Free-Market Limitations

The other day, as I was trying to extricate my vehicle and myself from one of the few traffic snarls in my town of some 30,000 odd people, I couldn’t help but ask why we had a traffic jam at all around the sole shopping center in more than sixty miles in one direction and two hundred in the other, especially in a town with more than enough open space. There have already been a number of accidents at the intersections adjoining the shopping center, where multiple streets converge all too closely within less than a block, including an interstate highway off ramp, and that’s before all the retail spaces have been filled. 

So how did we end up with such a dangerous situation, and one which now requires a multi-million dollar relocation and rebuilding of the interstate access ramps and roads? The answer boils down to a free-market failure. The shopping center developers designed the shopping center to maximize the amount of retail usage for the amount of land involved. The town was happy with this because that also maximized the property tax revenues.

One of the defenses mounted by those who complain about government regulation of business is that businesses cannot stay in business if they create too many dissatisfied customers. While this is dubious at times, if not more often, it’s definitely untrue in several sets of circumstance that have become more and more common in modern society. The first case is where the “customer” has no way to track and no way of knowing who or what business has created the problem.  The second is where a customer deals with the business only once or twice in a lifetime.  The financial meltdown created by the housing/mortgage collapse embodied both of these circumstances

The dangers around my shopping center embody just the second, because the shopping center developers developed the only shopping center in my town and likely the only one, given demographics, for at least a generation.  Once the land is planned, subdivided, and built, they’ve made their bundle, and because they can’t do it soon or perhaps ever again in this town, free-market economics press them toward making as much as they can, regardless of the consequences. Under the threat of having a badly designed shopping center or none at all, the town caves in… and the citizens are left with the mess, and the taxpayers (including those in cities hundreds of miles away, since the interstate ramp rebuilding will be partly funded by the state) will fund all the remedial measures.

Economists call those costs external diseconomies or negative externalities or the equivalent, but what it amounts to is that unchecked free markets, or those not scrutinized enough, have a disturbing tendency to foist way too many costs off on others, not to mention deaths at times – and certainly in the case of the financial meltdown, all those billion dollar profits and high bonuses were never recovered while the taxpayers picked up the tab, and no one compensated those whose lives were ruined.

While I’d be the last person to endorse government planned and directed economic development, because that’s just another road to ruin, I’d also be one of the last to endorse unchecked free markets. We need a balance between the two – and that’s something that none of the politicians or the multibillion dollar corporations seem to want, whether it’s in the planning and regulating of the design and operation of local shopping centers or the nation’s financial structure.

2 Responses to “Free-Market Limitations”

  1. Richard Hamilton says:

    Wow. I just remembered Brunner’s “The Squares of the City”.

    Seems to me that the failure here is of government, not so much to _regulate_ as to have done a proper traffic flow study.

    There is of course one tension: local governments want developments as long-term revenue sources, but they don’t want to deter them by charging all the infrastructure improvement costs up front. Moreover, they seldom re-invest revenues from a development just in support of that development and the surrounding area, but often use much of the money for more immediate sorts of pandering.

    Let me toss out a few very different examples.

    Chris-Town mall in Phoenix opened in 1961. It was the first indoor, air-conditioned mall in the state (rather significant when 110F or above is not uncommon in summer!). It was built in what had previously been a farmer’s field, and most folks at the time thought it was in the middle of nowhere, and far too large. It turned out to be in what became a central location, and too small if anything. Turnover in the anchor stores, along with being a bit claustrophobic compared to modern indoor malls, led to it being converted almost entirely into something very different, more a collection of big box stores (but also smaller shops) than an upscale mall. While I grew up in Phoenix, I’ve done almost no driving there, so I can’t speak to traffic flow problems, but there must have been some.

    Much more recent: Arundel Mills mall in northern Anne Arundel County, MD. _Huge_. A long skinny trapezoid layout (with a short-cut between the long sides roughly in the middle), perhaps a mile all the way around. It definitely caused traffic problems, resulting in a new exit off of MD295 (northern continuation of I-295). However, that exit was done on the cheap with two roundabouts rather than cloverleafs. Add to that new housing (mostly condominiums) development, and an additional expansion going in now, with slot machines (new and long debated in Maryland), and additional large restaurants and such. Already, the sprawling parking is often overloaded near the movie theatre complex and other attractions, year-round, and not just during the holiday shopping season. While the traffic isn’t too terrible now, it’s bound to get worse. I wonder what additional changes will be needed to keep up with the increase due to the new additions.

    Finally, Columbia Mall, Columbia MD – a very planned community. It opened in 1971 (perhaps late enough to provide some history of mall scale changes on which to plan), and has undergone considerable expansion, with the addition of multiple upscale anchor stores (Nordstrom’s, Lord&Taylor’s) and other attractions. But it also got additional multi-level parking garages. No long hikes to get there, just a challenge remembering where one parked! And most of the time, the traffic flow still seems manageable.

    I’m not fond of regulatory solutions either, although _sometimes_ they appear to work, if at the cost of short-term growth. I’d like to see a different sort of solution tried. Tenants of a mall are better off if growth is well-managed. If both tenants and local governments required of developers and operators that a bond be posted, or some other sound fund be established, to provide for orderly future growth (as well as some portion of infrastructure costs), that might help – provided of course that local governments can be kept from robbing it to fund more immediately politically rewarding activities. I’m not saying that’s exactly the right solution…sounds like a lot of money tied up (even if carefully invested). But it’s one way of rebalancing the costs, so that short-term and long-term costs and benefits are better connected.

  2. G.Thomas says:

    You’ve hit the nail squarly on the head by pointing out the need for balance. Unfortunately balance is the last thing you find in hardly any endeavour these days, a prime example being our two main political parties which have become so polarized by extreme bases that the average person with any common sense can’t identify with either one.

    Here in Florida the Republican dominated legislature led by our new Republican governor (with one of the most dismal approval ratings of any governor ever) has gutted decades of growth management and environmental protection law in the interests of creating new jobs. The last thing Florida needs is more unplanned and unregulated growth and this will create few new jobs over the short run, however it does set the stage for outside interests to come in and make their bundles and leave the tax payers of Florida to clean up the messes. The old system of regulation, while far from perfect, did at least try to balance the needs and concerns of citizens about the growth and direction of their own communities with the needs of development.

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