Thanks to YouTube, there is likely to be an entire generation whose only knowledge of Hayek and Keynes is through rap (for those of you born before 1990, just go on the interweb and search for the Hayek and Keynes epic rap battle).

Most undergraduate economics students will be able to summarise the great divide between Friedrich Hayek and John Maynard Keynes on monetary and fiscal policy. Keynes was in favour of a top-down management style of government, while Hayek favoured spontaneous order. Fundamentally, they differed in their views on the appropriate functions of central government.

Surprising connection

But many students may be surprised to learn the extent of their ideas. For instance, would they recognise that one of the most enduring examples of Keynesian-style thinking in developed economies is the urban planning system? Indeed, many planners would be surprised too.

While economists might disagree over what Keynes would have thought about urban planning, that hasn’t stopped those following his school of thought from promoting his philosophy in this area.

Maybe that will change with the Productivity Commission’s new inquiry into urban planning. The commission will be investigating the allocation of land use through planning and its outcomes.

Now, if that were the commission’s mandate alone, interested readers could be in for a very dry report. The inquiry certainly has the potential to be 400 pages of technical tweaks to the Resource Management Act, the Local Government Act and the Land Transport Management Act. Such a report would probably make a good doorstop but would be utterly uninspired.

Radical thinking

There is hope this latest inquiry will be much more than that though. Bill English has encouraged the commission to adopt blue skies thinking, and take a ‘first principles’ look at the system. In other words, the Productivity Commission has the opportunity to be radical in its approach.

It would do well to start with Keynesian thinking in 1940s Britain: the birthplace of modern urban planning. Of course, historians will be quick to interject that New Zealand’s legislative planning history ranges at least as far back as the 1842. Indeed, as long as there have been governments and citizens, there has been planning in some form or other.

The philosophical birthplace of New Zealand’s planning system in its form today, though is rooted in the UK. Britain was where the spirit of professional urban planning really took off: from the UK’s planning system, from its garden cities to zoning restrictions, to yet largely unfulfilled promises of devolution.

Particularly after World War II, Keynesian intellectualism was used to justify a range of government interventions in the UK. Keynes is not the only one to influence planning philosophy. His influence, however, cannot be dismissed either. A series of legislative changes cemented the government’s role in managing markets in land and development so the spatial economy could be restructured.

Active management

Just as the establishment of the welfare state normalised the concept that it is the government’s responsibility to ensure care for society’s most vulnerable, post-war planning advanced the idea that governments should have full and detailed control over the allocation of land. Britain’s 1947 Town and Country Planning Act was consistent with the Keynesian ideal that governments should be actively managing the economy, as it had successfully done throughout the war.

To be sure their ideas spread, British planners were sent worldwide to proselytise their belief that functional, well-run cities could not be left in the hands of the free market.

And boy, has this ideology prevailed. After all, who else could coordinate spaces that satisfied environmental, social and aesthetic priorities, whilst ensuring adequate infrastructure? Urban planners are not just entrusted with overseeing the most efficient allocation of land. They are now expected to be the architects of social interaction, of beauty, of healthy lifestyles, wellbeing, and even of reducing crime.

One thing they can’t seem to do is improve housing affordability, or even give a glimmer of hope to younger generations that home ownership is still attainable. People may be able to live in beautiful, well-designed cities but they will pay exorbitant rents to be there.

Over the decades, Keynesian notions of a planned or managed economy have largely fallen out of fashion (the global financial crisis and opposition to austerity measures notwithstanding). Meanwhile, the ideas of Hayek experienced a global renaissance. Thanks to Thatchernomics in Britain and Rogernomics in New Zealand, the idea that governments are good managers of the economy has largely been challenged. But, especially in the realm of urban planning, cities the world over just can’t seem to shake their Keynesian-inspired starting point.

Creating more problems

Again, discerning historians and economists may interject to point out that even Hayek conceded town planning may be a legitimate function of government (in chapter 22 of his Constitution of Liberty, if you are curious). Yet, it is hard to believe Hayek would have ever imagined urban planning would expand to its current reach. Hayek’s concern was that governments lack the knowledge and foresight to implement policies, without creating more problems than they solve. Planners have been so preoccupied with achieving their wide range of social goals but have yet to resolve the fact an increasing number of people can’t afford to live there.

This is exactly the kind of issue the Productivity Commission ought to be grappling with. Not how do we fix the planning system but where did this system come from and is it suitable for modern day New Zealand?

The NZ Initiative has previously recommended that there needs to be a review of incentives for local government. At the moment, councils bear a large burden of the costs of development but not many of the benefits. However, that is not enough to overhaul the entrenched mind-set of role of government in planning.

The inquiry ought to provide a case for what value urban planning contributes, or what success it has achieved, to justify its persistence. That’s not an unreasonable, or even radical question to ask, considering that exact same scrutiny was delivered during the commission’s inquiry into social services. In the social services inquiry, the review was not just about what the public service could improve on but whether there were some services that could be better delivered by the private sector.

What “national interest,” if any, does urban planning set out to promote? Could and should the national interest override individual property rights? Eminent domain springs to mind as one of the commission’s previous recommendations that could be reconsidered in a new framework.

The Productivity Commission has the opportunity to be radical in its inquiry and it should be. It has an opportunity to really challenge the underpinning assumptions of the urban planning system. And, perhaps in the next 400-page report, there will be at least a few mentions of Hayek and Keynes.