The Third Pillar
Page 38
However, communities left on their own may resemble the isolated, vulnerable, unproductive, and sometimes oppressive manors of medieval times rather than the vibrant Northern Italian cities in the aforementioned study. We therefore need well-connected inclusive communities for the modern age, which is where the markets and the state come in. How might they work together?
National markets will provide competition to community producers as well as offer alternative possibilities for community consumers and workers that will keep the community from descending into cronyism and inefficiency. Any rules and regulations the community decides to impose will have to meet the market test: Does it create an undue burden on producers or consumers? If it does, the community will have to reconsider them or see its producers or consumers leave for a more hospitable community. Community members will tolerate small rents and inefficiencies that keep the community together, not large ones.
The state will make possible national markets by creating bridges between communities—literally, by building out the connecting physical and communications infrastructure, but also figuratively by keeping communities open to trade flows and people flows using national laws. In doing so, it will ease mobility for people, which will prevent any community from getting overly oppressive. The state can also create bridging vehicles such as national social or military service, secular national festivals, and national sports teams. It can encourage collective national efforts around hosting a major event like the Olympics or achieving a major environmental or developmental goal.
The state will monitor community governance lightly, investigating and prosecuting grand corruption, and ensuring civil rights are protected. Conversely, communities, aided by new communications technologies, will come together through the democratic process to influence the state and its policies. Finally, the state will provide some central support to communities, not just during periods of widespread economic distress when community resources are overwhelmed, but also to prevent any community from falling too far behind.
This last requires elaboration. The state still has the responsibility of holding the country together, which requires it to ensure that communities do not grow too far apart economically. Economic diversity creates differences in economic opportunity, and divisions in how communities see policy and one another. At the crudest level, if most students drop out of high school in one community, while they typically go on to university in another, the two communities will have very different views on federally funding public universities, on incentivizing entrepreneurship, and on welfare transfers. Of course, some level of economic diversity will always exist, but when it grows beyond a certain point, policy differences increase within the country, and it is harder to find compromise policies that satisfy most people. While decentralizing policy will help foster engaged policy action at the community level, nations cannot dispense with federal policy.
A critical federal problem in diverse countries is the unwillingness of well-off groups to support transfers to less-well-off and ethnically different groups.3 Would such reluctance not get exacerbated when ethnically diverse communities are empowered? Perhaps! Yet, much of the reluctance to support transfers arises from the belief that they go to the “undeserving” poor to support a life of indolence. Transfers here would be aimed at community economic development, such as building public infrastructure, which would enhance the community’s opportunities and help it contribute to everyone else’s growth. Since policies would be nondiscriminatory, transfers would also go to poorer communities largely populated by the majority group. If carefully designed, with appropriate federal and community monitoring to ensure funds are spent well by the community, there could be broader support, especially if there are early positive results.
All this requires a balance of powers between the state and the local community government—not so much power with the state that the community has little sense of self-determination, and not so little that it cannot discipline obviously corrupt local governments, reduce the economic inequality in opportunity between communities, or create the common assets that drive a strong nation. We will consider the appropriate distribution of power between the state and community in three important spheres: the provision of public goods, the creation of capabilities, and the maintenance of a sound safety net. The key in each sphere will be to combine the resources and national reach of the state with the local information and engagement of the community, harnessing new technologies whenever possible.
LOCALIZING POWERS AND THE PROVISION OF PUBLIC SERVICES
Even though common national rules reduce community autonomy, some may be necessary to preserve the benefits of trade and freedom of movement.
PREVENTING ANTICOMPETITIVE BARRIERS BETWEEN COMMUNITIES
Different communities will have different views on business—for example, the kind of business they want operating in their communities. Some will want big-box retailers like Carrefour or Walmart, while others will prefer small local main-street grocers and shops, even if they cost more. Communities should have the power to determine the nature of local production (such as the production of retail services through big-box or small mom-and-pop stores), provided they do not directly impede domestic trade in goods and services.
Local business will attempt to influence decisions on which kind of businesses can locate in the community, and they will do so keeping in mind their profits. Yet there will be two checks on these influences being excessive. First, so long as local residents can travel outside the community to patronize businesses elsewhere, and so long as they can order goods and services from around the country, the extent of profit local businesses can make will be limited by locals’ preference for convenience and timeliness. Second, the democratic decisions of the community will trade off the desire to help local businesses and preserve local ambience and jobs against the higher costs of goods and services. If the latter become excessive, the community can always allow more competition. So long, therefore, as there is no explicit barrier such as a tariff wall set around the community, the community should be allowed to determine business zoning decisions.
In addition to zoning, there are a variety of regulations local community government can impose if allowed. These can be extremely protectionist and impede the inward flow of goods and services from elsewhere. The general principle (in the spirit of the Commerce Clause in the United States Constitution) should be that the community has substantial say over the regulations governing the production of goods and services in it (within the scope allowed by national law, of course), but it cannot impede national trade by imposing tariffs or nontariff barriers. Therefore, for instance, the community may require a minimum wage to be paid by local businesses (a regulation on production), even if there is none at the national level, but should not be able to mandate that only gluten-free or organic products be sold locally (a nontariff barrier to trade). Put differently, communities can use their democratic influence over national regulation if they want to prohibit some products or mandate minimum standards on others, but no community should be able to impose restrictions on its own—else the national market will be fragmented to everyone’s detriment. That said, in a Jewish neighborhood, shops may simply not order nonkosher food, but that will be by choice, not because of a trade barrier.
DISCOURAGING SORTING OF RESIDENCE AND COMMUNITIES BY INCOME
Let us turn from production to residence, specifically the issue of residential sorting, which we encountered earlier. While nations have the right to control the inward flow of people, communities should not have that right, else that risks perpetuating inequality and segregation within the country. Yet many well-off communities, while ostensibly open, set zoning rules in a way that effectively discriminates against less-well-off people. For example, some communities forbid the construction of apartment buildings, rental occupancies, or single-family homes smaller than a certain size, thus keeping out anyone who cannot afford high housing costs.
Effectively, they keep out lower-income folk through a nontariff barrier.
Economic segregation ensures those with lower incomes do not benefit from the institutional, social, and intellectual capital that the more well-to-do create for themselves—such as better schools. The individual’s desire to sort is understandable, but it will exacerbate inequality of opportunity, and increase potential social conflict. Indeed, the more that zoning creates moats and battlements that protect the upper classes, the less incentive they have to worry about what happens to the rest. A state intent on creating more equal-opportunity communities should offset some of these incentives to sort, by ensuring the poor can follow the rich anywhere.
One way to get more economically diverse communities is to eliminate some of the most egregious constraints on what can be built, especially when local house prices are high. A bill introduced by a California state senator, for example, would allow all housing being built in California within a half-mile of a train station or a quarter-mile of a bus route to be exempt from regulations regarding the height of the building, the number of apartments, the provision of parking spaces, or specific design standards.4 This is a bill that local property owners hate because it will create more housing supply and depress the value of their homes, but it will be tremendously beneficial for economic inclusion.
Every such solution has some downsides since they interfere with community choice but, I repeat, in the trade-off between inclusion and localism, inclusion should be given more weight. Consider some other possibilities. The state could mandate that some fraction of the residences in any community, say 15 percent, should be affordable for low-income residents. If the community would like to maintain its aesthetic look and allow only large single-family residences, then a sufficient number of these should be rented or sold to low-income families, with the rest of the community bearing the cost of making these affordable. Such a solution works most easily for new developments, where “set-asides” can be mandated for low-income housing. The city of Chicago negotiates set-asides for new developments, but certain states in the United States prohibit set-asides, perhaps because developers do not want to be burdened with the cost. Moreover, set-asides will be harder to mandate for established older communities, where there may be little vacant land for development.
Another way of encouraging mixing, or at least discouraging sorting, is through the tax code. For instance, high-income households whose children are enrolled in public schools in low-income districts could be given a tax rebate, essentially because of the positive spillovers that their children are likely to contribute to their classes. Private incentives could also help. For example, top universities could give incentives to students studying in public schools in low-income districts by allocating a fraction of admits to each public school in the state. Not only will this incentivize the less-well-off to apply to the elite universities, it may also be the carrot for some well-to-do parents to stay or even move into those school districts so that their children will have a leg up in admissions. While this may seem like a violation of the spirit of the plan, the presence of these well-prepared children and their pushy highly educated parents in the schools will be beneficial to all. In this vein, some states in the United States are already allocating some places in the state university to the top students in each public school.
Much of the incentive to sort comes because students coming from different households are at very different levels of educational and social preparation. Attempts to mix students with very different preparation—for example through state-mandated busing from poor communities into well-off communities—obviously leads to resentment and dissatisfaction on all sides. The students who are bused in feel inadequately prepared and fall behind, while the students in the receiving schools feel they are being held behind. The problem is the differential preparedness, which needs to be addressed before mixed classes can work. Early childhood programs that attempt to equalize preparation could be enormously beneficial, especially if they are then followed by mixed classes in public schools which ensure differences in educational capabilities do not build. Accelerated remedial education programs could also help, though the later they are in a child’s life the less effective they will be. New technologies that can allow teachers to address students with different levels of preparedness (see later) can also help the process of equalization.
Countries that have a severe sorting problem could build in stronger tax incentives to mix, including residential congestion taxes that require rich households to pay higher taxes if they stay in communities with other rich households, and lower taxes if they stay in low-income communities. There are plenty of ideas, some more problematic than others, but we have to be open to experimentation if we want to avert the hereditary meritocracy emerging in many countries.
ENSURING THAT COMMUNITIES ARE CONNECTED
It is essential that communities are connected to centers of economic activity so that they are economically viable. Connectivity includes fast physical connections like roads, railways, and airports, but also cheap power, as well as fast connections to the data highway.
With connectivity, a whole variety of economic activities becomes possible. For instance, with broadband connectivity, and with the support of logistics firms to transport goods quickly, small handicraft makers in remote rural areas can advertise their wares on e-commerce platforms, thus reaching a global market. Retired schoolteachers can remain engaged by tutoring children in the community without leaving home, music teachers can have pupils around the world, while angel investors from elsewhere can mentor local entrepreneurs. The death of distance makes so much more possible in remote communities. Connection to the national market also ensures communities are connected with one another.
Not all developed countries are equally well connected. According to a Pew survey, in 2018, over 89 percent of US adults use the internet, including 66 percent of those over 65.5 Only 65 percent of households, though, have access to broadband—accounting for 73 percent of households using the internet. Not surprisingly, minorities, the elderly, and rural communities are less well connected. For instance, only 58 percent of rural communities have access to broadband, while 70 percent of the typically richer suburban communities do. In contrast, in the European Union, 97 percent of households with internet access had a broadband connection in 2016.6 Europe’s population is more densely packed than that of the United States, which makes it easier to service, but communities without broadband connection are severely handicapped in the information age, and providing for this is an essential role of the state.
The US Federal Communications Commission has been subsidizing the private sector to provide universal broadband service. Unwilling to wait, a number of municipalities have decided to wire their own communities.7 Fearing a loss of business, cable and telephone companies have persuaded state legislatures to ban or restrict municipal broadband. The United States needs to do better in providing all its citizens fast access to the information highway, for many of the solutions to community revival lie there. Indeed, allowing communities, rather than large private companies with distant headquarters, to take responsibility for some of the local connectivity infrastructure may solve two problems—it prevents the community from being at the mercy of a monopoly private provider, and it draws some economic activity and responsibility into the community. Similar approaches could be tried for other infrastructure. For instance, as decentralized solar or wind power becomes cheaper, more remote communities could manage it, relying on the grid only for balancing power.
IMPROVING COMMUNITY CONTROL OVER LOCAL GOVERNMENT
The information highway can make it easier for people to engage with their government. This allows both for the decentralization of power to the community and the devolution of tax revenues to it. Historically, a concern about such devolution has been the lower capabilities of local government officials (after all, the federal government has its pick from the entire nation),
as well as their greater susceptibility to local influence and corruption. Even if local officials are less capable intrinsically, they are more aware of local conditions and have greater flexibility to tailor policies to them since they are not crafting policy for the whole nation. In addition, they can turn to local people for advice and the locals can monitor their performance.
Two other ingredients can be very helpful in successful decentralization. The community should have full information about the sources and uses of the funds flowing through local officials so that it can assess whether the funds are spent fully and well on public services rather than on the officials themselves. To be able to act on its monitoring, it should have full democratic control over its officials, with the ability to terminate them for cause. The federal or state government’s ability to post and access information online, as well as the local community’s ability to draw its members into monitoring and posting on their experience with local government, makes effective decentralization more feasible today than in the past.
For instance, an app called SeeClickFix allows community residents to report potholes, broken streetlights, abandoned vehicles, building violations and other civic complaints, using their GPS location to pinpoint where the problem is.8 The community webpage then displays the complaint for all to see, and reports when the local government actually fixes it. Citizens who lodge the most genuine problems can be acknowledged on the app, and even awarded prizes by the community. Apps like this allow local government to get to know of problems more quickly, involve the community, and make the performance of the local government more transparent to all. Even as I write, three open complaints have been closed in the City of Chicago SeeClickFix website. City officials could not find a car that was reported abandoned (perhaps not surprising because the officials arrived a month after the report was filed) and two instances of graffiti were removed (within a couple of days of the reports).