Is it fair to say that a general theme here is to care less about ideological versions about what works vs doesn’t, and just focusing on planning and executing infrastructure buildout with whatever tools you can?
Your history seems to me to be pointing at the core ideological concept of accountability. The tools that work, public or private, are those where you have an institutional actor with a clear mandate to provide widely-valued services in a fiscally sound manner, and timely feedback mechanisms to reward excellence and correct course in the event of mismanagement.
The simplistic story where free market competition is necessary and sufficient for that accountability is clearly not right. But it does seem that over the course of the twentieth century we lost the thread of institutional accountability for excellence and political support for fiscal discipline. I'd love to see more deep-diving into how that happened and how we might get it back.
Thanks for the summary Sam, good insights as ever. There is one point though that would deserve a better justification IMO: "you want infrastructure to be more profitable to supply than it is in a competitive market, because it is just so good to have more of it".
How good is it really to have more infra, especially roads, railways and public transport? Are there any (at least somehow rigorous and data-driven) approaches to quantify the benefits, especially the spillover effects? I have been thinking about this for some time but still have no clue, beside a CBA working with saved travel time and distance and some rather handwavy environmental criteria.
Listing all items confuses things. More of specific items, i.e., public transport, is always better. I say this because i've been living in China and public transport is everywhere, it works, and it's amazing to live in. More roads, not so much.
Excellent question. There is indeed lots of quantitative evidence bearing on this.
There is a big economics literature on the effect of infrastructure on property prices, including at least a few papers trying to model the effects of different types of nineteenth-century street network.
There is revealed preference evidence: where railway and tram companies were allowed to act as real estate developers, they have routinely done so, typically making a large share of their revenues thereby. This was standard in the USA and Canada and still happens in Japan, though it was usually banned in Europe. Japanese railway companies today still make something like half their revenues from this sort of thing, all value that would be uncaptured by European railway operators.
Today all major infrastructure projects do a version of this in their cost-benefit analyses – at any rate they do in Britain, and I assume they must elsewhere.
You might be right that I should have said more about this in the piece.
Don't know about quantification of benefits, but good infrastructure improves the productivity of the factors of production, viz., capital, land, labor, and enterprise. And productivity is among the genuine drivers of sustainable growth.
And it's always better to have surplus infrastructure to factor in "rush hours," literal and figurative.
You could also conclude that "monopolies are good for a while until they start rent-seeking." Incorporating a time factor and then having a plan for after the time runs out could play a role in planning. For example, avoiding vertical integration between track and train operators who lease space on the track as places in Europe do.
I am reminded of the early work done by Ronald Coase. Similar ethos and similarly revealing and useful. *Monopolies* built the world's best 19th-century infrastructure, at least when disciplined by user fees and bankruptcy.
Perhaps an ideological debate over public vs. private ownership is itself a transaction cost that we can't afford?
Thank you! I wrote a little bit about aesthetics in the longer piece on which this was based (https://worksinprogress.co/issue/urban-expansion-in-the-age-of-liberalism/) – the short version is that nineteenth-century governments hardly ever regulated for facade quality and that the beauty of their architecture was entirely a matter of market forces, not regulatory ones.
Of course this pushes us back to the question of why nineteenth-century people apparently cared so much more about beauty than people do today. This is indeed a great riddle.
I wrote about the 1902 Parisian street regulation revisions in my phd thesis published last year. My wider interest was in the historical link between changing building technology and aesthetics. I will try to summarise this in a substack post. As a new follower I find this all highly interesting.
I've just recently discovered your writing and I love it. But, as a lifelong proponent of free markets, I have to disagree with the direction of some of your conclusions.
It is an established fact that even suboptimal policies work better in societies with a high general level of competence (e.g. East Germany was better at communism than almost every other place that practiced it). When it comes to infrastructure the question should not be whether a municipality-run waterworks can be of acceptable quality and price, of course it can, provided the corruption is not too high, the workers are not too apathetic and disinterested and the prices are high enough to pay for investment, maintenance and a quality workforce. The question is whether it performs as well as the market, to the point where it doesn't matter who does it. Simply because of incentives there are many parts of that equation where we should expect the free market to perform better, if it is allowed to.
But it has been well documented that it is not always allowed to. Prices of utilities are politically sensitive, as is the price of transport. A major reason why private trams disappeared in most of the world was because their prices were regulated and not allowed to rise even with inflation. If a struggling an poorly maintained private operator is taken over by the city and then performs well because of subsidies, it is hardly proof that both entities run the system equally well and it doesn't matter whether it's private or public.
In most scenarios where the city operated the utilities it took over. This is a very important point -- the early innovation, the impetus, the overcoming of obstacles was almost always by profit-motivated individuals. We can even suppose that when it was not so, where the city itself did all the work, it happened a few decades later than it happened in comparable cities where private initiative did it. Squeezing out the private sector from utilities and transport has probably slowed innovation dramatically. It is also likely, as corollary, that it has slowed the growth of major western cities and (because of agglomeration effects) their economic prosperity as well.
Sure, having duplicate sewer systems would make little sense. But reasoning from there we have gone on a slippery slope and established the concept of "natural monopoly", which is a very much abused one. On closer examination the case is weak in many cases.
Many extrapolations do not make sense. For example, it is true that the market cannot easily produce roads. But it is wrong to use this as justification for planning as such. The most successful road plans have been trivial -- simple grids. That is hardly a justification for detailed planning (zoning) and similar schemes.
What was the depth of penetration of democracy in 19th-century Europe and America?
This is not intended to be a comment on democracy, which is the best possible system. But democratic pulls and pressures often politicize and distort economic priorities. Particularly when the political leadership of the day lacks moral authority.
Also, what was the level of inequality?
I've read Europe was a highly unequal land before WW1. As was France before the French Revolution.
My point is, it might have been easier for the then governments to implement economics-friendly infrastructure development models when democracy was limited and inequality allowed them to ignore certain sections of the populace.
This point is somewhat contradictory to the pulls and pressures point made earlier, but I'm seeking to explore as many facets of this phenomenon as possible.
Intriguing. If you stand on top of the Shard and look down you can see the railway lines to London Bridge cutting a swathe through Southwark Cathedral grounds. Always wonder how the Victorians had the audacity to do that. Some clues here as to how.
I wonder if the public/private axis is better stated as a market/centralised-bureaucracy axis. As you show, these nineteenth-century cities, whether municipally owned or privately run had quasi-market mechanisms-- run by users (inhabitants of the city), funded by users, priced competitively and faced real exit/bankruptcy risk.
The modern centralised bureaucracy prevents us from achieving either public or private solutions! Just the slow accumulation of personnel/operational/regulatory dysfunction without the discipline of the market. The British state is neither capable of building its own infrastructure on time and budget, nor empowering private companies to do it.
Is it fair to say that a general theme here is to care less about ideological versions about what works vs doesn’t, and just focusing on planning and executing infrastructure buildout with whatever tools you can?
Something like that, yes. Or at any rate, the usual ideological concepts aren't necessarily 'cutting at the joints' of reality here!
Your history seems to me to be pointing at the core ideological concept of accountability. The tools that work, public or private, are those where you have an institutional actor with a clear mandate to provide widely-valued services in a fiscally sound manner, and timely feedback mechanisms to reward excellence and correct course in the event of mismanagement.
The simplistic story where free market competition is necessary and sufficient for that accountability is clearly not right. But it does seem that over the course of the twentieth century we lost the thread of institutional accountability for excellence and political support for fiscal discipline. I'd love to see more deep-diving into how that happened and how we might get it back.
Thanks for the summary Sam, good insights as ever. There is one point though that would deserve a better justification IMO: "you want infrastructure to be more profitable to supply than it is in a competitive market, because it is just so good to have more of it".
How good is it really to have more infra, especially roads, railways and public transport? Are there any (at least somehow rigorous and data-driven) approaches to quantify the benefits, especially the spillover effects? I have been thinking about this for some time but still have no clue, beside a CBA working with saved travel time and distance and some rather handwavy environmental criteria.
Listing all items confuses things. More of specific items, i.e., public transport, is always better. I say this because i've been living in China and public transport is everywhere, it works, and it's amazing to live in. More roads, not so much.
Excellent question. There is indeed lots of quantitative evidence bearing on this.
There is a big economics literature on the effect of infrastructure on property prices, including at least a few papers trying to model the effects of different types of nineteenth-century street network.
There is revealed preference evidence: where railway and tram companies were allowed to act as real estate developers, they have routinely done so, typically making a large share of their revenues thereby. This was standard in the USA and Canada and still happens in Japan, though it was usually banned in Europe. Japanese railway companies today still make something like half their revenues from this sort of thing, all value that would be uncaptured by European railway operators.
Today all major infrastructure projects do a version of this in their cost-benefit analyses – at any rate they do in Britain, and I assume they must elsewhere.
You might be right that I should have said more about this in the piece.
Don't know about quantification of benefits, but good infrastructure improves the productivity of the factors of production, viz., capital, land, labor, and enterprise. And productivity is among the genuine drivers of sustainable growth.
And it's always better to have surplus infrastructure to factor in "rush hours," literal and figurative.
You could also conclude that "monopolies are good for a while until they start rent-seeking." Incorporating a time factor and then having a plan for after the time runs out could play a role in planning. For example, avoiding vertical integration between track and train operators who lease space on the track as places in Europe do.
I am reminded of the early work done by Ronald Coase. Similar ethos and similarly revealing and useful. *Monopolies* built the world's best 19th-century infrastructure, at least when disciplined by user fees and bankruptcy.
Perhaps an ideological debate over public vs. private ownership is itself a transaction cost that we can't afford?
https://www.symmetrybroken.com/the-synchronization-tax/
Indeed! We are all great Coaseans at Works in Progress, of course.
This is a brilliant essay that I wish my American city would consider.
This is great. I look forward to much more about the esthetic and design choices and why they were so much better on all dimensions than now.
Thank you! I wrote a little bit about aesthetics in the longer piece on which this was based (https://worksinprogress.co/issue/urban-expansion-in-the-age-of-liberalism/) – the short version is that nineteenth-century governments hardly ever regulated for facade quality and that the beauty of their architecture was entirely a matter of market forces, not regulatory ones.
Of course this pushes us back to the question of why nineteenth-century people apparently cared so much more about beauty than people do today. This is indeed a great riddle.
P.S. Pieter is a great man!
I wrote about the 1902 Parisian street regulation revisions in my phd thesis published last year. My wider interest was in the historical link between changing building technology and aesthetics. I will try to summarise this in a substack post. As a new follower I find this all highly interesting.
I've just recently discovered your writing and I love it. But, as a lifelong proponent of free markets, I have to disagree with the direction of some of your conclusions.
It is an established fact that even suboptimal policies work better in societies with a high general level of competence (e.g. East Germany was better at communism than almost every other place that practiced it). When it comes to infrastructure the question should not be whether a municipality-run waterworks can be of acceptable quality and price, of course it can, provided the corruption is not too high, the workers are not too apathetic and disinterested and the prices are high enough to pay for investment, maintenance and a quality workforce. The question is whether it performs as well as the market, to the point where it doesn't matter who does it. Simply because of incentives there are many parts of that equation where we should expect the free market to perform better, if it is allowed to.
But it has been well documented that it is not always allowed to. Prices of utilities are politically sensitive, as is the price of transport. A major reason why private trams disappeared in most of the world was because their prices were regulated and not allowed to rise even with inflation. If a struggling an poorly maintained private operator is taken over by the city and then performs well because of subsidies, it is hardly proof that both entities run the system equally well and it doesn't matter whether it's private or public.
In most scenarios where the city operated the utilities it took over. This is a very important point -- the early innovation, the impetus, the overcoming of obstacles was almost always by profit-motivated individuals. We can even suppose that when it was not so, where the city itself did all the work, it happened a few decades later than it happened in comparable cities where private initiative did it. Squeezing out the private sector from utilities and transport has probably slowed innovation dramatically. It is also likely, as corollary, that it has slowed the growth of major western cities and (because of agglomeration effects) their economic prosperity as well.
Sure, having duplicate sewer systems would make little sense. But reasoning from there we have gone on a slippery slope and established the concept of "natural monopoly", which is a very much abused one. On closer examination the case is weak in many cases.
Many extrapolations do not make sense. For example, it is true that the market cannot easily produce roads. But it is wrong to use this as justification for planning as such. The most successful road plans have been trivial -- simple grids. That is hardly a justification for detailed planning (zoning) and similar schemes.
What was the depth of penetration of democracy in 19th-century Europe and America?
This is not intended to be a comment on democracy, which is the best possible system. But democratic pulls and pressures often politicize and distort economic priorities. Particularly when the political leadership of the day lacks moral authority.
Also, what was the level of inequality?
I've read Europe was a highly unequal land before WW1. As was France before the French Revolution.
My point is, it might have been easier for the then governments to implement economics-friendly infrastructure development models when democracy was limited and inequality allowed them to ignore certain sections of the populace.
This point is somewhat contradictory to the pulls and pressures point made earlier, but I'm seeking to explore as many facets of this phenomenon as possible.
Intriguing. If you stand on top of the Shard and look down you can see the railway lines to London Bridge cutting a swathe through Southwark Cathedral grounds. Always wonder how the Victorians had the audacity to do that. Some clues here as to how.
I wonder if the public/private axis is better stated as a market/centralised-bureaucracy axis. As you show, these nineteenth-century cities, whether municipally owned or privately run had quasi-market mechanisms-- run by users (inhabitants of the city), funded by users, priced competitively and faced real exit/bankruptcy risk.
The modern centralised bureaucracy prevents us from achieving either public or private solutions! Just the slow accumulation of personnel/operational/regulatory dysfunction without the discipline of the market. The British state is neither capable of building its own infrastructure on time and budget, nor empowering private companies to do it.