Alex Tabarrok on Private Cities

Episode Summary

Executive Summary: Russ Roberts and Alex Tabarrok explore Gurgaon as a case study in private-city development: rapid growth driven by private entrepreneurship where government has failed, but with major gaps in sewage, power, roads, and planning. They compare it with other models like Jamshedpur, Disney World, Houston, and Detroit, arguing that private governance can outperform public systems when it internalizes externalities, though transaction costs and scale remain major limits.

Main Topics: Gurgaon as a private city experiment (Priority: 5/5): Gurgaon transformed from wasteland into a major urban and IT center with little effective public governance, relying heavily on private developers to supply infrastructure and services within their parcels. Limits of private provision and transaction costs (Priority: 5/5): Tabarrok expected Coasean bargaining to create larger-scale infrastructure, but found transaction costs too high for private developers to coordinate sewage, electricity, and roads across parcels. Public failure vs. private imperfection (Priority: 4/5): Roberts repeatedly stresses that Gurgaon’s flaws should be compared not with idealized public provision but with the poor performance of public systems elsewhere in India, highlighting the nirvana fallacy. Private schools and education markets in India (Priority: 3/5): The discussion connects Gurgaon to India’s broader private-school revolution, where poor families often choose private schools because public schools perform badly. Models for successful private cities (Priority: 5/5): Jamshedpur, Disney World, Reston, and some HOA-based communities are presented as examples of larger-scale or more durable private governance that internalizes externalities better than fragmented development. Urbanization, China, and future city-building (Priority: 4/5): The speakers discuss rapid urbanization in India, China’s top-down ghost-city strategy, and the need for new cities in developing countries, suggesting private development may be part of the solution. Implications for declining American cities (Priority: 4/5): The conversation ends with a discussion of Detroit and U.S. cities, emphasizing that helping people may matter more than rescuing cities themselves, and that mobility and private enclaves are important adaptation mechanisms.

Key Arguments: Gurgaon’s growth shows that private entrepreneurship can build a major city even when government provision is weak or dysfunctional. The city’s biggest failures—sewage disposal, unreliable electricity, poor roads, weak public transit—stem from fragmentation and the inability of private developers to coordinate at city scale. Tabarrok expected Coasean bargaining to solve coordination problems, but transaction costs prevented developers from pooling infrastructure across parcels. Roberts argues that Gurgaon must be judged relative to the rest of India, where public infrastructure is often also poor; this avoids the nirvana fallacy. Private schools in India demonstrate that private provision can serve even poor households when public services fail. Larger, single-owner or club-like governance structures can internalize externalities better than fragmented ownership, as seen in Jamshedpur, Disney World, and HOAs. For poor urban residents, housing and land-access barriers remain high because corruption, bureaucracy, and fixed development costs favor higher-end projects. China’s ghost cities show the risks of top-down city planning, but rapid urbanization still suggests a need for new city-building approaches. In existing U.S. cities, easier permitting, less zoning, and more private governance could improve affordability and livability. Policy should focus on helping people move to better places rather than trying to preserve every declining city. Data Points: Gurgaon population growth: nearly 2 million - The city grew from effectively nothing in 1991 to almost 2 million people by 2015. Starting point: 1991 - Tabarrok describes Gurgaon as essentially wasteland as recently as 1991. India urban growth (2015-2030): over a quarter of a billion people - Projected increase in India’s urban population over the next 15 years. Global urban population growth: quadrupled from 1950 to 2000 - Roberts and Tabarrok discuss worldwide urbanization trends. Global urban population growth forecast: double again by 2050 - Continued urbanization is expected globally. Blackout scale in India: about a quarter of a billion people - Tabarrok references a massive Indian blackout affecting hundreds of millions. Blackout duration: several weeks - The blackout is described as lasting for weeks. Private education share in India: 50%, 60%, or 70% in some districts - Tabarrok cites the scale of private-school enrollment in India. Private fire department: India's only private fire department - Gurgaon’s private infrastructure includes specialized fire protection. Private metro line length: 13 kilometers - A privately built metro system in Gurgaon serves industrial parks. Homeowners association residents in the U.S.: 60 to 70 million - Roberts notes the scale of HOA-based private governance in America. HOA finances: billions to hundreds of billions of dollars - Fees collected by HOAs are described as very large in aggregate. Jamshedpur wastewater treatment: 100% of wastewater treated - Presented as a successful private/company-town model in India. Chinese growth rate: 10% a year - Used to explain how quickly China’s economy can double. China doubling time at 10% growth: 7 years - Tabarrok notes that 10% growth doubles the economy in about seven years.

Pivotal Quotes: "It has grown almost entirely in the absence of government." — Alex Tabarrok: Describing Gurgaon’s development and its reliance on private sector provision. "I think the key point which you made about Walt Disney World, which is absolutely critical, is that they assembled a parcel of land which was large enough to internalize these externalities." — Alex Tabarrok: Explaining why larger private land assemblies may work better than fragmented development. "My response would be that he did see the Coase theorem in action. We just have a different way of describing the Coase theorem." — Russ Roberts: Postscript clarification about Coase, transaction costs, and how to interpret the Gurgaon example.

Implications: Private governance can build functioning urban systems, but only when scale and coordination problems are solved. For future cities, the challenge is creating larger, integrated private or quasi-private institutions without reproducing corruption or fragmentation.