sustainable urban and industrial development and the role of planning bilbao, spain prof. joseph e....
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SUSTAINABLE URBAN AND INDUSTRIAL DEVELOPMENT AND
THE ROLE OF PLANNING
Bilbao, Spain
Prof. Joseph E. StiglitzColumbia UniversityFebruary 24, 2005
Sustainable Development and Planning
In the aftermath of the fall of communism, backlash against planning: Markets are all that is required Adam smith’s invisible hand: pursuit of
self interest leads to economic efficiency
Prices provide signals, perform all requisite coordination
The Importance of Coordination
But modern economics has recognized that there are severe limits on markets
When information is incomplete or market imperfect—as it always is—then the reason the invisible hand often seems invisible is that it is not there
Need a ‘visible hand’ to perform coordination
Coordination is especially important in the context of urban planning and industrial policies:
Underlying problems of externalities, coordination failures, small bargaining problems Congestion Environmental consequences
Market mechanisms (by themselves) don’t work well Other mechanisms needed
Road planning Zoning Planning for parks
The Importance of Coordination
Consequences of Coordination Failures
Disastrous examples of consequences of lack of planning and coordination failures: Asian cities—congestion results in
enormous waste of resources Has adverse effects on efficiency,
productivity, environment But equally important, lowering standard of
living Excess concentration of population in major
cities
Key Challenges
The first challenge is making real estate market development compatible with overall economic development: Real estate market is intricately linked to other
markets (as well other market failures) Markets, left on its own, do not necessarily
allocate resources most efficiently - and can create boom or bust
Lack of availability of land can inhibit development
Real estate market can induce large fluctuation in cycles
Example: Thai real estate bubble during the mid 1990s, leading to financial crisis for the whole economy in 1997
Key Challenges
The second challenge is how to make real estate market more efficient, and to ensure housing for all? Targeted housing development projects for
low and medium income groups Prevent speculative attack on the real
estate market which can limit people’s ability to obtain housing at affordable prices
Create a well functioning mortgage market
The third challenge is to manage rapid urbanization and rural-urban migration:
Cities and urban centers are not merely a collection of houses and businesses. Rapid expansion of cities without commensurate growth in social services e.g. schools, healthcare facilities, daycare centers etc. hinder long term human and economic development.
Rapid migration from the rural areas usually crowd out public goods in the cities - Example: Dhaka, Bombay, Sao Paolo, Mexico city
Create ‘livable cities’ and cities as ‘communities’
Key Challenges
Role of Government in Industrial Planning
Successful governments have long had a role in industrial planning Externalities, public good nature of innovation
- Huge spillovers to others- Even with good patent system, inventor
captures only fraction of benefits Not a question of picking winners, but of
identifying areas of large spillovers Other principles for enhancing likelihood of
success—requiring equity participation; broad based support
Industrial Policy: U.S. Experience
In the United States, government played an active role in planning and developing:
Telecom: First telegraph line, Internet etc. Agriculture: Government research, Extension
services disseminate etc Credit markets: mortgage market, export
import bank etc Railroads: Huge land grants Minerals: Development of the west - Huge give-
away Today: major industrial policy intervention
through Department of Defense, NASA: Boeing
In East Asian miracle countries, governments provided:
Support for education, research establishment—the underpinnings, infrastructure for successful development
But also identified certain industries But help more through access to credit And rule based—those who succeeded in
exporting got easier access to credit Reduced extent of abuses
East Asian Experience
Role of Government: Concluding Remarks
Government needs to play a crucial role to prevent market failure:
Plan a systematic and sequential growth of urban centers
Manage migration into the cities More market intervention for equitable and
efficient spatial allocation of resources – subsidies to rural areas
Help ease credit rationing Plan and implement long-term industrial
policies alongside support for education and research