The Incentive Problem: Why Planners Always Get It Wrong

Government planning fails because planners face the wrong incentives. Instead of being rewarded for doing good things for their communities, they are rewarded mainly for pleasing other planners. This incestuous system is a recipe for failure.

In a previous post, I listed seven reasons why government planning — that is, long-range, comprehensive planning that often regulates other people’s property — cannot work. I’ve discussed four reasons in detail, and now it is time to address reason number 5: the Incentive Problem.

Private developers face a clear incentive: Build something that people want enough to pay more than your costs of construction, or go broke. Developments sometimes do go broke, but the community of developers is keenly aware of what other developers are doing and they rapidly learn from one another’s experiences. Even though developers often borrow money to finance their ventures, their ability to borrow depends on their success, so they have an incentive to build what people want.

Government planners do not have a similar imperative. If they decide to build a billion-dollar rail line or to use tax-increment financing to subsidize a New Urban development, they are playing with other people’s money. That means they have very little incentive to insure that this money is well spent.

The first thing planners do is move the goal posts. “We’re the government,” I’ve heard many of them say. “We don’t have to make a profit.” Or, “no transit system in the world makes a profit, so the fact that our proposal would lose a billion dollars is irrelevant.” (By the way, there are many urban transit systems in the world that make a profit.)

So if profit is not the criteria for success, what is? A rail advocate once told me that he considered a rail line to be a success if just one person could use it to get to work faster than before it was built — no matter what the cost to everyone else. While this seems absurd, read any big-city newspaper story about the local light rail. Rarely do they interview any of the thousands of people stuck in traffic for whom light rail is no solution at all. Instead, they find one or two lucky people on board the trains who think the system is wonderful and who are totally oblivious to the huge subsidies required to move them at an average speed of 20 to 22 miles per hour. Light Rail Now calls the Hiawatha light rail a “success story” even though it totally bollixed up traffic on the parallel Hiawatha Avenue.

What about urban renewal: how do we judge whether it is a success? Originally designed to treat “blighted neighborhoods” (and called by some “negro removal” because it displaced a million poor people, most of them black), urban renewal is now used to impose high-density, mixed-use New Urban developments on unsuspecting neighborhoods. Are these developments successful?

Supposedly, New Urbanism is better because people will drive less. But cities that have used public funds to subsidize such developments rarely do any follow-up studies to see if people actually do drive less. John Charles, of Portland’s Cascade Policy Institute, describes one New Urban development near a light-rail station that was 41-percent subsidized by taxpayers. Yet neither the city nor the transit agency found out whether people living in the development drive less or use the light rail more.

Yet, he says, the city considers the development to be a success. When he asked for the definition of “success,” he was told, “When the construction was completed, the project became a success.”

Here is one of Portland’s mixed-use developments: three stories of apartments on top of a bottom floor of retail. The light-rail station is right behind the photographer (who happens to be John Charles).

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Looks great — until you want to go shopping, when here is what you find:

The development provided very little parking for shoppers, and there simply aren’t enough residents to sustain any retailers. John Charles says that a beauty shop and coffee shop have tried to locate there, but have had little success.

But that doesn’t stop planners in Portland or elsewhere from planning more mixed-use developments with limited amounts of parking. Despite plenty of evidence to the contrary in Portland, planners firmly believe that, for transit-oriented developments to succeed, they must limit parking.

How long does it take for planners to learn from their mistakes? In 1959, Kalamazoo closed its main street to automobiles in an attempt to make its downtown competitive with shopping malls. Over the next two decades, more than 200 other cities closed streets to automobiles. In almost every case, the closure proved disastrous for retailers, and the streets were soon lined with boarded up shop fronts. Of the handful that could be considered a success, such as Pearl Street in Boulder, nearly all were in university or resort towns. Closing streets to autos did not turn drivers into pedestrians, it merely attracted people who were already pedestrians and forced businesses to move elsewhere if the community did not already have enough pedestrians.

Despite this long record of failure, Buffalo closed ten blocks of its main street to autos in 1984 — predictably leading to a huge increase in vacancies and a decline in property values. Yet Buffalo and other cities that suffered such failures took decades to re-open their streets to autos. Today, fewer than 15 percent of the pedestrian malls that cities created in the late twentieth century still exist, and probably half of those will be re-opened to autos soon.

Why did it take so long for planners to learn this mistake? Why do many planners still believe that they can revive retail districts by limiting auto access and parking? The clear answer is that they don’t have to pay the costs for their mistakes.

Instead, planners are judged mainly by their peers. Every year, the American Planning Association and its state chapters give out hundreds of awards to the latest urban plans. These awards are usually given out before the success or failure of those plans can be measured, and often before they are even implemented. So the awards are based more on the intentions of the planners than on the results.

When their plans inevitably fail, planners blame someone else. Those boarded up windows are the fault of a downturn in the economy. Traffic congestion is the fault of too many people driving single-occupancy vehicles. People getting killed by light-rail trains are the fault of the pedestrians or auto drivers who were too stupid to stay out of the way of heavy, lumbering trains that can’t swerve or brake.

This means that, when planners seek promotion, they point to the awards from their peers, not the urban blight, unaffordable housing, traffic snarl ups, or fatalities that resulted from their plans. In a just world, the people who spent $700 million on the Hiawatha light rail or hundreds of millions subsidizing Portland’s transit-oriented developments would be broke or working the most menial jobs requiring no responsibility. Instead, they are considered highly successful government entrepreneurs.

In comments on previous posts, Dan has claimed that planners today use adaptive management to make sure their plans succeed. While this is a nice concept, I have reviewed literally hundreds of plans and have not found a single example of adaptive management being built into a plan, much less one that has been successfully implemented. The writers of the urban plans I read are far more interested in imposing their ideas on the cities they serve than in adapting their plans to the cities’ real needs. They can get away with this because they have no incentive to write adaptive plans, and I can’t think of any way to design a government planning process that would provide such an incentive.