All Commentary
Friday, March 1, 1974

Public Goods and Fear of Foreigners

Dr. North, economist, lecturer, author, currently is an associate of Chalcedon, an educational organization dedicated to Christian research and writing. His latest book is An Introduction to Christian Economics, Craig Press, 1973.

Back in the dear, dead days of the Sputnik mania, Americans were told that they were in a great economic race with the Soviet Union. We were going to have to tighten our financial belts and “get America moving again.” In the rhetoric of the 1960 campaign for the Presidency, this meant more government spending. The man who coined the slogan for John F. Kennedy was Walt Rostow, whose 1960 book, The Stages of Economic Growth, became a best-seller. In it, Rostow argued that the so-called take-off into sustained national prosperity could be accomplished, in part, by heavy government expenditures in “social overhead capital” — highways, education, health care facilities, and so forth. Professional economic historians devastated his thesis’ historical examples in a little-known book published in 1963, The Economics of Take-Off into Sustained Growth (St. Martins, 1963), edited by Rostow, but the public never heard of it, including most of the academic public. The reaction against Rostow’s vision came only after 1965.

Since the mid-1960′s, a flood of academic and pseudo-academic studies has been published on the growth question. Zero population growth, the no-growth economy, and the no-growth urban region have all been ballyhooed. Even no-growth government — incredible prior to 1965 — has been at least discussed in academic circles. But the standard argument today is that the economics of zero growth can be achieved only with the direct interference of the political authorities (just as, in 1960, it was assumed that continuous economic growth could be sustained only by means of direct government interference). Those who have faith in the State are not likely to overcome their infatuation just because their goals have been reversed. Only with a change in operating principles should we expect to see a reversal of the juggernaut State.

Economic growth is now too often regarded as a threat to the nation or to a community. Some people fear that we will deplete our national resources. This is quite likely, if the various agencies of government insist on imposing price controls on key resources, thus stimulating demand for them without simultaneously stimulating a search for suitable substitutes. Either the State rations the goods politically — an invitation to corruption and inefficiency — or else one day we run out of the resource, and we find that the transition to alternative substitutes must be accomplished overnight, at considerable waste and expense.

Other people fear economic growth because of their fear of social change. They wish to preserve a monopolistic position, socially or economically, and they can sometimes influence legislators to restrain newcomers in the search for profit or position. This has been the primary result of America’s supposed antitrust legislation; newer, more efficient competitors are locked out of the markets by legal restraints on price competition. This has been documented by D. T. Armentano’s book, The Myths of Antitrust (Arlington House, 1972), but the mythology is deeply ingrained in the textbooks. Monopolies continue to be created by the legislation which is supposed to halt monopolies.

But the most important fear of economic growth in terms of its political impact is the fear of bankrupt municipal treasuries. This is one argument against local growth that cuts across ethnic and class boundaries. Almost everyone resists any increases in his taxes, especially property taxes. This is the arena of the battle against economic growth today.

Subsidized Shortages

Perhaps the best way to illustrate my point is by means of an historical example. On May 15, 1972, the Tarrytown, N. Y. Planning Board vetoed the construction of 348 town house apartments on a local 25-acre site. Some 60 people jammed the Village Hall to protest the proposed development. “I think it will be a long time before they want apartments in Tarrytown again,” commented one of the planning board members after the meeting. “They’ve had it.” (The [Tarrytown] Daily News, May 16, 1972, second front page.)

Why the opposition? Because the local streets would be overburdened by a proposed increase of 700 automobiles. Anyone who has tried to drive through Tarrytown at peak traffic hours — any time other than midnight to five a.m. — knows how accurate the complaint was. The streets, needless to say, are “free” goods. Second, the village did not need any new apartments. Anyone who has ever attempted to find housing near Tarrytown knows how inaccurate that assertion was. But an absence of available housing kept “undesirables” out and returns to owners of rental property high. Finally, there was a fear of the strain on existing village services — strains that might lead to tax increases. They wanted to restrain access to other “free” goods.

“Who wants this?” asked one resident. “I’ve talked to people all over town” — a dozen? his next door neighbors? — “and I’ve found no one who has the slightest desire.” The trouble with all such surveys, however sophisticated, is that they never ask those living outside the municipality whether or not they would like to move into a region. Those arbitrarily excluded from the town are then forced to seek less desirable housing or surroundings.

A Demand for More

The overwhelming difficulty with all State-subsidized “services” is that they create demand for more such subsidized services. The only exceptions to this rule are those projects so utterly without redeeming social value that nobody wants them at any price. Either the parks or streets get overcrowded, or the power lines get overburdened, or the telephone lines get jammed. The government agency then is forced to increase its revenues by placing higher prices on the services (unpopular with those already enjoying the subsidy), or by increasing taxes (somewhat less politically objectionable, since resistance is usually diffused in numbers and therefore less vocal in opposition). So residents feel compelled to place restraints on newcomers who will not pay their way.

This is not an isolated phenomenon. If anything, the problem is getting worse, since the “war on poverty” programs at all levels of government in the 1960′s have created new demands for services, some of which were inconceivable in 1950. U.S. News & World Report (Dec. 10, 1973) describes the opinions of residents of Hoffman Estates, a suburban community 30 miles northwest of Chicago. It keeps doubling its population, as more and more people leave the Chicago residential areas. One woman, describing how the once empty fields have filled up with homes, now complains: “We’ve heard people describe the apartment complexes as a tumor engulfing the whole area. The people are O.K., but these apartments crowd the schools and raise taxes.” She sees the construction of apartments as a tumor; the desire of others to move into more acceptable housing is a threat.

If someone wants open spaces next door, he can purchase the land and leave it empty. Such a purchase must be paid for: property taxes, forfeited purchases of other commodities, increased worry about upkeep, and so forth. The buyer must defend his ownership economically every day. He forfeits the rent that the land would bring; he keeps out other potential users of the land. It is expensive, especially as the other available plots of open land are gobbled up by apartments. But it is possible to keep a personal lifestyle if the buyer wants to pay for it.

But people do not want to pay for it. They think that because they moved into a small, semi-rural community five years ago that they have some kind of automatic right to the older conditions’ blessings, even when new economic conditions appear. They mistake the right to compete for land or open spaces for a property right to the land. They call in the political authorities to defend their “property rights” to semi-rural life at below-cost rates. They exclude others from the competition by force, rather than by economic means.

What if there were no publicly supported school system? What if all the schools were private, or even profit-making institutions? Then every school would want to encourage new faces, and local citizens would not see their pocketbooks threatened by new arrivals. What if the parks and swimming pools and street lights were supplied by profit-making firms? No one would have to pay for another person’s consumption. The threat would rapidly disappear. New faces would mean new sources of profit, new sources of productive services, new people to trade with a wider, more productive local market. But with an ever-growing list of “free” municipal services outsiders are regarded with suspicion and hostility. These are the direct effects of “free” services and goods — not side-effects, but effects. They receive little publicity in the press; such costs are not counted in the professional surveys made by graduates of the public administration departments of the universities.

New Apartments Resented

People who live in apartments, especially newly constructed apartments, generally have children. Low-cost apartments make this doubly true. Or if not children, then older, poorer people live in them. They draw on local tax resources. They are resented. So new apartments are resented. They are money losers for the municipal governments. Prof. William Alonso, in the Fall, 1973 issue of Daedalus, puts his finger on the issues involved:

Suppose that growth is restricted. What happens to the people who would have moved in but could not? Obviously neither they nor their children cease to exist. They will find second-choice homes; their children will go to more run-of-the-mill schools and impose their costly presence on people who are less able to afford this added burden than the wealthy residents of le suburb in question. It would appear that they will be worse off, and so perhaps will the present residents of wherever they end up. The rub is that what seems from the local viewpoint an issue of growth is, in a larger framework, an issue of distribution, both in the social and in the geographic sense — not whether these people and their children shall exist, but where and how.

Alonso concludes, grimly: “The point of the example is that the current Balkanization of metropolitan areas into dozens and even hundreds of local governments encourages beggar-thy-neighbor strategies.”

The point he does not make, however, is that the incentive behind these strategies would be drastically reduced if the primary source of the difficulty were removed: below-cost or “free” municipal services.

It is interesting, to say the least, that one agency in the state of New York has been exempted from all local zoning laws: the Urban Development Corporation. This is the agency that constructs below-cost public housing for minority groups and builds them in residential areas. There is no doubt that this does disrupt a local community. This is not the slow, steady change encouraged by free market pricing, but rather the instant-transformation, jerky-alteration social and economic change of the State-supported welfare agency. The resentment against the Urban Development Corporation or similar New York City agencies is legendary, and New Jersey residents are not noticeably more “liberal” in their attitudes. Push comes to shove; zoning law coercion becomes anti-zoning law coercion. And as zoning shifts from local communities to state governments or even Federal agencies, the intensity of the coercion and the mob reaction will be that much worse. Yet this is where the trend is headed (U.S. News & World Report, March 6, 1972: “Fight Over Zoning Heats Up”).

A Moral Question

Ultimately, the problem is not simply technical. It is a moral and religious question. Do men have a right to property that they have not or will not purchase for themselves? Do local residents have the right to maintain their life-styles at below-cost prices? Does one family have the right to educate its children at the expense of some other family? So long as a vocal minority and a silently assenting majority of people answer yes to such questions, the fight over zoning will indeed heat up.

But it is not just the school question, either. In Fairfax, Virginia, a relatively wealthy suburb of Washington, D. C., there has been a moratorium on the construction of new sewers, as well as restrictions on new building permits. Why should this be necessary? Why can’t the municipal authorities add new residents to the sewer lines? Because it would necessitate an increase in taxes to treat the sewage successfully. No one considers the other possibility: private sewage treatment.

Given the tremendous pressures in Fairfax for new homes, land costs have skyrocketed. An acre of land without the sewer line may be worth $5,000; with the sewer, $15,000 or more would be likely. Thus, the mere addition of a sewer line grants a huge subsidy to local land owners. Is it not reasonable to suspect that a private firm could find a way to make a profit under such circumstances? Is it not likely that many thousands of dollars could be generated from the sale of sewer lines? Would not local owners be willing to pay a thousand or even two thousand dollars to be allowed to hook into a line that would grant them an instant increase in the value of their property? But local, “publicly owned” sewers are supposed to be priced “fairly,” that is, below the value of the service. Sc heavy demands are placed upon the municipal authorities to build more and more lines, and expand the treatment facilities as well Only taxes are not supposed to go up, or if they are, they must be paid by those who have not yet been allowed to hook up to the lines. Under such circumstances, it is not difficult to understand that a moratorium on sewer construction has been imposed. Economic growth — best defined as an increase of people’s voluntary options — slows down.

Some municipalities are now requiring housing developers to build public schools in order to get licensed. Others are not allowed to expand at all. With the ecology pressure groups all around, developers are assumed to be guilty before they can prove themselves innocent. They must conform to other’s conception of aesthetics (not just medically harmful or land-value-depressing pollution, but aesthetics). So growth slows down.

Nothing New

The problem is very old. The poor law legislation of early modern England forced parishes to care for indigents. As a result, potential indigents were not allowed to come to a new parish. The same result took place in seventeenth-century New England when the Puritans imitated the poor laws by establishing tax-supported charities (although they were incredibly tiny efforts by modern standards). Visitors could stay only a few days or weeks; if they stayed longer, they became potential permanent charges of the public treasury. Thus, restrictions were placed on the sale of land or rentals throughout the century in virtually every town. Town officials had to approve every such sale.

The problem is simple: public goods are in short supply in comparison to demand. The prices of the goods are politically imposed. Thus, communities want to restrict access to these goods and services. They use political coercion to keep outsiders away from the treasury. Only those who are clearly not tax liabilities are greeted with open arms. The conclusion is simple enough: reduce the level of the redistribution of wealth by coercion within any community, and you thereby increase the options of the inhabitants and potential inhabitants to make economic decisions without legal sanctions or public censure. In short, economic growth is furthered by increasing freedom. The very nature of the local redistribution of wealth restricts men’s options, and by definition this restricts economic growth. By abolishing these redistribution schemes, you reduce the fear and hatred of outside “invaders,” and civilized life becomes more likely. Let every man pay his own freight, and the costs of shipping will go down.  

  • Dr. North is president of The Institute for Christian Economics in Tyler, Texas. He was FEE’s director of seminars in the early 1970s and has served as a member of the board of trustees.