Friday, 5 November 2021

Why is local government so bad?

Councils are currently under attack here in at least two areas: their performance in delivering water, and their non-performance in allowing the delivery of housing.  There's still argument about their delivery of the former (and long may that argument continue), but their performance in the area of housing could only with great generosity be even called "dysfunctional." (A better term might be "disastrous.")

This non-performance is not unique to Enzed. Nor to the particular jobs they're asked to do. It's worldwide, and universal -- which poses the question: how come local government everywhere is always so dysfunctional? Bryan Caplan argues that the answer is structural:
First, as I’ve argued before, non-profit competition is weaker than for-profit competition, even if the number of competitors is vast. Why? Because no one is trying very hard to win. As I’ve explained before:
Tiebout implicitly assumes that non-profit competition works the same way as for-profit competition. It doesn’t. If a business owner figures out how to produce the same good at a lower cost, he pockets all of the savings. If the CEO of a publicly-held corporation figures out how to produce the same good at a lower cost, he pockets a lot of the savings. But if the mayor of a city figures out how to deliver the same government services for lower taxes, he pockets none of the savings. That’s how non-profits “work.”
With non-profit incentives, neither the number of local governments nor the ease of exit lead to anything resembling perfectly competitive results. The “competitors” simply have little incentive to do a good job, so they all tend to perform poorly.

Second, voters are deeply irrational, even at the local level. Most people [for example] childishly refuse to grant that allowing more construction will reliably make housing more affordable.

Yes, you can point to my book Myth of the Rational Voter and object, “How can voters be so irrational even though the expected cost of voter irrationality is especially high at the local level?” Reply: Even at the local level, the probability of voter decisiveness is so low that the expected cost of voter irrationality is approximately zero. If you have more than a hundred voters, “Your vote doesn’t count” is basically correct.

To reiterate, I am not arguing that local governments have two little blind spots. I am arguing that local governments have two main jobs – and they’re awful at both.



  1. Local government attracts generally less capable people than central government, but it also is embraced by the left and right equally for different reasons. The left sees it as a way to accumulate "democratic control" of as much as possible, the right to be "conservative" to change as little as possible, except where it suits the interests of those involved. Margaret Thatcher loathed local government, but had one helluva fight against Conservatives that saw it as a way of exercising control and keeping it off of Labour - she just wanted that level of control gone. That is one reason why she privatised water and deregulated buses, and of course abolished the Greater London Authority (reinstated by Blair in another form). The basic question : Why does anyone need local government, is never asked.

  2. There are only some councils that can't manage their water. Not all of them. Taupo seems to do a reasonable job and they have subdivisions opened up with more land zoned to build on.

  3. In the area of 3 waters it's not bad. In fact most Council's in my experience do an acceptable or even good job in this area. These functions are generally run by grounded logical engineers rather than planners.

    The water, sewer and stormwater schemes generally operate on a user-pays principle, where ratepayers get to see the direct cost of what they are using in their specific area. This generally leads to a reasonable balance between quality of service and cost of providing it. When put into the hands of central government, that cost accountability and ability to adapt to the specifics of a particular region will undoubtedly decrease, and that will be a bad thing.

    A good example is that Christchurch currently enjoys one of the best drinking water supplies in the world, due it's ability to tap into aquifers below the city providing water that originated in the Southern Alps and has been filtered through gravels for ~100 years before reaching us. It's equal to if not better than most bottled 'spring' water that people pay for. Despite that, and due to health problems in other regions, Christchurch will likely be forced into chlorination that will ruin the taste of the water, just so that it can adopt national standard bureaucratic standards and an overly risk-averse position.

    Government intervention forcing Council's to adopt higher densities in building development is a beneficial thing in this sphere, but it's not in 3 waters. Even in housing, it's not primarily Council that are the problem, but a raft of regulatory requirements (particularly the RMA) that motivate Council employees to adopt the 'precautionary principle' that biases them towards saying no a new development rather than yes. In a lot of cases the better Council employees actually would like to enable development, but they are limited from doing do by the fear of objection from existing property owners, who have their piece of paradise but don't want anyone new to come in and change things - and are quite happy to accept the status quo and enjoy the increased value of their property caused by supply shortages.


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