The Urban Renewal Fallacy; J.C. Sparks

THE URBAN RENEWAL FALLACY tv Jo~n c. Spart6 ~ WHEN A WOMAN picks up her shopping bag and heads for her favorite shopping area, she sets into motion an integral part of a very technical economic machine, the free market place. For the next hour or two she will make numerous economic decisions. She will select the stores in which she will shop; she will select the prod ucts she will buy; she will show preference for one brand over another. It is quite possible that an item she seeks will not be quite to her satisfaction, and she will not buy. One can speculate as to the many factors that in fluence her decisions. If she has no car, she will probably pick stores accessible by public transportation. Ease of access, walking distance, public transportation, and auto mobile traffic routes are important factors to any shop per. Other considerations include comparative prices, her budget, attractiveness of the store and products, the quality of service, friendliness of clerks, and a host of other points, some of which may be more aptly classi fied as whims. Nevertheless, each selection she makes, to buy· or not to buy, is an economic decision affecting Mr. Sparks is a businessman serving as President of the Canton, Ohio, Chamber of Commerce when this article was written.

43 44 JOHN C. SPARKS manufacturers, distributors, retailers, advertisers, real tors-the list of businesses is almost endless. Persons, who are free to do so, daily make innumer able separate decisions involving exchanges of wealth. These exchanges we describe as the operation of the free market place. Their effect on the progress of mankind is tremendous. Selectivity has revealed a preference for the electric vacuum sweeper to the old hand-push carpet sweeper; selectivity has outmoded the buggy whip; it has relegated the candle to a decoration rather than its former use as a chief method of lighting. Selectivity re sults in a continuing upward pressure toward improved values of quality and service, unless artificially prevented or restricted by force of government. As consumers, we benefit from the results of selectivity; it's fun to buy an automatic washer rather than the old washboard and tub. It's a pleasure to stop at a con venient and luxurious roadside motel after a hot day of driving rather than battle downtown traffic trying to find a hotel. Through such selectivity, those who pro vide the more desirable products and services are re warded. But the manufacturers of the carpet sweepers, buggy whips, candles, washboards, and the owners of downtown hotels may not fully share the delight of the consumers because their own businesses may fail or be adversely affected by these changes.

The product or service popular twenty years ago may no longer be in demand today. All kinds of property face the hazard of changed values in the eyes of the buy ing public. Investors frequently spread their investments THE URBAN RENEWAL FALLACY 45 to hedge against those which may decline in value. An owner of a new home in an expanding suburb may well wonder about the value of his investment thirty years later. Owners of commercial real estate are constantly seeking information to enable them to make decisions consistent with the movement of real estate values up and down. A modern commercial building located stra tegicall y will norm all y command a higher rental than an older building in a less strategic location, although an ultramodern building located poorly may command less rent than an older building with a good location. Con siderations are many in the market place and-if not in fluenced by governmental intervention-will very ac curately reflect the sum total of the economic decisions of everyone.

How to Retard Progress Unfortunately for mankind, however, intervention by government is brought into play all too frequently. The results range from the humorous to the tragic, from the awkward to the grotesque-and in every instance prog ress is pushed backward. Since every interventionist ac tion is based upon enforcement of the unnatural, it is not surprising that the consequences are undesirable. For example, governmental price support of a farm product, intended to prevent the price from falling when the supply is abundant, will bring about a greater sup ply than ever before-just the opposite of the intent. On the other hand, a ceiling price intended to enable more 46 JOHN C. SPARKS people to buy a certain product at a lower price, will drive that product out of production-and fewer rather than more will have the opportunity to buy it. Skilled tradesmen, encountering stiffened competition, will fre quently use government to license (and restrict) entry of newcomers into their field. But if wages rise in that field, consumers and other less restricted enterprisers often find a way to eliminate or by-pass the licensed trade-and the licensed and "protected" tradesmen are threatened by obsolescence, rather than achieving greater security. Every interventionist or socialistic law works that way: rent control, price and wage controls, subsi dies to farmers or industries-name it, and analyze it, and find the same bizarre and unpleasant results.

The Urban Renewal Progra1n A new kind of socialistic innovation has come into being within recent years called "urban renewal," which is now threatening to lull local governments and civic minded citizens into embracing economic fallacy and corruption rather than standing for natural economic laws and moral principles. The federal laws on urban renewal enable a city gov ernment to seize private homes and private business properties for the purpose of fulfilling the public good as determined by the political planners. Urban renewal is not necessarily slum clearance although parts of the planning program may include removal of some "blighted" residential areas. Urban renewal is the reTHE URBAN R~NEWAL FALLACY 47 design of a whole section of a city by its planners (aided with ideas and finances from Washington), incl uding removal of buildings not in harmony with the master plan. Following the acceptance of the plan by the local and federal politicians, private property is acquired through the use of eminent domain, and either rebuilt or torn down. The condition of the property does not determine whether or not it can be razed. Perfectly good buildings in compliance with sanitation and safety requirements may be condemned and removed if the property does not fit into the scheme of the planners.

After the land is cleared, it is sold to private investors who agree to use it according to the specifications of the master plan. 1 The federal government picks up from two-thirds to three-fourths of the difference in the cost of buying the properties and the ultimate receipts from the sale of the land. This expense, borne partially by the local community (25 per cent to 33113 per cent) and the balance by the federal government, represents the bulk of the extremely wasteful cost of the federal Urban Renewal Program. Selectivity Denied This program should be rejected by every high-prin cipled citizen of each city of our country on the basis that it is morally wrong. Unfortunately, the temptation to avail oneself of the funds of others, behind the mask 1 A Supreme Court decision of November 1954 declared constitu tional the procedure of government condemning private property for other than pUblic use.

48 JOHN C. SPARKS of legal respectability, has been too strong for many communities to resist. Thus, the urban-renewal federal grant scheme is growing rapidly in popularity. Like other federal grants-in-aid schemes, it undermines self reliance, it corrupts normally-sound individualistic cham pions of freedom, it encourages financial bankruptcy, it opens local communities to federal control, and it ac complishes all of these undesirable results through bribery of the local citizen with his own money. The federal urban renewal device has the further claim to infamy in that its supporters ignore completely the nat ural law of economics-the selectivity of the market place! Each person selects certain things in preference to other things-including where to live, where to work, where to attend church, ,,,,here to send children to school, and where to shop. At one time most families chose to live in the city. Undoubtedly, they were influenced by the lack of adequate private transportation and time required to travel to the city fronl the neighboring coun tryside or village. However, recent population figures reveal what we all have observed to be true; the city dwellers have been rapidly emigrating to the suburbs and countryside. More people now prefer to live out side the city-more open space, improved automobiles, whatever the reasons-and they individually have made the choice to do so. This is a choice having many eco nomic effects on many segments of the lives and busi nesses of those left behind in the down town section of the city.

THE URBAN RENEWAL FALLACY The Downtown Mercbant's Challenge 49 Downtown retail stores find they are no longer se lected as "the places" to shop by as many people as be fore, and it's not too difficult to understand why this change in preference has occurred. Attractive modern shopping centers in the outlying areas of the city are more easily accessible to the suburbanite. Many are beau tifully designed and landscaped. Promotions by shop ping center merchants often cause shopping to take on a gala festive air. Parking is plentiful) and, most impor tantly, provided and paid for by the private owners of these centers. Primarily due to location, these private enterprising merchants are more attractive to the con sumer than their downtown counterparts. As almost every successful private businessman can attest, success in business comes from efficiently providing a product or service and making it available where it attracts a sufficient number of customers to bring about a profit.

The successful retailer must cause customers to select his place of business. If his location renders his store second choice or worse in the customer's evaluation, when he was once first, then he must recognize that economic se lection has caused him to lose his "front-running" posi tion just as surely as buggies, high button shoes, wash boards, and candles also have lost position. This does not mean that the downtown merchant must surrender without a struggle; he may adjust, as did those producers of years ago who intelligently changed their manufacturing equipment from high50 JOHN C. SPARKS button shoes to the new styles in demand by the "fickle" public. In recent years, not all cotton textile manufac turers stood by and cried while producers of synthetic fibers made huge inroads on their sales volumes. Those who intelligently met the challenge of the ever-changing market place developed new cotton-fiber treatments to compete in the wash-and-wear merchandise field.

"The market makes people rich or poor, determines who shall run the big plants and who shall scrub the floors, fixes how many people shall work in the copper mines and how many in the symphony orchestras. None of these decisions is made once and for all; they are revocable every day. The selective process never stops. It goes on adjusting the social apparatus of production to the changes in demand and supply. It reviews again and again its previous decisions and forces everybody to submit to a new examination of his case. There is no security and no such thing as a right to preserve any position acquired in the past."2 Consumers are coldl y logical in their selection of where to shop to fit their convenience and wants, and the entrepreneur who sees the opportunity and fills the demand wins the day. But no business "victory" is for ever-even for downtown merchants. The decision cannot be ignored-the consumer has already made his choice today just as he made a different choice yesterday-and the outlying and suburban mer chants are relegating the old conventional congested 2 Ludwig von Mises, Human Action (New Haven: Yale Uni versity Press, 1949), p. 308.

THE URBAN RENEWAL FALLACY 51 downtown shopping district into second place. Door-to door bakery routes have encountered the same stiff com petition from shopping centers. It is surprising that no one has proposed federal aid to bakery routes! T he Consumer Still Rules It is not the purpose of this article to recommend so lutions to the downtown property owners. Instead, it is to call attention to the fact that a new mode of sub urban and outlying multi-residential and shopping-area living has come into its own. The consumer has spoken. Burying one's head in the sand does not change the situ ation, and attempts to "bring back" either a downtown commercial or residential area by artificial aid rather than natural selection may prove quite costly, especially to owners of downtown property. If the possibilities of return for risk taking are good, investment funds will be available from those who are willing to take a chance. On the other hand, it is un likely that voluntary investments in an uneconomical situation will be readily forthcoming. Those who seek federal urban-renewal aid undoubtedly recognize that voluntary investment will not be available for such downtown renewal. And, of course, no merchants are being restrained from remodeling or relocating, nor are they prevented from providing customer parking facili ties. They are willing, however, to take advantage of im proper, but legal, means to force persons who do not choose to invest, to contribute without recourse in order 52 JOHN C. SPARKS to bailout the skidding downtown businesses. Among those persons forced to contribute via the tax route to downtown redevelopment are the very outlying and suburban merchants who are gaining first place in the consumer's heart. Furthermore, the consumer himself, having elected to patronize the suburban merchant, must also contribute via taxes to the downtown merchant and help subsidize him because that merchant, in effect, has continued to market in a "high-button shoes" manner and location.

The Crux of the Matter Still Lies in the Market Place It is tempting to downtown owners to proclaim noble objectives to justify their request for federal aid. They wish to preserve the socalled "core" of the city. They hope to increase tax values of the "main" business sec tion and surrounding area as promised by the planners. They become loquacious on behalf of civic pride. Little or no mention is made of the fact that the chief objec tive in the minds of the downtown owners and mer chants is a subsidy from funds taken from others. When buggy whips were on the decline as the auto mobile industry began to grow, the innovation of pearl handles on buggy whips (even if subsidized by govern ment) would have done nothing to rescue the industry headed for obsolescence by the choices being registered in the market place. Neither will subsidized rejuvena tion of downtown commercial and business property THE URBAN RENEWAL FALLACY 53 change the choice of the consumer. Nor will apartments, town houses, and other residential buildings constructed on land formerly occupied by slums or dilapidated apartments change the minds of those who prefer to live "farther out." Experience has already shown that many of the investors in new residential apartments erected on urban-renewal land are regretting the day they ignored the decision of the market place and risked their savings on such uneconomical endeavors.

In a series of articles for the Cleveland Plain Dealer, Eugene Segal reported on residential apartments built there in 1957 and since under the federal Urban Re newal Program: "The occupancy rate is too low for the projects to pay their own way. Most of them are de linquent in mortgage or tax payments. The owners are losing money. The projects have nothing that will per suade inves tors to build more. These are details you would not want showing when you are promoting urban renewal." The author went on to quote one of the own ers, "We don't spend enough on maintenance. We can't because the money is not coming in. If we don't spend more, this will become a slum again."3 Furthermore, the promise of increased tax values on the "renewed" land is almost certainly not an attraction to potential in vestors. City officials in Wink, Texas, are hoping businessmen in its downtown area will use the money (federal funds) they receive to put up new stores in place of those which 3 Eugene Segal, "Housing Renewal Crisis," Cleveland Plain Dealer. April 30, May 1 and 2, 1961.

54 JOHN C. SPARKS will be torn down. It is recognized, however, that such hope will not likely become reality for "a dozen main street buildings are ramshackle frame structures already deserted by their owners for lack of business."4 In this case the difficulty of changing economic selectivity stems from declining reserves of oil in the vicinity. At one time, Wink had more than twelve times its population today. Then it was a boomtown. There are many who make wrong decisions every day, and if such decisions are made by individuals with their own funds and property, no general harm is done. But when civic leaders and city officials combine to en courage waste of the funds of others through the federal Urban Renewal Program, harm is heaped upon all, in cluding the subsidized merchants and the hopeful real estate developers. The subsidized merchants are given a palliative that will lull them into false security. The unsuspecting developers will flirt with business failure as people reconfirm their preferences to reside some where other than downtown or near the "heart of the city. "

Communities that ignore the verdict of the free mar ket place, and attempt to repeal the individual deci sions and judgment of consumers and investors, are bound to reap ill results. No benefit will derive from embracing the fallacy of political urban renewal. 4 "Small Towns Scramble To Get Slum Removal Aid from Uncle Sam," Wall Street Journal. July 3, 1961 (Emphasis added).