Can we privatise town planning?

The answer to this question is predictable: ‘Of course not, that is why we have town planning in the first instance. Private individuals cannot be trusted to take into account those around them. We should leave the decision to experts.’ These are legitimate concerns—cities are complex creatures. Cities suffer from knowledge coordination problems on multiple levels and at multiple scales through time. But the very fact they appear as complex adaptive systems implies the importance of contextual knowledge in their design. And that knowledge rests in the minds of individual citizens; not in the dictates of governments. 

We are continually told that town planning is the task of government. But the question of planning has long been: at what level does planning take place? Privatizing town planning is the process of returning the  planning to where it began: the individual. 

One cannot quickly rule out the capacities of private citizens in favour of some omnipotent (and supposedly benevolent) top-down planner. There are costs and benefits in operating either through bottom-up or top-down institutions. Although the conventional wisdom is that experts can do what individuals cannot, for a brief moment let us assume that the experts are not so benevolent nor the private sector so helpless? Who, then, should be the ‘planner’?

The planning of cities began with governments laying out sewage systems, roads and public transport. This top-down planning was necessary for very basic economic reasons—large efficiency gains come from the ‘optimal’ layout of a city (e.g. if all sewage systems line up). These were not aesthetic or environmental policy concerns—they were economic concerns. These were legitimate because it is difficult to argue that individuals would be able to coordinate on such a broad scale to achieve such objectives. This is the logic of collective action—the idea that many individuals (with diverse interests and high transaction costs) will find it prohibitively difficult to coordinate their actions.

But the role of planners—from heritage overlays to restrictive zoning—has far exceeded their ‘knowledge coordination’ role. These are aesthetic, civic, environmental and political goals. Governments are constantly impeding on localised issues. And as we move further towards more localised problems the ability of individuals to solve the problem quickly begins to outweigh the ability of governments to do so. There are two main reasons for this.

First, on a local level it is individuals with the knowledge about their particular circumstances (a la Hayek 1945). And it is individuals who are best placed to make these decisions. By placing decisions in the hands of ‘experts’ we are quickly losing all of the important data in the system—the knowledge that individuals hold over their own situation, street, and neighborhood. To argue that individuals do not care for their city is tantamount to arguing they do not care for the neighborhood, or street, or home.

And second, designing cities from the bottom-up is a much more flexible, organic and adaptable process. It is this process of spontaneous order and sorting that enables cities such as Houston, Texas to organically create ‘zoning’. This zoning is not of the top-down variety (i.e. governments dictating ‘this is a commercial building’, ‘this is a house’, and so on). The ‘zoning’ emerges from the decisions of individuals taking into account network effects and externalities they pour on each other (i.e. cafes want to be near other cafes).

Thus the ‘planning question’ is whether that discovery process of an optimal city design should be placed in the heavy hand of governments or in the hands of individuals. The first is a series of sporadic inflexible decisions inherently resistant to change. The second is a bottom-up organic process that generates order through the decisions of individuals.

The Innovation Commons: Latest Working Paper on SSRN

Our most recent working paper, The Innovation Commons — Why it Exists, What it Does, Who it Benefits and How, is now up on SSRN here. The paper was recently presented at the International Association for the Study of the Commons (IASC) in Edmonton, Canada.

Abstract:

We propose a new type of commons – an ‘innovation commons’ – that is an emergent institutional solution to ‘the innovation problem’ (defined as a collective action problem, not a market failure problem). In an innovation commons entrepreneurs pool innovation resources Continue reading

The innovation fallacy

It is the dirty little secret of innovation economics and policy that we do not know if it works. Here I propose that the tenuous link between innovation policies and innovative outputs are at least partly due to what I call the ‘innovation fallacy’. I argue that innovation policy is only solving half of the problem that it seeks to ameliorate.

The conventional economic ‘innovation problem’ Continue reading

Does occupational licensing ignore the creative destruction on skills?

Occupational licenses can be thought of as the fixed costs of entering a profession, with the intention of paying those costs off over a career. This argument is strong when a life-long career was a serious possibility. However, there is clearly increasing movement between occupations due to faster technological change.  Does this weaken the government-imposed education-licensing-approval problem? Is there an argument against occupational licensing citing the increased creative destruction on skills? Continue reading

Architects and planners: the perfect storm for rent seeking

On the weekend I attended an event at the Australian Institute of Architects (AIA). I walked out concerned about the future of our cities. Disclaimer: I am not an architect or a town planner; I am an economist. However the points in this article are general in nature and stem from literature around regulatory capturepublic choice theory and rent-seeking. The fact that these theories rarely enter the town-planning discussion is precisely my motivation. Continue reading

The innovation commons as a solution to the entrepreneurial problem

Here’s a work in progress abstract that I am currently writing up:

The entrepreneurial problem is one of knowledge coordination under uncertainty. This process consists of search, discovery, and action. The goal of the entrepreneur is to determine the viability of a particular innovation and thus reduce private uncertainty about the opportunity they imagine. The innovation resources to solve this problem, particularly at the beginning of a trajectory, exhibit some peculiar properties: they are dispersed about the economy in individual minds; they are uniquely of the ‘you don’t know it until you see it’ kind; and are likely to exhibit diminishing returns the more minds possess it. Combining institutional and evolutionary economics, as well as the commons literature, we are led to a new solution to the entrepreneurial problem: the ‘innovation commons’. Unlike conventional economic solutions, this is a collective action solution rather than an allocative one. We propose that the innovation commons exist where entrepreneurs pool their technology and knowledge resources, and govern as a common pool resource. This ties in with existing commons literature of how individuals deal with uncertainty (in rainwater falls, for example, the commons presents an institutional solution as a form of social insurance). Finally, we present a number of theories over what may be occurring here and what the innovation commons look like: they are temporary in nature (if they are successful they will disappear); they are likely to emerge more readily as transaction costs fall (hence the emergence of the innovation commons only now); and they may have a defensive function against alternate institutions.

Links to some of my writing in the last few months

Here’s some some cross-links to reports, articles and media that were up in December/January.

‘The sharing economy: how over-regulation could destroy an economic revolution’ (co-author was Chris Berg). This report can be downloaded here. It was featuredin The Australian here. I was interviewed on SBS radio about this here and I wrote a guest post for the OECD on the topic here.

Freedom to teach: a research report on the work and conditions of teachers in Australia’ (co-author was Vicki Stanley). This report can be downloaded here. It was featured on the front page of The Australian here and was the topic of The Australian editorial the following day.

Journal Articles:

Moilanen J, Daly A, Lobato R, and Allen D, (2015) ‘Cultures of sharing in 3D printing: what can we learn from the licence choices of Thingiverse users?’ Journal of Peer Production 6. Available here.

Libertarians and the Commons are Friends

It is no secret that libertarians profess freedom, rule of law, and property rights. Unfortunately, the latter tends to be an immediate reaction to the commons. As the story goes – disputes over shared property are solved by strong application of property rights and binding contracts. I’m not convinced.

We’re missing two things: (1) the commons have their foundation in voluntary collective-action governance; and (2) the commons can be conceived as a market. If you were to take ‘commons’ out of the last two sentences, then most libertarians would be happy. If you put it back in, there are calls for strong property rights to solve self-interested individuals from themselves.

Let’s talk about this for a minute.

Collective-action, by definition, is voluntary cooperation between private agents in civil society. Yes, voluntary. Sounds nice, doesn’t it? These institutions are complex environments characterised by implicit norms, tacit rules, and operational level decisions. They are not a free-for-all. Nor are they a form of re-distribution.

If you disagree with the commons as a voluntary system of institutional rules to share resources, then you’re going to have to disagree with firms, too. That’s what firms are – they coordinate and share resources under rules.

Collective-action governance is one of the purest forms of freedom. Contracts are often unwritten and implicit. Punishment mechanisms are set up by the agents themselves. Rules are specifically tailored to the social dilemma at hand. There’s little need for state protection of property rights through the courts. A well developed and evolved commons institution is an island of rules near absent from state pressures.

Sounds pretty free to me.

Further, the commons can be conceived as a form of market. Viewing the commons as a market seems counter-intuitive, yet it is not entirely crazy. They just look different; we’re not very good at understanding different institutions. The lines between market and non-market transactions are blurred.

This is best demonstrated through example: the innovation commons. The innovation commons are an emergent institution mixing technology and local Hayekian market knowledge through shared collective-action governance rules.

We have to remember that shared property is property, too. It’s not private individual property, like your home – but it is still property. There’s still a bundle of rights. There’s still exchanging of these bundles. There’s still a cost of entering and participating in the commons (often prior tacit knowledge or reputation). Sounds pretty market-like to me; and libertarians love markets.

Let’s take a more specific example – hackerspaces. Hackerspaces are collective-action institutions where private agents share local market knowledge, coalescing around certain technologies. The cost to enter the commons is the value of prior tacit knowledge. What’s exchanged is knowledge and technology. The exchange just isn’t in dollars, it’s through your contribution and cooperation (see a recent paper by Kealey and Ricketts 2014, on contribution goods).

The commons are not a free-for-all utopian commune. They’re an institution that appears effective at coordinating knowledge. You see, the commons and libertarians should be friends. We just need to take a step back before we (once again) label the commons as a remorseless tragedy and privatise them. Some failures should not render them obsolete. Rather, this should signal the complexity involved. From what we’ve learnt from economics over the past two decades – institutions matter and complexity matters. The commons encompass the two.

I am not suggesting the commons are economy-wide phenomena. Nor are they infallible (actually, they’re highly subject to failure). All I’m suggesting is that the next time you think about the commons, do not think of property first. Think of institutional governance – that is the challenge.

Ostrom suggested that institutional diversity may be as important as biological diversity. The commons are important to our institutional diversity, and should not be lost over an obsession with property rights. Property rights are the easy answer (because we understand them). This does not make an answer correct.

What are the Innovation Commons?

An innovation commons is an institution in which private agents cooperate through collective action, to solve the innovation problem, by developing rules for the sharing and governance of those resources. These innovation commons are where the interplay of technology and local market knowledge provide an effective institution for the production and appropriation of innovation resources. An innovation commons is not about an entire economy, yet rather is temporarily defined around a particular technology. It is hypothesised that these innovation commons are socially defined spaces contingent on a set of underlying civil-society rules. For clarity, a few broad examples of proposed innovation commons are hackerspaces, maker spaces, open source software, open science, and DIY satellite communities[1].

The commons are a form of institutional governance of property, and therefore must rest on a particular resource that is of value. In the same way Ostrom (1990) proposed that the commons may, in certain situations, be an effective solution to the dilemma inherent in natural resource management, we propose the same for innovation resources. This research follows in the path of studies of natural[2], knowledge[3]  and culture[4] commons, yet brings innovation resources to the fore. The focus will then be on the underlying governance rules of these collective action spaces.

While the innovation commons are a subset of knowledge commons, they present a different challenge; being devoted to knowledge advance, creative activity, entrepreneurship and novelty. Innovation commons have a unique goal – production of innovation, rather than avoiding depletion.

It is proposed that the issue of free-riding on the common resource is protected through various institutional rules. Rules of which have evolved through time, collectively, by the users themselves. This focus on rules has come to the fore with the recent rise of New Institutional Economics – an important influence through the research.

It is hypothesised that there are three main reasons why the commons present potential; (1) they are an emergent domain of cooperation, absent from government intervention, and therefore escaping regulatory capture and public choice issues; (2) they appear to be present in a high proportion of the early phases of technological trajectories (Aldrich and Fiol 1994), and may represent incipient firms; and (3) they can be developed deeply, testing on multiple domains and scales, providing a robust environment for innovative activity.

This research also presents three main hypotheses over the recent emergence of innovation commons; (1) agents are engaging in collective-action group selection; (2) there is a dual commons of technology and Hayekian market knowledge, which is particularly hard to price in a market; and (3) agents are undertaking a defensive strategy as a mechanism against blocking coalitions. Each is discussed below. These are discussed in relation to the relevant literature.

 

[1] Further, more abstract innovation commons are hypothesised to include guilds, mothers’ groups and agriculture.

[2] Ostrom (1990)

[3] Hess and Ostrom (2006)

[4] Madison et al (2010)