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. Stiglitz Columbia University February 24, 2005

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Page 1: SUSTAINABLE URBAN AND INDUSTRIAL DEVELOPMENT AND THE ROLE OF PLANNING Bilbao, Spain Prof. Joseph E. Stiglitz Columbia University February 24, 2005

SUSTAINABLE URBAN AND INDUSTRIAL DEVELOPMENT AND

THE ROLE OF PLANNING

Bilbao, Spain

Prof. Joseph E. StiglitzColumbia UniversityFebruary 24, 2005

Page 2: SUSTAINABLE URBAN AND INDUSTRIAL DEVELOPMENT AND THE ROLE OF PLANNING Bilbao, Spain Prof. Joseph E. Stiglitz Columbia University February 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

Page 3: SUSTAINABLE URBAN AND INDUSTRIAL DEVELOPMENT AND THE ROLE OF PLANNING Bilbao, Spain Prof. Joseph E. Stiglitz Columbia University February 24, 2005

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

Page 4: SUSTAINABLE URBAN AND INDUSTRIAL DEVELOPMENT AND THE ROLE OF PLANNING Bilbao, Spain Prof. Joseph E. Stiglitz Columbia University February 24, 2005

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

Page 5: SUSTAINABLE URBAN AND INDUSTRIAL DEVELOPMENT AND THE ROLE OF PLANNING Bilbao, Spain Prof. Joseph E. Stiglitz Columbia University February 24, 2005

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

Page 6: SUSTAINABLE URBAN AND INDUSTRIAL DEVELOPMENT AND THE ROLE OF PLANNING Bilbao, Spain Prof. Joseph E. Stiglitz Columbia University February 24, 2005

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

Page 7: SUSTAINABLE URBAN AND INDUSTRIAL DEVELOPMENT AND THE ROLE OF PLANNING Bilbao, Spain Prof. Joseph E. Stiglitz Columbia University February 24, 2005

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

Page 8: SUSTAINABLE URBAN AND INDUSTRIAL DEVELOPMENT AND THE ROLE OF PLANNING Bilbao, Spain Prof. Joseph E. Stiglitz Columbia University February 24, 2005

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

Page 9: SUSTAINABLE URBAN AND INDUSTRIAL DEVELOPMENT AND THE ROLE OF PLANNING Bilbao, Spain Prof. Joseph E. Stiglitz Columbia University February 24, 2005

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

Page 10: SUSTAINABLE URBAN AND INDUSTRIAL DEVELOPMENT AND THE ROLE OF PLANNING Bilbao, Spain Prof. Joseph E. Stiglitz Columbia University February 24, 2005

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

Page 11: SUSTAINABLE URBAN AND INDUSTRIAL DEVELOPMENT AND THE ROLE OF PLANNING Bilbao, Spain Prof. Joseph E. Stiglitz Columbia University February 24, 2005

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

Page 12: SUSTAINABLE URBAN AND INDUSTRIAL DEVELOPMENT AND THE ROLE OF PLANNING Bilbao, Spain Prof. Joseph E. Stiglitz Columbia University February 24, 2005

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