Tuesday, January 15, 2013

Dirigisme? Dirigis you! Making developments more exciting and competitive.

AFP Hong Kong

To be sure, I am just a silly blogger, and know little and less about the ways of business.

Yet a short wiki-walk through my own post about crony capitalism led me to an obscure term...

Dirigisme is an economy in which the government exerts strong directive influence. It designates a mainly capitalist economy with strong directive, as opposed to merely regulatory, economic participation by the state. (Wikipedia)

...which led me in turn to reflect more seriously upon a skepticism and a notion I've been harboring for years.

Major developments nowadays (at least around here?) are conducted with a very high degree of centralization, consolidation and dirigisme. We identify and cultivate huge tracts of undeveloped land (e.g. the North Shore, the South Side Works, the Lower Hill, the Allegheny Riverfront and the Bakeries Square) then we seek out a single Developer to assume all costs and risks (minus those which taxpayers shoulder through various incentives). That developer goes on to do the lion's share of planning, to recruit all the business tenants, and to retain a continuing stake in the maintenance, management, and profit equity for the whole shebang.

The commercial and civic success of such development has been mixed, with room for debate.

The physical plant of these developments tend towards huge internal uniformity, cost-efficiency, modernism and stark contrasts with neighboring parcels. The commercial makeup tends toward inviting mainly affluent patrons and highly capitalized vendors, discouraging internal competition (no direct competitive rivalries), and tolerating vacancy for long stretches rather than allowing rents to fluctuate more naturally.

Leftists bemoan the "suburban blandness" of these dirigiste developments with its overtones of gentrification; that enervating atmosphere of a "business district" in a "neighborhood" is usually absent. It can feel like a "strip mall".

Rightward thinkers meanwhile are aggravated by the lack of competition, the central planning and singular basket of venture eggs, and the interpersonal and political barriers to entry. Furthermore, supplemental public-sector investments tend to accumulate over time.

Athenium Publishing
Are there any viable alternatives?

Folks who have checked out my Blogger Profile may have noticed that one of my very favorite books is Tai-Pan by James Clavell, more famous as the author of Shōgun. This gripping historical novel about the origins of Hong Kong as a province of the British Empire centers around "Dirk Struan" (the Tai-Pan or unofficial Supreme Leader) who is a tea and opium trader, a pirate-turned-developer, a major political contributor to Parliament and an aggressive lobbyist for free trade and other human freedoms.

In the book it was Struan's notion (though not presented as an unorthodox or unexpected one) for the Viceroy and Plenipotentiary to divide up the undeveloped island of Hong Kong into various lots of various sizes -- large and small, premium and back-alley -- while making allowances for necessary public amenities like streets, the harbor and the Church, and then to hold a land auction. The auction would ensure optimal profit for the Crown while fostering a hustling, bustling trading hub with vast opportunity for traders and other business owners to jockey ruthlessly and, for those skilled enough, profitably. And it comported with the English sense of fair play, injecting confidence on all sides.

Never mind that Dirk finagled the appointment of his own son Culum as chief auctioneer. Culum resented his dad and gifted the high knoll lot to the Church, thereby saving Noble House from a ruinous bidding war against Brock & Sons. The state can always head a few predictable bad arrangements off at the pass, even as the business community can lend its expertise in drawing the boundaries.

Is such a wide open model viable nowadays for urban redevelopment? To foster wild and woolly commercial competition by drawing out a skeletal map of public amenities as well as commercial parcels of various sizes and zoning classifications, by offering incentives such as subsidies and tax breaks piecemeal and disinterestedly, and by hosting something unpredictable like a public auction -- letting each winning bidder build to their own tastes and preferences within parameters? Placing the eggs in a multitude of baskets and letting them all sink or swim as autonomous agents?

The auction / open playing field model would certainly rob the "developer" sub-community of several accustomed opportunities, and in so doing hand a lot of crucial creative responsibility for wide-angle city planning over to, well, City Planning. Some would say those responsibilities would merely be restored.

I'm not sure. Hong Kong has certainly enjoyed an impressive record of success and investment. That white devil cutthroat Dirk Struan certainly didn't have any use for dirigisme in his own plans to become a merchant prince.

14 comments:

  1. Dirigisme is an economy in which the government exerts strong directive influence. It designates a mainly capitalist economy with strong directive, as opposed to merely regulatory, economic participation by the state.

    Aren't the other challengers going to be arguing for even greater dirigisme?

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  2. I briefly considered a paragraph making explicit: I haven't noticed any other politicos / civic leaders taking this approach, but I'd be pleased to see it added to the mix somewhere. Not all of my posts are electoral-political, some are just attempts at being helpful.

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  3. The Reichbaum Plan: Pittsburgh as one big "massage parlors only" zoning overlay district. With plenty of open space.

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  4. Anon 5:02, you're thinking Bangkok. One night there makes a hard man humble. Thank goodness I'm only watching the game -- controlling it.

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  5. I'm impressed Bram. Tai Pan and the other Shogun books are terrific. I didn't know you read anything other than Reform Pittsburgh website. Even though I disagree with the conclusion I like the analysis. The problem is this - and something that people often miss in these big projects. The developers spend hundreds of thousands (sometimes millions) of their own dollars before anything happens. Who do you think pays for the lawyers and planning and engineers and architects? they do this on the faith and with the hope that if everything works out they will find the resources and tenants to make the deal happen. Not all of them do. That is why developers need big returns on deals that work to make up for the ones that don't. Without somewhat knowing that the project will happen people won't be willing to spend their money for years before seeing any return. If you chop up a piece of land and give to lots of different owners there is too much risk to my parcel and development that the guy next door goes under and then causes me to go under. I'm not saying it is impossible, but that is the idea of planning (whether private or public). Kind of like owning a shopping center. Giant Eagle won't lease space without a covenant that I won't lease space to any other grocery store or similar business. If a different owner had control of every store front in the shopping center it is much harder to get Giant Eagle to sign up. When you are talking about new developments that need substantial financing - no lease, no financing, no deal.

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  6. Anon 7:44 -

    LOL! I actually never check that website Reform Pittsburgh Now. If I ever link to it, it's only because I googled "Peduto, [issue]" in order to find something.

    Thank you for the thoughtful critique, I really appreciate it. There are a few points I'd like to try to poke holes in (is there nearly as much work for attorneys if there isn't a developer holding sway as middleman? How about the notion that planning the landscape would be done in-house?) but I take the point more readily on architects and engineers and I don't doubt your larger point there are considerable start-up costs for smaller vendors when it comes to building, and greater risks. What I'd like to ask if you return, is how would developers address the concerns about "blandness" and gentrification, and do they consider the right's concerns about the creation of big politically influential middlemen legitimate. The idea that a development could "fail" is unfortunate for the developer who thereby needs to aim for higher profit margins to make up for it, but it's more terrifying for a City that doesn't want to risk ending up with a husk of somebody's "whoopsy daisy," well-intentioned failure, instead of having smaller parcels which can be more easily creatively destroyed and refilled.

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  7. Are you talking about the selling of Schenley High School? Bid opening is Friday at PPS.

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  8. Slightly related: If the bidding was open in both cases, the city of Pittsburgh is the parking-equivalent of a single Big Ten school.

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  9. MH - That is remarkable congruence!

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  10. Bram - first and foremost anything we can do to limit attorneys would be good! Aside from that, take a look at all the major woopsy daisy failures out there. How many of them were government initiatives? I would say most of them. And they were usually touted as social improvement projects - to benefit the people. Maybe we are agreeing and maybe not but I would like to get the guvment out of the picture as much as possible

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  11. How many metered spaces are in the city? The 35,000 Ohio State has seems like an incredibly large number.

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  12. Not sure -- but City had a fair number of multi-level garages in the deal, too.

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  13. I was a bit surprised by the number of spaces at OSU and I'm an alum. It certainly never felt like there were 35,000 spaces to pick from. I think the difference may be that the medical center spaces are still OSU spaces and not separate the way Pitt/UPMC parking is.

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  14. Semi-related, semi-relevant thoughts:

    (1) Of course in addition to the "major" projects, there are many other small to medium development projects going on in Pittsburgh, so the "major" projects don't define the whole of development;

    (2) Different kinds of competition are maximized at different scales, and you can have problems getting enough competition at certain scales if your "parceling" of development opportunities is suboptimal;

    (3) "Brownfield" development often involves a lot of different challenges from "greenfield" development, such that one shouldn't assume the same policies and practices will work best in both areas;

    (4) The first entrants into new large-scale retail/entertainment developments are often disproportionately "chains" and other "bland"/"suburban" establishments in part because they have the sorts of branding, advertising, cross-subsidies, and so on they need to reliably attract customers to a place they have never been before;

    (5) But with churn over time the mix of establishments doesn't have to stay that way, provided that it isn't the sort of place that will permanently rely on such factors to attract customers (e.g., so not a shopping mall surrounded by a sea of parking).

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