This month’s MoCo Economy Watch is a meditation on some issues related to the shifting ground of public and private sector roles in the economy and how that change could play out in the years ahead… In the years to come, I imagine that think tanks, academics, and “public intellectuals” will add a great deal to our understanding of this moment in time. In the meantime, there is nothing to be lost from stepping into the breach even though we don’t yet know whether this is a passing episode or a turning point.
The pandemic has been an accelerant of change, and that is as true when it comes to the nature of public and private roles in the economy as it is when it comes to how and where we work. The examples are manifold: rent control, inclusionary zoning, eviction moratoria, government-funded operating subsidies to businesses, wage and hour requirements, and business incentives. I’ve been keeping an eye on the blurring lines separating public and private, and will continue to do so, given its potential to affect our economic and political reality.
Many jurisdictions, including places not previously known for being “hot rental markets” are considering rent control measures (apologies to my friends from Fresno, but seriously?! Who are all the people who want to live there?). Affordable housing and inclusionary zoning have gone from being on the agenda to literally being the agenda of many local governments. And even discussions about things like public support for businesses have taken a strange turn – federal, state, and local governments have all gotten into the act on providing operating support to businesses affected by the pandemic. In the meantime, the politics of incentives for capital investment and location decisions have also taken a strange turn, in part because it appears to be a turn in the other direction with populist resentment driving increased hostility to big businesses and big investments.
All of that is too much to cover in detail in one piece. But I do think it is worth spending a little time thinking about property rights, economic regulation, and the shifting sands of the public and private roles in the economy. This isn’t a MoCo specific piece – the trends/issues that I am describing here are similar in many jurisdictions across the country. And forgive me if it is a little dense – I’ve been stuck at home with COVID and a lot of books.
Some theoretical scaffolding
The tension, and balance, between public and private have been integral to liberalism since the beginning. Paul Starr, a professor of sociology and public affairs at Princeton University and co-founder of the magazine American Prospect, describes this history in his book regarding the history of liberalism and classical power, Freedom’s Power.
The rise of liberalism in the eighteenth and nineteenth centuries brought about a redrawn and sharpened public-private distinction: on the one hand, the privatizing of religious belief and practice and of economic activity formerly regulated by the state; on the other, a commitment to public law, public political discussion, and public knowledge. Liberals called not only for making a person’s life and property more securely private but also for making government and politics more thoroughly public…
…[L]iberalism marked out a private sphere where individuals enjoyed strengthened rights against the state, such as rights to practice their own religion and control their own property…Unless reasonably suspected of violating the law, private individuals and associations were neither publicly answerable for their actions nor obligated to open up their churches, homes, or other property to government officials or the public at large. Indeed, liberals sought to guarantee individuals protections against such demands (for example, against unreasonable searches)…
…[W]hen people say that their homes, businesses, churches, and other forms of association are private, they are claiming another set of limits to the state’s power. These limits are also not absolute—the government, for example, can assert “eminent domain” and override private property rights for a public use if it provides compensation. But when crossing from public to private the presumptions shift, and any state intervention must meet tests of a compelling or rational public interest.
Property rights were truly at the center of not only the evolution of liberalism (both political and economic), but also were at the heart of the American raison d’ etre. Thomas Paine, for his part, explicitly connected property rights and the revolution itself:
I consider the war of America against Britain as the country’s war, the public’s war, or the war of the people in their own behalf, for the security of their natural rights, and the protection of their own property.
George Washington articulated a similar sentiment when he opined that “private property and freedom are inseparable.” Paine and Washington may have been simply echoing John Locke; Locke had once described protection of individual property rights as the “end of government, and that for which men enter into society,” and stated that the private property and a free society are “so intimately connected as to be all but equivalent.” This view – articulated by Locke, Washington and Paine – has remained a throughline in American political thought. For example, this quote from Potter Stewart’s opinion in Lynch v. Household Finance Corp. clearly articulates a sympathetic view:
The dichotomy between personal liberties and property rights is a false one. Property does not have rights. People have rights. The right to enjoy property without unlawful deprivation, no less than the right to speak or the right to travel, is in truth, a “personal” right, whether the “property” in question be a welfare check, a home, or a savings account. In fact, a fundamental interdependence exists between the personal right to liberty and the personal right in property.
The colonists brought their conception of private property with them, and as such it smells like the Magna Carta and tastes of Blackstone. The property right is not simply a privilege granted by the government but is treated as an “inalienable right” that pre-dated the republic, and that cannot be abridged or denied by the government without just compensation, a principle that made it into not only the U.S. Constitution but also those of the several states.
“A Statement of Progressive Property”
In 2009, four well-known property law professors published A Statement of Progressive Property in the Cornell Law Review. The Statement was a response to the prevailing view of property in the United States and argued that our concept of property paid too much attention to the rights of property owners and not enough to the obligations of those who own property. The authors note that property promotes “human flourishing” and the “freedom to live one’s life on one’s own terms.” Perhaps most relevant to this discussion, the authors state that:
Property confers power. It allocates scarce resources that are necessary for human life, development, and dignity. Because of the equal value of each human being, property laws should promote the ability of each person to obtain the material resources necessary for full social and political participation.
It is a powerful document and, at only two pages in length, it is well worth the read. At the same time, it is a statement of values and not an interpretation of law or effort to anchor the principle in the language of our constitution. When first published, it served the purpose if the purpose was “getting the conversation started.” But the pandemic, and the inequality that both predated it and was worsened by it, has led many legislative bodies to enact measures – both temporary and permanent – that fundamentally change the arrangement between the public and private sector around real property in ways that make this document seem more relevant now than when it was first published. Rent control, inclusionary zoning, and eviction moratoria can all be seen as flowing from this “progressive property” approach.
Many readers may be sympathetic to this “progressive property” view. However, a challenge which all must acknowledge is that circumstances (global pandemic, unacceptable levels of social and economic inequality, urgent need to address systemic racism, etc.) have forced folks to consider solutions before having had the necessary political conversations about the constitutionality, or the practicality, of adopting local policies that are inconsistent with the view of private property that is so central our national identity, economy, and legal framework. If owning property means one thing in Virginia and a different thing in Maryland (to use two examples) then the set of property rights that are left to the owner is going to make a difference when it comes to where capital flows to, how easy it is to finance projects, to capitalized values of real estate, and to interstate commerce generally.
However you may feel about the “progressive property” view, I think we can all agree that we are a long way from having any shared sense of what some of the principles actually mean. How many “material resources necessary for full social and political participation” is each person entitled to? What even is “full social and political participation”? Does “full social and political participation” carry with it any obligations? Who decides? Who enforces? And what part of meeting those needs is the responsibility of private landowners versus the government? It is a lot to think about.
Get your hands off my bundle of sticks!
Ownership of land carries with it several rights that are generally part of the so-called “bundle of sticks”. The most important of which are the right to use and occupy property (others include the right to sell or lease property, subdivide property, create a covenant running with the land, mortgage the property, etc.). Ownership of real property fundamentally means something different if the owner of property is unable to evict a tenant who has not paid rent, or to set rent based on a market price, enter ones’ own property without fear, etc. (for example, last year, a D.C. property owner was assaulted by a non-paying tenant)…
Regulation of property rights, including local land use regulation, look different when the end is a little more questionable. For example: evaluating rent control as policy versus rent control as politics; evaluating inclusionary zoning that increases the percentage of developed units that are affordable while decreasing the amount of development overall and worsening affordability for those at or above median incomes, etc.
The more the local government steps into regulating the market, the more imperative it is that the local government take the time to evaluate the policies. As a former local government employee and as someone who works as a consultant to local governments and government officials, I am skeptical that even the best local governments (and MoCo has had a pretty good one for a long time now) are capable of the thorough initial evaluation and iterative re-evaluation necessary to make sure that such complex policies are actually working to achieve their stated/desired ends.
Local economic regulation
Property rights, and local government actions that affect them, are not the beginning and the end of the issue when it comes to the blurring lines between public and private. In recent years, local governments have stepped in to regulate wages, hours, and working conditions, often simply to require that which organized labor was unsuccessful in achieving through collective bargaining.
And government actions sometimes seem to be on the spectrum between tilting at windmills on the one hand, and arbitrary and capricious on the other – for example, some of the land use decisions surrounding Amazon warehouses in progressive local jurisdictions seem to be making a statement about something, but what that something is and whether it amounts to a legitimate use of local government power is another question entirely. What is the point of preventing one company from building a warehouse simply as a protest of their hegemony? If a warehouse is appropriate then isn’t it just…you know…appropriate?
So, what is one to make of economic regulation that addresses economic inequality…but at the same time reduces the overall amount of economic activity? How capable do we really think local governments are of considering the implications of these actions – collecting and analyzing data, seeking expert input, weighing all of the subtle implications, developing the details of implementation, and periodically re-evaluating the policies objectively and without undue influence from the political constituencies that support and benefit from the policies?
Debates about property rights have been part of the discourse for centuries, but economic regulation is a much more recent phenomenon. Most would identify the early days of economic regulation as starting with the establishment of the Interstate Commerce Commission in the 1880s, the “alphabet soup” response to the Great Depression in the 1930s (including passage of the Fair Labor Standards Act in 1938) and continuing through the passage of the Administrative Procedures Act in the 1940s.
The second era of economic regulation arguably (or at least, that’s what I’m arguing!) began in the 1970s and continues to date. This period included not only the economic deregulation that occurred in the 1970s and 1980s, but also the era of “cost benefit analysis” and “impact statements”. I lump these two potentially separate eras together because of the propensity to calculate costs and benefits of continuing or increasing regulation. During this period the pendulum has swung from deregulation to more regulation and back to deregulation again, but the constant has been an assumption that a lot of policy analysis energy would help the federal government arrive at a reasonable balancing of public and private interests.
The ethos of this era was articulated by President Carter (“The Great Deregulator”); this quote from his Executive Order on improving government regulations succinctly states the policy:
Regulations shall be as simple and clear as possible. They shall achieve legislative goals effectively and efficiently. They shall not impose unnecessary burdens on the economy, on individuals, on public or private organizations, or on State and local governments. To achieve these objectives, regulations shall be developed through a process which ensures that: (a) the need for and purposes of the regulation are clearly established; (b) heads of agencies and policy officials exercise effective oversight; (c) opportunity exists for early participation and comment by other Federal agencies, State and local governments, businesses, organizations and individual members of the public; (d) meaningful alternatives are considered and analyzed before the regulation is issued; and (e) compliance costs, paperwork and other burdens on the public are minimized.
So, even the push to limit regulation advocated for spending an awful lot of (taxpayer funded) time and effort justifying the decisions, time and effort that is a lot harder to come by at the local level given the need to balance budgets while also providing critical services (like public safety and K-12 education) for which local governments are responsible.
And…here’s the rub…
That all sounds well and good, but is local government anywhere truly capable of complex local economic regulation? Does the absence of an effective local media mean that the need for and purposes of the regulation will never really be put under a microscope? What level of effective oversight can actually be expected from legislators and administrator/managers who are stretched thin and whose responsibilities extend to providing vital and basic services? How much actual public participation can, or should, anyone expect if no one is ever really made aware of what is under consideration? Should anyone expect other political institutions to provide meaningful input when they are all tied together by common interests (say, all led by members of the same political party, by people with aspirations to continue serving in elected or appointed positions)? How much actual consideration of alternatives can be expected in an environment in which the local government has taken on so many responsibilities? And to what degree is anyone aware of the cost, time, and paperwork associated with local regulatory compliance?
If the answers to enough of those questions is “probably not” or “not much,” then too much is being expected of local government. And when too much is expected of local government – often by the very people who serve in it – then one thing that happens is that the stuff local government has to do (because no one else will) aren’t done well. And this isn’t good for anyone – private sector economic activity suffers, and the general public isn’t generally any better off…
Thinking through this issue reminded me of a piece that my long-time friend and DC-area journalist Mike Schaffer once wrote about the overreach of urban Democratic Party politicians, in a wonderful think piece that is worth reading even if the context is very different today than when it was written in October of 2013.
Bad government, of course, had serious real-world implications: When agencies in charge of protecting vulnerable people don’t do their jobs, people die. But ineptitude at the local level also had a separate, corrosive political effect, one that damaged the left much more than the right. Politicians may love the great cliché of Fiorello LaGuardia’s—“There is no Democratic or Republican way of cleaning the streets”—but the reality is that there are distinctly ideological ways of reacting to uncleaned streets. People inclined to believe in basic government services may gnash their teeth and demand a new sanitation commissioner. People who aren’t so sure about the public sector, on the other hand, see it as a data point against the idea that any government can do anything, from running a health-insurance exchange to providing job-training.
To put it bluntly, the stakes are high. The nation is fraying at the seams, and as such it would be nice if we all felt a little more secure that our local governments were able to hold it together. And while I am old enough remember the breathless optimism of the past decade (as illustrated in books like this and this and this), what I see instead is an unhealthy balkanization of economic policies that could struggle to survive as anything more than simply a contemporary response to national political dysfunction.
Taking a step back, I am sympathetic to friends in elected office who are faced with the conundrum of how and whether to address the federal government’s shortcomings on issues like affordable housing production, income inequality and income support, and whether individuals have a right to housing. They may believe, and perhaps rightly so, that they have a moral obligation to step in; but do their individual moral obligations as elected officials add up to good local public policy? To borrow a phrase from the judicial branch, the jury is still out on that question.
The issue is not simply whether individual policy solutions are, in the abstract, appropriate for addressing a particular social ill (e.g., inequality, housing, human dignity). Part of the issue is simply whether they are good policies at the local level: non-local problems are best addressed by non-local solutions; the local government can’t change the rules of the national or global economy; local governments can’t deficit spend and therefore need to target policies that are going to generate a local return on investment; local governments face economic competition from other local jurisdictions; and local governments – even very professional and well-funded local governments – aren’t actually big enough or professional enough to take on issues of such complexity without stumbling in either the analysis or the implementation.
(Brief aside, there have even been changes in the “government as market participant” realm, as evidenced recently by a discussion at one of the Council’s committees in which the Housing Opportunities Commission’s Chief Real Estate Officer noted that HOC could soon be responsible for 20% of the housing production in MoCo).
We find ourselves far from home and wandering in the fields
Or so it probably feels to some, when they consider the roles that governments used to play in the economy. For Adam Smith, the role of the government was to provide infrastructure, provide for defense, and enforce civil laws. But over time, governments have taken on a much larger role, a fact that has undoubtedly placed some pressure on the ability of governments to deliver those services that were previously viewed as essential.
Similarly, local governments have taken on roles that were previously left to the federal government, with mixed results. Many are delivering important services that should be provided by some level of government, but the level of taxation that is required to support those services is choking the tax bases and contributing to some of the social and economic inequality (and housing affordability problems) that local governments are trying to address.
Taking MoCo and the DC region as an example, consider the following…
Income inequality, as measured by the ratio between the mean income of the top quintile and the mean income of the bottom quintile, has been higher in Montgomery County than elsewhere in the region. And despite the many policy interventions to address inequality, Montgomery County is becoming more unequal more quickly than nearby jurisdictions. But rather than consider whether some of the current redistributive policies either (a) aren’t working, or (b) are exacerbating the problem, the County just doubles-down over and over again.
Recent examples in MoCo
Some recent MoCo planning and policy developments are useful in illustrating the unsettled roles of the public and private sectors. I don’t provide these examples to critique them, simply to observe that they reflect a changing set of ideas within some part of the body politic and also within County institutions, about what roles the public and private should have in the economy. And this isn’t an exhaustive list, just a sample…
- A group of property owners agrees to tax themselves to improve and activate public spaces, but a battle over the representation that other stakeholder groups will have on the board ends up consuming a lot of political bandwidth at both the local and state level.
- The Planning Board recommends a plan for downtown Silver Spring that includes several interesting elements: a recommendation that a fund be created to, among other things, help tenants purchase property from property owners; recommendations to create multiple new taxes (including a tax on vacant commercial space) during times that are usually described as an “unprecedented” challenge for commercial property; a recommendation that private property owners donate vacant space for use as commercial/retail incubators, where government funded non-profits would help teach them how to succeed in retail.
- Meanwhile, from here it appears that relatively little energy has been spent by County Government thinking about how the public sector will help fill the 258,000 square feet of available space at the Discovery Building…without which downtown Silver Spring will continue to face both a shortage of day-time commerce and the kinds of public safety challenges that are inherent when there aren’t enough “eyes on the street.”
I’m not sure whether these examples are simply three unrelated data points, but they don’t need to be in a straight line to be relevant. All three reflect a somewhat unstable division between public and private roles, should cause us to question what owning property might mean in the future, highlight the number of economic policy issues/problems that local governments are willing to take on, pause to consider how much redistribution of wealth should really be a local government function, and underscore the uneven nature of the public willingness to step into the market when it comes to the residential and commercial real estate markets, or to provide ongoing operating support for small businesses rather than large ones.
At the beginning of the year, I highlighted some “scenarios” to consider when assessing future economic risk. I called one of them the “blurring lines separating public and private sectors” scenario, which I summarized as follows:
Have we given adequate thought to the changing nature of the relationship between the public and private sectors? Are we entering a world in which there is much more government control of the housing market, and if so, how will that affect the decisions of property owners and developers about how to develop? Are we entering a world in which there is much more government support for ongoing business operations, and if so, how long will that last? Will restaurant relief programs become the new norm? What about government financing to support private industry and incentives to affect private industry location, investment, and employment decisions? Does the pandemic and the accelerating inequality lead us to consider more government programs like basic income support and social safety net programs that are not tied to employment status?
I don’t think we’ll know the answers to those questions for some time yet, but I will make some brief observations and hazard a few guesses.
- Is the idea that “housing is a right” going to graduate from being a slogan to being a national bi-partisan discussion or constitutional battleground?
- Housing affordability is one of the most significant, urgent, and consequential issues facing local governments in U.S. metro markets. Addressing the issue with humility and sobriety will be challenging, given the urgency of the issue for so many households in need. However, care should be taken to address it as a policy issue – appreciating the pros and cons, and acknowledging that intrusions on private property rights and over-regulating the economy could backfire both in a micro and macro sense (micro as in creating housing market problems through the attempts to address affordability, and macro in the sense of making it more difficult to solve economic problems that can only be solved with willing private sector partners).
- Support for programs that buttress business operations seems to be higher than support for programs designed to incentivize investment or location decisions. This represents a big change from the longer history of economic development policy, which generally has skewed more to trying to facilitate capital investment. Operational support of businesses is really tricky – how entitled are individual citizens to receive government support to pursue (or continue to pursue) a business that the market may not support? How capable are governments or government-funded economic developers when it comes to determining which businesses can or should survive or fail? Is public support for retailers and restaurants based on their actual role in the economy, or is it based on some cultural notion of their sacredness? Why should anyone assume that local governments (or any government) is better able to pick winners and losers in the retail and restaurant space than they are in the office-inclined industries that create most of the value-add in our economy?
- Location incentives have always been tricky, and the current politics of inequality will make them even trickier in the years to come. The common ground, if any, may be found on issues like public participation in infrastructure financing. On the other hand, progressive metropolitan local governments may not be able to invest in public infrastructure that will spur development if they pursue all of the items in their social policy agendas.
Furthermore, if the center fails to hold and the Republic begins to function more as a set of separate geographically proximate economies, I wonder how all of this would play out. It seems to me that the most likely outcome would be that some (predominantly “blue” coastal states) would have a lot of capital to deploy but relatively few good local targets for investment…thereby leading to the exporting of capital, while others (predominantly “red” sun belt and flyover/rural states) will have economies capable of producing goods and services…but not enough capital to fund the efforts. In such a scenario, the result would be a broad decline of economic efficiency. Maybe the capital from the coasts will invest abroad, and the capital to finance Sun Belt economies will come from Russia?
That’s enough big thoughts for one day – I’ll be back soon with May’s Flotsam and Jetsam. Hang in there folks…