Mark Lutter makes the case for them.
What if…there exists a system of governance that could provide an alternative to the morass of public interest which stagnate change in cities today? What if these cities could not only provide local public goods, but also institutional change to jumpstart economic growth? I argue that private cities could do just that.
Pointer from Don Boudreaux.
I am puzzled as to why we have not seen more private cities emerge. You would think that large investors, developers, or venture capitalists would try them if there were a profit opportunity. Some possible answers:
1. Cities must emerge naturally. You really cannot start a good city from scratch.
2. It is too difficult to acquire the land to start a private city.
3. Existing governments will not allow private cities the freedom to operate.
High capital formation requirements and “annexation” risk?
We have Disney World, so in the case of a strong monetization opportunity it can be done.
College campuses?
One thing is you have to be able to protect your property. This implies policing and the state monopoly on enforcement comes into play. It is hard to protect something you can’t put a fence around. If you can’t protect it you have to police it. Then, if you can’t exclude, at least thus far, you have to tax it. Who is going to let you enforce taxes? For something that is nominally for-profit?
There needs to be coherent ways to approach services so they are actually accessible to local citizens without subsidies from government – either to provider or consumer. In other words, services need to be generated as new wealth product which is accessible to local citizens, instead of the redistribution for services which still plays out across the U.S. Services are a big part of any economy, and this is why it is still hard to envision independent (i.e. sustainable) economic formation.
I don’t think you can just acquire land and seek city charter. I checked in TN. To incorporate a city, the proposed city must have at least 1500 residents, be 3 miles from the nearest city and within the urban growth plan. Not to mention, approval from the county commission. The petition for citizens in the area to sign must lay out the services to be provided, full suite along with local funding and timeline. A property tax must be set up before the state-shared taxes (sales) will be provided.
That seems to mean that the incorporation can’t happen until you have a lot of individual land owners but also ones with the political pull to get the approvals. Then the services must be provided in reasonable time such as sewer, but some immediate like fire, police and water. But residents are unlikely to petition for incorporation until they are threatened with annexation to feed the local urban tax monster.
The local big city was on the move a few years ago to pick up some higher end subdivisions that have been developed near their borders. A movement arose to incorporate the unincorporated areas of the county. It died away when it was discovered the big city hadn’t extended sewer service into areas they annexed back in the 1970s and so were precluded from further annexation until they were fully servicing their current residents.
If a private city could arise, I would expect it might happen in the oil-shale areas with the industry bringing in lots of residents remote from the nearest town. But until threatened by the current cities, residents generally don’t think of incorporation.
Private cities = company towns
Exactly, you just need a timber concession or a mine…
Has any similar situation ever turned out well? NYC, Capetown, Jakarta all started as company towns, I can think of quite a few others. What I can’t think of is a company town whose residents didn’t quickly grow to hate the company.
I think that Kohler, Wisconsin, worked out well.
For the past 90 or so years, it’s been much more common for planned communities to be built by real estate developers than as “company towns” in the sense of Pullman, IL, or Gary, IN.
http://en.wikipedia.org/wiki/Planned_city#United_States
I think that this place is close to being a private city.
On that note, what about large mobile home parks? I once researched buying a mobile home park, and it’s a lot like running a small city: you have to do water, sewer, electricity, some sort of policing, community centers and parks, etc.
While not precisely private cities, I’d argue that master planned communities with strong HOA’s come close to fitting that label. A couple prominent examples that have never incorporated are The Woodlands, TX (with population of over 100k) and Sun City, AZ (with a population of over 35k).
Alternately, there are numerous examples of suburban master planned communities that have ended up as newly-incorporated cities, frequently with a major attraction being that these areas have municipal governments and school districts separate from those of nearby major cities. A good chunk of Orange County, CA, fits this model, and I’m sure that there are other examples.
An industrial suburb is another model that’s close to a “private city.” The two best examples of which I’m aware are the City of Industry and Vernon, both in the LA area, which I think have both been based on a desire for industrial areas to set their own municipal tax and zoning policies. The perennial corruption in Vernon shows the problematic aspect of the model, since it’s so small that it’s electorate basically isn’t independent of the municipal government.
Another example near Professor Kling’s neck of the woods is Columbia, MD, also about 100k, never incorporated. It consists of 10 villages. It has a private city tax like fee (CPRA) for all of Columbia in addition to the smaller HOA fees for the local neighborhoods.
Since it’s not incorporated, the city tax like fee is not deductible on federal taxes, which is one impediment for private cities.
I wonder if developers just find it easier to free-ride off existing public services. Why take on the added burden of providing trash pick up, security, and utility services to residents if you can outsource it to a third party? Especially if you plan to build units and sell them rather than rent.
That’s a fair point, and there would be a variety of issues to work through. Depending on the area, you might be relying on subpar county sheriff and fire services. Providing certain services or amenities – like private security or parks – on an ongoing basis could entail setting up a fairly strong HOA, and at a certain point perhaps incorporating as a municipality is an easier way to provide services. And, again depending on the state, incorporating as your own municipality can be the best way to head off annexation by a large nearby city
Crowding out?
http://en.wikipedia.org/wiki/Industry,_California
The principal factor that constrains “cities” from becoming and sustaining those forms of social organization which might be achieved by “Private Cities” (Free States) is found in the characteristics of the designated inhabitants.
This is the story of modern Brazil – walled and skyscrapered private cities with the rule of law, and vast hinterlands with increasingly little state power at all.
How’s it working out for them?
The scale could be one reason. It is difficult to raise public capital for extremely large ventures. The cost of a small city compares to that of a large company. And there are huge economies of scale that make it difficult to start small and grow. Think about the famous “double size, increase infrastructure cost by only 85%” rule for cities. So roughly every 16x size increase halves cost. You are trying to compete with established, funded incumbents who are easily 256x bigger than you and thus with 1/4 the infrastructure costs. And with high transaction costs for their customers to leave.
And that’s just looking at the business perspective, which is substantially less than the challenge of obtaining political autonomy.
Which is why the vast majority of successful new cities were sponsored by states, not only recently, but in the past. They have the budget, the skills (running cities is their business, after all), and the monopoly on political power.