Company Towns: Single-Industry Dominance and Local Government Capacity
Company Towns: Single-Industry Dominance and Local Government Capacity (DOI: https://doi.org/10.1017/S0007123425101178) was written by Elizabeth Mitchell Elder in 2025. It was published in the British Journal of Political Science (vol. 55).
Localities that were established around a single dominant industry or economic interest are expected to have underfunded and underdeveloped governance, as the dominant company captured the local state.
These localities are common in the U.S. because Industrial Revolution-era companies were able to establish themselves in uninhabited or unincorporated regions, where there was effectively zero preexisting state. Eastern states also generally had laissez-faire economic policies.
The author focuses on 'coal country', where in many ways companies wanted to supplant government. They wanted low tax rates (since they were largely the only taxpayer), low investment into public infrastructure (to enable unimpeded private investment; the loss in ownership was not worth the minor contribution of other taxpayers), and low investment into human capital (since this could raise local wages). Motivating this is the fact that a mine owner cannot relocate away from coal deposits; their business strategy necessarily revolves around controlling their sociopolitical context. This creates a 'resource curse' for localities with ample deposits of coal.
In sum, evidence of this capture includes:
- establishment in unincorporated regions
- influence over property assessments
- construction of infrastructure, esp. roads, schools, fire stations, and jails
- company owners running for election
- company lawyers serving as lobbyists
- vote buying
These forms of capture are expected to have lasting impacts, as the local government is systemically underfunded and underdeveloped. "In some of the treated counties, the coal industry did not survive long after the downturn of the 1920s, and in most, coal employment accounted for less than 10 per cent of the labor force by the 1980s. However, I consider treatment status here to be irreversible..."
The author tests this using difference in differences methods on local government employment, revenue, and spending.
county-level census data from Illinois, Indiana, Kentucky, Ohio, Pennsylvania, and West Virginia; 1850-1940
- "power of coal, relative to the area’s other industries" is measured by rate of "number of people employed in the coal mining industry by the total number of non-farm, non-domestic laborers in the county"
- size of government is measured by "number of people in each county whose industry of employment is classified as 'local government administration'"
- data from the Census of Governments, summed to the county level; 1880-1932 and again 1957-2002
- "property tax revenue, expenditures, and employment of local governments"
- a county is considered treated if (at any point in 1850-1940) 5% or more of the labor force worked in the coal industry
- 22 treated, 280 untreated
- This analysis finds a trend, but it is not statistically different from zero.
The author then tests the relationship using instrumental variables methods. Regress local government outcomes on coal employment, for the range of 1880-1940.
- Effects are negative and statistically significant.
IV estimates as compared to OLS estimates are not very different, although with lower precision. "This suggests there is little bias in naive estimates of the relationship between the coal industry and local government introduced by, for example, industry selection into areas with larger or smaller governments."
Reading Notes
The author brings up police forces several times. The idea being that an underfunded force could not oppose a mining company. But I think this falls nearly into the bucket of public infrastructure, wherein the company prefers to maintain ownership over a good (i.e., security) rather than partially finance the good from other taxpayers. It kind of feels like a buzz word here.