City and State, Inc.

A gardener will tell you that pruning a plant—cutting off the parts which are dead or dying—allows the plant to send water and nutrients to where they’ll do some good. In a rough economy, companies do the same… closing plants or eliminating product lines or services which might be unprofitable. Now, even some cities seem to be turning to this “right-sizing” strategy as a means of survival. A recent story in the New York Times explored the municipal pruning of cities like Flint, Michigan. According to the story, city leaders have simply begun to accept that they have finite resources for things like maintenance, fire, and police protection. And they are figuring out how to allocate those resources where they stand to do the most good. [Note: I know little of Flint, and neither agree or disagree with their strategy.]

Not lost on me as I read this story is that any neighborhood being razed will certainly have a collection of families for whom generations of memories will represent a strong opposing force. Nobody wants to be the branch that is cut from the tree. Just as no employee wants their plant to be the one that is shut, and no customer wants their favorite product to be the one that is no longer produced… nobody wants theirs to be the neighborhood that is abandoned by their town.

Implications: Where do I start!? First of all, watch for churn. If a resident feels abandoned by their city, watch for that resident to abandon their town. This trend could result in some inter-city migration, in addition to the intra-city migration the planners are hoping for. (Perhaps the policy will even lead to many interstate moves.)

But this story got me thinking in another direction, too. Cities and states are, in many ways, businesses.

It seems like every so often, companies launch a push to “diversify,” moving into adjacent categories or expanding into new businesses, in the name of gaining market share or broadening the revenue base. Maybe a few years or a few decades later, it seems like those same companies reverse course toward “consolidation” (also known as “right-sizing” or “returning to their core competence”).

City, state and federal governments often seem to operate by a similar pendulum. Adding services and initiatives when times are robust, and cutting them when revenues fall.
Recently, my wife and I sold our city home. We have been living in a second-ring suburb that could be described as pretty typical, here in Minnesota. As soon-to-be empty-nesters, we are “right-sizing” our dwelling… and the home we have made an offer on is part of a neighborhood association. In other words, we’re opting-in to a fee-for-services relationship. In addition to paying fees in the form of taxes to a city, we’ll pay a monthly fee to a corporation. In exchange, we expect amenities and maintenance that are a little better than the development or suburb next door.

When so many cities and states are cutting services, will the door be opened for more amenities, maintenance and services to be handled by the private sector? Shopping malls already hire private security firms to compliment police protection, for example. Many families hire distributors to deliver bottled water as an alternative to the tap. Charter schools are launched in spite of readily-available public education. What other products or services might “go private” as government services are cut?

After all, if city and state governments turn to fees for service as a means of raising revenue (an attempt to make up for shrinking sales tax, income tax and property tax income), why should the consumer (tax payer) not accept bids from other vendors? A recession is a time of churn. Customers grow disenchanted with providers (both public and private), creating opportunity for vendors who can step in and deliver the benefit that consumer seeks.