Saving the City Through Private Activity

This issue focuses largely on the related topics of government efficiency and private-sector activity in areas traditionally ceded to government. Let us be honest: Government provision of services is often inefficient provision of services. As David Muhlhausen notes in his page 8 article on privatized juvenile-corrections facilities, Ronald Reagan’s Grace commission long ago found that inefficient bureaucracies are often rewarded more than efficient ones. Inasmuch as inefficiency requires excess budget and personnel, so inefficient bureaucracies are rewarded with, well, excess budget and personnel. This in turn can give an agency head greater heft in cabinet meetings. All told, the Grace Commission concluded that privatization and the elimination of federal bureaucratic waste could save taxpayers $400 billion over three years.

And so we turn to Baltimore City. With an annual budget of approximately $2.3 billion, we do not believe that Baltimore has too little money. This sum represents, after all, nearly $3,330 for each of the city’s 691,000 residents. However, nor do we believe that services can be cut to the bone in order to balance the books. Our contention is simply that Baltimore pays far too much for its services, the vast majority of which are provided by the city government itself. Garbage collection, education, street maintenance -all are furnished directly by the public sector. Most assuredly, this is not the cheapest way to provide such services.

The evacuation of middle-class Baltimoreans to calmer country beyond the city limits has been cataloged by this journal. With over 1,000 residents fleeing each month, the city simply must change course. It will not suffice to mutter darkly about middle-class “abandonment” of the inner city, the stock in trade of so many pundits. In Baltimore, as elsewhere, urbanites are not charity workers duty-bound eternally to endure high taxes coupled with soaring crime and poor schools. “You can’t build a city on pity,” says Milwaukee’s Democratic mayor, John Norquist. Yet this is exactly what so many big-city pols do all across the country. Reluctant to instigate true change, they alternately castigate the middle class for leaving and plead with it to acquiesce in new taxes.

Our thesis is simple. People may be willing to pay high taxes for extensive services; the nations of the European Union spring to mind in this respect. Alternatively, the Hong Kong example shows that they are likely to be content with few services as long as taxes are low. What they will not countenance is poor services in return for high taxes. This is how Baltimoreans currently perceive their situation. Ask the 40 or so folk who leave every day, forever.

For the sake of (relative) social tranquility, Baltimore must continue to provide a fairly extensive social-services network. At the same time, however, the city must ensure that it becomes considerably cheaper to reside in for the middle class. In the long run, a formidable tax cut of some description must be effected. The middle-class experience in Baltimore must become sufficiently inexpensive that the lure of the cheap life overcomes people’s abhorrence at the prospect of raising children in town. Only when families’ self-interest in financial gain overcomes their concern for physical safety and educational well-being will the human tide cease to ebb and the currents of human population once more flow toward Baltimore.

How to effect this dramatic turnabout without cutting services altogether? Fire the current service providers. Instead, put services out to competitive tender. If the city-employed garbage collectors competitively win the contract for refuse collection, fine; if not, so be it.

Detractors will always find an example or two of failed privatized ventures. The cancellation of the Tesseract contract will doubtless be used for years to come. Yet, Education Alternatives, Inc. was only ever accused of not meeting the high standards set for it. No one ever accused it of performing worse than the public schools, an absurd proposition. But EAI is gone, while North Avenue lives on. Why? Because you can fire a private firm more easily that you can fire a bureaucracy.

There is no secret to this. Indianapolis has saved $240 million by utilizing what Mayor Stephen Goldsmith calls the “yellow pages test.” If the provision of a particular service can be found in the yellow pages, then it becomes incumbent upon the public sector to justify its continued provision of said service. It is that simple.

Only when Baltimore finds a way to provide approximately its current level of services at a far lower price, with the difference rebated to city taxpayers, will the city’s turnaround begin. Baltimore should turn to its private sector. While it still has one.

Posted in: Markets and Privatization, News Series