How is cooperation best coordinated?

Posted by Rezwan Razani on Jul 29, 2013 at 05:56 PM

Democracy.  Dictatorship.  Market. Corporation.  Family.  Crowdsourcing.  Every form of human organization is an attempt to coordinate the actions of many individuals for the benefit of some or all of them.  That makes this five word question fundamental to human progress and happiness:  “How is cooperation best coordinated?”

A Planning Perspective

My favorite planning book, “Property Rights, Planning and Markets” by Chris Webster and Lawrence Wai-Chung Lai tackles this question head on.  From the introduction (used by kind permission from the author, all rights reserved):

1.1 Introduction

Be fruitful and increase in number; fill the earth and subdue it (Genesis 1:28).

The task of subduing the Earth is, in the final analysis, a co-operative one. Whether individuals seek to maximise the benefits achievable from their resource endowments or are happy to settle for something less - to satisfice - they clearly need to co-operate with each other in doing so.

But how is co-operation best co-ordinated?

Two competing answers have shaped the history of human civilisation. Crudely, human endeavour may be co-ordinated by top-down, hierarchical planning or by a bottom-up and more spontaneous approach that relies upon symbiotic exchange.

The tension between these two approaches is manifested whenever a government enacts a law that constrains market activity or when markets ignore government plans. It is also manifested when a production unit in a corporation differs with central management in its view of how labour is most productively deployed or which process should be axed under a rationalisation scheme.

Markets are institutions that allow individuals to co-ordinate without central planning. But the issue is not one of planning versus markets, since top-down organisation happens within firms and within groups of firms in markets.

The issue is one of imposed and centralised co-ordination via organisations, versus spontaneous and decentralized co-ordination. The former happens in governments, firms and families. The latter happens in systems of voluntary exchange such as bartering and modern markets.

This book is about the strengths and weaknesses of these two approaches. It is about alternative means for achieving order and about alternative orders. It is a theoretical book about the very pressing practical task of governing, administrating, managing and planning cities. Theoretical because, in our experience, there is a search amongst those undertaking these tasks (broadly referred to as urban managers from here on) for an intellectual foundation for their various interventions. Theoretical also because pragmatism has forced academic scholars and students of urban issues to advance beyond the poles of debate and the paradigms of the last century.

The debate about spontaneous versus planned urban order took a major turn in the last quarter of the twentieth century. The demise of the planned economies, ideological and practical challenges to the West’s costly welfare states, and the failure of governments to provide adequate infrastructure and services in the developing countries have led to new forms of local governance that involve partnerships between private and public decision makers. Governments became enablers rather than suppliers, and partners of, not opponents to, markets.

The changes have been driven not so much by the arguments of libertarian thinkers but more by hunger, poverty, threat of fiscal insolvency and the collapse of entire political edifices and old ideologies. Among the latter is the scientific paradigm and modernism, the demise of which has challenged the idea that society is ‘mathematically manageable’. The scientific prescriptions of twentieth century governments were only the latest incarnation of the belief that society is manageable by design. Historically, the degree of state control has waxed and waned, influenced by economic prosperity, internal and external political conditions and by beliefs and values. In this book we address the question of how order emerges in cities and systems of cities that are largely shaped by market forces - capitalist-led cities, frequently struggling with a culture of welfare statism and the sense that old forms of government no longer work.

One purpose of the book is to help bring discussions about markets and urban planning into greater balance. Academic discussion about urban governance is frequently polarised. Those espousing a public service ethic often demonise the market while some urban economists and radical libertarians fail to appreciate the need for strong state apparatus.

Our position in this respect is that state and markets co-evolve, complementing each other and, by trial and error, discovering better ways of distributing responsibilities between private and public sector and between private and collective action. 

In developing this position we offer explicit arguments that are amenable to formal and empirically refutable hypothesis about the respective strengths of planning and markets and of collective and private action in allocating urban resources. We draw these from various strands of what has collectively come to be known as the new institutional economics and develop the following interrelated themes.

  • Theme 1:Individuals and firms agglomerate in cities in order to benefit from exchange opportunities which in modern times are organised largely via capitalist-driven markets. Market-based exchange is usually beneficial for direct exchange partners and is beneficial to society to the extent that the interests of third parties are accounted for in private transactions.
  • Theme 2: Order emerges in cities as individuals seek to avoid the costs of private transaction, or more generally, the costs of voluntarily co-operating over production and consumption activities (transaction costs). Transaction costs explain the patterns that arise in market-driven cities. In particular, they explain organisational order; institutional order; proprietary (ownership) order; spatial order; and public domain order (public domain is defined below).
  • Theme 3: Institutions emerge to reduce transaction costs and more generally, the costs of voluntary co-operation. Markets are institutions that reduce the costs of organising a multitude of individual transactions. Government edicts, policy and regulations are institutions that reduce the costs of collective transactions.
  • Theme 4: Institutions reduce transaction costs by assigning property rights over scarce resources. A property right is defined in this context as the right to benefit from a resource by use, income or disposal and an institution is defined as a system of rules and sanctions.
  • Theme 5: Institutions that protect private property are essential for market activity and economic growth. Institutions that create and protect rights of third parties (those that are affected by but not party to a private transaction) are essential for sustainable and ethical market-driven growth - markets governed by broadly accepted values.
  • Theme 6: Resources with unclear property rights are said to be in the public domain and are subject to wasteful competitive consumption (congestion).
  • Theme 7: When the value of a resource changes significantly, there will be a corresponding change in assignment of property rights. This happens when privately owned and public domain resources increase in value through changes in preference and scarcity and when public domain resources decrease in value through overuse and congestion. Whether or not property rights are reassigned depends on the organisational and political costs of creating and sustaining appropriate institutions and the technology costs of assigning individual property rights (including the costs of making a public domain resource excludable).
  • Theme 8: Resource values, transaction cost, exclusion costs, institutions, property rights and public domain-private domain boundaries constantly shift within cities. They are all interrelated and spontaneously co-evolve. They do so with local interactions (for example, a plot of land changes use because a neighbouring plot has changed use); and global interactions (for example, government or an entire industry adapts its behavior and rules). Interactions happen in space and in time, thus making cities complex systems in which the outcome of any planned action is largely unpredictable.
  • Theme 9: limitations in the cognitive ability of individuals and groups and the costs of acquiring information mean that any system of co-ordinaton is imperfect. The information problem is more serious for government because markets rely on prices—decentralised measures of resource value. Markets, governments and more generally institutions, adapt over time however, in pursuit of a more efficient distribution of property rights. Adaptation is more rapid and more responsive the more open the competition, the lower the transaction costs and the better the information. Governments as well as markets can deliver a kind of spontaneous order, although the difficulties facing government in doing so are generally greater.
  • Theme 10: The efficiency with which an institution allocates property rights to individuals and groups is a function of the distribution of knowledge, resources and transaction costs. We develop positive propositions about these relationships and apply them to an explanation of the way cities, markets and urban governance evolve. We develop normative propositions and use them to evaluate and compare different kinds of institutions.

These themes form an underlying argument that we develop in different ways and with different emphasis in each chapter. In the remainder of this chapter we introduce the themes more fully and start to elaborate the connections between them, starting with a review of key theoretical ideas.

Note: Our goal is to translate this and other excerpts from the book into Persian and post them here. Full translation is pending funding for a qualified translator, permission, rights, a local publisher, etc. This may take some time.

Comments chat

comments powered by Disqus


Economic Theory

Read Persian Today!

Subscribe to play with language and ideas!

Powered by ConvertKit

اندک اندک جمع مستان میرسند