In the last post, I argued that government is a bad manager of urban neighborhoods because government is unitary and neighborhoods are diverse and benefit from diverse approaches. In this post I will argue that neighborhoods are especially hurt by a government that is democratic. This realization surprised me.
Democratic governing is, first, inherently short-sighted. Every government official is concerned about his legacy, to be sure. But his legacy is not really that long-term of a concern: most people do not get into governing until late in life, the others move on to other things after they finish. Even Mayor Daley only headed Chicago for twenty-one years (1955-76), and if you pay any attention to urban issues, you know that it takes a lot longer than that for policies to play out.
Did Chicago's housing projects help or hurt the minorities that were put there? Did the ethnic groups Daley helped shuffle from the cities to the suburbs assimilate in a healthy way? What habits does welfare instill in children? These are major issues of Daley's mayoralty, and I do not think 1976 (when he died) was soon enough to know all the answers. Fundamentally, a politician in a democracy is concerned with getting re-elected, not with how his policies will affect the city fifty years down the road.
Strangely enough, I think developers -- capitalists -- have much more incentive to think long-term. At the end of a politician's term, he steps down, and blames the rest on his successor. The end of a politician's term is a washing of his hands. But the end of a capitalist's "term" is a sale: because the capitalist is driven by the bottom line, not by re-election, he has to be concerned with what someone will pay for the property he has developed, and a large part of that price is what the next guy will be able to sell it for.
Take an example. Near our house in Washington is a huge new luxury apartment development built by the development mogul Jim Abdo. He built in a neighborhood that is "developing" (read: troubled, but maybe recovering). Now, I have no idea how long Abdo's term is on this property. But whether he sells it next year or twenty years down the road, the guy who buys will be wondering both what it's worth at that point and what it will be worth when he's ready to sell. If Abdo wants to make a profit, he needs to be able to convince the next guy that this thing is a good investment long-term. Of course there's some wheeling and dealing in this -- the next guy might be a dupe -- but since Abdo cannot produce that dupe himself, he needs to build some fundamental long-term value into his project or he is going to lose money. Not so with the politician.
A second problem with democratic politicians is that they only have to please 51% of their constituents to get re-elected. The politician can write people off. I was thinking about this lately when dealing with an annoying problem with parking in my neighborhood. (The details are not worth explaining.) I wrote to my local neighborhood commissioner, than my councilman. You know what? I don't think they cares. They do not need my vote to get reelected. If I am a little bit annoying -- and I probably crossed the line on being too snide -- they can just write me off. Indeed, it is the very rare politician who can get a vote from even three out of five of his constituents, unless there is no one running against him. Democratic government is not based on pleasing everyone.
By contrast, today I called my internet service provider. Now let's be honest: these people are capitalism at its worst, shipping out customer-service to someone in India with no authority to help me and a pleasant demeanor that makes it hard to yell at them. These companies stand behind the lowest line of their policy (in this case, it was the $149.95 fee for early cancellation, even though I'm moving out of state one month short of the end), they keep you on hold as long as they can, and they leave you out in the cold. That said, they make every penny of their earnings off of people like me. They need me to come back when I next sign up for internet, and they need me to give positive reviews to my friends. Writing me off doesn't hurt my councilman in the least, but it does lose money for my ISP.
If the people managing my neighborhood had some financial incentive instead of just needing 51% of the vote, I think they would be much more inclined to help me out when they could. My ISP did not let me out of my contract, but they did fully reimburse me for a service I said I had not ordered. My councilman has not reimbursed me for my parking tickets, despite a similarly plausible argument.
This need to please all customers bleeds into another advantage of capitalism: the niche. The knee-jerk reaction to having neighborhoods run by capitalists is that since they are driven by the bottom line, they will only cater to the rich; people who are not a good investment will get left out in the cold.
Now, my first response to this is that you have to be pretty uninformed about the recent history of American cities -- or history in general -- to honestly believe that people getting left out in the cold would be a new problem created by the capitalists. Twentieth-century democratic governance of cities is one long story of the masses being left out in the cold. If the capitalists left someone out from time to time, they would have a hard time doing a worse job than the politicians.
But the other response is that precisely because they are driven by the bottom line, capitalists want to suck every penny they can out of the market before them. Of course the margin is better on millionaires, so the capitalists will line up to see who can serve them. But there's a limited number of rich people, and there is money to be made off the poor, too. Jim Abdo is building million-dollar condos down the street from us. But our landlord, a smaller fish, is making money off of my poverty-level family, and there are an awful lot of us who need apartments and cough up the money for rent. Capitalists would be stupid to withhold housing from us just because the margin is lower with us than with the rich.
Politicians, on the other hand? If they don't need our vote to get reelected, than we depend purely on the goodness of those tight politician hearts to care for us whom they do not need. Put it this way: capitalists are many, politicians few. Both are inclined to serve first those who serve them best. But after that, capitalists can squeeze into tiny niches -- like my landlord, who owns only this one building -- whereas all the political seats are filled long before anyone comes to caring for the little guy. If you have ever dealt with municipal services, you might share my skepticism.
I should note that our living situation is pretty good. We found exactly what we need -- and we have pretty precise needs, because of a wheelchair in the family, two small children, a stay-at-home mom, a neighborhood we love, and our over-particular aesthetics. Granted, our landlord's a bit of a bum. He has not followed through on some basic maintenance, and he has mostly left us to take care of ourselves. But we pay a rent we can afford for an apartment we really love, and when it comes down to it, he has coughed up the cash for things the apartment needs. That, ahem, has not been the case with our politicians -- we wrote, for example, to our congresswoman when our child with special needs temporarily lost his government health services on the stupidest of technicalities caused by the stupidest of bureaucratic blundering, and we didn't even get a response. Landlord Tom might be lazy, but Delegate Eleanore doesn't give a damn about people like us. Why? Because Tom gets a check from us, while Eleanore doesn't need our vote.
On a less mercenary note, Tom has a grand total of about twelve renters. Congressional Delegate Norton serves all 600,000 residents of Washington. Our most local form of government, the Advisory Neighborhood Commission, which has zero authority and largely unopposed elections, has about one political officer for every 15,000 residents (40 ANCs for the city); the City Council, which actually has authority and "real" elections (meaning, determined by the Democratic primary) has eight wards, or about 75,000 residents per politician. Jim Abdo, the city's biggest real-estate developer, has done 30 projects, the largest of which has under 500 units. (30 x 500 would be 15,000, like the ANC, but Abdo has much more authority and most of his projects are much smaller than 500 units.) In other words, the biggest capitalist in the city has far fewer constituents than the most local politician. No wonder our landlord treats us like people and our government treats us like numbers. Even the greatest philanthropist can't think personally about 75,000 people.
So capitalists are better neighborhood managers than democratic politicians because the end-sale requires them to think longer term and because they have to treat every constituent as a customer, not just 51% (and this in turn means they are more inclined to serve niches and take care of under-represented groups, and even treat people as individuals). The last advantage of capitalism over democracy, I would like to argue, is the contract.
Hayek makes the important point that being pro-market absolutely does not mean being laissez-faire. Proponents of the free market, it is true, want government to stay out of regulation. They want government to let the market drive the economy. But at the heart of the market is contracts, and contracts require strict enforcement. Without enforcement of contracts, the market cannot work.
(This principle extends further than you might think. Milton Friedman, for example, argues that sound money -- meaning above all very strict control over inflation, as well as decent foreign-exchange rates -- is necessary in order for terms of contracts to be meaningful. If I agree to pay $1,200/mo. in rent but we don't know what $1,200 will be worth at the end of the year, our contract is meaningless.)
So even in the realm of economics, absolute support of the free market does not mean laissez-faire, hands-off government. And of course there are plenty of cultural things government should do, like supporting the family and providing general safety, that are out of the realm of the market and so demand government action.
Business transactions are fundamentally contractual. Politics is not. In 1994, Newt Gingrich took over the House with the slogan "Contract with America." But the slogan stuck because everyone knows that politics is not about contracts. Even Republican voters in 1994 could not appeal to anyone to enforce that contract. And from "read my lips: no new taxes" to Gingrich's line-item veto to "the era of big government is over" to Bush's entitlement reform, politicians are all about making promises they do not follow through on. That's the nature of politics. You can vote them out of office. But you can't enforce the contract.
If capitalists were to run our neighborhoods, there would need to be very strict contracts, covering things like how the neighborhood can change, and how fast, what freedoms I have to modify my own property within the neighborhood (which is a fundamental part of choosing the neighborhood that is right for my particular needs), and what services will be provided.
I am not an expert on this topic, but I think there should be stricter enforcement of what is assumed, as well. My present landlord, for instance, acted surprised when I asked him to install phone jacks for me. He had left them out in the latest renovation. I think the government should step in to say that phone jacks are assumed to be part of a property, and thus part of the contract, so the landlord does not have the right to blame me for not noticing that he had left them out of the construction.
But all of this can be sorted out in the next post, when I try to spell out what commercial management of neighborhoods might look like.