Governing Spaces Chris Harris North Shore City Council February 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 Focus And Reduced Taxes Problem: Can worsen ‘structural monopoly’, e.g. through collapse of public transport in favour 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 Public Sector Core Public Sector 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 to Community Rent (more subtle) ‘Place-Based Governance’: Panacaea for 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 this and is unable to keep up with demand Community Rent Concept Joined-up infrastructure likely to be underdeveloped 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, fair to 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 service guarantee, casual user pays marginal cost’

Community Rent Concept A form of user-pays that does not imply privatisation 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 land development (place-based) Land value proportional to ‘spare’ railway capacity / 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 one network taking over and maintains balance Community Rent Concept Revisited Spending of community rent requires community voice because (1) and (2) are not always compatible. 2) Community rent allows favoured network to 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 arguments from network economics (Vickrey, etc) Otherwise, arguments are merely ‘obvious’ … The End