PRIVATE CITIES PART 3: CENTRALIZATION AND TRANSACTION COSTS

Transaction Costs

In order to understand why Gurgaon failed to provide centralized or coordinated solutions to utilities and services we will have to examine the role of transaction costs.  First off as we know Gurgaon had no municipal body and was developed primarily by private hegemonic entities.  These entities planned and built both commercial and residential districts which eventually attracted large multinational corporations to invest in the region.  From the results it is clear private developers don’t have many incentives to cooperate.  Further as they are building their developments they begin to create a web of property rights which don’t necessarily align with natural pathways for utilities.  Building a highway a major city requires massive amounts of reshuffling of property rights.  Actors have incentives to hold out due to the knowledge of that the project can’t proceed without the purchase of their property.  Private companies don’t have the advantage of eminent domain either. Even if some company wanted to build a water system which could serve the entire city the negotiations alone would threaten the project.  It is for this reason that infrastructure is much cheaper, and therefore more likely to be built if it is planned and built in advance.

“Compare Gurgaon’s development with that of New York. In 1807, at a time when only the southern tip of Manhattan was urbanized and the population of New York City was just 85,000, the Common Council of the City of New York created a commission that laid out roads and public squares for the entire island (Angel, 2012). The commissioners planned for a sevenfold expansion, an expansion that would not occur for many decades (the population of the planned area would eventually number over two million). When Manhattan did expand, however, public rights of way for streets, sewers, parks, and other urban infrastructure had already been provided for, greatly reducing the cost of expansion. In essence, the Common Council planned the future rules of the game behind a ‘veil of uncertainty’ that gave them stronger incentives to plan for efficiency and the common good. Once the veil is lifted, however, the constitutional moment is lost (Buchanan and Tullock, [1962] 1999).” Lessons from Gurgaon

Is Manhattan perfect? No, but it certainly is doing better than Gurgaon.  A great deal of the difference is due to the orders of magnitude delta in wealth and different fauna.  Yet it is clear though that Manhattan could have easily been hamstrung by poor coordination halting its natural expansion.  As wealthy (per capita) as Gurgaon is even relative to Delhi it cannot post facto plan its development.  Pre-planning lowers transaction costs and creates predictable development.  Predictable development helps coordination and planning.

There is a cost to using the market, the higher the number of actors the higher the cost.  Building highway through a city is not speculation (though it may not be profitable).  It is obvious to everybody that it will implicitly increase property values around the highway.  It is also obvious that any one actor could hold up the entire process by defecting and essentially using blackmail.

Mapping the Cathedral: ONE Annie Besant

Annie Besant

Lived: 1847-1933

Hobbies: Feminism, Unions, Socialism, Atheism, Writing for Papers, Education, Theosophy, Nationalism, Anti-Colonialism

click map for larger image

Information dredged from Wikipedia

Private Cities Part 2: Decentralization and Economies of Scale

Decentralization and Economies of Scale

Generally speaking cities benefit from economies of scale.  These economies of scale produce complex and expensive infrastructure that wouldn’t necessarily exist in smaller population centers.  Given both the calculation problem and the nature of the incentive structure of municipal bodies there is a tendency to under produce infrastructure.  There are some exceptions.  Some countries have made it a goal to export, and therefore overproduce infrastructure.  The vast majority of municipalities under-produce infrastructure, to the point where users begin to bear social marginal costs.  This is usually because either entry is free or the cost of entry is too low.  When the private marginal cost does not meet or exceed the social marginal cost each additional user gains more from using the commons than not using.  Ergo traffic etc.  In addition because most major developments require legislative or regulatory approval, infrastructure develops at the pace of politics not market demand.  The actual average social cost varies depending on the magnitude of under production.  From brown outs, to traffic taking days to move miles, to waiting a week for a drop of water there is plenty of sorrow at the bottom of the governance barrel.  For the best countries the worst indignities are bad traffic and a long commute.

“Wise and forward-thinking political institutions and actors greatly reduce the cost of the urban transition by planning and reserving, in advance of development, space for future streets, sewage, electricity (underground access), and parks.  With advance notice of where sewage and other access points will be placed, private developers can plan to link to the main sewage lines even in advance of their provision.  Unfortunately, the developing nations where much of the urban growth will occur do not have a successful history of advance planning.  Indeed foresighted, capable, independent, and uncorrupted bureaucracies are rare everywhere.” [Emphasis Mine] Lessons from Gurgaon

Though hegemonic actors continued to develop private infrastructure in Gurgaon there quickly developed a tragedy of the commons when it came to public utilities.  Infrastructure in Gurgaon is generally spot-on as long as it is serving hegemonic actors, however outside corporate campuses utilities quickly developed into a disaster.  Exactly which bureaucracy was responsible for public utilities was not clear.  Gurgaon existed in a bureaucratic no-man’s land when it comes to utilities. Unlike land sales and permissions there are fewer rent-seeking opportunities from increasing the supply of utilities.  To boot there was no one with the clear authority to rent seek anyways.

Private Cities: Centralized and Decentralized Part 1

Private Cities: Centralized and Decentralized

The following post is heavily based on “Lessons from Gurgaon, India’s private city” by Shruti Rajagopalan and Alexander Tabarrok.  This article is so dense and packed with good information that I cannot help but suggest reading in entirety.  Note that if you do much of the content of this post will be redundant; it is easier to point out the things that I will leave out than what I leave in.  If you decide to rely on my impressions instead of going it alone please continue reading.  

So what exactly happens when a city builds itself?  Obviously a city building itself is an abstraction.  To be more specific, what happens when people build a city without either A) a municipal body or B) a single owner?  Well to understand the effects of lack of centralized control/standards we’ll need a control.  Preferably our control will be geographically proximate, and have similar fauna, a similar economy and political climate. We’re in luck!  Nirvana has struck and we have two cities in close proximity with two different central structures.  No I didn’t find them Shruti Rajagopalan and Alexander Tabarrok did.  Give them a round of applause.  So let’s dive into the story of Faridabad (our control), and Gurgaon(test case) in the state of Haryana India.   

“Gurgaon was little more than a village in 1979, when it was split administratively from the more populous and developed are of Faridabad in Haryana…Faridabad has struggled while Gurgaon has thrived, riding a wave of post-liberalization growth and becoming an information technology (IT) hub and one of the fastest growing urban centres in India.” Lessons from Gurgaon

Let’s Be Moderate: Blue Pills soaked in Red #14

Extremism gets a bad rap in the press.  It’s become a slur for anything that’s too far gone or too partisan.  So in honor of sanity let’s explore being moderate.  Obviously if the wrong thing to do is be extreme the right thing to do is be moderate, right?  To start off, a clearly moderate thing to do is compromise.  Moderates should not allow partisanship to stop things getting done.  In any dispute if you want to establish trust you must compromise in good faith.  Occasionally there are binary situations but those are few and far between.  Often you can find a work around.  Why then is compromise so hard?  Well some people have principles, no goes for what they believe in.  I know it’s hard to understand in 2015, but some people tend to act based on those principles.  Sometimes even people without principles act on principles.  Why, because not compromising might cost them little, but give them a gain in signaling to their chosen audience.  There are a number of incentives for not compromising but let’s take the principled path (the principle that moderation and compromise are preferable to extremism).

Dear Kulak,

In the glorious year of 2015, I write to you as a fellow traveler a bit scarred by modernity.  We were all raised in a strange time in history and to some extent it has touched us all.  It has affected some of us more than others, but we are all children of Massachusetts.  This post is a confluence of thoughts: how we deal with the external world AND writing a sort of summary of some of the ideas from the book Anathem.  Now more than ever it seemed appropriate to share both Neal Stephenson’s fantastical conception of a scientific monasticism and my own suggestions what is to be done in the real world in the near term.

Caligula’s Council Episode One: From the New World

See my co-host HERE: https://countnothingface.wordpress.com/

See my co-host HERE: https://countnothingface.wordpress.com/

What if We are Wrong? Blue Pills soaked in Red #13

Welcome to the glorious year of 2015.  Humanity has progressed so far in the past 200 years and especially the last 50.  So much of how we judge our progress has actually been thanks to government, but how much does that really matter to you?  Do you show up at a government building every day to receive your daily dose of fun?  Do you bring your life sized Uncle Sam doll with you to the movie theater?  Does the government raise your kids and give them lessons in morality and how to be a good citizen?  Despite our poverty of interaction with the government we recognize it as the great good that has pushed us forward past many of our issues and inequities.  There is still more to do but maybe it is time to reflect on our awkward, meandering, strange, benevolent beast we call government and observe all that we have accomplished. The first step to any honest analysis of the state of things is to try and prove ourselves wrong.  After all if we cannot defend ourselves, what are we but bumbling chimps that just happened to strike gold?  Worse yet, what if our luck runs out and we hit a vein of carbon monoxide?  So what if we are wrong? Let’s take a look at this bizarro world and see what we can learn.  What hidden risks might there be, is the canary still breathing?

Rehabilitating the Slippery Slope

The slippery slope is an often derided phrase in the modern vernacular.  It is commonly asserted as a fallacy though even La Wik will admit that there is nothing inherent to the concept that is fallacious.  The unpopularity of the argument probably has more to do with who tends to make it than what is being said.  After all one of the most pervasive explanations of why we can’t have nice things ( ethno-nationalism, persecution of communists etc.) in the West is if we do this one thing it will lead to Nazis.  As per the usual inherent dishonesty of the Cathedral, the slippery slope metaphor is never invalid for the things they want to push.  The slippery slope argument is fundamentally a conservative one.  It is an argument made on when a party is attempting to preserve the status quo.  The left often uses it to preserve the status quo of the anti-nationalism, while the right often utilizes it in attempts to prevent further popularizing of various perversions.  Once something has become canon in a nation’s civil religion making the slippery slope argument about it is no longer even considered.  To make an argument that social security is a slippery slope would be absurd.  That doesn’t mean it isn’t true, but that anything uphill of the present state of society is reactionary.  The chain of the events of a slippery slope argument is almost always prefaced from the present state.  It is therefore in practice conservative.

Cultural Memory and the Unprincipled Norms

As much as human society in the past century has attempted to be humane, it seems that one cannot excise human nature from the humans.  Problems which some have imagined have been removed from human history crop up at inopportune times as often in the enlightened countries as in the dark backwards corners of the earth.  For all our pretensions what if those aspects of human nature we thought to have banished to the back of our culture become a necessity again?  What if those aspects of human nature are unleashed but this time we can no longer control them?