DOES GROWTH BENEFIT SOME GROUPS AT AN EQUIVALENT COST TO OTHERS?
REVIEW OF GOALS NEEDED
Post-Covid development could aim to restore previous conditions, renew them or start afresh. Earlier models of development may need to be reconsidered for new demographic, economic and aspirational demands. Growth’s goal posts may have shifted and developers may have a more critical public and governments to obey. Not least is the redistributive effect of a proposed development: who will be the winners and losers?
When a developer’s project moves like a ship through the economic media of humanity and technology, it pushes aside existing activities and displaces a bow wave of increased value expected by the community, while in its wake are reduced values opposing the motion, such as devalued properties and reduced amenity. When movement is in the direction of increasing GNP, or of a Gross National Happiness Index, it is called growth (1). The developers propel their progress by taking a lead in obtaining support, investing and trading. These power the project along their assumed right of way. Losers suffer diminished lifestyles but lack representation and are without power to have the disadvantages they suffer acknowledged, considered or prevented.
A GROWTH CULT
Growth tends to be welcomed in most places because it is assumed to be a panacea for economic and social ills. When a freighter bringing supplies docks in some undeveloped countries, it may be mobbed by a ‘cargo cult’. Project proposals in Australia are often welcomed by governments and local populations in the same way, with enthusiasm. When there are several, there can be the excitement of a ‘boom.’ Growth is believed to be an economic panacea, with potentially disruptive and even harmful effects on the community. ‘Growth’ in 2019 is a fantasy that propels development in Australia
Growth is caused by births, immigration, gambling, financial risk taking, insecurity, subsiding babies, keeping people alive, government spending on infrastructure and Keynesian kick-starting of the economy by digging holes in the ground, to be filled in again. Growth is needed to stave off recession, they say, by development.
HOW GOOD IS A DEVELOPMENT?
Authorities evaluating developments do not have to declare their methods. Five moral philosophies have survived in practical use to describe how a development is good or bad.
- A MARKET FREE-FOR-ALL
Good developments make a large profit. Capitalism is based on the he laissez faire philosophy of Adam Smith in his book: Wealth of Nations (2). The baker who seeks a profit by selling bread in his community serves it well. But the community may be exploited by greedy developers who collude and are corrupt, obtaining higher returns on investment than free market competition would afford them. Smith required buyers and sellers to act from independent self-interest. Governments have tried to impose this by regulating developers but they have been powerless to prevent more than a few of the worst excesses. Governments have betrayed public trust by selling public property to developers, without calling tenders, to gain donation to a political party. The developers’ gain is the public’s loss.
In industries that are constrained by scarce resources, paying Peter can rob Paul. When one industry makes high demands on labour, capital, land, water, energy or government favour, another industry could starve. The Gregory Thesis in the 1970s was that the growth of the mineral sector decreased the international competitiveness of manufacturing and agriculture (3). This was because mineral sales increased the value of the Australian dollar. This competition was apparent in currency exchange rate change but other inter-sectoral competition within Australia also occurred but was less noticeable. Sector growth does not invade an allegorical ‘terra nullius’ and can displace ‘indigenous’ occupations e.g. pioneering industries, when economic competition has no respect for heritage.
Governments should ensure that conditions of free and open competition prevail.
2. GREATEST GOOD
For the philosopher Jeremy Bentham in the 18th Century, the pursuit of profits was not enough to guarantee happiness. He advocated he Greatest Good of the Greatest Number, to avoid pain and achieve happiness. When a public park was to be extinguished by a private development, the economic benefit that would accrue to the developer may hold less sway than the losses in amenity that would be suffered by the community. In making such a calculation, Bentham applied another important principle: ‘Everybody to count for one, and nobody for more than one.’ This ‘utilitarian’ philosophy is much liked in democracies. Governments should ensure everyone has a say of equal value.
3. EFFICIENT USE OF RESOURCES
Another philosophy is that production from resources of finance, skills, land, space, transport access, water, energy and finance should be sustainable. Efficiency of resource usage is paramount when a developer is licensed to access public resources. Governments should require technologies make efficient use of resources. For example, a government might subsidise technologies such as renewable energy to promote sustainable energy supply, if there would be no disadvantage.
The human workforce is a national resource to deployed efficiently. Unemployment in Australia was 5.2% in July 2019. This level has been described as ‘full employment’ because Structural reduction to the job searching component is unlikely. Because there is ‘virtual full employment’, development brings workers from other jobs rather than from unemployment. Development benefits may be offset by skill shortages elsewhere and the collapse of uncompetitive sectors, such as manufacturing. Governments should sustain the human resource.
4. PROVISION FOR DISADVANTAGED PEOPLE
A humane society meets demands of disabled, disadvantaged and poor people altruistically, with handouts to needy people to spend as they like, or by allocation of facilities subsidised by government. Governments should require developers to make such provision.
If developers adopt a philosophy of conserving natural environments and heritage properties, it could ameliorate them for user and community benefit, by preventing their rundown and destruction. Again, governments should require developers to conserve properties.
Few projects could measure up to all the requirements of this handful of philosophies. Development would cease and employment would be concentrated on consumption and maintenance. The government should require transparent presentation of projects for scrutiny. Breaches of normal protocols, e.g. pollution prevention, could be traded off against the project’s benefits e.g. cheap electricity supply.
WHAT MAKES A DEVELOPMENT FAIR?
Issues of who benefits and who loses from a particular development can be related to three criteria:
i)The Pareto principle is that:
‘(a) legitimate welfare improvement occurs when a particular change makes at least one person better off, without making any other person worse off.’ (5)
This criterion, from welfare economics, requires a developer to make full compensation to all those who would be disadvantaged. It seems reasonable, there may be no developments where it has been applied. Critics point out that it treats developers severely according to traditions of absence of compensation, within the law.
Council development assessment officers would probably have some examples of where objectors have been compensated by a developer. For the most part, developments are approved without objectors getting any compensation.
ii) The Kaldor-Hicks criterion
‘Winners should be able to compensate all losers.’ (6).
Would a loser be consoled, mired in disadvantage, that the winners are getting more than he’s losing? It’s called winner take all. Winners don’t have to compensate losers, the basis of modern law and economics. The winners profit at the expense of the losers.
Residents’ are often losers from construction of accommodation in their neighbourhoods and resulting increase in population that could cause a decline in lifestyles. The winners would be developers, banks, suppliers, businesses and property owners. Losers lose their views, quiet, freedom, space, access, journey speeds, parking and many others. Losers who are ratepayers may also be required to pay a developer’s infrastructure costs, because in Queensland they pay only 65-70% of the infrastructure delivered (4).
iii) The Little criterion
‘Potential losers could not profitably bribe the potential gainers to oppose the change (7).
Again, losers do not actually get compensated. It seems a poor consolation that losers must accept gainers can go ahead when they would benefit too much to be paid off.
Of the three criteria above, Pareto’s is fairest to everyone, but winner take all is the protocol in Australia. The Little Criterion condones an extortive view of good development.
iv) Development approval
By the above criteria, costs to the community can exceed the benefits to the developer. It behoves governments to ensure developers are considerate of the community and impose legal responsibility for their consequences, rather than myopic preoccupation with creating jobs, attracting customers and returning profits to their owners.
Before a development is approved, a comprehensive evaluation of its benefits and costs is desirable. Governments should check that a developer meets obligations for all five philosophies mentioned. Shrinkage of an adjacent economic sector due to the development should be deducted from its benefits. Governments should prevent a few people benefiting from development at the expense of others without legal redress. Winner take all is primitive and won by wealth. Legislation is required to fully compensate losers.
1 Zhong, Raymond, ‘In Bhutan, Gross National Happiness Trumps Gross National Product,’ The Wall Street Journal, December 15, 2015.
2 Smith, Adam. ‘An Inquiry into the Nature and Causes of the Wealth of Nations, 1776.
3 Gregory, R, G,, “Some implications of the growth of the mineral sector.”, Australian Journal of Agricultural Economics, 20(2), 1976, pp.71-91.
4 Coutts, J Executive Director, Planning Services, Planning Group, Department of Infrastructure, Local Government and Planning. Public Briefing – Planning Bills 2015, Transcript of Proceedings, 30 November 2015, Brisbane.
5 Pareto, Vifredo ‘Cours d’économie politique,’ University of Lausanne, 1896.
6 Stringham, Edward ‘Kaldor-Hicks Efficiency and the Problem Of Central Planning,’ 2001, https://mises.org/files/qjae423pdf/download?token=7T2JY0RK
7 Little, Ian M.D. ‘A Critique of Welfare Economics’, 1949, Oxford, 1950, p273-275.
My novel Presumed Dead is a crime fiction story set in a context of city development. https://martinknox.com
Posted on October 23, 2020, in Growth and development, Presumed Dead, Urban Development and tagged Growth; happiness; economic philosophies; development criteria; development; city planning. Bookmark the permalink. Comments Off on DOES GROWTH BENEFIT SOME GROUPS AT AN EQUIVALENT COST TO OTHERS?.