I've previously complained that nobody else seems to have noticed that Auckland's amalgamation will reduce Tiebout competition. I hadn't seen Sir Roger Douglas's submission.

On the community level, Councils should be designed to allow greater choice and competition between Community Councils, as well as providing for greater community control over expenditure.

Mechanisms that allow individuals to opt out of certain Council functions, and groups of individuals to switch Community Council, create a new Community Council, or amalgamate with an adjacent Community Council will foster greater competition between Councils. Such competition will allow more diversity and experimentation within Local Government.
...
Only when Government bodies are held responsible for setting and collecting rates and expenditure will there be adequate checks on their capacity to spend. The rates set by Community Councils could be collected on their behalf by the Greater Regional Council, but it is most important that the resident knows which portion of rates goes to the Community Council and which portion goes to the Greater Regional Council.

While the Government’s position on Community Councils – a position which departs from the Royal Commission’s absurd proposal to have only six local Councils beneath the regional authority – is generally sound, it is also important that Community Councils are held accountable for what they spend. This will only occur if they raise their own revenue.

...a group of citizens adjacent to another Community Council should be able to opt-out of their current Council, joining the neighbouring Council, if they think their mode of service delivery is more suitable to their wishes. The capacity to change Council will create competition for ratepayers, which is likely to see value for money being delivered by Local Government. Although this choice would only be able to be used by those at the edges, the capacity for others to change providers drives efficiency and therefore benefits all ratepayers.

Lots of other great suggestions in there, like having line-item council tax bills and allowing residents to opt out of certain items in favour of private providers. Hope the Local Government Minister was paying attention.

Auckland Maori seats: good idea? [updated]

The main stumbling block currently to Auckland's merger into a mega-city isn't worries about the loss of Tiebout competition - which seems to be only of concern to me, see here and here, though NotPC also agrees and I may have convinced Matt Nolan (see comments, oops) Rauparaha that this is worth worrying about.

Rather, the biggest concern seems to be whether city council will have a standard set of wards or whether it will follow the system used for national elections in having overlapping districts: one set for those voters who want to elect to be on the Maori roll, and another set of general electorates for those who don't.

Correct me if I'm wrong, but I don't think there's anywhere else in the world that uses this kind of system.

Does having these kinds of overlapping districts help Maori? I suspect not much under proportional representation except inasmuch as they help to facilitate overhang: many voters in the Maori electorates tick the Maori Party as their district Member of Parliament but give their Party vote to Labour. The Maori Party then wins more seats than those to which it is entitled by its list vote and Parliament is made bigger. In a PR system, this means that the Maori Party has a seat or two more than it otherwise would and so has a bit more clout as a minor party.

Auckland's council, though, as best I understand it, isn't planning to go PR. What are the effects of this kind of system when you have only ward-based representatives?

Imagine that there are two groups, A and B. Everyone that self-identifies as group A, 10% of the population, is 90% likely to vote for Party 1 and 10% likely to vote for Party 2; everyone in group B, 90% of the population, is 47% likely to vote for Party 1 and 53% likely to vote for Party 2. Suppose every district has 100 voters and groups A and B are evenly split across all districts. In that case, every district has 9 A-group and 42 B-group voters for Party 1, 1 A-group and 48 B-group voters for Party 2, and Party 1 wins all districts. Now, suppose that you instead create special A-group electorates that comprise 10% of the seats. Now, Party 1 wins all A-group electorates but Party 2 wins all other seats. You've made sure that Group A is represented, but at the cost of vastly reducing their influence.

Indeed, this has been found to be one of the effects in the US of judicial mandates for majority-minority districts. Heck, even Wikipedia knows it:

Gerrymandering may be advocated to improve representation within the legislature among otherwise underrepresented minority groups by packing them into a single district. This can be controversial, as it may lead to those groups' remaining marginalized in the government as they become confined to a single district. Candidates outside that district no longer need to represent them to win election.

As an example, much of the redistricting conducted in the United States in the early 1990s involved the intentional creation of additional "majority-minority" districts where racial minorities such as African Americans were packed into the majority. This "maximization policy" drew support by both the Republican Party (who had limited support among African Americans and could concentrate their power elsewhere) and by minority representatives elected as Democrats from these constituencies, who then had safe seats.

Enough of Wikipedia; turn to Google Scholar. Cameron, Epstein and O'Halloran, 1996, find that there is a very real tradeoff between advancing the number of minority representatives and advancing the issues that minority voters care about. Shotts, 2001, finds that a majority-minority mandate has no effect where Republicans control redistricting (because they already would have packed minority voters into a small number of districts, by my read) but reduces Democratic seats where Democrats control the redistricting and where the majority-minority mandate requires supermajorities; in this latter case, it can cause the Democrats to lose control of the state legislature.

I can see why the Maori Party would support this kind of move: it guarantees them a couple of seats (yes, yes, city council elections aren't party-based, you get the idea though). But it may well also guarantee that no other city councilor has to care at all about Maori issues because they won't have any Maori constituents. But that's too conspiratorially-minded. Most likely, nobody involved in the process has bothered to check the empirical literature, just like nobody involved in the process has bothered to worry about Tiebout.

Careful what you wish for, folks. The Law of Unintended Consequences is a stern one.

Auckland Supercity - Part Two

Rheema Vaithianathan, Auckland University economist, worries that the Auckland supercity will lead to job losses and in particular will hurt the suburbs.

I'm worried that the opposite will happen.

Let's turn it over to Wendell Cox, in interview with Winnipeg's Frontier Centre for Public Policy

FC: You have written eloquently about urban amalgamations – can you summarize your views on that subject?

WC: Virtually all urban amalgamations have been justified on the basis that we are going to obtain economies of scale and lower costs in the long run, and everything will be better because things will be better coordinated. I don’t see any evidence whatsoever that places that are amalgamated, whether we talk about Toronto or Montreal or Indianapolis or Miami, are better governed than places like Paris, for example, that has 1,300 local governments. Or Chicago that has about 200 local governments or more, depending upon the special districts you might include. The basic problem with amalgamation is that the last thing it does is reduce costs. What ends up happening is you need more bureaucracy. You have conflicting labour contracts of the previous organizations. The previous municipalities get merged in such a way that the worst provisions and the most expensive provisions become the controlling provisions for all of the labour contracts. Again. if you look at the real experience on the ground in the United States where we have marvelous data, you find that the larger municipalities tend to have higher costs per capita than medium-sized municipalities. The smallest municipalities also have high costs, but probably the optimal size for a municipality is somewhere in the 50-100,000 population range, which says that Winnipeg ought to be six cities – not one.

FC: You have written that some of the most successful cities are the ones with the most municipal government units. Why is local or neighbourhood control so crucial?

WC: It is crucial because we tend to treat people we know and walk by on the streets more reasonably than people we don’t know. It just so happens that we are much more responsible in how we treat our neighbours and our friends and our relatives than those we don’t know. That is just human nature. The closer we can have City Hall to the people who live there, the more responsible the public policies are going to be and the more in-tune the interests of the residents are going to be with public policies.

So instead of getting efficiencies, we get ratcheting up of expenditures to those of the worst districts.

Cox goes into more detail here and cites my old home town of Winnipeg as case in point:

In 1972, Winnipeg merged 13 smaller municipalities into one large entity called Unicity. These municipalities had previously co-operated on a number of common issues, like arterial roads and water projects, through a Metropolitan Corporation, but had
reserved to themselves a wide range of municipal functions. They competed with each other to attract development and residents, a fact that exerted pressure to keep municipal costs down. Evidence shows the merger removed that bias and municipal costs “leveled” up to the highest spending level, the one reported by the central, core city, with about half of the urban area’s population. Reduced accountability on spending brought higher property taxes, soaring debt levels and less responsive government units. These factors contributed to Winnipeg’s relative decline against other cities, falling from Canada’s third largest city in the late 1960s to the eighth largest today.

Critics suggest that amalgamation stamped the soul out of neighbourhood communities when it moved decision- making power and local service-delivery choices into the hands of distant, more unconnected, politicians who responded in the new structure to the tightly organized provider groups that dominated the new organization. One result was higher property taxes. Prior to a dramatic reorganization of city government under city manager Gail Stephens, city staffing and compensation levels peaked among the highest in Canada (see Manitoba has Larger Public Sector than Most, Frontier Backgrounder No. 3, December 2000, www.fcpp.org)

Did Unicity otherwise meet expectations? University of Western Ontario Professor Andrew Sancton, author of the book “Merger Mania: The Assault on Local Government (McGill University Press, 2000, p. 62), summarized Winnipeg’s Unicity amalgamation
project as follows: “What is the lesson of all this? It is that 30 years after Canada’s most dramatic and comprehensive municipal amalgamation – in which virtually all the residents of the Winnipeg city-region were included – the area now confronts the same problems as everyone else: most of the growth is occurring outside the
municipal boundaries and there is need for new mechanisms for regional co-operation. No one is recommending further amalgamations.”

BK Drinkwater comments more on the report. I share his generalized concern about multiplier effects: surely there then are offsetting divisor effects. But that's all beside the point if the spending cuts never actually happen.

Auckland Supercity

Central government in Wellington seems set to force Auckland's eight local councils to merge into a mega-city. Complaints thus far have centered around the potential loss of voice as constituents become more distant from their representatives.

I'm worried about something else entirely. Voice is nice, but the threat of exit is a more powerful check on local governments' activities. Tiebout explained it all back in 1956 with his pure theory of local expenditures. In short, competition among jurisdictions for residents forces them to run their operations more efficiently; mobility across jurisdictions also allows matching between consumer preferences and government service bundles. So, if the rates in one of the local councils are getting steep relative to the services provided by the council, moving to the other side of town can help.

Whatever efficiencies of scale there are from having services provided to a larger jurisdiction can also be achieved by contracting out. This happens endogenously and only where the economies of scale are substantial enough to justify it. It's then hard to see from whence come the efficiencies of amalgamation. For example, if a couple of councils find that they'd save money by jointly running their fire services, nothing stops them from setting up a joint fire service that caters to both councils.

Muriel Newman today links to a couple of nice Canadian case studies of amalgamation. In Winnipeg, where I did my undergraduate studies, amalgamation led not to efficiencies but rather to a leveling-up of union contract salaries to match those paid in the highest-paid prior city, a deterioration of service quality, and stagnation. Winnipeg community activist Nick Ternette is even giving a talk tomorrow at the Frontier Centre on the failures of Unicity!

I hope that local government minister Rodney Hide, who has lectured in economics and ought to know Tiebout, has thought this one through. I've not yet seen the case made where any serious weight is put on the loss of Tiebout competition. The Royal Commission Report makes no mention whatsoever of Tiebout. A search on "competition" finds lots of references to how well a unified Auckland could compete with other "global cities", but nothing on the loss of interdistrict competition. There's one mention at page 348 of how competition among vestigal local bodies post-Amalgamation ought be stifled. None of this fills me with confidence. Note, however, that I do not purport to have read through the Royal Commission Report in any great depth.

Update: Ilya Somin here talks about the importance of Tiebout competition among US States.