Monthly Archives: February 2013

City in a box

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A manual for building cities? A guest review by Philip Thornton

The role of cities in local, national and supranational areas is becoming a key focus for economists. More than half of the human population now lives in an urban rather than rural environment, as the  UN has repeatedly warned although some (pdf) quibble with the definitions.

As a result there is a greater focus by economists on both what the impacts of this shift are and will be, and also on how one should think about ways of ensuring that this process of urbanisation bring greater human well-being rather than simply larger slums and greater potential for worse epidemics or civil conflicts. Perhaps the best –known example in this direction is Paul Romer’s proposal for “charter cities”.

Now a new book has drawn together essays by, or interviews with around 30 planners, architects, politicians, urban designers and city managers. Well not so much a book as a magazine, but at 140 A4 pages its word count would match the length of a similar book on the issue.

It is issue number 34 of a magazine/book called Volume, published by ARCHIS, a Netherlands based publisher and the C-Lab at Columbia University in New York, and is called City in a Box. ([amazon_link id=”9077966331″ target=”_blank” ]Back issues of Volume[/amazon_link] can be found on Amazon.)

City in a Box

In its editorial it makes clear that its focus is on the entities that are taking the initiative, making the decisions and establishing the governance of the new towns that are needed to meet the demand from a rising and increasing city-seeking population.

As editor-in-chief Arjen Ossterman says: “The general tendency is that companies instead of governments and their planning departments are starting to create and run cities – the full package or ‘city in a box’.” This will certainly ring bells in the UK which may not be building new towns but is looking at the private sector to design, fund and own the infrastructure needed to keep our existing, creaking cities going.

The book is thick with detail and plans and covers new cities across the world – and especially the emerging world. A fascinating map shows there are precisely four new towns  built or proposed since 1990 in Europe – including Strand East in the former London Olympic Park. There are 600 in China and India alone.

Michelle Provoost, director of the New Towns Institute, points out that in establishing new towns, emerging economies are only coping what the UK in particular did after World War II to build “neighbourhood units as structural principle” such as Milton Keynes and Welwyn Garden City. But she points out than the driver this time is not post-war desolation but a desire by the enriched middle and upper class households for new high quality living. The new “new town” is very much a commercial product.

The interviews and articles are interspersed with “tips for building a new town”, which include advice such as replicating your product and designing the post card image. Confusing the tips also include the possibly contradictory messages to “find multiple ways to profit” and “find justification other than profit”.

But perhaps the most interesting section for economists is the one of governing the city as it raises  issues of ownership, division of responsibilities and public goods. Scot Wighton, city manager of Lavasa Corporation that is building a private, planned city in Pune, India, points out that Lavasa is not yet a town under Indian law. This means that while he has responsibility for water, sewage, power, has transport, parks and many more things, he is accountable to the corporation president. As a result there is no power to tax or establish a public health authority. He acknowledges that it is not possible to have half a million people living under the rule of a company for ever and that transition to state ownership will come.

But in the meantime he highlights a real concern among investors over the security of their assets. The only way to make this assurance is through devolution of some authority, he says. “So how can we do that and still fit into the context of an Indian democracy? I think we have a way to do it but…until it happens we have this quasi-public-quasi-private city.”

A chart showing the structure of ownership and control of new towns such as Strand East shows that the London Borough of Newham is just an investor while the developer is a private company, LandProp Holdings BV. Welcome to a brave new world.

Overall it is primarily a publication for architects and urban designers and, at €19.50 an edition, carries a hefty price tag. But considering the growing importance of the study of economics geography and spatial economics in the UK many of the growing number of students, teachers and practitioners in this field may feel it worthwhile.

One small quibble is that the page numbers are right next the middle centrefold so makes it hard to flick through to the page you are seeking.

Phil Thornton is lead consultant at Clarity Economics. www.clarityeconomics.com

 

All-powerful economists?

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There are really two separate books rubbing shoulders in [amazon_link id=”0857284592″ target=”_blank” ]Economists and the Powerful: Convenient Theories, Distorted Facts, Ample Rewards[/amazon_link] by Norbert Häring and Niall Douglas.

One of them is a clear and well-made case that modern economics has been in error in ignoring the part played by institutions, politics and power relations in actual economies. It has chapters covering the acquisition and abuse of power by the financial services industry, the distortion of business in the interests of executives rather than customers, employees or shareholders, and the increasing concentration of the US economy through merger waves. Although many or most professional economists who work in business or regulators or consultancy have always been well aware of institutional detail, I think it is fair comment that academic economics overlooked the reality of markets and economies for too long. I’d also add that this has been changing quickly, with the rise over 20 years of institutional economics, behavioural economics etc (see [amazon_link id=”0691143161″ target=”_blank” ]The Soulful Science[/amazon_link]) – but there is further to go.

The second book within this set of covers is more tendentious. It is a history of economic methodology in the first chapter (I must say, I’d have put this at the end if I’d been the author). While the authors land some punches, and make some good points about the way theory shapes reality (see my Tanner Lectures on this question of performativity), they are too conspiracy theorist about it. The original spin-meister Edward Bernays is wheeled out, along with the Inside Job accusations that the financial crisis came about because some economists were paid to write a report by the Icelandic government. Although many economists in universities do paid consulting work – and should certainly declare it when they publish their work – I don’t believe there is signficant distortion of what gets published as there seems to be in the case of pharma companies and medical research. The economists simply have a much wider choice of options, and are not beholden to one set of powerful business interests. There would be something interesting to say, nevertheless, about the narrowing of economic research as published in mainstream journals – I just don’t believe it’s as crudely marxist as suggested here. Similarly, the way economic theory and practice developed from the 1940s to 1980s was certainly bound up with the wider ideological/political climate (like any social science discipline is sure to be), but not in such a purposive way. I think the messy sociological reality of the profession would be far more interesting to understand than the ideological, top-down assertions presented in this book.

Still, it’s an interesting read. The argument that marginalism, the refusal to compare individuals’ utility and rational choice added up to the inevitable demotion of interest in economic institutions is quite interesting. Besides, I’m all in favour of economists continuing to introspect for at least as long as the world economy remains in such a fragile state.

[amazon_image id=”0857284592″ link=”true” target=”_blank” size=”medium” ]Economists and the Powerful: Convenient Theories, Distorted Facts, Ample Rewards (The Anthem Other Canon Series)[/amazon_image]

Class consciousness

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I’ve started reading Owen Jones’s [amazon_link id=”1844678644″ target=”_blank” ]Chavs: The Demonization of the Working Class[/amazon_link], my follow up to the excellent [amazon_link id=”1847087027″ target=”_blank” ]Estates[/amazon_link] by Lynsey Hanley (I reviewed Estates here). Two chapters in, Chavs describes examples of that demonisation of the working class (white British and non-white and/or immigrant). Some of the examples he quotes from posh, mainly female journalists are staggeringly crass and awful. I hope he includes later more about the interplay between socio-economic class and culture – just as in the days of ‘U and non-U’, part of the demonisation is mocking the cultural differences. My northern working class family had ‘settees’, although obviously I’ve made it to the ‘sofa’ class myself.

[amazon_image id=”1844678644″ link=”true” target=”_blank” size=”medium” ]Chavs: The Demonization of the Working Class[/amazon_image]

Class has been overlooked for too long in public political and cultural discourse. It’s always seemed clear to me that you can’t discuss, for example, the role of race in society without considering how race and class overlap. It seems the increase in inequality may have made it permissible to bring the subject up again, although I note that many people are still more comfortable talking about ‘the 99 per cent’ or ‘low-income families’ than about ‘the working class’ or even ‘poor people’.

I’ll review Chavs later in the week.

Where *do* banks get their money?

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Yesterday I attended an interesting session trying to identify specific reforms to the banking system – competition policy, regulatory change, consumer-facing advice and so on – run by the Finance Innovation Lab. The event ran under the Chatham House Rule so I can’t be specific about who said what. There were some very thoughtful comments, however.

– there are large (private) economies of scale in finance but large (social) diseconomies of scale. How should competition and other policy interventions change to reflect the latter?

– financial services lies at the bottom of the Edelman trust barometer, tech companies at the top. Why this contrast, when finance is also an IT-intensive information business – what does it tell us about finance?

Edelman – trust in industries

– is low trust an opportunity to bring about change?

– the big incumbent UK banks simply can’t lend to SMEs as they’re too big. If Lloyds wants to grow its £1 trillion balance sheet by a modest 5% a year, it will be looking to lend to hedge funds, not people or small businesses.

– the cost of financial intermediation has not fallen despite the growth in the finance sector; Thomas Philippon’s paper ‘Has the US finance industry become less efficient?’ was cited.

I can talk about my own contribution, which was my usual riff about competition: UK (retail) banking is not a ‘market’ as there is no entry and no exit, only failed or unprofitable new entrants; the incumbent UK banks’ back-book of inert deposits combines with other barriers to make entry impossible, and they might need to be broken up, not just into retail and investment banks, but into smaller units altogether; banking is the only dinosaur industry not yet made extinct by digital disruption, but it’s ripe for this – if only regulators will make it possible for new technology-based entrants with entirely different business models. I’m not wildly optimistic about this. The regulators know this in principle but they don’t have the understanding or staff or contact with new start-ups to enable it.

Another speaker was Professor Richard Werner of Southampton University, whose contribution I can describe because he’s published it in [amazon_link id=”1908506237″ target=”_blank” ]Where Does Money Come From? A Guide to the UK Monetary and Banking Sytem[/amazon_link]. He  talked persuasively of the need for regional or local institutions with detailed knowledge of local businesses. He also quite rightly pointed out that almost nobody understands money, not least because all the textbooks he has ever looked at get it wrong (I agree!). I didn’t buy his argument for centralised, state-owned money creation. But I’ll read his essay in the book to give the argument a chance.

[amazon_image id=”1908506237″ link=”true” target=”_blank” size=”medium” ]Where Does Money Come From?: A Guide to the UK Monetary & Banking System[/amazon_image]