Cities as hotels

by on September 12, 2011 at 7:31 am in Current Affairs, Economics, Political Science | Permalink

Earlier this year I posted about India’s private city, Gurgaon. Gurgaon has grown from nothing to a city of 1.5 million people in just 30 years and it has done so based almost entirely on the private provision of public goods, including transportation, utilities, and security. Gurgaon is a desirable place to live in India but it has grown haphazardly as a city of private oases, rather than as an integrated city. As a result, Gurgaon has not enjoyed all the benefits of economies of scale in infrastructure provision or the benefits that come from internalizing externalities–the types of benefits that are possible with a single owner or integrated political system. As Matt Yglesias explained at the time:

Imagine if someone owned all of San Francisco and leased the land and structures out. Well obviously he’d want to have some kind of fire department and building standards to protect his investment. And he’d want to have a security force, since crime would reduce the value of the rent. And he’d want there to be some parks, because people like parks and their presence will increase the rent he can charge. (Indeed, my building includes a small private park). And obviously he’d need schools and really all the rest. …But in order to internalize the benefits of privately provided infrastructure, parks, public safety, etc. the scale of the enterprise would have to be really big. Like the size of a whole city.

Gurgaon, however, is not unique. Private cities are growing throughout the developing world and some of them are quite large.

Renaissance Partners, the investment unit of Moscow-based Renaissance Group, plans to build a 6,400- acre city in the Democratic Republic of Congo as it seeks to benefit from Africa’s urbanization.

The Russian firm is working on a master plan for the new urban center after securing the land outside Lubumbashi, the country’s second-largest city… Renaissance is considering similar projects in GhanaNigeriaSenegal and Rwanda, he said.

“The West has peaked in terms of economic growth and the new markets are in Africa,” Meyer, 39, said. “And the main drivers of this growth in Africa are going to be cities.”

Renaissance’s Lubumbashi project will be more than double the size of Tatu City, the $5 billion center that the Russian firm is building from scratch outside the Kenyan capital of Nairobi. The Moscow firm, headed by Stephen Jennings, plans to take advantage of Africa’s economic growth and emergence of a growing urban middle class demanding better infrastructure.

6,400 acres is a small city, about the size of Apple’s home of Cupertino CA (pop: 58,000), but it is big enough that Renaissance partners will have an incentive to build public goods such as city-wide sewage, parks, roads (congestion pricing!), an electric plant and grid and so forth, exactly as Matt argued (see also The Voluntary City).

Private cities are happening now for a reason. Africa, India, and China are urbanizing more rapidly than has ever occurred in human history. In Africa, the number of urban dwellers is projected to increase by nearly 400 million, in India at least 250 million will move to cities and in China more than 400 million will move to cities in just the next 20 years. Not all of these people will move to older cities, which are not always in the right places and which rarely possess anything like the right material let alone the right political infrastructure. The rising middle-class want to live in first-world cities and in many of these countries only the private sector can deliver those cities.

The rapid urbanization of the developing world is an opportunity to remake cities anew. Private cities as hotels on a grand scale.

Eurobubba September 12, 2011 at 7:41 am

If the trend continues, where does it leave the idea of democratic governance? Will inhabitants of those cities ever have a chance to vote (or run!) for city council, or will their only options be voting with their pocketbooks or their feet?

S. O. September 12, 2011 at 7:54 am

The will be a supply of democracy if there’s a demand for it.

Adrian Ratnapala September 12, 2011 at 2:54 pm

The supply would come from the higher levels of government.

I suspect in most of the modern world, local government is te most corrupt and incompetent, mostly because the voters’ attention is focused mostly on higher levels. So if electoral discipline doesn’t work well, maybe market discipline will. This depends on citizens being able to vote with their feet. I don’t know how mobile people really are, but they are a hell of a lot more mobile than in the long-ago-millenia when we first decided that city services needed governemnent.

John Thacker September 12, 2011 at 8:00 am

Many private cities have democratic governance. Here’s one example.

Tracy W September 12, 2011 at 9:12 am

The set up for public companies is typically a CEO, responsible for day-to-day business, with a board of directors who ideally keep an eye on the CEO, and are in turn elected by shareholders. The purpose of this form of democracy is to provide some reassurance to shareholders, who have their money typically tied up in the company, that the CEO will use their money roughly for their intended purposes.
Of course, this model often doesn’t work perfectly in terms of protecting shareholder interests, but then with governmental democracies, it’s fairly obvious that they often don’t work perfectly in terms of protecting shareholder interests. The reason why people keep using democratic institutions is,as Churchill said: “democracy is the worst form of government except all those other forms that have been tried from time to time”.

TGGP September 12, 2011 at 9:52 am

Karl Smith says such corporations still have the huge moral hazard problem of “other people’s money”. A phrase he sometimes likes to use is “burning the corporate commons”.

Veridical Driver September 12, 2011 at 10:33 am

How is this different than the public sector, though?

EDG reppin' LBC September 12, 2011 at 12:45 pm

It’s different than government in that you can opt out, i.e. take your money and leave. Try doing that with a government and see what happens. Ask Wesley Snipes how that worked out for him.

Tracy W September 12, 2011 at 10:55 am

The same problem applies to governments (dictatorships typically even more so than democracies, but democracies are not free of it). It’s also called the principal-agent problem (or possibly, the moral hazard problem is a subset of the principal-agent problem, I guess it depends on how precisely you define both.)

Andrew' September 12, 2011 at 11:12 am

But I have owned not a single share in any of the companies Karl Smith cites, aside from index fund participation. Some of the companies were just bad businesses in that the payoff simply could not follow the investment phase. Airlines is the best cliche’ for this, as Warren Buffett likes to say that a true activist investor advocate wanting to do some real good would have shot Wilbur and Orville out of the sky that day at Kitty Hawk. That is to say, fantastic managements will still fail to pay investors in bad businesses.

He makes a good point that there can be similarities between corporations and Ponzi schemes, and it is one value investor types take to heart. He even uses value investor type language (e.g. ‘paid to shareholders). But similarity is not equivalence. Warren Buffett proudly touts his non-dividend payment, and by appearances it is hard to argue with. Likewise, I’m not sure that Steve Jobs lavishing his workers is not good for investors.

To Tracy W’s point, we don’t have governance because they are all a bunch of good guys, but because they are very likely mostly bad guys and things could be a lot worse. That’s not to say that governance is good just because it is the way it is. But a new form crafted largely by the bad guys may not be an improvement.

Tracy W September 12, 2011 at 2:26 pm

Andrew, are we not some of the bad guys, ourselves?

Adrian Ratnapala September 12, 2011 at 3:01 pm

What does this have to do with cities?

Suppose a private company runs a city has excellent corporate governance and serves the shareholders well. That doesn’t mean they serve the resident-customers well. Maybe the best business model for a city is a rent-extracting tyrrany. Is suspect it is isn’t – but the question has nothing to do with corporate governence.

P.S. this response assumes your post was in defense of private cities – if you were on the other side of the debate – saying that existing civic democracy is good enough, then the above doesn’t apply (see my other response to S.O. above).

Veridical Driver September 12, 2011 at 10:33 am

When I lived in a massive high-rise condo complex (which included stores, homes, parks, etc.) which was essentially a private mini-city, our condo association was far more democratic than the local city government (which was essentially run by a cabal of city workers unions and had zero option for participation).

Adrian Ratnapala September 12, 2011 at 3:03 pm

Can you elaborate? What were the mechanisms and trappings of the democracy.

Do you mean that the residence had a kind of council which operated democratically, if informally? That’s really good for your building, but I doubt it would work for a big city. Or do you mean that the residents were able get what they wanted from the building owners using some kind of market power?

Veridical Driver September 12, 2011 at 4:19 pm

We had a formal elected board of home owners, that negotiated 2 year contracts to management company.

John Thacker September 12, 2011 at 8:03 am

Alex, there’s a private city much closer to you– Columbia, MD. It runs parks and all sorts of things, and the Columbia Association has a first lien on all the houses and charges a tax-like fee on the state assessed value of the home. There’s about 100,000 people. Howard County does run the schools, though.

One thing that restrains private cities in the US like Columbia is that the Columbia Assessment, while exactly like a property tax in assessment and charge, cannot be deducted from federal taxes like a real city tax.

Andrew' September 12, 2011 at 8:18 am

Do I believe Matt that it’s hard because of the likes of parks, the likes of which I’ve constructed in my property, or because of things like The Feds and others artificially making it hard? We couldn’t have chool buses or police patrol come into our neighborhood for a while (interesting considering at least 3 cops live their and drive their patrol cars home) because the builder didn’t make the roads right so the city wouldn’t annex the roads. Their suggestion was to create a neighborhood-association-like entity that could assess a tax for the road mods. I’ll stick with my busy body theory.

Nicoli September 12, 2011 at 8:22 am

How hard is it to get a mortgage then? I would think lenders would balk at providing a mortgage if someone else has first lien status…

John Thacker September 12, 2011 at 8:50 am

It’s not hard to get a mortgage. The lenders simply end up requiring that the escrow account include money for the Columbia Assessment each year along with the Howard County property tax.

Rahul September 12, 2011 at 9:17 am

How does the “first lien” stats make this different from other American cities? Say, if I did not pay the tax assessment in Boulder, CO the city would still eventually possess and auction off my house right?

John Thacker September 12, 2011 at 12:34 pm

Rahul– exactly.

The difference is that the lien is possessed by a private city instead of a public municipality. It’s a way in which the private city of Columbia, MD is like a public city. The difference is that you can’t deduct it federally.

Bill September 12, 2011 at 9:51 am

The state of Maryland sets out what minimum services cities have to offer. I am sure this applies to private cities as well.

What this does raise, however, is the issue of Voice–do the residents have voice in governance. I bet they do. John, let us know if they do; and if they do, then Columbia is really nothing more than a condo association.

No one likes a dictator, benevolent, corporate or not.

Exit, Voice, and Loyalty–If you give me voice, I am loyal; if I have no voice, I am not loyal, and I exit.

Andrew' September 12, 2011 at 10:23 am

The state of Maryland sets out what minimum services cities have to offer
What this does raise, however, is the issue of Voice–do the residents have voice in governance.

John Thacker September 12, 2011 at 12:37 pm

Residents do elect representatives and a board. It is “nothing more than a [really big] condo association” in some sense, but a really big one. However, then again cities are “nothing more than [really big] condo associations” as well.

Columbia has some unusual legal structure that makes it a little closer to a city in power than most condo associations, but these things are a continuum.

Lenny Elbon September 13, 2011 at 6:01 am

Hi Mr. John Thacker,

I dropped into your comment though Ace of Spades site. Very interesting comment indeed if I may say so. I am an old American working in China as a consultant, which explains my early/late reply.

Yes Columbia was a planned city. It was ambitious and prestigious. I was an old Baltimore county youth back in the day at the time. However after Columbia refused that old sixties band “The Grateful Dead” any venue there (unfortunate incidents of deadheads, other than me) bathing in the fountain naked, I treated Columbia like that cesspool NY, and would go out of my way to drive completely around it.

The private city is certainly on the rise. With upcoming shortages of food and water (the next wars will be about these essentials) look for the rise of the well funded warlord.

As society decomposes (civility and rationality are already dead and going into rigor mortis); its back to a feudal system. Do you have people, money and weaponry? If not I suggest you plan to go shopping very soon.

My apologies for any incorrect spelling or mis-use of grammar or punctuation, I am a math/science guy and not an English major.

All the best,

Laid Back Lenny

eccdogg September 12, 2011 at 8:42 am

One big issue is how do you keep the local government out once you have privately built something sucessful.

The Woodlands, Texas was a private city, but was forced to incorporate and pay a fee to the city of Houston to keep Houston from annexing it.

Rahul September 12, 2011 at 8:58 am

How does one city annex another? Do traditional cities have eminent domain rights over private ones?

eccdogg September 12, 2011 at 9:58 am

I the case of Texas and North Carolina the two states I am most familiar with YES.

Private cities are unincorporated areas. In many states cities have the right to annex unincorporated areas. They typicallly do so when they estimate that the additional tax base will be greater than the cost of providing services.

In the case of The Woodlands Houston had the right to annex the development.

Some info here.
http://en.wikipedia.org/wiki/The_Woodlands,_Texas

But, I also I was using this as an example of the general threat of nationalization.

whowhawhen September 12, 2011 at 10:51 am

My thoughts exactly. Let someone else put the investment capital in and then send in your army. I would imagine these private cities would NOT be allowed to actually create their own private armies to operate on a scale of a national army (even a weak one).

Sbard September 12, 2011 at 12:46 pm

The Woodlands can’t even charter a police department. The county sherriff is responsible for law enforcement there.

Urso September 12, 2011 at 10:53 am

As I understand it Texas has some of the laxest municipal annexation laws in the country. This is one reason for Houston’s success — as in many cities, late 20th century Houston saw folks with money move to the suburbs. For some cities (see New Orleans), this meant a crippling loss of middle and upper class tax base, leaving the actual inner city with poor people unable to pay the taxes necessary to keep up the infrastructure. Houston was able to avoid this by simply annexing all those little suburbs, whose residents ended up with no say in the matter.

Sbard September 12, 2011 at 12:44 pm

The Woodlands is not a “city” yet in any legally relevant sense. It’s basically an overgrown HOA community in unincorporated county land. They don’t have and can’t charter a police department (the county sherriff has to take care of that). Texas gives incorporated cities an extraterritorial jurisdiction over land outside their limits (the size of this ETJ depends on the population of the city and ranges from .5 to 5 miles) which allows them to prevent developers from doing things like putting a big subdivision just outside the city limits which would burden city services. Places outside of the ETJ don’t need permission from nearby cities to incorporate, but since The Woodlands spills into the ETJs of three different cities (Houston, Conroe, and Shenandoah, they need permission from those cities to incorporate, which would protect them from annexation.

Kim September 12, 2011 at 11:45 am

The Woodlands is not incorporated (lived here for 21 years and works for the local governing entity). Governance process is exploring that as one possibility. We’re currently a special purpose district.

david September 12, 2011 at 8:48 am

eccdogg may be speaking to this risk, but as reading the post I was wondering about the threat of nationalization, particularly in the developing economies mentioned.

Bill September 12, 2011 at 9:00 am

We’ve also had Utopian cities or communities before in the US as well. Amanna, etc.

What you might see is religious communities, rather than Apple owning a company town–you have to be a religious member, everyone is a member, and the pastor (or mullah or imam) is the leader of the Renaissance City.

Don’t presume it is a corporation. It could be the Imam.

Which then raises the question of city states within the state and what is local, what is state, and what is federal within that construct.

Bill September 12, 2011 at 9:03 am

What is also interesting is that the state and federal government proscribe things that local government has to do, so the end game of a Renaissance City movement would simply be the state prescribing minimum standards if the Renessance City were to try to short change local services.

I suggest someone buy an island. Greece may a have few for sale soon.

Andrew' September 12, 2011 at 10:26 am

“What is also interesting is that the state and federal government proscribe things that local government has to do”

Why?

“Because they do” is not a real answer btw.

Bill September 12, 2011 at 2:28 pm

Because as a citizen of the state you should have equal access to facilities; citizens should be free to move within the state with minimum requirements guaranteed; some local governments get free rides on their local neighbor, and if minimum standards are set, the free riders will join into pacts with the adjoining jurisdiction to do such things as sewage and water.

Remember: there are always free riders, and some public goods would never be produced because of a surplus of free riders.

Jay September 14, 2011 at 12:54 am

“Because as a citizen of the state you should have equal access to facilities; citizens should be free to move within the state with minimum requirements guaranteed”

Who says? That’s classic socialism “one size fits all”. Like, “I think that no one would want to live without music, therefore all cities should be required by state law to sponsor free concert series at least twice a year.” Maybe some people would be happy to live in a city that doesn’t sponsor summer festivals but offers better police protection, or that has no parks but keeps the roads in better repair, or where they had to haul their garbage to the dump themselves, etc. Or maybe they’d be happy to give up any or all of these things in exchange for lower taxes. Why should the state impose a “minimum level of services” without regard to what the people actually want?

When we’re talking about local government, it is pretty easy to vote with your feet. When the state sets the standards, its much harder to move to another state if you don’t like the rules. And of course at the national level, it’s harder still.

Erik September 12, 2011 at 9:10 am

It appears that the time has come for the resurgence of colonialism.

Rahul September 12, 2011 at 9:13 am

Tyler writes “ Gurgaon is a desirable place to live in India

I am very skeptical of this assertion. Most Indians I know have horror stories of life in Gurgaon; rouge taxis, unsafe highways, potholed roads etc. Of course, this doesn’t deter young Indians from migrating there because of higher-end jobs in that region.

Gurgaon sure has things going for it, but to say that it is a “desirable” place to stay in India is far from the ground reality.

dan1111 September 12, 2011 at 9:46 am

On the other hand, 1.5 million people chose to live there rather than somewhere else. That suggests it is desirable, at least in relative terms.

mw September 12, 2011 at 10:03 am

Yes, 1.5m out of 1.2bil, or 0.1% of the population. Detroit must therefore be 100 times as desirable to people in the US, at least in relative terms.

Yancey Ward September 12, 2011 at 12:18 pm

How many people moved to Detroit in the last 30 years?

Rahul September 12, 2011 at 2:24 pm

………..and name one Indian city that declined in population in the last 30 years.

Massive urban growth is the Indian status quo . The fact that an Indian city grew does not mean much.

Rahul September 12, 2011 at 10:04 am

1.5 million people is not much in the Indian context. 1 million people live in Dharavi (Mumbai). That has the notorious distinction of being the largest Asian slum. Doubt I’d use the word “desirable” though to describe the place

http://en.wikipedia.org/wiki/Dharavi

My point is, there’s a lot of migration that job-opportunities will produce and kudos to that. But some of these places are as desirable as an early western mining town.

Urso September 12, 2011 at 10:54 am

Lagos has ten times that many. It must be a paradise.

dan1111 September 12, 2011 at 11:30 am

@everyone: I am not arguing that Gurgaon is a nice place by any particular standard. All I am saying is, given its massive growth, lots of people obviously desire to live there and consider it better than the places they left. Alex’s statement that Gurgaon is a “desirable place to live” doesn’t need to mean more than this.

I suppose I didn’t really make it clear, but I was referring growth rate, not absolute population. From 2000-2011, Gurgaon grew by over 70%, while Detroit declined by 25%. I think that makes the point pretty well.

comatus September 12, 2011 at 9:56 am

The Rouge, it burns.

charlie September 12, 2011 at 11:05 am

Yep, not desirable. It is Alex, not Tyler. Tyler at least has travelled a bit, and learned to be slightly skeptical. People move there because they want work.

And the model is even weaker. Yes, Guragon is based on several small developments. In terms of people, I’d guess they are the same size as proposed African development or larger. If they can’t scale, why should this African model?

In fact, the worst models in India are ones without municipal corporations. Slums, etc. I’m glad there is essentially one rich slum with no governance, but when 95% of that species results in nightmares you can draw conclusions on the viability of the model.

marwan September 12, 2011 at 9:35 am

The metaphor quickly turns ugly: http://news.taaza.com/source/164567-slums-near-hotel-razed-in-vashi.html

How are you going to evict the people that don’t want to leave or sell?
A drive for private cities in Africa is gonna be a boom market for thugs and mercenaries.

Or as Bob Bates once put it: “Behind every Pareto-Improving transaction lies a prior act of violence”.

Rahul September 12, 2011 at 10:13 am

Eviction is a very hot and sensitive issue in modern India. On the one hand, sure it is brutal to remove families forcibly. On the other hand there’s the question of respecting property rights. The quoted article draws out the classic dichotomy: The evicted person complains that he has been living on that land for “years”. Does a long illegal presence create a property right? No easy answers.

Andrew' September 12, 2011 at 11:17 am

Call it eminent domain and ‘condemn’ the property for their own safety, and suddenly it’s a lot more warm and fuzzy.

Bill September 12, 2011 at 2:30 pm

Eminent domain has constitutional limits; you have no rights if you do not own the land, even though you improved it.

Sbard September 12, 2011 at 12:48 pm

In most common law jurisdictions, we call that “adverse possession”.

Rahul September 12, 2011 at 2:14 pm

………..adverse possession does not typically work against property owned by the public.

Veridical Driver September 12, 2011 at 10:43 am

“Public” cities have thugs and mercenaries too… It is simply that the mercenaries and thugs for public cities wear the proper regalia, that along with years of conditioning, makes you think that their thuggery and violence is more legitimate.

comatus September 12, 2011 at 9:59 am

The European name for these ventures was “commune.” Since that carries some freight, in America we called them “company towns.” It’s new, it’s improved, it’s old-fashioned.

Urso September 12, 2011 at 11:00 am

Freie reichsstadt

dan1111 September 12, 2011 at 11:33 am

Hmmm. Does it make a difference whether people voluntarily choose to live there?

Slocum September 12, 2011 at 10:33 am

But in order to internalize the benefits of privately provided infrastructure, parks, public safety, etc. the scale of the enterprise would have to be really big. Like the size of a whole city.

Why? Private ‘gated’ communities routinely provide infrastructure (roads, obviously, but also even local water treatment) and private security as well lots of parkland, including things like lakes and golf-courses. There are even communities organized around equestrian activities (with stables) or private aviation (with a hangar for every house).

Sbard September 12, 2011 at 12:50 pm

At most their private security can ask me nicely to leave. They still have to call the real police if someone needs to be arrested and I can tear up their parking tickets with no repercussions.

Brett September 12, 2011 at 2:32 pm

The Indian example that Matt Yglesias was talking about was basically the Indian equivalent of a “company town”, and a company generally needs to be making a lot in revenue in order to afford all the expenses of such a town. He’s obviously wrong, since you could presumably built a “gated private city” large enough to defray the costs of services, like the one that Tyler Cowen cited.

eccdogg September 12, 2011 at 3:31 pm

Yeah I don’t think you need scale nearly as big as Matt imagines. Good sized gated communities could easly provide all the necssary services including public safety.

Bill September 13, 2011 at 10:53 am

Have you ever been to or visited someone in a privated gated community?

The most they have is a community center type thing and some walkways, and maybe a pool.

You might want to ask residents to keep a diary and ask where they go, and I’ll bet you find they go shopping outside of it, to the library, to a school, to a park, to a museum, to a concert, etc. outside of the gate.

David September 12, 2011 at 10:45 am

When reading the description of these private cities, I thought of college campuses. Some of them can be quite large, with tens of thousands of students, and they have a lot of the infrastructure of a city.

Mike September 12, 2011 at 10:54 am

It’s hilarious that Yglesias chose San Francisco as his “model” private city. San Francisco’s public goods and services are horrendous. The public schools are awful, the parks are filled with filthy bums, the transportation system is filthy, breaks down often, is seldom on time, and is always unreliable. Crime is rampant and the police never seem to be around when and where you need them. The roads are filled with potholes. City government can’t or won’t respond quickly to simple taxpayer requests for information. With a deficit larger than Los Angeles, the Board of Supervisors’ most pressing issue at present is whether nudists cover seats before sitting on them. Building permits are so tough to get that homeowners simply ignore them, especially since it will result in a new property tax assessment. Middle class families are fleeing the city.

As “planned” cities go, San Francisco is among the worst. What keeps San Francisco alive is the area’s natural beauty, tolerable climate, natural diversity, and thousands of local entrepreneurs.

meh September 12, 2011 at 10:57 am

This isn’t anything new. Haven’t you heard of company towns? India, China, the former Soviet Union etc are dotted with these. The best example would be Jamshedpur, set up by the Tatas. The US and Europe also had these a couple of generations ago: these are your forgotten, dead or dying steel and mining towns.

improbable September 12, 2011 at 1:05 pm

No, it is different. Company towns were built for the employees of some particular organisation, and I think that (at least initially) living there was tied to employment.

I guess similar in that a private entity ran roads water planning etc for an area of housing. But different in that it was mostly interested in supplying the steel plant (chocolate factory, etc.) with happy workers, rather than simply attracting those looking for a place to live.

Slugger September 12, 2011 at 11:20 am

Is this really a new idea?
At the top there is a private person or corporation that makes laws and regulations, provides land and infrastructure, and collects rents or taxes. Is not this how monarchy worked for hundreds of years? Is not this how any dictatorship works? The top entity is sovereign, and everybody else is a tenant.
China seems to be a private country owned by a corporation called the CPC.
I am not saying that it is not possible to have a good life in such an entity. I am saying that private, personal institutions have governed many people over many years throughout history. The conflicts between owner/ruler and tenant/citizen are inherent in those relationships and not changed by the nature of the owner/rulers basis for supremacy.

dan1111 September 12, 2011 at 11:40 am

But living in a private city would be voluntary, unlike China. And, as others have noted, a private city wouldn’t necessarily be dictatorial.

TommyVee September 12, 2011 at 1:17 pm

Power corrupts and absolute power corrupts absolutely.

Without some feedback mechanism like elections to restore power to residents, a dictatorial administration in a private city is more likely than not.

The folk songs about “I sold my soul to the company store”,etc., did not occur in a vacuum but in response to everyday experience of privatized towns.

Indeed, mobile home parks with private operators are famous for the arbitrary, unfair, and dictatorial management that often results.
Most states have eventually enacted laws to combat unfair practices by mobile home park operators, but mobile home parks are just “private cities” on a very small scale, and the wide-spread existence of unfair practices implies that absent government action, unfair practices in “private cities” would be common.
Just like a “private city” in theory mobile home owners could “vote with their dollars” and move out, but in practice many are trapped by economic circumstance. 2 mobile home parks in Boulder, Colorado, my hometown have organized for public purchase of the mobile home park precisely because of dictatorial and unfair for-profit management.
http://farmworkersforum.wordpress.com/2011/07/19/mobile-home-park-accused-of-overcharging-for-tainted-water/

CMS September 12, 2011 at 5:11 pm

If I’m free to leave what power do they have over me? And even if they hire some thugs to take my stuff and throw me out on my ass who’s going to want to move to a town that arbitrarily takes people’s things and evict’s them. Not exactly the best PR for a business that wants to encourage people to move in.

Your mobile home example is really weak. You make nebulous “unfair practices” accusations without giving details.

From the article:

“Julianna Strong, attorney for Sunbird’s owner, James Martin, said the park first launched a tiered system in 2002 to curb excessive water use by some residents that strained Sunbird’s septic system, resulting in expensive maintenance and repair. The tiers were revamped in 2006.

During a break in the testimony, Martin said Sunbird loses money on its water and septic operations. He declined to comment on the park’s overall profit, since it didn’t have to do with the complaint.

Martin said some Sunbird tenants have been evicted since 2006 for failure to pay what they owe, but added they weren’t evicted specifically due to water bills because Sunbird residents are charged a lump sum for their total rent and utilities.”

“Several years ago, the park’s on-site well tested for hazardous levels of naturally occurring arsenic, which public health experts say causes serious health problems if ingested over years.

Earlier this year, the park installed a central filter system to remove the high arsenic levels from the water. It provides the residents clean water, but they have to go retrieve it.”

Your dealing with people who used a great deal more water than everyone else and then were asked to pay for it.

The company doesn’t sound like the best run company out there but I fail to see how a public government would do any better. Unless you are making the argument a public government could just make the other residents pay for a few residents exorbitant water bill. Because that would be of course be much more fair.

josh September 12, 2011 at 12:39 pm

Congratulations world, you av rediscovered feudalism.

I mean that congrats sincerely, btw.

Gepap September 12, 2011 at 1:30 pm

Nah, real feudalism can’t come back. The final oath of obidience in these places still lies with the State, which can at any time reassert full and complete sovereignty. The balance of military power is too far on the side of the centralized state, given the high cost and complexity of modern military power.

Warren September 12, 2011 at 12:47 pm

If these cities are to draw immigrants there will have to be a reason to move there and to stay there and so the people who run the cities will have to moderate any moral hazards in order to keep their customers. Especially if there is a whole bunch of these places coming available. If an entrepreneur from overseas can move to one, he can just as easily move to another. This puts a lot of pressure on the city owners/managers to not dick their customers around. And this includes fixing things they get wrong. Since not fixing things will lead to a loss of rents which will be felt immediately and directly by the owners. Whereas in a public city a decreasing tax base takes a longer and more indirect and politicized path to effect those in charge. And thus commons problems, graft and so forth are eternal.

I’m assuming these will also be tax and jurisdictional havens in order to induce people to move there and the more of those the better as it puts pressure on traditional governments to keep taxes and regulations in check. (Does not apply to California) So that’s a boon even for those that don’t move to one of these places.

Sheldon September 12, 2011 at 1:04 pm

Here’s another example of a charter city project: http://freestateinitiative.org/

TommyVee September 12, 2011 at 1:26 pm

What a ridiculous pipe-dream, with zero feedback from any real world experience.

If their pipe dream of a “free state” ever breaks ground, “voluntary taxation” will quickly cripple any function, and the likely result will be takeover by thugs or organized crime, since such an intentionally weak government would be easy picking for criminal organizations.

And the website has the nerve to use Singapore and Hong Kong as examples of “free states”. Clearly the author has never been to those places. Singapore has laws and regulations beyond a US liberal’s wildest dreams (chewing gum is illegal, death penalty for drug possession, $1000 fine for public urination, forced participation in State Benevolent organizations, mostly public housing, 100% tax on autos,etc.,etc.) and of course Hong Kong is part of the PRC, where the government can execute you on a whim and sell your organs to the highest bidder.

TommyVee September 12, 2011 at 1:06 pm

Living in Colorado with plenty of “company towns” that are all now ghost towns, I think this “back to the future” idea will fail in the same way.

Instead of the community commitment and “civic virtue” that a town owned by its’ residents inspires, a corporate-owned town or city will inspire alienation and apathy from its’ residents. What rational person would go one step beyond the minimum to benefit a profit-making corporation, unless they are a shareholder?? The answer of course is nobody, while in my hometown many thousands of volunteer hours are donated each year because people believe in and care about our town. I think this is the fundamental reason that many(most?) democratically governed towns from the mining era have survived, while every single company town has ceased to exist over the same time period.

In addition, since company towns are largely sheltered from transparent public oversight and law-enforcement, company town sites in Colorado are frequently highly polluted (not a surprising result to any thoughtful observer, since profit motive encourages cheapest waste disposal, and corporate governance prevents government oversight). An example is the company town of Gilman, now a Super Fund hazardous waste clean-up site, with remediation occurring at public expense, and all inhabitants long since gone.

http://www.cdphe.state.co.us/hm/rpeagle.htm
“The 235-acre site includes the Eagle Mine workings, the town of Gilman, eight former mine tailings piles, Rock Creek Canyon below Highway 24, and at least 14 waste rock piles.”
“The major contaminants of concern are heavy metals such as lead, zinc, cadmium, arsenic, and manganese associated with the mining wastes. The major pathways of concern are surface water contamination to the Eagle River, alluvial groundwater contamination, and ingestion/inhalation of mining wastes.”

improbable September 13, 2011 at 6:11 am

Well these were mining towns, in an age when mining was very dirty. Hence the pollution. And when the mine stopped mining, of course there was no reason to live there. This is quite different to Gurgaon, which is a much more normal place: it’s about office jobs in Delhi.

On the issue of civic pride vs company ownership, again I think you are drawing the wrong comparison. Tower blocks of public housing have the sort of problems which you say company towns had. But residential buildings organised as co-ops or condos seem to work OK, and Gurgaon sounds basically like a cluster of these on a grand scale.

k September 12, 2011 at 2:13 pm

here’s a simple test: look at the rents in Gurgaon versus those of South Delhi for a 2 bedroom apartment (this is likely the most commonly requested type of apartment).

and you will see, the “market” prices the same house in Gurgaon far lower than in South Delhi.

(Why South Delhi? Because it is closest in terms of what it offers to someone who wishes to stay in Gurgaon).

Rahul September 12, 2011 at 2:20 pm

Ironically, Gurgaon doesn’t seem all that “private”. It was seeded by the Haryana Urban Development Authority ; clearly an Indian government undertaking.

http://www.huda.gov.in/Pages/default.aspx

Adrian Ratnapala September 12, 2011 at 3:04 pm

@Vertical Driver. Can you elaborate? What were the mechanisms and trappings of the democracy.

Do you mean that the residence had a kind of council which operated democratically, if informally? That’s really good for your building, but I doubt it would work for a big city. Or do you mean that the residents were able get what they wanted from the building owners using some kind of market power?

William Raillant-Clark September 12, 2011 at 3:14 pm

It seems to me that it is very easy for those of us who enjoy the relative luxury of living in advanced democracies to criticize the citizens of weak governance zones for seeking to emulate our peace and stability.

Slugger September 12, 2011 at 4:49 pm

Historically, there were free cities, that is cities free of allegiance to an external liege. The Hanseatic League was comprised of such entities. Movement between these cities was certainly allowed, but there were institutional barriers such as trade guilds.
Governance comes from the top down or from the bottom up. Private lands, cities, states or democracies.

Temporarily Anonymous September 12, 2011 at 9:24 pm

I would suggest looking into the Renaissance group of companies a little more closely before floating away on a wave of libertarian speculation. According to their own Web site they are “15+ professionals” with just $600 million in investments in things like forests, farmland, and mineral rights, so it is a stretch to call them a “property developer,” let alone a company capable of building and operating an entire city — something that the world’s largest and most experienced engineering firms have struggled with. Perhaps the reason they are doing this project in Africa, where it is easy for a company (that had a D credit rating and a negative outlook before it was refinanced by an oligarch) to get lots of uncritical press coverage, is not necessarily because “that’s where the economic growth is.” My gut says the ONLY way this city is getting done is if the Russian state is very closely involved in the project. You should be thinking of something a lot more like the Sochi Olympic Village than Galt’s Gulch here.

Steve September 13, 2011 at 4:43 am

A Russian firm operating in the Congo? Sounds totally on the up and up to me!

Doug Hudgeon September 14, 2011 at 2:25 am

“Gurgaon has not enjoyed all the benefits of economies of scale in infrastructure provision” Agreed, but the hundreds of companies run the sums and have determined that privately providing the infrastructure is cheaper than the alternative.

Gurgaon’s alternative is the NCR (Delhi). My company reduced our rent three-fold when we moved from Delhi to Gurgaon. This more than made up for the cost of hiring private taxis to get our staff to work each day (because Gurgaon’s transportation infrastructure can’t support the daily flood of office workers).

Does this cost/benefit analysis create good cities? I think it’s too early to tell with Gurgaon.

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