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Democracy is the solution to vetocracy
How Ronald Coase can change your life
Aberfeldy Village is a housing estate in Poplar, East London, largely redeveloped after the War. It’s about 30 minutes’ walk from Canary Wharf and, although it’s densified a bit in the past decade, much of it is still low-rise terraces for tenants on social (ie, subsidised) rents.
A new proposal to densely redevelop more of the estate would have replaced 330 homes, of which 252 were for social (subsidised) rent, with 1,582 new ones, of which 368 would have been for social and 79 for “intermediate” rent (subsidised, but not as much). So a net gain of 1252 homes, including an extra 116 subsidised properties.
The housing association proposing the scheme put the proposals to a vote of existing residents, which would have guaranteed everyone who was displaced a new home in the redeveloped estate, plus cash compensating them for their trouble. With 91% turnout, 93% of voting residents voted in favour of the plan.
But the borough’s “strategic planning committee” objected, so the proposals have been put on ice. There’s a good discussion of why here – the reasons range from objecting to repurposing a road for pedestrian and cyclist use to ideological opposition to building privately rented housing among the Labour- and Lutfur Rahman-aligned members of the committee.
Well, whatever. There’s always something. A few years ago, a Tory-led campaign managed to stop 2,000 homes from being built on the site of a petrol station in Mudchute, 20 minutes’ walk from Canary Wharf, because the petrol station was just so important. (There’s another one six minutes’ drive away.)
What intrigues me here is how stark the divide is between the people most directly affected, who overwhelmingly supported the scheme, and the much further removed people who have been able to block it on the basis of not very much.
It’s hard to shake the feeling that the UK is in a bit of a lurch at the moment. That chart of productivity – output per hour worked – just flatlining for the past fifteen years is incredibly bleak, and even when we (surely?) do get a bit of growth sooner or later, we’re so much poorer than we could have been. A lot of the country’s present misery – high inflation, barely-functioning public services, and incredibly difficult lives for way too many people – is the result of this.
It won’t be a surprise to read that I think that supply constraints are the biggest things to blame. The big four, as I see them, are housing, childcare, transport and energy. The first three of these relate to “agglomeration” – the aggregate increases in productivity and innovation we get from letting people live and work near each other. That’s the root principle behind the “housing theory of everything” – a city is greater than the sum of its residents, because being close together lets them specialize and collaborate more deeply, and generate more useful ideas together, than if they were working in smaller towns, or alone.
In Britain, we have one big, rich, prosperous city that’s very expensive to live in, plus a handful of much smaller rich towns and cities like Oxford and Cambridge, and lots of other much less productive cities and towns. Too little housing makes it harder for people to move to the productive places and take better jobs there, increasing overall productivity through the magic of the division of labour.
Childcare being expensive means parents have to choose between either working part-time or moving to where childcare is cheaper – it’s £1,700/month per child around where I live in South London, and I have at least one friend considering leaving London altogether to go somewhere more affordable.
Too little transport infrastructure exacerbates these problems by limiting where people can live and work – if you can’t easily commute from somewhere into where certain jobs are, you’re less likely to take jobs in those places. That is one reason that our second-tier cities tend to be so unproductive – the effective size of the city is quite small, because poor transport links make it impractical for people on one side of the city to take jobs one the other side of that city, limiting the amount of agglomeration that can take place.
I tend to think of agglomeration as being the big determinant of the intangible economy – things like finance and software, where intelligent people are the most valuable input. Energy I think of as being the fundamental input into the tangible economy, being a major determinant of how cheaply we can make physical stuff. Ed Conway is doing brilliant work on this, but here are a few charts that may illustrate just how bad things have gotten in the UK.
First (above), the industrial price of energy tripled in the UK between 2004 and 2021, or doubled relative to other prices, and has risen even more brutally again since the Russian invasion of Ukraine. Even if it falls back to “normal” levels, those are still much more expensive than they were less than twenty years ago. (Note that the “relative prices” figure here isn’t really akin to “real terms”, because as we have learned in the past year, the cost of energy itself is a big determinant of inflation, because it affects the price of so many other things we produce. So adjusting the price of energy for inflation may understate how big the rise has truly been.)
Second, from Where Is My Flying Car?, a chart showing the flatlining in energy consumption per capita in the United States from the 1970s onwards (a trend reflective of the wider developed world, including Britain).
Third, total energy use per person for the United States, France, Germany and the UK. As you can see, the UK’s energy use per person has always been way behind that of the United States, flatlined earlier, and fell behind both Germany and France in the post-war era.
Fourth, electricity generation per person for the US, France, Germany and the UK. This highlights that we are massively behind on electricity generation, which is extremely worrying given the gusto with which we’ve abandoned fossil fuels. We’ve been patting ourselves on the back for our great lead in emissions reductions without providing a cheap alternative source of energy – as we can see, electricity generation has fallen even as we’ve tried to move away from gas and petrol as sources of energy for heating and transport (and, of course, from these and coal as sources of electricity).
Britain’s de-industrialisation looks like less of a surprise when we see the cost of manufacturing’s most vital input, energy. And so far, Britain’s climate change / Net Zero policy seems to be solely about reducing our access to cheap forms of energy, with little being done to create workable alternatives. How are you going to get people to adopt heat pumps instead of gas boilers when per capita supply of electricity has been falling for the past twenty years?
I used to wonder: why is France so rich? Despite its famously restrictive labour market regulations and high taxes, postwar France has consistently been about as rich as the UK, or richer. And it is significantly more productive, even when you adjust for France’s higher unemployment rate (which might flatter the productivity stats, by leaving out less productive workers at the bottom – but note that the linked Piketty piece does a very rough-and-ready adjustment). France gets so much wrong, and yet it still does pretty well on the metrics that actually matter.
I used to think France’s success was a result of its history as the early modern European superpower. Centuries of accumulated wealth and cultural success, on top of one of the most bountiful geographies on earth, meant that it could coast for years on its past glories, in the same way that Victorian infrastructure and buildings still provide a lot of value today in Britain (most of our railroads are Victorian, for instance).
But Ben Southwood has convinced me that France is rich because it gets the big things basically right. Housing supply there is freer: the overall geographic extent of Paris’s metropolitan area roughly tripled between 1945 and today, whereas London’s has grown only a few percent. Infrastructure is better: 29 French cities have trams, versus 11 here (likely one reason its second-tier cities are much more productive than Britain’s). It has nearly 12,000km of motorways versus around 4,000km here – and French motorways tend to be smoother and better kept (and three quarters are tolled, making congestion much less of a problem). Childcare is cheaper: about half the price per month, in part because they require half the staff. Energy is more abundant, as shown above. Because it gets those big four things right, it can afford to get a lot of other things wrong.
So why does the UK get these things so badly wrong? To a significant extent I think it’s because we make them more expensive than they need to be, and don’t allow enough to be built. On the former case, each sector has its own problems. Jack Devanney has done vitally important work on nuclear power costs, and points out that by copying a country like South Korea we could get nuclear power plants that are as much as 80% less expensive than the ones we try to build today.
Childcare is another case – the number of registered childminders in the UK has fallen by 80% since the 1990s (and is still falling), probably driven by increasing requirements for qualifications and “death by a thousand cuts” mini-regulations, like the fact that a childminder today has to register with the Food Standards Agency and keep a legally-required “food diary” recording what food products you have bought, who you bought them from, the quantity and date, and log incidents like having “found a pack of sliced ham out of date in the fridge”.
But a general cause of these things being too expensive is that the UK has become a vetocracy, where a few people can wield a veto on new supply. This is formally the case when it comes to stuff like onshore wind, which we say is “banned” but, in actual fact, is permitted – unless a single local resident objects. It is de facto the case for housing and other property, where local groups influence both local and central government to stop new houses being built near them. I won’t get into the problems with housing again, but note as well that the cost of office space in Birmingham is 44% higher than it is in Manhattan, and that UK cities are desperately short on lab space: London has 90,000 square feet of available lab space, and Manchester 360,000sq ft, whereas New York has 1.36 million sq ft, and Boston 14.6 million sq ft of lab space.
This has the very significant knock-on effect of raising childcare costs by making it harder for people who would work as childcarers to live in cities – this is why childcare costs can vary from £2,615/month in some parts of London to a still-eyewatering £990/month in Lincoln – and of making their premises extremely expensive.
It’s true for energy and transport infrastructure too. Penny Mordaunt, twice runner-up for the Conservative Party leadership over the past year, has led local opposition in Portsmouth to the Aquind Interconnector, a set of electricity cables that would allow us to draw more electricity from France when, for instance, the wind isn’t blowing here (France’s electricity supply mostly comes from nuclear power, which does not have the same intermittency problems that wind power does). That interconnector could supply 5% of UK electricity demand (for context, the nuclear reactor at Sizewell will supply 7%), but it was blocked by Kwasi Kwarteng when he was Business Secretary, perhaps influenced somewhat by Mordaunt, his then-colleague in the Cabinet.
The bureaucrat’s answer to this is consultations where locals can “allow their voices to be heard”, and the project hopefully tweaked to “address their concerns”. They please no-one, because they look like a whitewashing exercise, but still create triggers for judicial review and gum up the process of development.
Anton Howes has done a good job of documenting some examples of these. The Lower Thames Crossing, a proposed tunnel under the Thames Estuary between Kent and Essex, downstream of the Dartford Crossing, has had five consultations since 2017 and still does not have permission to build. A 10-mile stretch of road between Cambridge and Milton Keynes had four consultations between 2017-20, and even though it was finally given permission in 2022, it has been delayed again by a judicial review. Sizewell C, one of the new (and wildly expensive) nuclear reactors we’re trying to build, held four consultations between 2012 and 2019 before submitting its application, and another three more in 2020 and 2021 while waiting to hear back.
By the way, there is very little cost to challenging a project you don’t like under judicial review. Thanks to the Aarhus Convention, plaintiffs’ costs are capped at £10,000, so local groups face little risk in challenging huge projects, even if those challenges fail and the delays they’ve caused raise costs by far more than that. (By the way, the government extended these cost caps to more types of challenges in 2017, making it cheaper to challenge planning decisions made by the Secretary of State or the Planning Inspectorate. Seriously.)
The obvious solution to this problem is “take away the vetos”; smash the NIMBYs. It’s obvious, but it doesn’t work in the UK. Ever since the modern planning system itself was set up, there have been efforts by well-intentioned governments to force through housing against the wishes of local residents. (I highly recommend that linked piece.) The Parliamentary system we’ve got makes it very hard, even for a determined government, to brute force through the developments that we need. And when they have tried, they’ve often done so with projects that are so grotesque, like the plan to bulldoze over inner London neighbourhoods with a motorway, that they have lost any benefit of the doubt that people might give them, and made people even more suspicious of developments in future.
At the moment, we mainly try to get stuff built by fighting on a case-by-case basis – using local plans and housing targets to force areas to take housing and other infrastructure that, usually, their local residents don’t want. That system has got some houses built but nowhere near enough: since 1955, we have never managed to equal the rate of housing growth we had in the 1930s, or even the 1820s. But even that has been unpopular enough to get the housing targets abandoned by a weak Conservative government. When a previous Conservative government tried some genuinely radical planning reforms that would have, if they had succeeded, made building easier, they were completely smashed by Tory backbenchers. That was entirely predictable – even I, by no means an expert on politics (I thought Liz Truss was “underestimated” before she became Prime Minister), was able to lay out in detail what would happen before it did.
While I am encouraged by Keir Starmer’s emphasis on housing supply, and wish him the best of luck (and my full support on it, for whatever it’s worth), I suspect that he will stumble in the same way that both Tory and Labour governments have before. His electoral coalition is different, but he will likely still be reliant on marginal constituencies where voters will immediately turf you out if they perceive you to be threatening their local areas, in favour of the Lib Dems or the Tories, both of whom will be only too eager to tell them what they want to hear in exchange for their votes. In Britain today, you don’t smash NIMBYs – NIMBYs smash you.
Bottom line up front: I think the solution is to let small groups of people most directly affected by a new development vote on the development. I think this would make it possible to buy them off, and win the support or compliance of the most motivated opponents of the things we need to build.
Here’s my model. It might be wrong. But I think it’s worth thinking about and experimenting with. It is heavily inspired by the work of John Myers on sharing the benefits of reforms with people who would otherwise oppose them. My goal is to set out a framework for thinking about this for other vetocracy-type problems, based on John’s excellent work and thinking.
My first hypothesis is that, for any given project, some of the NIMBYs objecting are people who are genuinely losing out significantly, and that these people are, understandably, highly motivated to object to the project. And there are some people for whom the opposition is “cheap talk” or, more generously, a rational strategy in a repeated game. If they have the ability to object, they will, either because it slightly inconveniences them or because they think that if project X goes ahead fifty miles from them, it will make it more likely that project Y will go ahead half a mile from them. These people won’t go crazy if you take away their ability to object to project X, provided they know they will retain the ability to object to a project Y that does significantly hurt them.
I realise that this is a very vague categorisation. Who is to decide what “significant” losing out means here? Bear with me, but ultimately that is what I’m going to suggest is the big, interesting research question for anyone who wants to solve vetocracy.
My second hypothesis is that, in principle, for a development worth doing, it should be possible to pay off most of the people who object and still make the development worthwhile.
Any new development worth doing must create additional value for the world. Most of this value will be captured by the people who own and make the thing (producer surplus), or the people who use or buy it (consumer surplus). It will also create cost. Some of those costs are borne directly by the developer – the price they have to pay for the materials and labour to make it, for example. Some of the cost is not, and instead is borne by the people around the development, eg in the form of a worsened local environment. This second kind of cost is what’s called an externality by economists, and is similar to the cost people bear when a polluter pumps noxious gases out into the air.
For a project to be worth doing, the benefits should outweigh the costs, including the costs that are borne by society. If we take people who lose from a new housing project via a worsened local neighbourhood, and give them enough money or other value such that, on net, they now benefit overall from the project, the benefits of the project should still be worth doing it, or else it wasn’t worth doing in the first place.
Fortunately, the gap between the cost of building many of the things I’ve mentioned above and the value from selling them or their output is massive – that is, there is plenty of value to go around. New homes in central London sell for vastly more, perhaps even millions more, than the cost of building them. The price signal is clear, and includes a large reward for anyone willing to follow it.
So we might be able to get a bargain between the producers of new housing, transport and energy supply, and the locals who lose out. Why don’t we get this already? My core claim is that the system we’ve got at the moment is not good enough at identifying people who lose out by a lot, and people who cheaply claim to be losing out by a lot, but really only barely are. Consultations can’t do this, and existing local and national democratic mechanisms treat everyone’s vote equally within a much larger catchment area than most new developments significantly affect.
So even if the people immediately surrounding a new development were delighted about it, either because it’s a great development in its own right or because they’ve been given enough compensation to feel that, on balance, it’s worth it, their voices could be drowned out by all the other “cheap talk” objectors. And there may not be enough value going to buy off all these people as well. If people can self-select into the “this hurts me” group, then there won’t be enough surplus value from a new project to go around to buy them all off, and the project won’t go ahead.
But if we could clearly and strictly demarcate the “true losers” from a project, and allow them to retain their veto, we would perhaps be on the way to making this intractable problem tractable – in principle, we could turn the losers from a new project into winners, and still have enough money left over for the project to be worth doing. It’s also possible that if we did carve out the important objectors, the cheap talk people would never get involved at all because campaigns require some people to invest a lot to get them off the ground, and in this scenario the most motivated people among them have had their mouths stuffed with gold.
But there would be one final problem. How, in practice, would we let people do this sort of bargain? Typically, this sort of thing does happen, but via quite indirect and poorly-targeted mechanisms. A new project is proposed, locals object, and the people doing the project promise to spend some money on new parks, roads, etc in the local area so locals are appeased. As I’ve mentioned, this has the problem that local governments are not only answerable to the people immediately affected by a project, but to lots of other people too.
Instead, if we could clearly demarcate the true “losers” from a project, we could let only them decide, through a vote. We would in effect be saying that we recognise that these people have a de facto right over their local area, since they can already object in the current system. And now we are giving them a formal right to collectively decide how to exercise that right, including by alienating it. You have your veto, but you can choose to give it up if you like.
What I’ve described has been proposed in practice in the Street Votes mechanism I’m fond of. With Street Votes, we’ve determined that the residents of a street are the ones who are the most significant losers from small-scale intensification on existing urban land, and that they should be the ones to decide on changes to the rules that allow these developments to take place. In this case, the “buy off” happens through the fact that all of them benefit from the land value uplift that more liberal rules create – a semi-detatched house in Clapham on a street that votes for “gentle density” development rules could double in value, just from the new permissions to build more densely.
A similar system has also been proposed by Sam Dumitriu for onshore wind: he has suggested that, instead of the current unanimity system, we allow local residents to trigger a vote on a proposed development if a certain percentage of people within sight of the wind farm sign a petition to do so.
There are examples of this sort of approach working already. In Houston, minimum lot size rules that prevented densification were reduced from 5,000 to 1,400 across the city. Streets and blocks that objected and wanted to retain those rules, to stay low-density, were able to vote to opt-out of the deregulation. John has written on Seoul’s Joint Redevelopment Projects, which allowed new development if 75% of property owners in designated neighbourhoods voted in favour, and even though only a small fraction of the city was ever eligible, at one point more than half of the new condos being built in the city were through the scheme. Tel Aviv did something similar. New York’s tradeable air rights allowed old buildings to be preserved by “trading” their right to build up to other locations. (There’s a great video on this here.)
In these cases, the key is to restrict the ability to vote and trigger a vote to the people who we think are significantly adversely affected by the development. The reason is partially to do with economic efficiency – we want some kind of proxy for the negative externalities – and partially to do with politics – if we tried to remove everyone’s ability to veto, we’d face the same problems that every postwar government that’s tried to liberalise planning has faced. As was once said of taxation, we need to pluck the goose to obtain the most amount of feathers with the minimal amount of hissing – our goal is to exclude the “cheap talk” NIMBYs from the process, while still letting the highly motivated ones take part.
I think this could be a way to end vetocracy in the UK and elsewhere. We say that local residents have a sort of property right over the character of their area, and try to facilitate a bargaining process between them and the people who want a new development to go ahead. I’ve come to think of this as “Coasean democracy”, named for Ronald Coase, who won the Nobel Prize for showing that well-defined property rights, plus the ability to exchange them with others, could allow for more efficient outcomes than if we try to impose a strict rule about whether you can or cannot do something. Bargaining, where possible, allows positive-value activities to go ahead, and stops negative-value ones. Here, we’re trying to harness democracy as a means to bargaining.
The real challenge, as I’ve suggested, is to figure out who in practice are the “rightsholders”. In certain scenarios it’s easy – people who live on a street, or around a piece of under-used urban land (like a residential car park) that we could build on. Perhaps we could determine that the people most adversely affected by certain new energy projects, like the Aquind Interconnector, are the ones whose views are being spoiled – they bought their homes in expectation that they wouldn’t have to look at an electricity supply terminal, and so it might be understandable that they would object strongly to that changing. Octopus Energy has piloted something called a “Fan club”, where people near new onshore wind farms can get discounts to their energy for years to come if they let the wind farm go ahead.
Where I suspect this model has the most potential is in cases where there are several viable options for a project, so it’s harder for people to hold out for extremely large amounts of cash – if Portsmouth is the only place in Britain where that interconnector can be built, locals might ask for so much that the project is unprofitable, and vote it down in the hope of more. If there are many other options about where you can build, they have less ability to hold out, and the bargaining process should be, in effect, more competitive. So while I could imagine this working well for the route of a new rail line if it can easily be modified if certain areas along the route object, if the entire line depends on a single section, those locals may try to hold out for more than the project is actually worth.
But I think this approach has the rare virtue of being politically achievable, because it preserves the power of locals to protect their local area, and scalable, because it creates a general mechanism for overcoming local objections instead of requiring political battle after political battle as our current system does.
If there is promise in this approach, I think the next steps are to apply it in greater detail to the specific types of project we want to get more of. Who really is “significantly harmed” by a new solar farm or a new airport? Where can we pair this sort of mechanism with new presumptions in favour of development, with votes only held when locals feel strongly enough to trigger one?
For Aberfeldy Village, the plan is straightforward. The “strategic planning committee” shouldn’t get a say; the residents who’d be most directly affected by the project should. Though charging some fees on new developments for new infrastructure in the surrounding area make sense, giving the wider area a veto does not. Let the residents decide what happens to their estate.
We could go much broader than this, though. Housing estates across the country should be empowered to vote themselves into more density, and capture lots of the gains that would come from them. The residents of the council-built estates I’ve lived in in Battersea and Brixton should be treated as having a collective right over their estate, and be empowered to develop it if they want to – Patmore Estate, just south of Battersea Power Station and its new tube station, for example, could host thousands of new homes if its residents approved. They’d be a lot better off – let them capture some of the pent-up demand for new housing in London, and let the rest of us benefit from more supply.
We could apply a similar principle to get much more lab space in Oxford and Cambridge, and more commercial space in other cities and towns. We could get more cheap cut-and-cover tunnels in cities by letting the businesses and residents who would currently be worst-affected by that construction, because the roads they’re on have to be dug up for years to lay the tunnels, decide on projects, allowing them to capture some of the benefits of the project as compensation.
We could massively increase the amount of energy generation taking place onshore in the UK by creating a route for local consent that wasn’t based on vetoes; we might even be able to take steps toward a more rational regulation of nuclear, allowing us to get nuclear power costs back to the level of coal costs. Maybe we could even tackle crime by removing barriers to new prisons, by letting nearby residents decide, and hold out for enough compensation to win them over. Figuring out the details here is an exciting frontier for those of us interested in better public policy.
Let’s listen to price signals: they are saying, very clearly, that there’s a lot of life left in the British economy – we just need to build a lot more housing, energy, and infrastructure. The hard bit is actually getting permission to do it. It’s certainly counterintuitive to say that the solution might be to give people more control over their local area, not less. But I think, if he paid a visit to Aberfeldy Village, Ronald Coase would have agreed.
Thanks for reading!