Market Urbanism

Liberalizing cities | From the bottom up

“Market Urbanism” refers to the synthesis of classical liberal economics and ethics (market), with an appreciation of the urban way of life and its benefits to society (urbanism). We advocate for the emergence of bottom up solutions to urban issues, as opposed to ones imposed from the top down.

Cities and the Market Process: Part 1

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In a post about the tendency for emergent urbanists to promote the idea of cities having a single equilibrium, Alon Levy recently wrote that collective choice is the best manner for determining urban form. Many urbanists accept that some of the top-down regulations that limit density or use are detrimental to cities, but they often stop short of suggesting that land use regulation should be abolished and transportation privatized, which I will support here with arguments based in Austrian economics. This post does not get to a critique of the collective choice that Alon supports; later entries in this market process series will address both the problems of creating urban policy through collective choice, and some of the institutions that have emerged within civil society that are essential to cities and their residents.

The cohort of economists and urbanists who support the elimination of land use regulation is small because cities present all of the problems that neoclassical and Keynesian economists describe as market failures, including externalities, high transaction costs involved in Coasean bargaining, non-excludable goods, etc. However, I believe that emergent solutions solve these problems more effectively than either central planning or collective decision making that becomes law, and the failed and inefficient government projects that urbanist bloggers write about everyday suggest that government failure is no trivial concern.

The first reason that regulation is a poor tool to for determining urban form comes from Friedrich Hayek. He clearly identified the calculation problem inherent in central planning: the information necessary to coordinate markets (including land use markets) is held by individuals with “particular knowledge of time and place.” Even assuming that urban planners are benevolent and seek to provide the best outcomes for their communities, they could never compile the knowledge necessary to determine what those outcomes are. Jane Jacobs identified the same problem in city planning that Hayek found in market planning because cities and markets are both emergent systems that coordinate human activity. She even coined the term “locality knowledge,” seemingly unaware of his writings on “local knowledge.” Of course urban development involves intense planning, but it should be done by entrepreneurs and consumers, who have the information necessary to make these decisions rather than bureaucrats. For anyone who hasn’t read Hayek previously, his essay “The Use of Knowledge in Society” provides a concise look at some of his most important insights.

Aside from the knowledge problem facing land use planners, another major reason not to forsake the free market for the planning commission is that planners do not have access to the feedback mechanism of profits and losses. Israel Kirzner, a scholar of Ludwig von Mises details the theory of market process most clearly in Competition and Entrepreneurship. He explains that unlike government entities, entrepreneurs get quick and accurate feedback on their products. If, for example, high-density apartments in a mixed-use neighborhood with good access to transit are renting well (as urbanists across the political spectrum tend to think they will) other entrepreneurs will see these profits and provide more of them to take advantage of this profit opportunity. If on the other hand, a certain style of housing in another part of town is not selling well and the entrepreneur is making losses, this development will not be systematically repeated as it might be under central planning (see: parking mandates that are higher than the free-market level, poorly designed public parks, public housing projects surrounded by open space).

Critics of free market urban development may argue that this system will produce less-than-perfect cities, so city planners should step in to make improvements. The Austrian response is that of course the free market cannot produce utopian cities, but no other system could do better. Believing that a regulated city would be superior to the market outcome is succumbing to the Nirvana fallacy. Markets aren’t perfect, but they’re the best we’ve got.

A blog post is clearly insufficient for explaining the knowledge problem and the market process that it took Austrian economists Mises, Hayek, and Kirzner many years and thousands of pages to work out, but I hope to expand and clarify on this subject of why regulators do not have access to the tools that are necessary to design cities. For a more detailed look at some of the areas where private cities would likely fare better than our current system, see Adam’s series on Rothbard the Urbanist.

Comments

  1. While Jacobs rejected the sorts of heavy-handed plans commonplace at the time–slum-clearing, government-run housing projects for the poor, etc., and likely would agree with you that Grand Planning (by which I mean detailed prescriptions on how an urban area ought to be structured) is fundamentally flawed (and I tend to agree); she certainly wasn’t against all government intrusion into such matters.  She was opposed to redlining–a private-sector (albeit sometimes state-encouraged) practice which is (thankfully) now banned; and she wrote at length about the need for some state regulations to prevent the race to office-monoculture which frequently occurred in successful neighborhoods:  as the real estate gets more valuable and extensive; it becomes increasingly occupied by wealthy, prestige-driven commercial enterprises such as banks and other financial companies; who crowd out other uses and thus rob the neighborhood of its former vitality.  Many downtowns have succumbed to this problem, including that of DC.  Jacobs proposed use of government power to (including things like building height restrictions) to keep such monocultures from taking root; though the instruments she discussed were things like building-height restrictions, rather than detailed plans stating who may build what where.

  2. The main distinguishing aspect of free market planning – its speed – is both a feature and a bug in this case. Buildings last a three-figure number of years, or at least used to, and even today’s crappy prefabs last 40-50 years. A lot of greenfield development, in particular the suburban mall, wasn’t even profitable for the private sector until accelerated depreciation essentially had older buildings and non-building capital investments subsidize newer buildings.

    Conversely, where consensus-based decision making is a problem is where the problems are short-term. New York, San Francisco, and other expensive cities need buildings not 50 years from now, but today. That’s why I on the one hand oppose most zoning (most, since separating polluting industries from residences counts as zoning), and on the other hand think that city planning with respect to infrastructure, street layout, and public developments should be done by consensus. The idea is that it combines the best features of both approaches.

  3. Right, I didn’t mean to imply that Jacobs didn’t support any zoning, just that she saw the knowledge problem in cities.

  4. Very nice post! I am a Spanish student currently attending a Master’s programm in Austrian Economics in Madrid. I am also very interested in the history of cities, their development through time, their architecture and structure and their role as crossroads of the economy, being the most tangible aspect of the market’s spontaneous order. During the summer I was lucky to find a Spanish edition of Jacob’s “The Death and Life of Great American Cities” and I fell in love with the book. For the first time I was reading many things that I was already thinking about regarding the efficient and healthy functioning of cities, conclusions that I had derived from my travels through Europe. Jacob’s point of view was also unexpectedly libertarian and the reading was very very enjoyable. It is interesting that the book was written during the suburbanization of America of the 50s, 60s and 70s and the ruin and death of the once lively downtowns. Even NY hit bottom during the 70s and it seemed that the city would share the same fate as the rest. Government intervention in urban planning, land use, public housing or rent controls along with devastating housing bubbles artifically created by the central banks credit expansion are killing cities all over the world by creating urban sprawls shaped by anti-urban regulations. But the most important lesson is that socialism means homogeneity, coldness and ugliness. If you go to the outskirts of London, Madrid, Paris or NY you will see Radiant cities with grey and tall buildings in endless rows, all the same. If you go to former communist cities such as Moscow, Warsaw or Shangai you will see the same dehumanisation surrounding beatiful city centres built in the golden age of the late XIXth and early XXth centuries. That is, during the twilight of laissez faire capitalism.

  5. I find the whole premise here to be a bit misleading.  In a lot of cities, zoning and land use regulations may be codified by a single entity, but that’s hardly how decisions get made.  Here in DC there are a ton of different stakeholders who get involved in development and land use decisions and shape and influence how the market is structured.  Community groups, ANCs, historical preservation types, tenants associations, condo boards, etc. all provide input on these decisions.  The inefficiencies this creates are not the result of central planning, but rather the result of a lot of different constituencies negotiating an outcome.  Hayek and the Austrian economists were concerned about the emergent socialist and communist political trends of their era and how a small group of people couldn’t effectively plan a macroeconomy.  It’s not to say that these ideas don’t have anything to teach us about urbanism (I think your thoughts on prices and parking are spot on), but the idea that the regulated market in the modern American city is the same as a centrally planned market is false.  More important than some sweeping philosophical debate about the role of government, we need a more tactical analysis about different kinds of land use regulations and their impacts, intended and unintended.  To scrap these regulations is not necessarily to surrender to the wisdom of the market but rather to the whims of well capitalized builders, who are always going to have the characteristics oligolopy (and in a hyperlocal sense, some may even be natural monopolies) because of the high fixed, low variable cost structure in the market for buildings. Zoning and land use regulations can be very very bad, and we need better ones, but your characterization of the debate as ‘central planning’ vs. ‘the wisdom of the market’ just isn’t based in reality.

  6. Hayek and the Austrian economists were concerned about the emergent socialist and communist political trends of their era and how a small group of people couldn’t effectively plan a macroeconomy. It’s not to say that these ideas don’t have anything to teach us about urbanism (I think your thoughts on prices and parking are spot on), but the idea that the regulated market in the modern American city is the same as a centrally planned market is false.

    I think we’ve (and many other people) have presented some strong evidence that Hayekian emergent phenomenon is very relevant to top down planning of all sorts. Could you elaborate on why you are so certain that cities are not subject to the same phenomenon as other centrally planned institutions? It would help to know where the ideas fall apart, so we don’t further perpetuate any falsehoods.

  7. I don’t think cities can’t be subject to this phenomenon.  Central planning royally screwed over much of DC east of the Anacostia River in the mid-20th century.  What I object to the idea that all zoning and land use regulation necessarily amounts to central planning.  Businesses and consumers in all markets have to follow rules.  That’s not necessarily equivalent to central planning.  For example, limits on impervious surfaces exist in some cities because the pricing mechanisms in the real estate market don’t account for the social cost of storm water runoff. The public sector intervenes to protect rivers, groundwater, etc. because they are public goods.  That doesn’t mean these rules can’t be poorly designed or abused, but it’s not central planning.  I think the conversation needs to be geared more towards finding the right balance in establishing a decent set of ‘rules of the road’ in the market for land use while allowing the market the function.

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