Governing SpacesGoverning Spaces

Chris HarrisNorth Shore City CouncilFebruary 2007

Infrastructure and ‘Place-Based Governance’

Common Complaints:

‘Predict and Provide’

‘Lack of joined-up thinking’

How Sustainable is the State?

‘Perverse Subsidies’

‘Major Project-Itis’

Increase ‘Choice’, i.e. Market Substitutes

Problem: Overlooks Complementarities

Complementarities require ‘Voice’

Usual 1980s+ Prescription for ‘Government Failure’ (I)

Complementarities = Interdependences

Increase End User Charges for User FocusAnd Reduced Taxes

Problem: Can worsen ‘structural monopoly’,e.g. through collapse of public transport infavour of automobile

… No simple solution it seems

Usual 1980s+ Prescription for ‘Government Failure’ (II)

Need to Strengthen Citizen ‘Voice’as well as ‘Choice’

Private Sector

Broader PublicSector

Core PublicSector

Increase Citizen‘Voice’

Increase Citizen‘Choice’

After World Bank, 1997

As much due to lack of voice, as choice

‘Predict and Provide’

‘No joined-up thinking’

Common Complaints about the State

‘Perverse Subsidies’

‘Major Project-Itis’

‘Infrastructure’ or ‘Public Space’

Critical Area: The Broader Public Sector

Policy choices made here preload individual choices in the market

‘Where the Rubber Meets the Road’ (pun intended)

Example: Urban Transport

Are Pedestrian – PT trip chains practical?

Do Pedestrians feel marginal or not?

… Policy preloads individual choice

Other Areas of the Broader PS

Broadcasting and Communications

The Health System

Building Standards and Codes

Industry Networks / Development Banks

Two Key Characteristics

• Complementarities inscribed in a community space

• Often increasing returns to scale (network effect / synergy)

Two Key Characteristics of Broader PS:

Shift management emphasis from ‘Silo’ to ‘Space’ (fairly obvious)

Shift funding from Silo Output Metric toCommunity Rent (more subtle)

‘Place-Based Governance’: Panacaeafor the Broader Public Sector?

i.e., Functional Outputs subordinated to Joined-up Community Outcomes

Windfall capital gains to community from service but service gets none of thisand is unable to keep up with demand

Community Rent Concept

Joined-up infrastructure likely to beunderdeveloped if paid for by current users alone

Examples: Waiheke Ferries, Jubilee Line (London)

‘For increasing returns networks, apply community rent to fixed costs, charge end users marginal costs’

Community Rent Concept

William S Vickrey, Nobel Prize in Economics (1996)

Many others with same idea.

Community Rent Concept

Argument is partly economic but also, fairto say, partly moral in nature

‘Land value windfalls created by railways, etc, should remain in the public domain’

‘Land rent pays for fixed capital or serviceguarantee, casual user pays marginal cost’

Community Rent Concept

A form of user-pays that does not implyprivatisation of the public domain

‘Social Market’ / ‘Rational Ecology’

Railway Example in more Detail:

Land value = community rent

Community Rent Concept

Railway (high capacity) paid for by landdevelopment (place-based)

Land value proportional to ‘spare’ railwaycapacity / Tickets cheap, grow patronage.

Charge on both rail tickets and petrol sales, with uncollected land value windfalls

Conventional Self-Funding

More petrol used, funds more motorways.No effective rail alternative now.

Railway funded from tickets = Losses, cuts,in face of car competition (Dr Beeching). Fewer destinations served = collapse.

Community rent = funds complements

Complements and Competition

End-user charge rewards competition

Network competition = winner take all

Classic Cases: VHS versus Beta, Microsoft vs Macintosh. Survival of Beta, Macintosh, PT etc in inelastic niches does not invalidate argument.

Winner take all = ‘structural monopoly’

No incentive to increase capacity ‘too fast’if commercial with uncollected windfalls (broadband? drugs? toll roads? ferries?)

From Competition to Monopoly

‘Predict and provide’ in single mode if public service ethos still applies (e.g. motorways)

1) Community rent thus prevents onenetwork taking over and maintains balance

Community Rent Concept Revisited

Spending of community rentrequires community voice because (1) and(2) are not always compatible.

2) Community rent allows favoured networkto develop more rapidly than otherwise

Urban Transport in General

Privatisation, commercialisation, should be ‘operational’ only

Final Example

Major capital investment in all modes from community rent

Wrap Up

Must back up administrative side of place-based governance with argumentsfrom network economics (Vickrey, etc)

Otherwise, arguments are merely ‘obvious’

… The End