Arnold Kling  

Unbundling Government

The Counterintuitive Explained... Robin Hanson and Curt Flood...

This week is Secession Week at Let a Thousand Nations Bloom. I have no problems with the S word, but I also use the economic expression "unbundling." For example, Ed Glaeser writes,

In a sense, the gulf between the political attitudes of New York City and Montana can be understood as a reflection of the fact that city dwellers need government a lot more than ranchers do.

That is the final sentence of an essay on the public health value of urban water treatment. I can appreciate that technocratic management of the water system in my area is a good thing. Overall, though, the government implementation of this technocratic solution comes bundled with teachers' union featherbedding and pensions, land use regulations that impose heavy costs and foster a lucrative market in political favor-trading, and exorbitantly expensive construction projects for buildings and roads.

What I would like to see is unbundling of government services. Those that could easily be provided privately would be separated from those that are most difficult to provide privately. If private water provision would be difficult to implement, fine. Private provision of schooling would not be so difficult to implement. By unbundling, we could move incrementally toward more competitive government.

Many people resent the way that cable TV companies bundle their packages of services. I have that same resentment over government bundling.

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CATEGORIES: Political Economy

COMMENTS (8 to date)
ChrisW writes:

Finally someone willing to make sense! I appreciate your thoughts and your use of the word "unbundling." Thanks, Arnold.

fmb writes:

I thought price discrimination explained everything, e.g. cable-company bundling. Does this mean your metaphor is broken (but your point whole), or is gov't bundling also driven by efficiency?

Maybe some people like parks a lot while others like libraries a lot and unbundling would lead to less of both.

fmb writes:

2 clarifications:

1. Yes, people resent cable TV bundling, but I believe that resentment is misplaced. It would be a welfare-destroying mistake to, e.g., legislate against cable TV bundling. Perhaps the ways that gov't bundle are partially driven (invisibly) by efficiency concerns and we could do subtle unintentional damage by unbundling badly.

2. I ultimately think that the flaw is in the metaphor, i.e. that cable TV bundling is not really similar to gov't bundling, and so tend to still agree with the main point.

quadrupole writes:

We actually have fairly good unbundling at the local level in Texas.

If some public good needs to be provided, an appropriate entity is set forth to provide it over a geographic region, given a limited power to levy property taxes to support their mission, and a mechanism of political governance.

For example, our ISDs (Independent School Districts) are completely independent of the city or county government (and typically don't even share the same geographic boundaries).

Local public hospitals? Funded as a hospital district, with separate governance and taxing authority.

Community college? It has it's own political/taxing entity, with it's own governance that comes back to the voters in it's district (which is actually way bigger than the ISD, city, county, or hospital district).

The only problem with these things are:
1) City's still do to much as a bundle (police, fire, parks, local utilities)
2) A lot of the districts hold their elections on non-standard days (ie, not in Nov) which encourages only the vested interests to vote.
3) We've been saddled with a statewide redistribution of school property taxes that robs some districts blind (some districts send as much as 70% of their taxes to the state) to subsidize other districts in the state with lower property valuations.

MernaMoose writes:

What I would like to see is unbundling of government services. Those that could easily be provided privately would be separated from those that are most difficult to provide privately.

This runs along the lines of a thought I once had. You've heard of the line-item veto. We establish a minimum baseline of government that everybody gets taxed for (as in libertarian kind of baseline, which I expect would not be easy to agree on). Then, you get to opt in/out of the rest of the "stuff" on your tax bill each year. Like funding grants to the arts etc.

But I think, there's really two different problems afoot here. The first is preventing leeches from attaching themselves to the public tax dole. The second, is trying to bring more competition into the provision of public services.

This has always impressed me as a basic flaw in libertarian economic theory, which by and large claims we're better off making roads etc privately owned. I'm not convinced.

The truth is more like, in modern civilization there are infrastructure segments that simply cannot function like free markets and we shouldn't treat them as if they could. In a four block square in NYC, you may have 25 restaurants competing for business. You will never have 25 different systems of streets competing to provide ways that may get to/from these restaurants. The capital cost and space requirements are prohibitive.

Catagorical private ownership of streets and roads doesn't really make sense, for reasons easily imagined. First, I've driven between NYC and Philadelphia (for example) enough times to know that paying tolls can add a lot of time to your transit. Having toll booths on every road around does not hit me as convenient by any rational measure.

Most often, in most locales, there will be only one street or road to get in and out on. Space limitations in cities will insure this, if nothing else does. Which means the road owner has a monopoly.

So you buy a house in a nice part of town and everything is fine. Until one day somebody new buys up the street system leading in and out of your neighborhood and decides to jack street use rates way up to help them pay off their investment sooner. What are you going to do about it? The owner has property rights and if you don't like what he's charging -- well, you could either try and buy the streets from him or else just stay home. Forever.

Electric power generation and distribution, water, sewer, streets and roads, etc, will in most circumstances need to be public "things". Because capital costs, if not space limitations, will leave no rational alternative.

Most if not all of the defense industry falls in a similar category, in terms of the competition problem. How many people do you know that have their very own aircraft carrier?

The segments of the economy that cannot function anywhere near free market conditions, should not be treated as if they could. But I like the idea of fostering competition in these areas, to the greatest possible extent.

High capital costs require government ownership? Does this mean Hollywood is a federal project? Does this mean chip fabs are run by a government agency? Does this mean Exxon is actually a government?

stuhlmann writes:

I disagree with what Ed Glaeser writes. I think a million ranchers need the government just as much as a million city dwellers do. The only difference is that those ranchers are spread out over several states.

floccina writes:

I think that Mike Munger said that governments should provide better waste disposal and management. They can then leave water provision to private players.

Also I think of cisterns whenever the discussion of non-agricultural water comes up. In most places there is plenty of rain water and it is clean enough that cisterns could be sufficient.

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