All Commentary
Tuesday, April 1, 2008

Downtown Revitalization: City Governments Versus Consumers

Government Planners Lack the Incentive and Ability to Accurately Forecast What Consumers Want

What a thrill to visit cities that have “revitalized” their downtown areas! From the empty streets to the government offices to the abandoned retail spaces—what’s not to like?

Well, everything, of course.

Not only are such areas unsightly and useless, they often come at the expense of millions of taxpayer dollars and eminent-domain coercion.

There’s nothing wrong with feeling a bit nostalgic for when everyone worked and shopped in a bustling downtown—although I happen to enjoy today’s so-called “sprawl,” especially as I think about how it demonstrates how well the market serves consumers with an ever-increasing variety of goods at ever-lower prices. But in any event, fuzzy feelings about downtown areas apparently aren’t very important to most people who do have them, because those people don’t put their money where their mouths are. They choose to live, work, and shop in outlying neighborhoods instead.

Voting, however, offers such people an opportunity to act on their emotions at virtually no personal cost. Thus we get government-sponsored “revitalize downtown” efforts in cities all across America that fail again and again.

My city of Columbus, Ohio, tried its own ridiculous plan along these lines about 20 years ago, when it built a downtown mall called the “City Center.” It opened in 1989 to much fanfare, filled with stores intended to lure suburbanites and others from all over the state.

And it did. For a very short time crowds indeed came. Politicians were quick to take credit for this putative victory—declaring “mission accomplished” like George W. Bush in Iraq within days of the mall’s opening—while the media praised them for having “the courage to ignore the criticism and continue with the project.”

An early manager of the mall declared it “almost competition-proof,” bringing to mind certain claims about the “unsinkable” Titanic. A visitor in those first days breathlessly told a newspaper reporter that the mall’s “novelty will never wear off.”

Now, though, the mall is just about empty. Entrepreneurs saw opportunities soon after it opened to put malls where people actually wanted them, in the suburbs circling the city, and that is where everyone goes—including city-dwellers like me.

There are no more “anchor” stores in the City Center. The mall’s third floor—once home to only the most upscale stores—in recent years housed a public school in a former Henri Bendel space, and now even that’s closed. The second floor—with a Sunglass Hut and nothing else—is thriving by comparison.

The ground floor is mostly empty, too, but it does have a food court of sorts, plus such attractions as a dollar store, stores offering what one might charitably call “urban fashions,” and a tattoo parlor.

It’s fitting that a government mall would have nothing inside it, because government produces nothing. It is empty on the inside and ugly on the outside, with almost no glass or windows, but rather just a big brick lump where once there were houses and businesses, before the government bulldozer came.

The total cost to taxpayers to put up this now-abandoned monstrosity? More than $72 million—plus ample eminent-domain compulsion to destroy what little old-fashioned life and color the area used to possess.

One More Attempt

But never fear. Mayor Michael Coleman has come up with a solution. The city has decided to simply take the mall back from the private-public partnership that had been in charge of it, and this time the government will get it right.

But although the names of the politicians may have changed since 1989, the economic reality never will. Government planners lack the incentive and ability to accurately forecast what consumers want. They are driven by political considerations and, at best, by what they wish people would do. In contrast, entrepreneurs in a free market have an incentive to determine what consumers really want and provide it, because they put their own cash—not taxpayers’ money—on the line.

So-called public-private partnerships do not and cannot resolve this problem because in such cases (as with my local empty mall), the market is distorted. Businesses respond to government-created incentives, not consumer preferences.

Some might try to rebut this by pointing to government-subsidized projects that appear to have succeeded. But these prove nothing. Undoubtedly, many such cases involve businesses getting government help to do something they would have done anyway, and thus amount to little more than a gift from hard-working taxpayers to politically connected business owners.

The only way to determine what consumers want in the former mall space is to sell the land and the building to the highest private-sector bidder with no strings attached.

Does that mean a flourishing mall or some new attraction will take the place of the government disaster and have everyone flocking downtown? No. Plenty of private buildings in downtown areas struggle with high vacancies and will continue to do so. Indeed, sometimes the most efficient thing for an entrepreneur to do is to leave a building empty until a time when it can be put to a higher and better use than present conditions allow. All we can say for certain is that private hands are by their nature more likely than political hands to succeed in determining what people really want most.

That idea may frustrate politicians who imagine themselves capable of wishing a specific vision of a downtown into existence and of making people want something they have demonstrated again and again they do not want. But there is no fairy godmother to wave her magic wand for city politicians and their economically illiterate gaggle of planners.

The reality is that mayors and council members may nominally rule their cities, but the dead mall at the heart of Columbus, Ohio—like so many other “downtown revitalization” projects—stands as a monument to their impotence, and to the fact that in the free market, the consumer is king.