Saturday, May 8, 2010

SimCity Politics -- A Thought Experiment

One of the most curious things to me in politics is how governments so often act against the best interest of the citizens they represent. Whether you look at the outrageous deficit of our federal government, the devastating budget crises of states like California, or the anti-job growth policies of small counties like the one I grew up (at least during my junior high and high school years), it always seems that politics come before the benefit of citizens. Why is that?

A thought occurred to me while playing one of my favorite games of all time, SimCity. In that game, you get to be mayor--which really means dictator. You get to set tax rates, allocate funding for various government services ranging from education to health care, build infrastructure, establish city ordinances, and so on. Moreover, all of your decisions go into effect immediately.

Does all that power go to your head? I imagine some players find pleasure in doing nothing but send disasters upon their poor city. But any player who actually wants to see his city grow has to deal with the fact that absolute control over the city does not in any way mean you have absolute control over the two things that matter: cash flow and population growth.

Why is that? The answer is quite simple. Sims (i.e. simulated people) are totally free to move in and out of your city, depending on how desirable you have made it. If you choose not to fund education, for instance, you will never be able to get high-wealth commerce or industry, and thus you will not be able to attract wealthy residents. If you choose to give industry a tax hike, you will prevent jobs from coming in, thereby decreasing growth and thus diminishing cash flow (even though you meant to increase cash flow). On the other hand, if you're too generous, you will lose money even though you are growing in population. Over-funded schools, hospitals, police stations, etc. are going to suck up funds unnecessarily. It might sound nice to give all these services unlimited funds, but if you're losing money, ultimately you can't sustain city growth. So while you are free to run the city however you'd like, you have to run things carefully if you want to optimize growth and cash flow.

The following might sound like a radical proposal, but let's just consider it a thought experiment. What if we had private-owned cities, like those in SimCity? The owners of a city could make all the decisions about infrastructure, government services, and even laws (as long as they cohered with federal and state law). All decisions made by those owners could go into effect immediately, without the political red tape that typically stalls so many important decisions.

What would be the incentive for people to own private cities? Profit, of course, just like in SimCity. I'm positive that privately owned cities would be able to balance their budgets far more often than most government entities do now--their profits would depend on it. Moreover, private owners would probably be more likely to have policies that encouraged city growth, since growth is a natural way to increase profit. In short, private owners could make a far more efficient use of a city's resources than democratically elected governments.

What would be the incentive for people to live in private cities? Better opportunities for higher standards of living. I understand there is something inherently more attractive to us Americans about living in a city where we elect our own representatives. However, I can name two good practical reasons why this is unnecessary. First of all, by choosing to live in a city, you are effectively casting a vote for that city. Freedom does not require the ability to cast a ballot; it simply requires the ability to influence others based on your behavior. Since private owners of cities would have to respond to public demands in order to maximize profits, they would probably end up behaving more "democratically" than elected officials do currently.

A second and somewhat related reason comes to mind why people shouldn't recoil at the thought of living in a privately owned city. I'll simply ask a question: Can you even name all of your city officials? Come to think of it, I don't even know who the mayor of Charlottesville is. (Okay, maybe I'll go look it up now, just for the sake of civic responsibility.) The fact is, people move around so much in our country that it's easy to completely forget that local government matters.

But what does matter to you when you move to a new city? Not who is running it, but how it's being run--whether there's economic growth, whether there are opportunities for good education and health care, whether it's safe, and so on. If that's what matters in the end, wouldn't you be just as happy living in a city run efficiently by private ownership as living in a city with a democratic government? Wouldn't you possibly be happier? I mean, seriously, aren't local politics the most corrupt, anyway?

So why do I think privately owned cities would be more effectively run than democratic ones? In other words, why do I think that democratically elected governments tend to run cities (and states, and countries) less effectively than they should? I'll give you a theoretical answer.

Politics is a competition for a fixed number of positions, and competing for one of those positions is a "winner-take-all" game. Politicians, like businessmen, seek to maximize profit. However, unlike businessmen, the "currency" that democratically elected politicians compete for is votes. All it takes for a politician to secure his position is secure a plurality of votes, and there is a fixed quantity of votes (unless you're cheating). This is inefficient, because it leads to politicians doing just enough to secure votes, and not enough to run government as effectively as possible.

To make matters worse, politicians are capable of getting away with policies that are downright detrimental to the lives of their citizens. Even their own supporters might be hurt by their policies; but because human emotions and lofty rhetoric can cloud our better judgment, we often vote for people not on the basis of politicians providing a superior product, but on political loyalty. It gets even more complicated than that, since sometimes when we think something is in our best interest, it really isn't because of unintended consequences. For instance, some people might be inclined to vote politicians who will increase social welfare programs, not realizing that those programs may inhibit economic growth, thus contributing a negative net gain even for the poor.

Privately owned cities wouldn't have to deal directly with politics per se. Rather, the only votes they would be dealing with are the choices people make about where to live, and how much they're willing to pay in taxes in order to reap the benefits of better opportunities. Because the city's goal would be to maximize profit, they would find ways to act most efficiently. Thus they could sidestep political rhetoric about why this or that program is needed. Only those programs that actually brought about a good outcome would be funded.

In order for this idea to work, however, there is need of high mobility. The only way the SimCity model makes any sense is if people can move in and out just as fast as a computer can change numbers in a game. That's obviously not strictly realistic (although I think SimCity isn't too unreasonable in its calculations). However, given how much more mobile we are already becoming, I can conceive of a culture in which this kind of market of privatized cities could actually make sense.

I understand that there is a downside, in that loyalty to a particular place would not make as much sense as it once did. On the other hand, given how effective customer loyalty can be in the free market, why couldn't the same thing hold for cities? Effective mayors would gain a loyal following (just as they probably already do) based entirely on the product they offer. And there's no reason why the private owner of a city couldn't be a nice guy. Power corrupts, but as long as there is competition among those with power, the powerful are reminded that they must serve others in order to retain power. That's the beauty of the free market.

Again, we'll classify this as just a thought experiment, but I don't think it's so far-fetched as to be totally useless. No matter what, we need to continue to think about this question of why governments tend to be ineffective, and how to make them more effective.

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