Planning and the Political Market

By Mark Pennington

Athlone Press: London 2001 Paperback Buy here

Book Review
Reviewed by Alan Lockard

In Planning and the Political Market, Mark Pennington examines land use/urban planning in Britain from the public choice perspective. The result is a thoroughly documented demonstration of how (and why) well-intentioned efforts to achieve social objectives through government action often go astray. In the process of examining the outcome of governmental activity regarding urban and rural land use planning, Pennington accomplishes a painstaking elucidation of the insights drawn from the public choice sub-discipline of economics. (The book’s subtitle is Public Choice and the Politics of Government Failure). Pennington makes a good case that land use planning in Britain is a clear example of government failure.

The premise of land use planning is that there are competing, mutually exclusive uses for land, and that market forces fail to allocate those scarce environmental resources to their most highly valued uses. The allocation, therefore, is undertaken by government agencies, directed via the political process. In theory, markets routinely fail to adequately protect the public’s interest with regard to environmental issues because profit-driven businessmen do not bear the consequences (costs) of their behavior with regard to such issues as destruction of beautiful vistas, environmental degradation due to pollution, harm to wildlife due to habitat destruction, and so on. Government has the power to regulate development so as to compel developers, and others who impact the environment, to behave in a socially responsible way. The governmental agencies, tasked with regulating those who affect the environment, answer to elected officials, and are thus subject to the political process. Since everyone is entitled to participate in the democratic process (at least in Britain), the general interest, rather than those of developers, the construction and agricultural industries, and other profit-seekers, should be served.

The 1947 Town and Country Planning Act effectively nationalized the right to develop land in Britain. It remains one of the most comprehensive systems of land use regulation in existence. With those activities that have the potential to adversely effect the environment now safely insulated from the forces of the marketplace, Britain should be a model of socially responsible development. Pennington carefully examines the outcomes of British land use planning, and reveals a very different story. He looks at the issues citizens consistently cite as their primary concerns regarding land use and development. They are most concerned with increasing availability of affordable housing, reversing urban decay, preserving the trees and hedgerows that have traditionally partitioned the fields in rural England, and reducing commuting distances, along with the associated air pollution and traffic congestion. Pennington shows how British land use policy has not only failed to advance these goals, it has actually made all these problems worse. To those unfamiliar with the public choice approach to analyzing political institutions, this instance of democratic failure may seem inexplicable. The unfortunate outcome documented by Pennington, however, is precisely what public choice economics predicts.

The public choice paradigm assumes that participants in the political process have the same basic characteristics as participants in market processes. That is, voters, bureaucrats and politicians are rational and self-interested, just like consumers and businesspeople. Just like actors in the private sector, they make choices on the margin and the information on which they base their decisions is typically costly to acquire. These assumptions seem commonsensical, but the implications are profound.

As Adam Smith famously noted, producers in the marketplace are led, as if by an “invisible hand,” to benefit others. To achieve their objective (profit) through voluntary interactions, they must offer either higher quality or lower prices than their competitors.  The invisible hand mechanism breaks down in the political marketplace, however. Those affected by land use regulation cannot simply choose to opt out of regulations they find undesirable. Producers of regulations, therefore, do not face the same pressure to continually improve their “product” that producers of market goods do. In theory, citizens will express their level of satisfaction with regulation to their elected officials, who should provide pressure to improve regulation to insure that those politicians achieve their objective (re-election). This presupposes a citizenry sufficiently well informed to effectively monitor their representatives. When we look at the incentives of voters, however, we see that they are unlikely to be that well informed. It is costly to inform oneself regarding the effects of regulation. The costs of doing so fall directly on each voter. The benefits of an informed vote, however, are shared by everyone in the polity. There is also an important difference regarding the degree to which any individual’s actions affect the outcome in markets versus the political sphere. In the marketplace, each consumer’s decision determines the outcome. The product consumed is the one selected. In politics, although the outcome is determined by the aggregation of individual preferences (votes), the likelihood that any individual’s vote will determine the outcome is vanishingly small. That is, very few elections are carried by a one-vote margin. As a result, it is generally the case that the costs of voters informing themselves on political issues exceeds the benefits they can realize by doing so. Most can be expected to remain rationally ignorant of the issues, and, therefore, unable to effectively monitor their elected representatives.

Pennington illustrates how the rational ignorance of voters can result in a mis-ordering of priorities, especially when special interests can influence they content of public debate. He shows that conservation groups get a disproportionate degree of coverage on the issues they are interested in, and then cites a survey in which 2/3 of those polled indicated that they believed at least 65% of Britain was currently devoted to urban land use. The actual figure is 11%. 

Contrary to the stated goals of British land use regulation, Pennington carefully documents how those policies have resulted in higher housing prices, greater congestion, longer commuting (with an associated increase in automobile generated pollution), and continued use of environmentally damaging agricultural practices.

On the demand side, Pennington shows how those special interest groups most capable of overcoming collective actions problems (agricultural, construction, and NIMBY (Not in My Backyard) conservation interests) have disproportionately influenced British land use policy, to the exclusion of the interests of consumers, taxpayers, and the urban (especially poor) population.

On the supply side, he demonstrates that the budgetary imperatives of planners trump the revealed (via surveys) preferences of the community as a whole. He also notes that while bureaucratic budgets have consistently grown, there is no evidence of any corresponding increase in bureaucratic performance.

While the increased land use planning agency budgets have corresponded with increased public interest in environmental issues generally, the actual policies implemented have typically benefited bureaucrats and special interest groups, not the general populace. Environmentally harmful practices by subsidized farmers remain unregulated, as do the often-harmful practices of the Forestry Commission, a state agency. Planners focus most of their attention on preserving green belt areas, which the public cites as a relatively low concern, but which preserves planners as critical gatekeepers in any development efforts. The public consistently cites loss of trees and hedges as a greater concern, but the agricultural interests responsible for those practices remain subsidized, rather than regulated. Other frequently cited environmental concerns of citizens generally include traffic fumes and congestion, problems made worse by current planning initiatives. Pennington also cites numerous studies indicating that land use planning tends to redistribute resources from the poor to the middle class.

Although land use planning typically results in anti-growth policies, Pennington also documents how pro-growth policy can be implemented when doing so advances the interests of the bureaucratic agencies and coalitions of special interest groups (such as construction interests, merchants, labor unions, utility companies, etc.). The form such development takes is often inappropriate from the perspective of broader interests, however. Costly, high profile, public/private projects generally take precedence over self-financing, small business-initiated projects. The interests of taxpayers and the poor, who are often displaced by these showcase projects, are routinely ignored. These projects typically do nothing to stem urban decline, although that was usually their stated purpose.

The public choice insights that Pennington uses to best advantage in explaining the consequences of British land use policy are those drawn from Mancur Olson’s work (see especially The Logic of Collective Action, Harvard University Press, 1965). The public sector is more responsive to pressure from organized groups than to individuals, since groups are more capable of providing the money and votes required to facilitate politicians achieving their objectives, especially re-election. Intuitively, it would seem that groups with the largest members, such as taxpayers or consumers, would have the most sway. That would be consistent with the basic premise of democracy—the majority rules.

Olson explained why this is not generally observed. The costs of promoting the group’s interests are borne by those activists who work or contribute on behalf of the group. The benefits of that action, however, are shared by all group members, whether they contribute or not. It is in the interest of each group member to not contribute, but to “free ride” on the efforts of others. Small groups may be able to overcome this problem of collective action by monitoring each other’s level of contribution. As group size increases, therefore, it becomes increasingly difficult to organize a group for effective political action. It simply does not pay for numerous individuals with common objectives, but relatively small stakes, to incur the costs of political organizing. This dynamic leads to the prediction that public policy would tend to favor groups that can most effectively overcome the problems of collective action, such as small groups where each member has a relatively large individual stake in the outcome. This is precisely what Pennington finds as he catalogs how various groups have fared in promoting their interests via British land use policy. Those for which he finds a mechanism for overcoming the collective action problem enjoy the benefits—those that cannot, bear the costs. In the process, the hopes that participatory democracy will steer land use policy in a socially responsible direction are dashed on the rocks of special interest politics.

Contemporary orthodoxy is that land use planning is required to overcome market failure and its associated environmental problems. The reality is that the observed problems in this area are more often the consequence of government failure. The institutions of British land use planning do not lead to the internalization of external costs, as intended, but operate to impose external costs on those not adequately represented in the planning system. The vision, of some, of a land use regime directed by participatory democracy is not realized either. Pennington argues that the expansive role of government actually undermines the democratic process. The more that government undertakes, the more costly it becomes for individuals to inform themselves of its activities. If government restricted its land use related activities to enforcing property rights, and resolving related disputes through the courts, monitoring of government activity would be greatly simplified, and participation may increase. The quality of public discourse could be expected to increase.

Pennington stresses that accepting that markets do not always function perfectly does not mean that government intervention will necessarily improve outcomes. He makes a good case, with plenty of empirical support, that government failure is more pervasive and harmful than market failure, at least with regard to environmental issues in Britain. He also makes the crucial point that market failures provide incentives for individuals to profit from their resolution. That is, instances of market failure are inherently profit opportunities for those who determine how property rights can be further refined so as to facilitate pricing strategies that will more closely equate marginal costs and benefits. There is no corresponding self-corrective tendency in governmental failure, where adverse consequences of the incentives created by government intervention are often cited as justification for an even greater expansion of regulatory activity (and budgets), with increasingly adverse consequences.

Finally, as a response to the well-documented existence of government failure associated with British land use planning, Pennington, in the final chapter, proposes an alternative mechanism. He suggests privatizing planning rights, arguing that a property rights-based approach would be more efficient and equitable. Drawing on the work of Austrian school scholars, such as F. A. Hayek, he notes how market processes reveal consumer preferences and valuations in a manner that political processes cannot. In the absence of this information, which can only be effectively revealed through market processes, planners have little to base their actions on other than the pleadings of organized interests.

When property rights are clearly defined, it is only transaction costs that prevent resources from being directed to their most highly valued uses. Although critics of unfettered markets are quick to point out the existence of transaction costs in the marketplace, Pennington notes that transaction costs are significantly higher in the political arena. He also makes the extremely important point that in a property rights-based regime, individuals have incentives to find innovative means to reduce transaction costs. Market inefficiencies are always, in a sense, prospective profit opportunities. No such incentives to reduce transaction costs exist in the public sphere. What incentives do exist are there to use the coercive power of the state to shift costs (externalize them) onto others. Pennington further notes that in a property rights-based system, legal remedies in contract and tort law exist to discipline bad actors. Those remedies are typically unavailable against bad actors in the public sector.

This book will prove valuable to those with an interest in public choice as well as those interested in environmental and planning issues. The work is chock-full of helpful citations to the works of public choice theorists and scholars, such as James Buchanan, Gordon Tullock, Mancur Olson, Anthony Downs, William Riker, William Niskanen, and Howard Demsetz, among many others. The first 15 pages of chapter one, along with the first five pages of chapter five, provide an excellent stand-alone introduction to public choice theory. It should also be noted that although his primary concern is with British land use planning, he does make reference to similar problems in the U.S.

One hopes that this book will spawn other similar works detailing, as Pennington has so meticulously done, instances of government failure in specific policy areas. If we are to have government policies in areas like land use planning that do more good than harm, clearly something must change. The currently widely accepted paradigm that markets fail, so government must intervene, must be seriously reexamined. Pennington has compiled evidence that makes it impossible to deny that British land use planning is a clear example of government failure. He also presents a strong case that a property rights approach can solve the problems that a command and control approach cannot. This is an essential first step in the journey towards a more rational public policy.