The Role of Government in Building Cities

[Excerpt From Chapter Six]

In 1817, the governor of New York convinced the state legislature to spend $7 million to finance a canal from Albany to Buffalo. Eight years later, after thousands of workers had carved a channel through rock and earth, the Erie Canal was complete. The 350-mile canal opened the entire upper Midwest to shipping, and cemented New York City’s role as transportation hub for the nation, and as the country’s greatest city.

In 1919, the U.S. Navy, concerned that the country was losing the race in radio technology to Europe, created the Radio Corporation of America–or RCA. It was funded as a joint project between government and private business, and the Secretary of the Navy sat on its board. Later spun off as a completely private enterprise, it grew into one of the largest and most important companies in home and commercial electronics and communications.

In 1995, Denver opened its enormous new international airport, its cream-colored canvas peaks glinting in the sun. It was a big risk by taxpayers. But like New York state’s gamble with the Erie Canal two centuries previously, it was meant to move the Rocky Mountain metropolis into the position of a central transportation hub for the nation.

What all these actions or events have in common is government, government, government. In this chapter, I seek to make clear the role of government in creating both the architecture of place, and the related architecture of economics or wealth. In this antigovernment country, virtually founded on hostility to the enterprise, we tend to obscure government’s central role in creating the places where we live, the jobs we perform, and the money we spend. Government, whether it be a republic, monarchy, theocracy, or dictatorship, is more central to our lives than many of us acknowledge or understand.

From an urban planning perspective, it’s important to understand the role of government so we can more easily grasp the levers of power when we desire to make real changes.

Americans tend to think of government as something outside themselves, a kind of regulatory body that interferes with the working of both an economy and the development of places. According to this view, the shapers of cities and the creators of wealth are the individual actors: the developer, the house builder, the company owner.

But government–that is, us–almost always lays down the concrete slab that economies and places are built upon. Government not only creates the laws, and operates the courts and the police, it then lays down the roads and builds the schools. In a modern economy, it then proceeds to set up a Federal Reserve System, a Securities and Exchange Commission, the International Monetary Fund, and other more elaborate financial infrastructure.

I sense that most people do not understand this, and the reason can be laid at the feet of an insidious idea called “the free market.” We tend to think that places and economies just happen, built by the invisible hand of Adam Smith if by anyone. In our mind’s eye, we tend to see supermarkets and subdivisions proliferating across the countryside, driven by consumer choice and the decisions of banks to finance them. We tend not to see the government’s prior decision to build an Interstate through the area that made the whole thing possible.

The intersection of place and economics is often in transportation. The decision of what transportation system to build, something almost always done by government, tends to create both an economy for an area or metropolis, and a particular physical framework organized around that infrastructure. So when Denver builds a big airport, it also creates the loose physical structure of warehouses, offices, and shopping centers that proliferates around airports. When New York City built its subway system (which was nominally private but steered and aided by government), it also created the possibility of the dense networks of skyscrapers that would follow. The Interstate Highway System created both a new economics of transportation and a new lifestyle organized around suburban living.

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We would understand government’s role in both places and economies if we understood better what government is.

Government, to put it unsentimentally, is “a system of authority,” from which all other forms of authority, including ownership of property, derive.12 In a democracy, that authority derives from the consent and will of the people. Managing this authority for the highest and best use is the central task of the people.

In this country, this understanding of political community has been replaced by rigid beliefs in the free market, without an understanding that the “free” market itself only exists through its creation and maintenance by a political state. The “free market” is a political act first. Politics comes before economics. By this, I mean the economic system we live under, in both the nation and the globe, rests on a foundation of political decisions that establish said system’s existence and form. Politics determines economics.

The capitalist system is a political act that creates a publicly defined set of rules enforced by the “system of authority” of government. Markets can be said to exist without governments only if we define markets as blind desire. “Free” markets exist only as created and underpinned by government. The polity creates the system of laws and courts and police that lets the “free” enterprise system operate.

The equations of economists, even at their most convoluted, seldom have a line saying something like “Right here there is a 10 percent chance that forces from a rival company will break through the factory’s defenses and shoot the CEO in the head.” That would be an actual free market, which we can see in operation in the drug markets nationally and globally. The illegal-drug cartels act little differently than France, England, Spain, Portugal, and the Netherlands did in the sixteenth and seventeenth centuries, as they warred to control markets, robbed each other’s ships, and fought to control supply lines.

The current global economy, so often held up as an example of the benefits of the free market, was not only created by technological advances like the computer or the telephone, but from the political arrangements that allowed their introduction and peaceful operation. It was politics that allowed for the laying of a transatlantic cable, and for the creation of a system of laws and courts that governs trade. Even mailing a letter to Europe relies on a slew of postal treaties worked out in the nineteenth century.

People may forget that we had a fully functioning global economy in the sixteenth century. England no longer seizes ships from France laden with goods from India because it and most countries have a series of political agreements that allow for “free” trade. These agreements not only prohibit the use of force, but they also provide a mechanism for adjudicating disagreements and for setting standards. The peaceful creation of wealth through a market economy is always based on the establishment of a prior political system. Peaceful global trade has emerged over the last two centuries because a system of political authority has emerged that creates the structure within which a global economy has to operate.

In effect, we have a world government. We can see it in action when the World Court at The Hague in Holland orders the United States to accept tuna caught in nets that harm porpoises, even though America’s own laws prohibit its sale. Sorry, says the World Court, but the system of global trade you agreed to prohibits your discriminating against other countries’ products on this basis. Pull at this thread and you find a vast structure, including things like the World Bank and the General Agreement on Tariffs and Trade (GATT), the latter supervised by the World Court, which in turn reports to the United Nations. These institutions, though, should serve the interests of their polity and not just the short-term interests of individual businesses or even countries.

The gradual ability for governments to replace the rule of force with the rule of law changed the form of cities, as well as the form of trade. Historian Eric H. Monkkonen says that the emergence of the nation-state allowed new forms of cities and towns to develop. Before the viable nation-state, only settlements that could defend themselves were possible. This took the classic form of the city-state. When “the state and the city separated,” it allowed more specialized forms of cities and towns to emerge, which in turn allowed a greater percentage of the population to urbanize.13

The classic model of a free market, where businesses operate unhindered by government interference, is comparable to a perfect vacuum created in the laboratory. I use this analogy, though, in a way contrary to the usage of many economists. With markets, it is government that restrains the “natural” forces of power and violence from rushing in and contaminating the perfect vacuum of the free market. Another analogy is that of a soccer game. Government not only referees the game, judging when players are offside and so forth, but also creates the field, its parameters, and how you play.

Government is often thought of as a parasite on free enterprise, or at least as dependent on it. But the reverse is more true. To paraphrase architect and organizational theorist Ted Goranson, behind Adam Smith’s invisible hand is an invisible arm–government.14 Again, this should be obvious, but I suspect it isn’t. The standard mental model of capitalism is that this magic system of supply and demand operates by itself, without human aid or deliberate organization of any kind. These are basic tenets of Economics 101, handed down by the priests of the system, the economics professors.

If you want to look at how markets operate without government, just look at the buying and selling of crack cocaine, or of bootleg whiskey during Prohibition in the 1920s. Without government, the act of exchanging value becomes quickly mixed with the use of force to control a market or command a sale. Indeed, since government itself is a system of authority, a system of regulated force, it can be said that in its absence, another “government” quickly emerges that establishes through force a system of rules and regulations by which trade can occur. The Mafia can be compared to a private government that is competing with the established government’s authorized monopoly on the use of force and subsequent ability to establish rules and structures.

Russia and some of the newly emerging capitalist countries are having problems establishing a functioning capitalist system because they don’t have enough government, not the converse. Capitalism only operates where there is the rule of law, including a court system to keep a record of contracts and enforce them. It operates even better if government creates a transportation system, a clean water supply, and other basic public goods. The limited liability corporation is a foundation of modern capitalism that is completely a political creation.

“All liberal rights presuppose or imply the dependency of the individual on the collectivity and on the principal instrument of the collectivity, that is, on the coercive-extractive state. This is a truism and a banality,” but one that has been forgotten in the modern era, says Stephen Holmes, writing in The American Prospect in an article titled “What Russia Teaches Us: How Weak States Threaten Freedom.”15

As Holmes writes, it is ironic that in this era of calls for lower taxes what Russia suffers from is the absence of sufficient taxation. Total tax revenues in Russia are at about 10 percent of the economy, which is insufficient to create a public sector to establish the rule of law and a healthy infrastructure.16

Part of our misconception of government is due to our emphasis on the Bill of Rights, which, as Holmes writes, is really a spelling out of a set of “negative liberties.”17 They focus on being free from government. But essential liberties also come from government’s presence. What makes democracy so revolutionary is that it established the concept of being free to participate in government, that this system of authority, which is what government is, could be controlled by the people, the polity, the public.

The failure to recognize that a market economy is a political choice and creation first and foremost leads to a belief that an economy operates by itself. The “laws” of supply and demand magically lift all boats to their highest and best use, without the aid of human intervention, goes the standard fairy tale. Part of this confused belief system comes from economics being classified as a science, and the conviction that, because equations and numbers are used, it can be compared to physics or chemistry. But humans are different than falling apples or sodium combining with chloride. They are their own actors, and can combine and perform in a variety of ways, many of which no one can guess.

Lewis Mumford posits that with the industrial revolution, nations adopted a new religious belief in classical economics to replace the belief that an all-seeing, all-knowing father God had laid out an orderly and just path for the world.

“The most fundamental of these postulates was a notion that the utilitarians had taken over, in apparent innocence, from the theologians: the belief that a divine providence ruled over economic activity and ensured, so long as man did not presumptuously interfere, the maximum public good through the dispersed and unregulated efforts of every private, self-seeking individual. The non-theological name for this pre-ordained harmony was laissez-faire.”

The idea of Adam Smith’s invisible hand shaping prices and production for the common good is a marvelous model that is true in some situations. The problem is, most students of economics accept it as being solid as an axe. They then proceed to pick it up and wield it indiscriminately. But the market only operates efficiently and for the benefit of everyone when the products of a market can be converted into something that can be bought and sold for money. Saving a historic building, for example, might greatly enhance the wealth and overall appeal of a town, not to mention the daily lives of its citizens. But it is very difficult to “marketize” the view of a church by charging people for the privilege of walking by it.

Not only do markets not always maximize public or individual good, they actually often degrade it through the same mechanisms meant to produce value.

There are many, many situations where people, all pursuing their maximum self-interest, make things worse for everyone, themselves included. Our treatment of the environment is the most obvious example, and the one most likely to topple the laissez-faire theology. It is simply too apparent that, left to themselves, people and companies will pollute the air, water, and land to the detriment of all without some larger system of legal control. Traffic is another. Everyone trying to get to work quickly and easily by car creates a traffic jam where no one gets to work quickly. Yet another example is the widespread distribution of guns. Individual actors, trying to maximize their personal safety, increase their physical danger, because a more dangerous world is created by the sum total of the actions of everyone arming themselves.

What’s troubling is how a proper understanding of the role of government in our lives is being undermined by a steady barrage of libertarian and antigovernment rhetoric. This language obscures the real relationship people have with government. It’s like criticizing the boat that keeps you afloat.

The version of the Republican Party dominant at the end of the twentieth century has been tremendously destructive in this, and should be rightly held responsible for the misconceptions many Americans hold. Republican leaders like Senator Trent Lott of Mississippi frequently wield the motto that “You know how to spend your money better than the government.” According to this analysis, government is akin to a thief, robbing taxpayers of their hard-earned pay. If government should exist at all, then, goes this line of thought, it is at best a necessary evil, best kept small and minimal.

This theory obscures the fact that government creates the wealth the people hold in their hands and are now reluctant to give up. A dollar bill is signed by the Secretary of the Treasury for a reason. Money is a communication device produced by a political agreement, both literally and in a wider sense. Not only does government print the money, but it also creates the conditions under which money can be “made.” It also creates the infrastructure of wealth creation, like public education and transportation systems.

America’s tortured, confused relationship to government can be seen in our tortured, chaotic, and confused transportation systems. Whether it’s trains, planes, or automobiles, the confusion between public and private has produced the worst of both worlds. Government puts too much money into highways and then prices the use of them too low, and so they are massively congested. Government shortchanges passenger train travel, leaving citizens with a skeletal, impoverished system. Government has ceded control of the skies to commercial airline companies, even though these for-profit companies depend on a public system of airports and air traffic controllers. This has left air passengers often running a gauntlet of high ticket prices and lousy, take-it-or-leave-it service. In general, we are a rich country with a surprisingly impoverished and incoherent transportation system.

Much of this would change if we recognized government’s central role in the architecture of our lives. Once this is accepted, arguments about the size of government become less ideological ones and more practical ones. Whether government or private enterprise performs a task becomes a question of efficiency. It is often beneficial to limit the scope and role of government, but this does not change government’s essential relationship to our lives.