Designing Private Cities, Open to All

by on March 17, 2015 at 7:28 am in Economics, Law | Permalink

NEW YORK — The world is building more cities, faster than ever before. China used more cement in the last three years than the United States used in the entire 20th century. By 2050, India will need new urban infrastructure to house an additional 404 million people — a task comparable to building every city in the United States in just 35 years. The global urban population is expected to rise to well over six billion by 2050 from 3.9 billion today.

The world needs more cities. The task, however, is not simply to build new cities but to design them for today, tomorrow and the next century.

Jane Jacobs taught us that a city is a complex dance of top-down and bottom-up planning. Too much of one or the other and a city fails to meet the needs of its residents.

As the world urbanizes, we need to experiment with new urban forms and new forms of urban planning, and privately designed and operated cities — proprietary cities — like Jamshedpur, India, or Reston, Va., may provide answers.

That is the opening to an op-ed in the New York Times written by me and Shruti Rajagopolan, do read the whole thing.

Addendum: The op-ed is a precis to our paper, Lessons from Gurgaon, India’s Private City in the book Cities and Private Planning. You can also listen to my EconTalk with Russ Roberts on these issues.

1 rayward March 17, 2015 at 7:43 am

It’s true that the population of China will continue to grow through mid-century. But beyond mid-century, demographers project that the population of China will fall by roughly 400 million, or more than the entire population of the U.S. (that’s the mid-range projection). Who will bear the losses in the private cities whose population plummets? That raises the question of who gains and who loses in private cities in America an elsewhere. My guess, and it’s only a guess, is that the gains would go to the “private” investors, and the losses would be borne by you know who.

2 Andrew M March 17, 2015 at 10:45 am

This is interesting, I hadn’t heard about this. Do you have a source?

3 jpa March 18, 2015 at 11:30 am
4 Ed March 17, 2015 at 11:29 am

This is off the topic, but yes eventually the world’s popuation is either going to stop growing (definitely) or go into decline (likely). At that point, no more economic growth, half of which is driven purely by population increases. Capitalism has never handled a prolonged period of demographic, and by extension economic, decline and I doubt it could handle it well.

5 The Anti-Gnostic March 17, 2015 at 11:56 am

The market will handle it the way all such things are handled: debts will be liquidated, companies and governments will de-scale, capital and labor will adjust to the new reality. To the extent there’s a problem, it’s because of deliberate fiscal and monetary policy which has resulted in unsustainable leverage.

6 mulp March 17, 2015 at 1:46 pm

Its called redistribution of wealth using a government technocrat: the bankruptcy judge.

Note that prior to circa 1980, debt was something to avoid and pay off as rapidly as possible by having total ownership of everything you are responsible for.

Since 1980, debt is the means of controlling things without actually owning them, so the more debt you have, which before 1980 was far less than 90% of the labor cost of the assets depreciated, has gone to 90%, then 95% or more, and is based on the current market price instead of the labor cost of the lod asset.

That increase in debt is called “getting the government out of the way”.

I grew up when 99% of credit cards would be considered criminal loan sharks, and today’s payday lenders would be undercut by illegal loan sharks.

7 Larry Siegel March 18, 2015 at 4:28 am

I would think that if this pre-1980 world existed, I would remember since I was born in 1954. However, I don’t. There was plenty of debt before 1980; I was in debt before 1980 but not much afterward, because I was able to start making money; and credit card issuers charged exorbitant interest then as now, because a lot of people don’t pay the loans back. There is a meme circulating, which you seem to be repeating, to the effect that the U.S. was a wonderful place with lavish social benefits, almost no unemployment or poverty, and loving kindness all around until November 4, 1980, the day Ronald Reagan was elected president, and that all that went to hell in a hand basket afterward and stayed that way, but it’s not true. We’ve experienced pretty consistent economic progress both before and after that date.

8 msgkings March 17, 2015 at 12:13 pm

Ed, the world will look a lot like Japan when that happens. And that isn’t too shabby, Japan is a wealthy, safe place where people live a long time.

9 Urstoff March 17, 2015 at 12:18 pm

Rich enough that zero economic growth isn’t that bad…for now.

10 msgkings March 17, 2015 at 1:07 pm

Total GDP growth may indeed approach zero worldwide, but per-capita GDP can keep growing. Again, like Japan, robots will probably need to replace people.

11 Cooper March 17, 2015 at 2:49 pm

I imagine a private city would have to rely on equity financing rather than debt financing.

Shareholders would have ownership of the assets of the city (real estate, transit networks, city service providers) and earn dividends based on the profits of those assets. If the city is struggling, dividends could be cut and the share price would drop.

The city could operate like a giant utility company. I’m not sure it would be freer than living in, say, Houston.

12 Jay March 18, 2015 at 11:01 am

When has a city transit network or service provider ever run at a profit? Aren’t they heavily subsidized such that the fares don’t come close to actual operating costs?

13 wiki March 17, 2015 at 7:55 am

I’m surprised that the authors say nothing about long term issues of credibility. Not only is there the problem of private interests using these cities to line their pockets but even well conceived and well run projects can be hijacked and have their rents claimed and redistributed ex post by the powers that be. Given that people’s intuitions about the contract rights of city creators are weak, what’s to stop the usual ex post political rent grab from being worse in the case of private cities? Knowing this, investors will try to get as much as they can up front and will not place as much emphasis on the long run benefits of good design. This problem is especially acute in environments where governments have not shown much consistency in dealing with private contractual arrangements. If a city as capitalistic as NYC can’t undo rent control, what makes you think that any ex ante arrangements will long survive political manipulation? At best only the form of the initial contract will be maintained while gutting its essence.

14 Brett March 17, 2015 at 10:32 am

I suppose it depends on how the governance of such cities work. Some of the private cities he points to – like Reston, Virginia – are self-governed, so that limits the possibility of outside owner being tempted to “turn on the screws” after the residents have made significant investments in real estate and business there.

15 Michael March 17, 2015 at 7:59 am

Open borders, private cities. How does a madman like you get tenure?

16 cheesetrader March 17, 2015 at 9:03 am

He gets bonus points for trolls

17 Urstoff March 17, 2015 at 9:08 am

I agree, adherence to the status quo should be a condition for being granted tenure

18 Pshrnk March 17, 2015 at 9:12 am

Well played!

19 Brett March 17, 2015 at 10:27 am

For that matter, if you’ve got Private Cities, why not Private Counties? Or bigger? Especially since odds are these are going to be self-governed planned communities and (hopefully) not Company Towns. You’d contractualize your way back to the exclusive state.

20 Kris March 17, 2015 at 1:06 pm

Read the article before shooting your mouth. Private city does not mean closed or gated or zoned. It just means that the services normally provided by governments are instead provided by private entities. Now such cities will have self-selected populations consisting of people who have skills and can pay their way. There is no rooom for welfare services and support for indigents, but last I checked, Alex Tabarrok called himself a libertarian, so that’s a feature and not a bug.

21 Brett March 17, 2015 at 1:43 pm

That seems problematic. Fire protection and police enforcement usually benefit from protecting an entire area of housing/development, not selecting particular houses to protect (since fire and crime can spread). That makes it much more likely, in my opinion. that “private cities” would involve elements of gating or zoning, such that living in the area would require you to pay the taxes subscriptions to get them.

There is no rooom for welfare services and support for indigents, but last I checked, Alex Tabarrok called himself a libertarian, so that’s a feature and not a bug.

It’s one of the big selling points for such communities, that they keep the poor and homeless out in the ghettoes – but not too far, lest the communities in question be cut-off from the cheap labor they need for nannies, grocery stores, construction, and other service work.

22 Clay March 17, 2015 at 9:00 pm

If Reston is the model (for American commentors, at least), it should be pointed out that low income housing does exist here. I say here as I live in Reston in what would have been a bottom tier single family (before metro anyway) up the road from 70’s era projects (or very near equivalents). Call it good or bad as you wish, but private doesn’t necessarily equate to rich man’s club. One can imagine building a town to be the “dollar store ” of towns much like Spirit is the “dollar store” of airlines.

23 Urstoff March 17, 2015 at 11:29 pm

Which would still probably be an improvement over most towns in India.

24 Kris March 17, 2015 at 11:51 pm

@Urstoff, Jamshedpur (Tata) did enable pretty much everyone across the economic strata to afford housing. People used to form cooperative housing societies and make payoffs over a number of years. Pretty much anyone with any kind of tangential affiliation with the companies could afford decent housing.

25 Steve Sailer March 17, 2015 at 8:42 am

It’s interesting how infrastructure provision tends to correlate with level of nationalism. The Chinese have a modern nationalist state whose legitimacy is based on their institutional ancestors having kicked the foreign devils out of China, and they have lots of infrastructure, too much in many places. The Indians have a sort of post-national pre-modern country and they don’t have enough infrastructure.

26 TheNewGuy March 17, 2015 at 11:03 am

It is interesting that 35 years ago China wasn’t all that different from India.

27 RoyL March 17, 2015 at 1:34 pm

I take it that you spent exactly no time in either India or China in 1980?

28 Ali Choudhury March 17, 2015 at 11:36 am

India is pretty nationalistic, like a lot of former colonies.

China has lots of engineers in its government and engineers like building stuff.

29 Kris March 17, 2015 at 1:11 pm

@Sailer, Your assumptions and your conclusions are both wrong. Indians are plenty nationalistic. Building infrastructure at will requires a strong central government that can ride roughshod over local opposition. Populist (mainly identity-based) politics is so deeply ingrained in India that it is impossible for governments to commandeer enough resources to build infrastructure. The Politburo of the PRC has no such constraints.

30 Ray Lopez March 17, 2015 at 9:17 am

Has AlexT read Robert Caro’s book on NYC urban planner Robert Moses, “The Power Broker”? What does he think of it? http://en.wikipedia.org/wiki/The_Power_Broker Caro himself says he was influenced by the ‘small is beautiful’ movement in city planning when he wrote the book, and upon later reflection was a bit unfair to Moses.

31 LI March 17, 2015 at 11:41 am

Haven’t spent a fair portion of my formative years risking my life on Robert Moses “scenic” parkways, it’s hard for me to imagine any critique being too harsh.

32 Ray Lopez March 17, 2015 at 1:52 pm

@LI – how did you risk your life? Trying to cross some superhighway in the middle of the parkway on foot? Or is it more like getting mugged in Central Park? Moses was quite a power broker, I am slowly reading Caro’s thick tome now. Moses however was influenced by the automobile culture back when getting a car was a big deal rather than, as now, something anybody can do and clog up the roadways.

Bonus trivia: Lady LBJ was responsible for the ‘no-billboards’ rule along DC’s scenic parkways running near the Potomac.

33 LI March 17, 2015 at 3:58 pm

You risk your life when you drive on one of Robert Moses’ parkways because he cared more about them being pretty (and keeping buses off them) than that they be functional. They have awful on and off ramps, they twist and turn for no reason, they are narrow, they have short overpasses, narrow shoulders, and so on and so forth.

34 Chip March 17, 2015 at 9:44 am

I may be wrong, but it seems to me that Alex has smoothly transitioned from student in Canada to post grad in the US without ever living in one of those countries or cities from which we are supposed to lower the drawbridge.

This is a problem that extends to our governing class, where politicians are increasingly lawyers or just simply career politicians without ever being exposed to the complex tumble of life.

So, question: Alex, could you tell us what countries and cities you have lived in that have helped form your belief system with regards to city formation and open borders?

35 Urstoff March 17, 2015 at 10:11 am

ad hominem

36 Cliff Arroyo March 17, 2015 at 4:08 pm

Questioning where a person gets theories that have nothing to do with their lived lives is not ad hominem.

37 Urstoff March 17, 2015 at 5:19 pm

Of course it is, because it has nothing to do with the theories themselves. Is the theory a bad one? Why or why not? The genesis of the theory is irrelevant.

38 Giuseppe March 17, 2015 at 11:00 pm

Yes it does.

39 HL March 17, 2015 at 10:10 am

That picture is how I am going to imagine Open Borders supporters look like.

40 datroof jackson March 17, 2015 at 11:04 pm

Note the frontal bulge is photoshopped.

41 Clover March 17, 2015 at 10:14 am

What’s to prevent the city’s government from functioning as an, eer, “kleptocracy?”

http://marginalrevolution.com/marginalrevolution/2015/03/the-ferguson-kleptocracy.html

The owners of a private city would have an even greater incentive to behave as a “kleptocracy,” considering how they can openly keep money made by the city government as a “profit” for themselves. Libertarians often act like they are standing up for the little guy against excessive concentration of power, but don’t seem to mind when that excessive power is held by “private” actors and they do the same things as the government. Who? Whom?

42 prior_approval March 17, 2015 at 10:24 am

Hey now, no fair bringing up whatever else Prof. Tabarrok has written in the past that contradicts whatever he wrote in the past.

43 prior_approval March 17, 2015 at 10:27 am

Or the present, or future – consistency is not something to be concerned about.

44 Kris March 17, 2015 at 1:14 pm

People can vote with their feet if a privately managed city turns kleptocratic. Not everyone can afford to be so mobile, of course, but enough can be to hurt the bottom lines of the city government. (Everyone seems to confuse a privately managed city with a zoned and gated community, where it’s just a city like any other managed by a non-governmental private entity.)

45 Clover March 17, 2015 at 1:49 pm

The Fergusson residents could have voted with their feet, too.

46 mulp March 17, 2015 at 1:58 pm

To live in a private city you need to pay $100K which the corporation will lend you, and then you discover it is screwing you by not delivering what was promised, so you leave. But you have quite likely lost the $100K even if you did not pay it because you will still owe the debt because the corporations will call on government to make you pay.

47 The Anti-Gnostic March 17, 2015 at 10:24 am

We already have these. They’re called gated communities, and they exist precisely because they are not “open to all.” But calling them “pricey enough to keep out the riff-raff” is not going to get you published in the NY Times.

“By 2050, India will need new urban infrastructure to house an additional 404 million people.”

I don’t think this will happen. The way it won’t happen will be awful.

Residential housing is one of those topics that economists’ wives know better than their husbands.

48 Kris March 17, 2015 at 1:17 pm

That’s why India need rich countries to have liberal immigration laws.

49 A Definite Beta Guy March 17, 2015 at 2:15 pm

I agree, let’s suck up all the remaining brains there and leave the huddled masses to their squalor.

50 Dan Hanson March 17, 2015 at 10:38 am

How are China’s planned communities working out for them? Maybe we should ask the non-existent residents of Ordos.

51 Urstoff March 17, 2015 at 10:48 am

That’s mentioned in the article. The point everyone seems to be missing is that private cities are a proposed alternative in places where the local government can’t get the top-down/bottom-up balance right. They’re not fully planned (like China’s cities), but they’re not grown haphazardly either (like India’s cities). Obviously, some countries do get this balance right (for the most part; see most of the Western world, Japan, etc.), but a lot of countries don’t. Thus, private cities may provide a good alternative.

52 Massimo March 17, 2015 at 10:59 am

Most private cities exclude people who can not afford them. This is not “open to all’. Caplan refers to nation state selectively exclusive borders as “draconian”; by what logic is excluding people based on finances more or less draconian? The nuclear family is selectively exclusive based on biology. Is that more or less draconian?

53 Ed March 17, 2015 at 11:31 am

I’m missing something here. Cities normally contain mixtures of private and public elements. Any city that did not primarily grow or was planned as an administrative, military, or religious center is in a sense “private”. So I don’t get what is the big deal.

Are these really corporate cities? In other words, they are planned, but the cities and planned and owned by a single corporation instead of a government?

54 Kris March 17, 2015 at 1:22 pm

Much of Jamshedpur, India (one of Tabarrok’s examples) was indeed set up and managed that way, by the Tata Group of Industries. The city has a few parts that are managed (indirectly) by the state government, and the difference is immediately apparent to anyone who walks from the Tata-managed areas to the government managed areas. Keep in mind that Jamshedpur used to be in India’s poorest and worst-run state, Bihar (which split about 15 years ago.) Also, Tata downscaled its commitments in the 90s for cost-cutting and because the state government raised a hue and cry, and the city has suffered as a result. I speak from personal experience, having been born and raised in Jamshedpur.

55 Brett March 17, 2015 at 1:51 pm

That matches the history of even “good” Company Towns in the US. They can be good as long as profits are good, but as soon as the company comes under competition and cost-pressure the perks of living there tend to evaporate.

56 Kris March 17, 2015 at 2:13 pm

True, but in Jamshedpur’s case, company-management lasted almost a century. The patriarch of the Tata family, back in the early 20th century, was a supporter of the freedom movement from the British, and wanted to prove a point (that Indians were capable of starting industries and building cities) by establishing a city in what used to be a tribal-dominated forest area. Nationalist-patriotic sentiments were also very strong after Independence in ’47, and industrialists like Tata took their responsibilities seriously. But in the aftermath of the Soviet collapse and the ushering in of market dogma, the company decided to go the cost-cutting way. To Tata’s credit, I don’t think the city ever had an Orwellian atmosphere of the kind company towns in the US used to have (or so I have read, one example being the “closed” town established by Coors in Colorado.)

57 Ali Choudhury March 17, 2015 at 11:37 am

Is this an argument in favour of Delta City?

58 mulp March 17, 2015 at 1:52 pm

A central planner working for government or for a big corporation is still a central planner.

Why would a big corporate central planner do better than a republican government central planner?

And when the big corporate central planner fails, then the matter is turned over to a government technocrat to redistribute wealth based on the centrally planned laws governing property: the bankruptcy judge.

59 jpa March 18, 2015 at 11:42 am

accountability, transparency, ability to be fired for doing a bad job, corp. culture that develops / promotes skills and human capital growth.

60 Peter March 17, 2015 at 2:52 pm

What does “open to all” even mean? Presumably these private cities will have privately owned buildings, apartments, etc, and thus will not be open to people who don’t own them. So does it mean that any and all people will be able to squat in public places, that there will be no loitering laws, etc? But private cities also seem to be about privatizing more of the city space that tends to be public in most cities today. So what exactly does “open to all” mean? Is it just an empty platitude and politically correct marketing gimmick?

61 Peter March 17, 2015 at 3:02 pm

Cities have borders, so private cities would have privately owned and defined borders. I don’t see why then countries couldn’t have privately owned and defined borders, and how this wouldn’t violate your open borders totalitarianism. The private cities could just call themselves countries, and then you’d have countries with border controls. Or countries could just call themselves large cities.

62 Kris March 17, 2015 at 3:32 pm

Well….there used to be “city states” once. Guess they still exist, Singapore being one example.

Now, I’m not an open borders advocate, so I can only take a guess at the logic. Open borders could sort of work if the people who take advantage of them are (1) either skilled and resourceful enough to work and acquire property in their destination country/city, or (2) have no resources and are unable to acquire any; in which case they choose to return to their home areas instead of living on the edge (in the open or in slummy conditions). Now, if people are willing to live in extremely degraded conditions (and anyone who passes by a slum in a developing country can see that many such people exist), then this logic fall through.

63 Peter March 17, 2015 at 3:52 pm

So in other words, it’s not “open to all”.

How is that different from a group of people forming a land trust to own a piece of land privately thus forming a border around the land?

64 Shmul Goldblatt March 17, 2015 at 3:46 pm

Indians need more cities to defecate in.

65 jorod March 17, 2015 at 8:32 pm

Some Indians believe birth control is the most pressing issue facing India.

66 Kris March 17, 2015 at 11:56 pm

Birth control is surely one of the most pressing issues in India. But a bigger issue is the uncontrolled exodus from rural India to urban India. If people were to spread out more, then even with the high population, India can offer decent resources for everyone. But people in the rural areas seem to feel so helpless that they migrate en masse to cities, and are willing to put up with the most degraded living standards instead of moving back to their more spacious villages. So conditions in villages don’t improve, and cities keep deteriorating.

67 ohwilleke March 18, 2015 at 4:50 pm

Sprawling suburbs with homeowner’s associations and special districts in unincorporated territory provide a very good idea of what happens when cities are created by private developers, and mostly the results are not good. Homeowner’s associations are models of poor governance in most cases (and strong opponents of individual liberty for residents). Corruption is also commonplace in the U.S. in these kinds of associations and districts compared to ordinary municipal government.

The experience of company towns, for example, in mining communities, has on the whole been a negative one.

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