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Wall Street Journal Market Watch


Cities Can Be Saved--If Politicians Move Out

June 06, 2014

By Diana Furchtgott-Roth

A joint conference between the U.S.-based Manhattan Institute, where I am a senior fellow, and Policy Exchange, one of Britain's most innovative think tanks, is exploring solutions to common problems in cities in the U.K. and America.

Set in Ironmongers Hall, in London's East End, researchers are exploring similar questions facing the two countries and, indeed, the entire industrialized world. Half of the world's population lives in cities. How can they be reformed to provide jobs and housing in a low-crime environment for growing numbers of people?

Real estate. Housing is particularly difficult in the U.K., with lengthy planning permission required for new construction. New homes must have bathrooms on the first floor and be wide enough to be handicapped-accessible. This raises the cost and reduces the density of new housing developments. The historic Georgian and Edwardian houses that line London's parks would not be legally constructed today, according to Nicholas Boys Smith of Create Streets.

Welfare. Take welfare, for instance. American Enterprise Institute scholar Robert Doar, formerly welfare commissioner in New York City under Mayor Bloomberg, gave a strong message about personal responsibility. As commissioner, he instituted a program where people had to work in order to receive welfare.

Even though jobs often paid little, he increased the return for low-wage work through housing assistance, food assistance and the earned income-tax credit. Republicans were uncomfortable with this because handouts increased. But most people wanted to help people who worked. A first job led to others.

In New York City, everyone was focused on job creation and job production. Every year New York has had more tourists. Why does tourism help those with low incomes? Additional tourists create more jobs for entry-level workers. A job with economic supports attached to it is a good job.

Labor-force participation by never-married mothers rose, and welfare payments declined. In 1994, New York City had 1.1 million people on welfare, and by 2013, this number had declined to 347,000.

The U.K. is also trying to reduce the amount spent on welfare. Families are being limited to $42,000 a year. James Bartholomew, a fellow at London's Institute of Economic Affairs and author of “The Welfare State We're In,” had a number of suggestions for further reforming British welfare. Benefit levels should not be synchronized around the region, because the costs of living vary in different geographic areas. People in lower-cost Glasgow are less likely to work if they get the benefit levels aimed at higher-cost London.

Plus, large amounts of social housing — housing offered free of charge, or highly subsidized, to the unemployed — have created an unemployment trap. People can lose their houses if they get a job in the real economy. So they do not report their paid work, and the black market grows.

Subsidized housing should be moved to the suburbs rather than the prime areas of the inner cities, Bartholomew suggested. There should be a planning revolution so that people can profit from redeveloping housing, with the goal of bringing down the cost of housing in relation to incomes.

Trains. Amtrak runs deficits, but trains do not play the central role in transportation that they do in the U.K. One lesson from the U.K.: America does not need more trains.

People in London assure me that no further development in cities is possible without trains. If new areas are opened for residential development, this has to be accompanied by an extension of the subway system, at vast cost. The British government is even considering putting disused Victorian railway lines back into service.

Just one problem: The rail services already run substantial deficits. A report issued last year by the U.K.'s Office of Rail Regulation forecast that rail's debt would climb from $33 billion in 2013 to $84 billion by 2020. Politicians like trains, but no one wants to pay the cost of travelling by rail.

Kevin Craven, chief executive of Balfour Beatty Services, discussed ways of doing more with roads, such as traffic monitoring and management, smart parking, apps, congestion pricing, Twitter and smart motorway technology. He said high-speed rail is not the only answer. It is practically impossible to move people by rail without vast deficits that will only increase in the future.

But the British are talking about building even more trains. A new high-speed rail project will connect the northern cities of Leeds, Manchester and Birmingham with London at a cost of $72 billion. Proponents of the new line say London is the only city in the U.K. that is producing jobs, so residents of northern cities have to be given the opportunity to commute to London.

Energy. Rather than spending $72 billion on a north-south commuter line, it seems more sensible to develop economic opportunities in these cities. One candidate is energy, which can lead to energy-intensive manufacturing. In the United States, the oil and gas industry is the big driver of GDP growth, responsible for 11 million jobs.

The British Geological Society estimates that areas in the north of England, stretching from Lancashire to Yorkshire and down to Lincolnshire, could hold at least 1,300 trillion cubic feet of gas. Developing these resources could result in an economic boom.

According to Keele University Professor Peter Styles , 10% of this natural gas could supply the U.K. for 25 years.

In America, companies can extract energy because people own the mineral rights below their land and can sell exploration rights to their property. If there is energy to be found, it can be extracted.

In contrast, Brits do not own what is under their land. It is owned by the Crown, i.e. Queen Elizabeth. So there is no incentive for any kind of development or exploration, even though the region is in dire economic straits.

One trend runs through the conference. Solutions to urban problems are not complex, but the political will to implement them is lacking. It is far easier to throw money at a problem to satisfy political coalitions than to make the tough choices that will get cities out of a rut.

Where is Margaret Thatcher when we need her?

Original Source:



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