As promised, this post examines what a maximally-empowering system
of infrastructure policy might look like. The basic principle is fairly
straightforward: if it can be done by
private companies, then it should be
done by private companies. Why? Because as we have discussed in many other
posts, market-incentivized, competitive private businesses are generally better
at giving the consumers what they want than monopolistic,
politically-incentivized governments.
So, can private
companies indeed be given responsibility for our infrastructure? Big government
proponents will respond in the negative, arguing that because infrastructure is
a ‘public good’, whose benefits are more difficult to monetize than the
‘private goods’ on the private market, it must be provided by the government,
rather than by profit-seeking enterprises. Actually though, the benefits from most
infrastructure can be monetized relatively easily, and hence it can be provided
by a profit-seeking private business. In this post, I will show how.
Long-distance infrastructure
We begin with long-distance infrastructure, which includes
highways, railways, and pipelines. With these, monetization is quite simple:
just charge people based on how much of it they use.
What’s a bit more complicated is securing the property
necessary to build this kind of infrastructure in the first place. Building
this kind of infrastructure requires the builder to have ownership of, or right
of way over, a large stretch of contiguous land parcels. Most land owners along
the proposed route will be willing to negotiate a mutually advantageous
right-of-way deal with the builder, but there is always the chance of a few
stubborn holdouts who refuse to make a deal at any price. This small minority
could render the builder’s infrastructure plan unfeasible.
What’s to be done? Well, here, the government could usefully
intervene a little. If they deem the project to be in the country’s economic
interests, they could use their power of eminent domain to force the holdouts
to sell rights-of-way to the builder. Because it is a compelled sale, the price
should be set at twice the going market rate, in order to compensate the
reluctant seller for their loss, and in order to prevent overuse of this
provision. While it is true that this would deprive the holdout of a great deal
of power over his land holdings, it will most likely be outweighed by the
economic benefits (and corresponding increase in general purchasing power),
provided by the project.
This problem aside though, there is really no need for the
government to take any other role in the provision of long-distance
infrastructure. Private business can do it just fine.
Urban Infrastructure
Now we come to another category of infrastructure: urban
infrastructure. This includes roads, sewers, parks, powerlines, neighborhood
rules (non-physical infrastructure), garbage collection, etc… Monetizing the
benefits from this kind of infrastructure is a little more challenging than it
is for the long-distance variety, mainly because it is so intertwined with
people’s homes and neighborhoods. But therein lies the key to its monetization:
it’s price should be included in the price of a home!
Here’s how it would work. A whole neighborhood (or district)
would be owned by a single landlord (or condominium association). The landlord
would rent out individual buildings to people, in exchange for a regular
monthly payment. The landlord would use part of these payments to maintain the
infrastructure of the neighborhood. Why? Because it’s part of the product that
he’s selling! The nicer/more functional the neighborhood’s infrastructure, the
more the landlord will be able to charge for the privilege of living in that
neighborhood. In order for his neighborhood to remain competitive with others,
it is in the landlord’s interest to provide the best possible infrastructure
for the amount of money that tenants are willing to pay for it.
Some may object that, under this arrangement, the
neighborhood landlords are given too much power, while the residents are
deprived of the power that comes with independent home ownership.
Unfortunately, independent home ownership and city living are incompatible. In
the current system, people have the illusion
of being independent home owners, but actually, it is more accurate to say
that they are in a condominium arrangement. The local municipal government is
like a condominium association, which, like such associations, is elected
democratically, levies condo fees (property tax), and controls the condo’s
(city’s) infrastructure.
In the private neighborhood model, there exists the option of
organizing the neighborhood on a condominium basis, where residents have
limited ownership of their individual buildings and the infrastructure is
maintained by a pseudo-democratic condominium associations, via condo fees that
they levy from individual residents. Some people will prefer this arrangement
as a way of feeling more in control of their neighborhood, although it is
unlikely that condominium associations will be as responsive or attentive to
consumer demand as a profit-seeking landlord.
Cross-neighborhood
infrastructure
Some kinds of infrastructure (such as sewers, subway tracks,
and power systems) will have to go through and service multiple neighborhoods
in order to be effective. If these neighborhoods are owned by different
landlords though, won’t there be a problem of coordination? Perhaps a little,
but it is in the best interests of the landlords to collaborate effectively on
these matters. Why? Because just as whole industries compete against whole
other industries for the consumer’s dollar, so would cities against other
cities. It is often in the interests of the major, competing players in an
industry to work together in order to achieve something that will benefit the
industry as a whole (such as a specific law or policy change). Similarly,
competing, neighborhood landlords in the same city will tend to work together
to make the city as a whole more attractive, as doing so is in both of their
interests (they can attract tenants from other cities, and then raise their
prices due to the extra demand). If collaborating on a sewer, power, or subway
system is what is necessary to do so, chances are that such collaboration will
be forthcoming.
Power analysis of
private infrastructure system
So, private parties can indeed provide all of the
infrastructure that governments provide. But is it desirable that they do so? Yes,
it is; for a number of reasons.
Firstly, private businesses will provide better and more
cost-effective infrastructure than governments. This is because, unlike
governments, they are incentivized and competing with one another to do so. This
will increase the purchasing-power of just about everyone in society.
Secondly, private businesses will allocate their
infrastructure spending based on the anticipated priorities of the consumers, rather than the priorities of
the government. Since one has far more
sway as a consumer than one does as a political voter, this is a net positive
for power levels.
Thirdly, the private neighborhood model for urban
infrastructure will offer consumers of residential housing more choice than the
municipal government model. Many neighborhood landlords will likely try to tap
a niche market by offering up a distinctive ‘neighborhood experience’. There
would likely be artist neighborhoods, professional neighborhoods, ethnic
neighborhoods, ritzy neighborhoods, religious neighborhoods, child-friendly
neighborhoods, more neighborly neighborhoods, etc… Each of these would have
their own distinctive sets of rules, aesthetics, types of communal spaces,
services, etc…; designed by the landlord to appeal to the distinct target market
for that neighborhood.
This contrasts with the municipal government model, where the
whole city is under the sway of the one, slow-moving institution. While there
are still distinct neighborhoods, the rules and infrastructure choices are not
really designed to appeal to specific target markets, or at least not as
effectively as they would be in a private system.
Since the private system provides people with more choice, it
also provides them with more power. It provides people with a better opportunity
to live in the kind of neighborhood that suits their own, individual
preferences. It thus provides people with more power over their surrounding
environment; one of the most important kinds.
Transition plan
How would one go about transitioning from the current system
to the proposed one? The municipal government would just need to slice the city
up into reasonably-sized neighborhoods, then establish a condominium
arrangement, governed by a standard contract, in each of them. The contract
should have a provision, like most existing condominiums, where if some kind of
supermajority (usually 75%) agree to sell their interests to a buyer interested
in the whole neighborhood, then the holdouts can be forced to sell as well.
This would provide a mechanism for converting a neighborhood into a
landlord-tenant model, if enough people agreed.
Objection: bad for the
poor
An objection that could be raised to this system is that in
it, people will have to pay for all of the infrastructure benefits that they receive,
rather than in the current system where the government pays for it via taxation
and then gives it away for free. This will be especially hard on the poor.
In response, I would say that if private businesses can do
something far better than governments can, then they should, even if the
government option happened to subsidize the poor. This is because there are
more effective ways of subsidizing the poor: just give them some money, and
then they too can access the far-superior private system. There’s no sense
opting for an inferior system just because of a few poor people: just go with
the better system, and then help the
poor get what they need from it. And in this case, the private infrastructure
system will be much better than the
government one; I guarantee it.
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