Design of the invisible architecture of Garden Cities

Designing the invisible architecture for new Garden Cities

by Shann Turnbull

Design philosophy:

For facilitating self-financing, self-governing, sustainable & equitable prosperity

The invisible architecture refers to how the ownership and control rights to land, buildings, firms and money are designed.

The ability of updated Garden Cities to become self-financing can be accelerated by adopting more efficient and equitable ownership rules to minimize overpayments to investors and other owners. In addition, the ability of Garden Cities to become self-governing can be improved by introducing distributed control to minimize abuses of power that can undermine democracy. The new ownership and control architecture proposed follow the principles found in nature to create an ecological form of capitalism.

It would be counter productive to adopt a visible sustainable architecture for new Garden Cities if their ownership and control followed the existing inefficient and inequitable forms of capitalism. The current dominant arrangements for owning land, buildings, firms and money are inconsistent with the rationale of a market economy.  This assumes competition limits profits. All intellectual property has time limits and to create a level investment playing field time limits are required on all other types of private property.

There are three ways in which the “invisible hand” of Adam Smith becomes paralyzed in limiting overpayments to owners:

  1. Competition for urban land generates unearned “windfall profits”[1]. The needs of those who do not own land generate windfall profits for landowners. This concentrates income, wealth and political power in the few rather than the many[2];
  2. Owners of the means of production get overpaid through “surplus profits”[3] not identified by accountants and so not explained by economists[4]. Surplus profits arise beyond the time horizon investors require to recover the cost of their investment with a competitive return[5];
  3. Owners of money get overpaid from interest payments when neither the owner nor their money is making any contribution to adding value to society.

All three sources of overpayments can be reduced to increase economic efficiency and equity of a Garden City by adopting a form of property rights that follow the design principles foundin nature.  One principle is: “If you do not use it you loose it”- as occurs with human abilities. This principle naturally arises in squatter settlements. Adopting the principle requires replacing the dominant form of property rights that are static, exclusive and perpetual with an ecological form that is dynamic, inclusive and time limited.

An updated form of Garden City would not only introduce ecological property rights to land, buildings, firms and money but also the distributed form of control found in nature. For example the human brain has no Chief Executive Neuron. Instead we have networks of neurons with the network in charge changing with the context of the decisions that needs to be made. Ecological network governance would replace the dominant form of top down command and control hierarchies found in government departments, firms and even in non-profit organizations.

The application of ecological principles to the invisible architecture of a Garden City increases its economic, social and political viability. They provide a way to put into practice the credo of democratic capitalism articulated in Democratising the Wealth of Nations[6] (p. 2) to become:

  • From each according to her/his interests;
  • To each according to his/her contributions to production, consumption and/or usage,
  • Provided that the basic needs of all are fulfilled.

This credo supports a sustainable society that provides a universal citizens income to make provision to fulfill all basic needs. At the same time the need for policies of full employment are replaced with policies of fulfillment in employment and/or leisure. The credo also recognizes that production of prosperity is dependent upon the contribution that each person makes to production, consumption and/or usage. In particular, it is the usage of property and land sites that creates their value not the rights of ownership. Indeed it is the non-owners using and/or investing in other community sites that create value in land in a similar way consumers create value for production of goods and services.

The ability for the city to become self-financing is accelerated by the capture of windfall profits, surplus values and avoiding the export of economic value through interest payment to external parties. In a mature ecological Garden City these benefits should replace the need for residents to pay rates. Instead all residents would obtain dividends from their shared ownership of the city and its productive properties and enterprises. This is how a universal basic income could be funded without the need to increase government taxes, welfare or the size and cost of government. New Garden Cities would provide a way to privatize welfare payments. This outcome provides a basis for Garden Cities to be granted a special tax status.

Updating the Garden Cities concept can provide compelling political, economic and social benefits. This is because they can be used to reduce the three major ways capitalism generates in-equality, exploitation and alienation. All three problems can be reduced by:

  1. Mutualising the ownership of land (but not its improvements) so as to allow all windfall gains in land value created by investment by others in services, facilities and amenities to be shared by all resident citizens;
  2. Introducing “endowment firms”[7] to distribute overpayments of investors to community stakeholders and welfare recipients;
  3. Introducing a local negative interest rate currency to avoid money owners accelerating wealth inequality by earning interest when neither the owners nor their money is making a contribution to increasing community prosperity. This ecological type of money avoids draining economic value out of a community in form of interest payments to alien parties to degrade foreign exchange balances.

The reduction of inequality, exploitation and alienation in the ways outlined above provide a basis for new Garden City to obtain a political mandate from their citizens while still attracting investors and commercial interests. The mandate would allow citizens ofany existing urban precinct of appropriate size to hold an election to redevelop itself into a new Garden City.

Urban redevelopment in this way could be facilitated with enabling legislation. The enabling legislation would allow citizens to petition their local government authority to hold a referendum for adopting ecological property rights to all land and buildings in the proposed Garden City precinct. This would establish a Cooperative Land Bank (CLB) to allow the redevelopment to become self-financing on a collective basis.

Built into a CLB is the “use it or loose it” principle to property rights. This means tenants over time automatically become co-owners of dwelling they rent from investors or any other owner. In this way contribution of users in creating use of value in property is recognized to reduce inequality.

It was to reduce inequality in owning money that Gesell[8] created money with a usage fee. The paper notes required a stamp to be affixed to the back of the note at a specified time per week or month. For this reason is was described as “Stamp Scrip”[9]. It was privately introduced widely in Europe and the US during the Great Depression.

Updating the Garden City concept creates a way of introducing ecological capitalism[10] to mitigate the three ways the dominant form of capitalism identified above creates inefficiency and inequality. This becomes possible because like the first Garden City at Letchworth and with Community Land Trusts (CLTs) the ownership of land is separated from the ownership of improvements on the site. However, unlike Letchworth and CLTs the land would be owned by a cooperative entity in which only residents could obtain voting and negotiable property rights. This is a key difference between CLTs and CLBs.

However, the crucial difference between CLTs and CLBs is that the size and number of CLTs is limited by their need to obtain a gift or grant of land. CLBs have no such restriction. They require significant size to include all the amenities in a settlement to make urban living attractive. It is by capturing all the development values in a community that allows CLBs to become self-financing. Self-financing has been the dominant way human settlements have be created over history. CLBs are not limited by money. They should be large enough to establish their own currency as practiced throughout the history of money[11].

As indicated above all existing human settlements could be converted to a CLB. No change in law is required. Citizens could hold a plebiscite to change the nature of their existing property rights. There exists various ways local, regional and national governments could introduce tax and other incentives to adopt ecological forms of ownership and control.

It is worth considering why a super majority of citizens would vote to adopt ecological property rights even without incentives. The answer is because a super majority of citizens would become better off. This is because CLBs provide each homeowner two title deeds in exchange of one title deed for each dwelling. The CLB would issue one “strata[12]” title deed for a ground level house or a high-rise apartment and a second title deed for the site area it occupied. The site title deed would be shares in the CLB issued say on the basis of one share per square meter of site occupied. As residential sites in a community are typically less than 20% of the total precinct area, each share would obtain an asset backing for an area at least five times greater! So any funds advanced on the security of original single title deed to buy a home would obtain significant additional security. Liquidity for lenders would also be increased by the site value being redeemable with the CLB.

Ownership of all dwellings in a CLB would be freely negotiable with buyers acquiring the strata title from the vendor and the shares from the CLB. The CLB redeems shares from the vendor to capture back a share in any windfall gains in site values.

A super majority of votes to form a CLB could be expected in most precincts because only resident citizens would obtain a vote whether or not they were homeowners or tenants. In this way politicians at local, regional or national level would not make the decision to establish Locally-led Garden Cities as is currently being promoted by the UK government[13].

Letchworth provides evidence on the ability of new settlements to become self-financing. The potential for existing urban precincts to self-finance their improvement or redevelopment is provided by the affect on land values created by extending the Jubilee underground train line. The uplift in land value was over four times the cost of the improvements[14]. Another example is the town of Freiburg in Germany where development increased land value by a factor of five[15].

The widespread adoption of the invisible architecture of Garden Cities would provides the basis for introducing a bottom up tax system as existed in medieval times. CLBs would become the bottom level of an upward cascade system of taxation for higher levels of government.

Table, Global Governance and Political Economy                          

Level

Principle Roles(a)

Other roles(a)

Source of funding(b)

Family

Personal and social development

Community and cultural development

Work and/or dividends, rents, profits etc.

Enterprises

Wealth generation

Fulfilling work

Self-financing

Neighbourhoods

Social & cultural support

Substitution of paid services

Non-profit & voluntary contributions

Land banks (CLBs)

Income distribution between entities

Health, education, welfare, & other infrastructure services

Enterprise rents & gains from site trades

Cities

Provide infrastructure

Balance income between CLBs

Taxes from CLBs

Bio-regions

Federating economic & political systems

Co-ordinating infrastructure services

Green taxes from degrading enterprises

Regional bio-spheres

Federating bio-regions

Co-ordinating economic structures in regional bio-spheres

Green taxes from bio-regions

Global

Governance of global commons

Co-ordinating political structures in regional bio-spheres

Green taxes from regional bio-spheres

(a)Roles allocated on the basis that no level of government should carry out any function, which is better undertaken at a lower level as per the ‘Principle of Subsidiary Function’.[16]

(b)Sources of funding based on the medieval cascade system of taxation where each level of government taxes the next lower level, which it represents. No taxes on individuals or the profits of enterprises. Redistribution of income is achieved through the private sector from the democratic distribution of income producing assets and cross-subsidisation through land bank rentals, property trades and provision of welfare services.


[1] Morehouse, W. ed. 1997, Building Sustainable Communities: Tools and Concepts for Self-Reliant Economic Change, Second Revised Edition, A TOES Book, Bootstrap Press, New York, Chapter 18, ‘The Lexicon of Social Capitalism’, p.145.

[2] An egregious example is described by Riley, D. 2001, Taken for a Ride, Centre for Land Policy Studies: London. Taxpayers spent £3.5bn to extend the Jubilee underground train line to create windfall profits of £13.5bn for landowners. The improved amenity allowed the relatively few landlords to increase the rents for the many. When foreigners own urban land it drains out value from local communities and exacerbates foreign exchange balances with “an unlimited, unknown and uncontrollable foreign liability.” Quoting: Penrose, E.T. 1956, ‘Foreign Investment and the Growth of the Firm’ Economic Journal 66: 220-235.

[3] Op. cit. n. 1, at p. 144.

[4] For example: Piketty, T., 2014, Capital in the 21st Century, Translated by Arthur Goldhammer, Belknap Press.

[5] Turnbull, S. 2006, ‘Grounding economics in commercial reality: A cash-flow paradigm’, in Kreisler, P., Johnson, M. and Lodewijks, J. (Eds.), Essays in Heterodox Economics: Proceedings, refereed papers, Fifth conference of Heterodox Economics, University of New South Wales, Australia, pp. 438-61,http://ssrn.com/abstract=946033.

[6] Turnbull, S. 1975, Democratising the Wealth of Nations, Company Directors Association of Australian, Sydney, http://ssrn.com/abstract=1146062

[7] Also referred to as Ownership Transfer Corporations (OTCs) in other writings by Shann Turnbull such asDemocratising the Wealth of Nations published in 1975 (posted at: http://ssrn.com/abstract=1146062) and  ‘A proposal for self-governing corporations’, in Philip Blond (ed.), The Virtue of Enterprise: Responsible Business for a New Economy, 52-54, January, 2014, ResPublica: London, posted at:http://www.respublica.org.uk/documents/jae_The%20Virtue%20of%20Enterprise.pdf.

[8] Gesell, S. 1916, The Natural Economic Order, translated by Philip Pye, 2002: available athttp://www.appropriate-economics.org/ebooks/neo/neo2.htm.

[9] Fisher, I. 1933, Stamp Scrip, Adelphi & Company, New York, http://userpage.fu-berlin.de/~roehrigw/fisher/.

[10] Turnbull, S. 2013, ‘Achieving environmental sustainable prosperity’, in Karagiannis Nikolaos & John Marangos, (eds.), Toward a Good Society in the Twenty-first Century: Principles and Policies, Part II Sustainability, Ecology, and Good Society, Chapter 4, pp. 75–103, New York, NY: Palgrave Macmillan,http://www.palgrave.com/products/title.aspx?pid=629772 with working paper for chapter at:http://ssrn.com/abstract=1769349.

[11] Jacobs, J. 1985, Cities and the Wealth of Nations: Principles of Economic Life, Vintage Books, Toronto.

[12] Strata titles are a widely used form of home or office ownership in Australia accepted by all lenders. Unlike a CLB there is no separate title for the common areas like passageways, stairs, lifts, and common facilities.

[13] Refer to Press Release and Prospectus issued by the Deputy Prime Minister, The Rt Hon Nick Clegg MP and The  Rt Hon Eric Pickles, Minister for Housing, The Hon, Eric Pickles MP of February 2014 posted at:https://www.gov.uk/government/news/government-offers-support-for-locally-led-garden-cities

[14] The uplift in land values within 1000 yards of each of the eleven new London Jubilee underground stations was £13.5bn as reported by Don Riley in Taken for a Ride (Centre for Land Policy Studies, 2001). This value was more than four times the £3.5bn cost to extend the line.

[15] Nick Falk and Peter Hall (2014), Good Cities, Better Lives, Chapter 11, Routledge, September 2013.

[16] Schumacher, E. F. (1975), Small Is Beautiful: A Study of Economics If People Mattered, p. 203, London: Abacus

                                

                        

                

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