Phillip Longman makes an extraordinarily important argument in an Atlantic article entitled “Why the Economic Fates of America’s Cities Diverged” (although I would be very curious what economic historians and other relevant experts think about it). Here is my restatement:
- When businesses are mostly local, local governments can regulate them. Citizens can also influence them directly by applying social pressure.
- When citizens have the experience of influencing economic institutions directly or through representative local governments, they feel empowered and want to act at the state and national levels as well.
- Between 1788 and about 1970, federal and state governments and courts instituted a remarkable series of policies explicitly designed to favor local firms. An economic outcome of these policies was a strong convergence of income and prices across the US, as each community captured a lot of its own wealth. Firms were also accountable to local governments, and business owners were highly active in local civic affairs.
- Since 1970s, all branches of government have removed those policies. Income and prices have diverged dramatically. Wealth has flowed to the big coastal cities.
- Local and state governments have become less capable of regulating businesses. Firms also receive less social pressure because they tend to locate in culturally friendly cities and do their business nationally. Big business leaders are uninvolved in local civic life but increasingly focused on Washington.
- The resulting disempowerment leads to behavior like this (from the lead of a recent New York Times article):
Carolyn Bouchard, a diabetic with a slowly healing shoulder fracture, hurried to see her doctor after Matt Bevin was elected governor here this month. Ms. Bouchard, 60, said she was sick of politics and had not bothered voting. But she knew enough about Mr. Bevin, a conservative Republican who rails against the Affordable Care Act, to be nervous about the coverage she gained under the law last year.
“I thought, ‘Before my insurance changes, I’d better go in,’ ” she said as she waited at Family Health Centers, a community clinic here.
Longman summarizes policies enacted to increase local control over business until 1970s–and their repeal since then. Consider, for example, the US Postal Service monopoly (which guaranteed equal prices and service for all addresses), heavy regulation of railroad, telegraph, and television companies, the Clayton Antitrust Act, the Robinson-Patman Act (against chain retail stores), the Miller-Tydings Act (against retail discounting), the Celler-Kefauver Act (antitrust provisions), Brown Shoe Co., Inc. v. United States (blocking a retail merger), and FCC regulations that mandated airline service to smaller markets and equal ticket prices per mile.
These were all policies that restrained national business competition but allowed geographical communities to compete against the big cities of the coasts. Once these rules were gone, capital became more mobile and consumers probably got the benefits of lower prices–but it became impossible to govern at the local level, and citizens were taught to be “sick of politics” because the politicians who were closest to them could no longer achieve much on their behalf.