Friday, April 8, 2011

Senseless boundaries create senseless competition

A fascinating article in the Times today about interstate competition along borders. Long story short, states with major cities near their borders are offering economic incentives to entice companies to move from one side of the border to the other. The predictable result: a race to the bottom, with more and more public effort being expended to encourage "defectors," while less and less public revenue is collected from the companies in question (due to tax incentives being offered by both sides). Ultimately, one state wins and is slightly better off than before, but there's a net loss to the region as a whole.

Naturally, some blame the market:
John Vratil, a state senator who represents the Kansas side of the metro area, agreed that the efforts were a distraction but had a more fatalist attitude. 'It’s just an inherent aspect of the free market,' he said.
Vratil's point of view is sort of crazy. Yes, this anomaly is an aspect of the free market, in the sense that it relies on competition in the marketplace. But it pretty clearly demonstrates how markets work best in optimal arrangements and break down in suboptimal arrangements. It shows how markets can be structured and directed by underlying political divisions, and as a result, it shows the economic importance of creating political divisions that make some kind of sense.

The Times never comes out and says it, but this sort of thing happens precisely because the political divisions in the United States don't make sense. The country is chopped into arbitrary political units known as "states," which often represent a random and incoherent bundle of regional interests. These interests may or may not reflect actual sets of common interests held by people living in a particular place.

So while a policy that benefits a person living in Kansas City, Missouri will largely benefit a person in Kansas City, Kansas, there's no political system designed to find the optimal policies for these two people together. Instead, there are two political systems, one trying to help everyone several hundred miles west of the city and one trying to help everyone several hundred miles east of the city.

The solution is as clear as it is difficult to achieve: a political system in which cities and regions are the primary unit of local representation. A commonality of economic and social interests, not a common history, is the best criterion for political divisions. In practice, this means that metropolitan areas should be governed as a whole, not sliced and diced into several states and several dozen municipalities.

Of course, some level of interregional competition is inevitable, and to an extent, desirable. I'm not opposed to that at all. But competition should be between areas with appreciable differences -- areas with noticeable strengths and weaknesses relative to other areas. When segments of a single city push and pull against each other, when interchangeable regions sabotage each other, everybody loses.

No comments:

Post a Comment