Wednesday, April 1, 2015

Competitors to Public Entities

I think the natural inclination is to think that there are no competitors to a local government.  After all, no one is going to decide to start a competitor government to provide new police or sanitation services to residents of Pittsburgh.  The responsibilities of a government are public goods because there is not an economic rationalization for more than one entity to provide them.

But in using the competitor analysis framework provided, I realize there are several competitors, even if we do not call them as such.  For example, there are several hundred local governments in the Pittsburgh area, all providing various levels of public service.  Taxpayers have the ability to move to a different jurisdiction that better aligns the price they’re willing to pay in taxes with the level of service they want to receive. The same features hold true for corporations or large profit entities. It might be a prudent course of action for the City to actually attempt to score itself and its suburban counterparts using the rating and trajectory arrows to get a better sense of the popular perception of the competitors.

The other type of competitors for the City might be national and global competitors.  With changing work patterns, particularly among Millenials, Pittsburgh is not just competing with the suburbs for a limited regional pool of people, but is competing globally to attract and retain talented individuals.  As Claire Miller writes in the New York Times: “Even as Americans over all have become less likely to move, young, college-educated people continue to move at a high clip — about a million cross state lines each year, and these so-called young and the restless don’t tend to settle down until their mid-30s.” While people are staying in Pittsburgh more than they did during the “Brain Drain” era of the 1980s and 1990s, the City is still competing with the likes of Portland or Austin for talent.  

Using the Porter model, the “industry” of local government is relatively stable.  The threat of truly “new” entrants is rare, as new government entities are not often created.  The threat of substitutes to the industry is also rare, as private police forces and recycling services are still uncommon (substitutes for public schools, however, is a different and more dynamic force).  There are no real suppliers, so to speak, though labor costs such as pension payments and health care represents a pressing force on all municipalities.  Where the forces are most dynamic is in the arena of customer bargaining power, where taxpayers who say “we pay your salaries” get the final say in the process.  And as previously discussed, the industry itself is surprisingly robust and competitive, and taxpayers can “vote with their feet”.

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