RALEIGH – Government consolidation is one of those causes that sound promising – though, admittedly not scintillating – and yet must be pursued thoughtfully, with full knowledge of the likely costs and benefits.
In theory, consolidating programs or agencies devoted to similar functions, or entire governmental entities when they abut or overlap at the local level, should confer significant benefits. A consolidated agency may be easier for senior managers or elected bodies to oversee. It may better coordinate the delivery of services to taxpayers and clients. It may save the taxpayers some money by taking advantage of economies of scale, by spreading fixed costs over a larger number of citizens being served and increasing the quality of those services through bulk-buying and experience.
But also in theory, consolidating programs, agencies, or local governments should invite significant risks. The Tiebout hypothesis, for example, has been one of the most-studied issues in public administration and economics. The late economist Charles Tiebout offered the proposition that having more rather than fewer local governments in a particular area can result in a net improvement in outcomes by fostering competition and allowing citizens to “vote with their feet” – to move to jurisdictions that do a superior job of delivering services, or perhaps more accurately to move to jurisdictions that better reflect their own preferences. Spirited debate continues on this theory, first published in the 1950s.
Similarly, just as there are economies of scale, there are also diseconomies of scale. Organizations can get so large, with so many employees and so many clients seeking so many different kinds and quantities of service, that the results of consolidation are waste and mediocrity rather than efficiency and excellence. A related concept is the Coase theory of the firm, famously proposed by Nobel-winning economist Ronald Coase of the University of Chicago, which explores the “make or buy decision.” When does it make sense to buy and sell services external to the firm, on the open market? And when does it make sense to bring those services inside the firm? In the governmental context, the make or buy decision is not just about whether to privatize certain functions but also whether one government agency should buy or sell services to another – or the two should just be vertically integrated.
Finally, there is a series of issues in public choice economics that speak to government consolidation. Depending on the circumstances and interests involved, increasing the scope of government decisionmaking may either strengthen or weaken the ability of minority groups (not racial or ethnic, but numerical) to prevail over majorities in the enactment of public policies that advance their interests.
All this having been said, I am persuaded that some government consolidation is very much in the public interest. For example, my colleagues and I have long argued that North Carolina state government has too many separately elected offices, and permits redundancy in major state departments that wastes tax money, confuses the public, and reduces the quality of outcomes. On the other hand, I have also come to believe that many of North Carolina’s public-school districts have long since ascended the economy-of-scale curve and are now hurtling downward into diseconomies of scale as they attempt to manage dozens of schools and student populations of 50,000, 100,000, or more. Deconsolidation is called for here.
The issues are complex, with plenty of room for informed and respectful debate. That’s not to say informed and respectful debate is what we shall get.
Hood is president of the John Locke Foundation.