The Future of Cities as Non-Territorial Public Goods Clubs
Jason Potts & Trent MacDonald
What is the future of cities? We argue there are three-stages in the development logic of cities. First, that over the past millennia or so the raison d’être of cities has changed, shifting from political purposes based on centralisation to commercial trading purposes based on specialisation. Second, because of the first change, city governance becomes increasingly competitive. Coupled with growing mobility of factors and people, this condition gives rise to what economists call ‘Tiebout sorting’ (Tiebout, ‘Pure’) over local public goods. In essence, cities begin to compete for globally mobile factors through offering various bundles of taxes and public goods. Third, the next developmental stage is to remove the territoriality from the public goods, creating non-territorial public goods clubs.
From Imperial Capital Cities to Venture Capital Cities
What makes a great city? It was not so long ago that the answer could be expressed as a simple arithmetic equation:
Population + Wealth + Empire = Power
New York, London and Paris were big trading cities, capitals of empire, and rich: that made them powerful global cities without much further consideration of the specific causal components. There were certainly bigger cities (Mexico City or Jakarta, for example), but they were poorer, and not global cities in the modern sense. Earlier European power-cities like Florence, Venice, Genoa, Lisbon, Amsterdam and Vienna would successively have figured on the list, as would capitals of non-Western empires such as Istanbul. Going back further we would include Rome, Constantinople, Alexandria and Athens; and further still, Damascus, Byblos, Luoyang, Xi’an or Varanasi. Others, equally great in their day, have been lost to history (Thebes, Babylon, Ur, Hattusa, Angkor), or have declined to only local significance.
City historians provide scholarly overviews of the historical approach to city research. There is no shortage of thoroughly researched accounts of the rise and fall of great cities (Hall, Cities; Kotkin, City). They emphasise a simple political-economic arithmetic of a locus of power combined with fertile plains and effective institutions. Great cities were capital cities, places where power resided.
By the Middle Ages, cities became places where commerce resided too, as power began to shift to the secular world. Much of this story is associated with the rise of the West (Ferguson, Civilization), the invention of science, technology, democracy, media and, most important, the institutions of trade and commerce. Here global cities began to emerge around trading ports and network hubs such as the northern European Hanseatic League, not around castles and palaces. Thus the world began to urbanise as people came to cities for reasons of enterprise, not for alms (or arms) or rents. Cities became concentrations of people who chose to move there, away from rural domains, in pursuit of a better life to be made by themselves and with the others they might meet there, including potential employers and partners.
Urban theorists such as Jane Jacobs (Death), and Richard Florida (Rise) focus on the adaptive functionality and emergent livability of cities, emphasising that great cities are grown, not planned. Jacobs shows how—contrary to their purpose—planning laws and great plans often stymie the development of cities, by suffocating the development of local neighbourhoods. Florida shows how the development of a city depends upon who moves there and why, emphasising the mobility dynamics of cities.
This dynamic institutional line has been explored by Ed Glaeser (Triumph) who examined the link between cities and the skills they harbour and express. This sort of work expresses the new economics of cities as emergent products or crucibles of new ideas and attractors for mobile, smart and enterprising people. They also emphasise the locus of cities as sites of immigration by choice, in the sense that what makes a great city is that the most capable and aspiring people want to live there. This signals that (globally) mobile human capital, rather than given natural resources or accumulated physical capital, is the touchstone of what makes a great city.
Great cities are zones of attraction. In the older definition, a great city was so because it was powerful and rich; it was the centre of past greatness. In the new definition, however, a great city is so because those that seek to become rich choose to move there. It is great because of the present and future potential it offers, not because of its past accumulations. But as empires have crumbled since World War I, and nation-states have weakened as economic entities since globalisation, cities have re-emerged (as they were prior to the 1700s) as the crucibles of commerce and innovation and the proper focus of economic development.
From Empires to Federal Nation-States and City-States
Cities are economic entities, and they are socio-cultural entities, but they are also political entities. The main change that has occurred in the transition from cities as capitals of empire to cities as commercial attractors is that this governance has become contestable. The most visible result of this transformation is that cities have become more democratic in their governance offerings, becoming more accountable to the preferences of their citizens. But at the same time, they must also seek to be attractive to new citizens, and to offer such services and taxes that the most productive citizens choose to stay rather than leave for cities with better offerings. In essence, cities, like nation-states, must compete with each other for globally mobile resources.
From a purely economic perspective, the purpose of government is to administer collective goods that would otherwise fail to be provided and to help overcome coordination problems on population-wide, mutually-preferred economic outcomes. But the basic problem is that not all citizens may want the same thing—different citizens may have different preferences, both in what they are willing to pay, and in the mix of public goods they wish to receive.
The basic problem with democracy is the ‘tyranny of the majority’ which can at times work to undermine this economic imperative. Indeed, as economist Friedrich Hayek has pointed out:
Planning, or central direction of economic activity, presupposes the existence of common ideals and common values; and the degree to which planning can be carried [out] is limited to the extent to which agreement on such a common scale of values can be obtained or enforced. It is clear that such agreement will be limited in inverse proportion to the homogeneity and the similarity in outlook and tradition possessed by the inhabitants of an area. (Individualism, 264)
The standard twentieth-century definition of democracy treats nation-state or city governance as a sort of solution to a collective goods provision problem: a system we use to collectively choose a single set of public goods and institutions that harms the least number of people. Inherent in this ‘solution’ is the assumption that centralised administration is sometimes necessary for provisioning what are, in essence, pure public goods, and, moreover, that such centralisation provides efficiency gains from economies of scale and the internalisation of externalities and spillovers. In this sense a central constraint on the achievement of a specialised global city is the democratic tyranny of the majority over the diversity of political preferences held by its inhabitants.
The standard argument against this prospect of tyranny is mobility. This argument is formalised in the Tiebout model of public finance in which citizen-voters eschew political solutions to the standard problems of public goods provision—the revelation-of-preferences problem, preference aggregation problem, and the free-riding problem – and instead ‘vote with their feet’ by sorting themselves into jurisdictions that best represent their preferences and willingness to pay over bundles of local public goods (Tiebout, ‘Pure’). This model is similar to ideas such as competitive federalism, fiscal decentralisation, devolution, autonomous regions, and other territorial expressions of the ‘voting with feet’ principle, like special economic zones, Paul Romer’s charter cities, and seasteading.
If citizens are free to relocate where they choose, and if jurisdictions will compete for their taxes, the Tiebout model suggests that competitive federalism will furnish an efficient supply of local public goods. The classic metaphor is a giant shopping centre filled with boutique stores (fiscal clubs) offering specialised products or services (club/public goods). As Tiebout put it: ‘mobility provides the local public-goods counterpart to the private market’s shopping trip’ (422). According to economic theory, then, if citizens were free to enter and exit from nations and city-states—if they were free to be globally mobile in their citizenship—such freedom would promote an optimal solution to the problem of public-goods provision. The upshot is that the same specialisation that we observe in cities over trade and commerce can also extend to public goods and can furthermore remain entirely compatible with democracy as formulated within a global context of competitive federalism.
From Territorial to Non-Territorial Public Goods Clubs
The problem with this model is that it assumes free mobility of factors. One of the great achievements of the 20th century, and one of the great drivers of global increases in wealth and living standards, was the gradual dismantling—first under the leadership of the United Nations and GATT and now the World Trade Organization—of protectionism in trade in commodities and services, and eventually in capital and finance. But the problem is that this liberalisation and globalisation has not occurred to anything like the same extent in the free mobility of people. Certain institutional rigidities, such as migration thresholds in individual decision-making, render the mobility adjustment process imperfect in comparison to the market analogue. In consequence, the main mechanism underpinning the Tiebout model—free mobility of people—is very far from a realistic global assumption.
Even within nations, the problem of locational fixity stems from the fact that individuals simultaneously make locational adjustments in private sector and social activities. There might not be much overlap between the people you want to live and work with and the people who would choose the same form of government as you; in effect, we often tolerate government we don’t like in order to live near the people and places we do. Unless preferences for neighbours and policies are identical, citizens face a trade-off when sorting over a geographic space populated by territorial nation states and city-states.
Governance then becomes even more problematic, because the Tiebout model also presumes homogeneity of preferences (after sorting), but due to other factors affecting locational decisions this is rarely the case. This problem makes the (democratic) definition of successful governance a little shallow, given that we would still be struck with the reality that swaths of the population remain unhappy with a set of collective goods and government that they are forced to consume, with little to no recourse for satisfaction—notwithstanding that this situation is imagined to be the one that impinges upon the least possible number of people.
A solution to this problem, which we suggest as the future of cities, is to render the public goods logic of cities non-territorial. This arises when the public goods aspect of cities is territorially decoupled from the economic and spatial locational aspects of the city, enabling residents and denizens in effect to choose their own public good clubs. These may exist within the city, or be nationally or even globally supplied. Just as a nation can be divided into many small geographically distinct territories for purposes of local and regional government and national representation, so too can it be divided into analogous non-territorial political units.
To the extent that public and private preferences over space are non-identical, there exist structural efficiency limits of territorial Tiebout sorting. And the more that political preferences diverge from other spatial preferences, the more preferable non-territorial governance becomes to political territoriality. Non-territorial governance combines the advantages of large cities, with the advantages of competitive federalism, and a revitalised political sorting mechanism. The key assumption being reversed here is territoriality—exclusive, continuous and contiguous—as the foundation of political authority. In such a system, governance doesn’t follow the territory, but rather the person. You and your next-door neighbour might be citizens of quite different governments.
By this conjecture, the end-point of nation-states and public goods-based federal democracies are ‘non-territorial public goods clubs’. This means a decoupling of political jurisdiction and geographical location so that people could switch political jurisdictions without switching location. This logic suggests that you could choose to live wherever you wanted, under whatever government you chose—as a public goods club.
In some respects, the deterritorialisation stage in the evolution of cities is already underway: technological developments, especially in areas such as computing and telecommunication, are shifting the balance away from purely territorial governance to more decentralised, non-territorial political forms. This has fed the rise of commons-based peer production in private enterprise and we might expect an attendant rise of commons-based peer production in public enterprise. Reduced capital costs of information and material production, and reduced transaction costs of coordinating action between individuals and organisations are underwriting the rationale for small-scale, decentralised, and functionally-specialised modes of governance. And even when a particular collective good requires substantial capital outlays, networked technologies have radically lowered the costs of aggregating individual capital contributions (e.g. crowdfunding platforms for the provision of civic collective goods such as Brickstarter and Citizinvester).
Such trends undermine the territorially exclusive nation-state by opening up new governance structures and possibilities. The cumulative effect is that a rapidly increasing share of the functions previously carried out by a territorially exclusive state might now be effectively carried out non-territorially, or in parallel, by commons-based peer production, social-entrepreneurial crowdfunding, or special-purpose public enterprises.
However, while the nature of territories and jurisdictions, and their respective roles and functions, may be changing, the ‘end of the nation-state’ thesis is surely premature. As Friedrich Hayek put it, there will always be ‘certain kinds of government activity which will be done most efficiently for areas corresponding to the present national states [which] can be exercised nationally without endangering the economic unity of the federation’ (Individualism, 267). This basic point remains. But there will probably also be a continued devolution of powers from states to smaller units. The future will see this carried out not only in comparatively small territorial units, but also in non-territorial units, as public goods clubs.
Ferguson, Niall. Civilization: The West and the Rest. London & New York: Penguin, 2011.
Florida, Richard L. The Rise of the Creative Class, and How It’s Transforming Work, Leisure, Community and Everyday Life. New York: Basic Books, 2002.
Glaeser, Edward L. Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier. London & New York: Penguin, 2011.
Hall, Peter. Cities in Civilization. New York: Pantheon, 1998.
Hayek, Friedrich A. Individualism and Economic Order. Chicago: University of Chicago Press, 1948.
Jacobs, Jane. The Death and Life of Great American Cities. New York: Random House, 1961.
Kotkin, Joel. The City: A Global History. New York: Modern Library, 2005.
Tiebout, Charles M. ‘A Pure Theory of Local Expenditures’. The Journal of Political Economy 64, 5 (1956): 416-424.
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