4 Reasons Why Residents May Always Be Under-Represented

March 2014
By Andy Frazer

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In our report 6 Reasons Why It Is Urgent That Residents Be Informed, we explained that Sunnyvale will undergo some huge changes in the next decade. Unfortunately, the residents’ needs will often be under-represented in the policy-making arena for two reasons.

First, the process of providing policy making information puts the residents at a disadvantage because of the huge volume of information, as well as short five-day interval between the date the information is posted, and the meeting date of the officiating body (this refers to either the City Council, or the appropriate city commission).

Second, residents face an unlevel playing field due to a phenomenon known as “concentrated benefits and dispersed costs”. We’ll discuss this phenomenon at the end of this report.

#1 Residents Are Only One Of Five Major Stakeholders In The City

Most cities, such as Sunnyvale, have five major stakeholders:

● City employees
● Developers who build in the city
● Employers and investors who operate businesses in the city
● Employees, volunteers and students who work in the city
●  Residents

We like to believe the city operates primarily for the benefit of the residents. Unfortunately, the residents’ needs are often over-shadowed by the needs of special interests such the city’s labor unions and the developers who want to develop the city..

This is not because these special interests have any sort of evil plan. It is due to a well-studied phenomenon called Concentrated Benefits and Distributed Costs.

#2 “Concentrated Benefits and Dispersed Costs”Work Against The Residents

This theory states the interests of a concentrated minority will be over-represented, while the interests of a diffused majority will be diffused and under-represented.

For example, in a city such as Sunnyvale, a small number of developers and labor unions stand to make a very large financial gain from big development projects and favorable labor contracts, while the impact of these projects and contracts is dispersed among a large number of residents.

City employees are represented by labor unions who collectively negotiate with the city for labor contracts. During the City Council elections, labor unions actively support candidates through endorsements, campaign volunteers and financial donations. 

Developers don’t usually offer the candidates endorsements or campaign volunteers. Instead, developers can invest huge sums of money to promote candidates who they believe will support large office buildings, and high-density housing.

However, the impact of these changes is dispersed across tens of thousands of residents, Each resident cannot justify either large financial donations or large amounts of volunteer time to support candidates who may support the residents’ needs.

This imbalance is known as the phenomenon of “concentrated benefits and dispersed costs”.

#3 Each Developer May Reap Large Benefits Which Are Absorbed Across A Large Number Of Residents

Suppose one developer may profit millions of dollars from the City Council approving a new project. The financial cost to the residents is usually zero, because the developer pays for the permitting and construction costs. But the impacts of this project (e.g, traffic congestion, construction noise, and demand for new housing and school capacity) is spread across hundreds of residents, each of whom shoulders a smaller burden of the costs. It’s very common during an election year to hear many residents complain about too much about high-density development. 

The developer will be willing to make a huge investment in a new project, including working with city staff and contacting elected officials. But very few residents can justify the commitment to appear at the bi-weekly Council or Planning Commission meetings to study or understand new development projects.

#4 Labor Unions Operate With A Similar Advantage

Suppose the City Council considers awarding the labor unions a raise that totals $850,000 dollars. Each full-time employee would receive an average raise of $1,000. But the cost to each resident would only be about $6. In this case, each employee would be motivated to campaign for the Council to approve this raise. But most residents, would not bother to even think about this agenda item. In fact, most residents would never be aware of this agenda item.

Obviously, employees deserve a competitive compensation package. And, an annual raise of $1,000 per employee is not unreasonable. But the compounded cost of a difference of 1% or 2% per year can make the difference between a balanced budget and a structural deficit.

While the concentrated benefits of these decisions are recognized almost immediately, the impact of the dispersed costs may not be felt for many years into the future. The developer may profit as soon as he finds a tenant for the new building. The labor unions receive their benefit as soon as the salary increase appears in their pay check. But the dispersed costs, such as postponed repairs to roads, sidewalks, sewage pipes or the main library, may not impact the residents for years, or even decades, into the future.

This doesn’t mean that all concentrated benefits and dispersed costs are a bad idea. Obviously, a large number of residents are expected to share the dispersed costs of the city employees’ salaries and benefits. But during the decision-making process, the concentrated interests of the minority will be over-represented, and the payer of the costs (usually the residents) will be under-represented, partly of their own choice.

In a city such as Sunnyvale, the end result is the residents are usually unaware of most Council decisions, even though they will carry the burden of the costs over the long-term.

Further Reading

Concentrated benefits and dispersed costs are not specific to Sunnyvale, or any other city. They explain why politicians at the city, county, state and federal (and international) level are continually committing tax dollars to endless projects, but never seem to cut spending. It also applies to school districts, public universities special districts, and most transportation agencies.

There has been a lot of research and many publications related to this concept. 

● Economics professor Ben Powell has created a great animated video that explains how voters are rationally ignorant of what politicians do because of concentrated benefits and dispersed costs. 

● For a summary of the history of the concept, see Michael Giberson’s study of why special interest lobbying succeeds due to the logic of concentrated benefits and dispersed costs. 

●  In 1965 Mancur Olson, Jr. published The Logic of Collective Action: Public Goods and the Theory of Groups. Olson was one of the first academics to develop the political and economic theory of concentrated benefits versus diffuse costs. His central argument is that concentrated minor interests will be over-represented and diffuse majority interests trumped, due to a free-rider problem that is stronger when a group becomes larger. Olson challenged two accepted wisdoms of the 1960’s. First, it challenged the wisdom that if everyone in a group (of any size) has interests in common, they will act collectively to achieve them. Second, it challenged the belief that, in a democracy, the majority eventually will tyrannize and exploit the minority. Instead, the book argues that individuals in a focused, minority group attempting collective action will have incentives to "free ride" on the efforts of others if the group is working to provide public goods. See the Wikipedia article.