Economies of Scale: Why Consolidating Local Governments Makes Sense in a New Economic Era
by We’ve seen consolidations succeed in large municipal governments, such as Louisville and Indianapolis. Now, innovative leaders are asking why not do the same for smaller communities, saving money for taxpayers and making regions more competitive – and attractive – for businesses. Now, regions such as Western Michigan are moving toward cooperative procurement efforts through reverse auctions as a first step toward regional integration.
Introduction: Scale
Scale. For good – and for bad – it is one of the main buzzwords in business today. Yes, we’ve lived through an era of “Too Big to Fail,” and yet, for all the negative publicity on having larger and larger entities, corporate leaders are inextricably drawn to growth through what management guru Tom Peters once labeled as the “engineering mentality.” Across the economy, we see high-profile mergers and acquisitions, such as major airlines combining (United and Continental) to form even bigger air carriers.
Why? Much of the rationale begins and ends with this one word, as with scale, they can offer more services to customers, gain more efficiencies in operations, and experience savings though combining their purchasing powers. And it’s not just megamergers that are executed to provide scale, as we see it on the regional and local scale as well. Whether through an acquisition or through “survival of the fittest,” by losing a competitor, the survivor is made stronger and more powerful. Ask Best Buy execs if they are thrilled that their major national competitor (Circuit City) has fallen by the wayside (yes, only to emerge as a rebranded web-only operation that fills your inbox!)?
Scale in Local Governments?
So, if it works in the private sector, many are today asking the principle of scale can be applied to local government as well? We have models for regional consolidation already in the United States, led by major metropolitan areas such as Louisville, Kentucky and Indianapolis, Indiana (where the cities and counties combined into single governmental units). Now, smaller communities across the country – faced with challenging budgetary times and ever-increasing demands for services – are asking if such aggregation may be a viable option for them as well.
Western Michigan is today at the forefront of the battle over governmental consolidation. The Grand Rapids area is still a hub of corporate activity, serving as the corporate home for recognized brand-leaders, including American Seating, Amway, Haworth, Herman Miller, Meijer, and Steelcase. Yet, in Michigan, there is escalating concern over economic conditions, as the population – and the tax base – continues to decline and there is extreme concern over not just how to attract new business – and to retain what is there. So, governmental, community, and business leaders in the Grand Rapids area are today engaged in an intense debate over how to consolidate governmental operations – whether through formal consolidation efforts (on the order of Louisville and Indianapolis) and/or through greater intergovernmental cooperation. There are certainly not just political, but Michigan-specific constitutional and taxation concerns over the consolidation effort, that may preclude formal consolidation of municipal and country governments in the Grand Rapids Area. The issues and positions specific to the Grand Rapids area consolidation efforts were explored in a just-published article from The Grand Rapids Press as part of its series on “Rebooting Michigan,” which asks “Is it worth consolidating cities and townships to save taxpayer dollars?” (http://www.mlive.com/news/index.ssf/2010/05/is_it_worth_consolidating_citi.html).
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