Urban Renaissance Institute

Lawrence Solomon
National Post
May 8, 2001

FROM THIRD WORLD TO FIRST – THE SINGAPORE STORY: 1965-2000

By Lee Kuan Yew, HarperCollins, 729 pages, $52.95

Hong Kong and Singapore, Third World backwaters four decades ago, are today much wealthier than Canada, the United Kingdom, and most other Western nations.

Hong Kong – the 13th wealthiest country in the World Bank’s ranking by per capita GDP – achieved its great success through freewheeling, entrepreneurial capitalism. Singapore – whose citizens enjoy the world’s fifth highest incomes – rose even higher and faster, not through free markets but through a heavily interventionist socialist government.

The two city states both faced external threats in their early years. Hong Kong lived under continual fear of an invasion from mainland China, and Singapore, born as its protector, the British military, was planning to exit east Asia, faced aggression from both Malaysia to its north, and Indonesia to its south.

Yet Singapore’s challenge in developing into an economic powerhouse was in many ways greater than Hong Kong’s, which would thrive as an intermediary between China and the West. In From Third World to First – The Singapore Story: 1965-2000, Lee Kuan Yew, Singapore’s only prime minister for the island nation’s first three decades, describes his country’s seemingly insurmountable difficulties. Not only did it lose 20% of its GDP with the closing of the British base, but Malaysia, which resented Singapore’s role as an entrepôt that handled 40% of Malaysian trade, decided to bypass Singapore after the two jurisdictions bitterly separated in 1965. Seeing the island largely cut off from trade with the mainland – Mr. Lee calls it "the hinterland" – he saw Singapore’s prospects as bleak.

To make matters worse, Singapore lacked talent. Unlike Hong Kong, which was blessed with the entrepreneurial genius and business acumen of the 1.5-million refugees fleeing Communist China, Singapore thwarted immigrants from Malaysia upon separation, thinking they would only take jobs from Singapore residents. What little talent Singapore had it concentrated in the apparatus of government. Nevertheless, under Mr. Lee’s discipline, the government single-mindedly and sure-footedly created a socialist paradise.

Mr. Lee’s socialist roots run deep. A Cambridge-educated lawyer and labour union negotiator, he built his People’s Action Party on union support. He proudly describes his membership in the Socialist Internationale and his relationship with British Prime Minister Harold Wilson, who repeatedly convinced his Labour Party colleagues to delay Britain’s pullout from Singapore on the basis of Mr. Lee’s socialism. "Lee Kuan Yew [is] as good a left-wing and democratic socialist as any in this room," he quotes Mr. Wilson telling a Parliamentary Labour Party meeting in 1966. "His social record, in his housing program, for example, defies challenge in anything that has been done in the most advanced social democratic communities."

Those words about the housing program – which Mr. Lee financed through a mandatory savings scheme called the Central Provident Fund – were prescient. With necessity the mother of invention, Mr. Lee subsequently created what is undoubtedly the world’s most inventive public administration. Through its Central Provident Fund, Singapore provides high quality public health care, an innovation that Western countries have only lately begun to consider under the name of medical savings accounts. To promote public transit and tame the auto, Singapore charges astronomic fees on car permits and electronically tolls its roads via smart cards.

Singapore has been less inventive in managing its economy, where many of its policies resemble those of big governments everywhere, only more so. In its spectacular rise in affluence, Singapore protected its industries from foreign competition to appease workers, established state corporations throughout the economy, and offered tax holidays and other subsidies to attract foreign investment. It set up its Economic Development Board – a one-stop government agency designed to service investors – with the help of the United Nations Development Program and the International Labour Office. It lured industries – including those from a then more advanced Hong Kong – with the promise of a cheap, well-disciplined workforce. It tried to pick economic winners and it often succeeded.

Mr. Lee believes that he had his priorities right. He is proud to have set up a nanny state for Singapore’s citizens, noting that he did so at low cost – his government spends just 20% of GDP, compared to 33% in the G7 economies. He is also proud to have set up a nanny state for foreign investors through lavish spending on infrastructure and other corporate amenities, noting "our development expenditure has consistently been much higher than that of the G7 countries."

But is this spending efficient? A study by MIT economist Paul Krugman over the period of Mr. Lee’s rule attributes Singapore’s entire success to brute force, not brains – "a mobilization of resources that would have done Stalin proud," states Mr. Krugman. "Above all, the country had made an awesome investment in physical capital: Investment as a share of output rose from 11% to more than 40%." Singapore’s success involved one-time improvements that cannot be duplicated. "There is no sign at all of increased efficiency."

Apart from its quirky authoritarianism – the country banned chewing gum after someone stuck gum on to the sensor of a train door, disrupting service – Singapore has two defining features, both of which go a long way to explain its success. One of these – its absence of corruption – is well understood by Mr. Lee. Corruption drives investors away and also robs a country of its productive assets – in kleptocracies like neighbouring Indonesia, as much as 25% of GDP was siphoned off in corrupt dealings, enough to doom any economy.

But Mr. Lee doesn’t understand Singapore’s other great advantage over the nations of the world – its absence of a hinterland. When Singapore broke off from Malaysia in 1965, Singapore didn’t lose a market, it lost a millstone. Following the separation, the two countries jointly operated Malaysia-Singapore Airlines for several years. The joint ownership fell apart because Mr. Lee refused to fly money-losing routes to the Malaysian hinterlands. Had Singapore remained inside Malaysia, the national airline would have served its hinterlands at a loss, as occurs in almost all the nations of the world, bleeding productive enterprises and sapping the overall economy. Imagine a Vancouver that didn’t need to support its farmers, fishermen and foresters, or a Montreal freed from subsidizing its money-losing resource industries, and you’re got a city that would grow at the speed of a Singapore or Hong Kong, even when carrying its own military or meeting the social needs of its own residents.

"We inherited the island without its hinterland, a heart without a body," Mr. Lee thinks. In fact, Mr. Lee and his fellow citizens were blessed to inherit one of the world’s only two true city states. With a blessing like that, even when starting with nothing, it would have been difficult to fail in a world of nation-states, whether under a free market or socialist governance.

Lawrence Solomon
National Post
May 22, 2001

It isn’t funny. Amusement taxes – they’re also known as entertainment taxes and admissions taxes – harm culture, harm sports and recreation, harm the private sector, harm cities and harm the quality of life.

Ontario has had them almost continuously since 1916, even during the Great Depression, on cinemas, theatres, sporting events and concerts. Its amusement tax was a crushing 20% when a post-war version was levied in 1948, before the era of big government and big taxes. It later dropped to 10% in 1955 and has remained there since, even though the province created a retail sales tax in the 1960s that pegged the general retail sales tax at 5%. While the provincial sales tax climbed to its current 8%, and income tax changes frequently, the amusement tax stayed frozen in time, like some archaic law that remains on the books without anyone in government quite knowing why. The federal government and most provinces have abandoned this tax. Not the largest province in the land.

Why was this particular tax on places of amusement first introduced? "Oh, I can’t tell you, that was so long ago," states Nalini Karna, the manager of tax policy on sales taxes at the Ontario Ministry of Finance. How much money does this tax bring in? "We don’t have any way of knowing what the revenues are," she says.

Vendors who fall under the 10% tax – say a movie theatre – sell not only admissions but also candy bars and soft drinks, which are taxed at a lower rate. "We don’t know, and we don’t ask them to itemize that out."

Why would the government not ask vendors to itemize a large tax that they collect? "In the interest of simplicity," Ms. Karna states, presumably referring to a lowered burden on government. She couldn’t mean that vendors are spared red tape. Because vendors are subject to audit, should the government ever care enough to ask, they must in their own books diligently keep a detailed itemization of all sales taxes, including the amusement tax. To add to the red tape, the government has created a myriad of rules that care whether a restaurant has a dance floor or serves alcohol, whether a club has live or recorded performances, whether the performers are foreign or not, whether a profit is made.

Amusement taxes exist for a variety of reasons. Some bureaucrats see them as a form of luxury tax that penalizes frivolous activity. Listening to the sound from a Stradivarius doesn’t contribute anything to the economy, this reasoning goes, unlike purchasing a lump of coal or some consumer product. Others argue that amusement taxes are disproportionately borne by tourists, who would otherwise use provincial facilities without paying their share of taxes.

These arguments have it wrong, the Ontario Committee on Taxation’s landmark 1967 report determined: "Any tax on retail sales should be part of a general retail sales tax." All else being equal, a dollar spent on a cultural activity is worth no less to the economy than a dollar spent on a lump of coal or other hard good. But not all else is equal, due to unintended costs or benefits – what economists call "externalities." Burning that lump of coal creates soot that soils neighbouring homes, for example, foisting maintenance costs on innocent third parties. A place of amusement, on the other hand, tends to create positive externalities – they inspire, motivate, create a sense of community.

Neither do tourists deserve to be penalized, says the 1967 report. Tourists contribute far more to society through the taxes imbedded in their purchases than they cost society in their use of public services. For reasons such as these, the report said, "we reject the notion that a special tax should be levied on certain forms of amusement and entertainment. Levied at a rate higher than is applicable to most consumer expenditures, the tax is unfair; the exempting of many events similar to those that are taxed makes it inexcusable."

Inexcusable, but not inexplicable. Amusement taxes are really hidden taxes on city life and those who revel in it. Cities house the great majority of entertainment venues. In cities we find the sports stadiums, night clubs, opera houses, symphonies and rock concerts that make the cultural industry one of Canada’s largest, far larger than any resource industry. Even movie theatres, the one venue commonly found in small towns, are frequented far more often in big cities than small towns – rural households spend less than half as much on movies as do those in cities. Through its amusement tax, the province silently picks the pockets of those who patronize sports and cultural establishments in a few large urban centres, then redistributes the monies to the less populated areas, which elect a greater share of politicians.

Knowing that, what else does the province need to know?

Lawrence Solomon
National Post
June 5, 2001

Tomorrow, 171 governments from around the world will congregate in New York City to promote a globalization agenda that includes property rights, privatization, decentralization and trade – the same combination that inspired the riots in Seattle and Quebec City.

Yet Maude Barlow, the labour unions and other anti-trade protectionist activists aren’t manning the ramparts to shut down the meetings, or to at least win a public relations victory for trying.

The New York meetings, backed by some of the world’s leading international development NGOs and held in a Special Session of the United Nations General Assembly, not only have impeccable credentials, they have captured a moral high ground no protesters could storm.

At their heart, the meetings are about stripping political power from national and state governments. Half of the world’s population now lives in urban areas – a far cry from the world 200 years ago, when but 2% lived in cities – and cities are now widely viewed as being the engines of national economies, the conference papers make clear.

Yet governance today more reflects the demographics of 1800 than 2001. City governments almost nowhere exercise the power that is their due. The New York conference aims to promote a devolution of power to urban communities and to the people – especially the disenfranchised poor – who inhabit them. Their means to good governance – private capital, property rights, and consumer choice – is enough to give anti-globalization activists hives.

Consider the radical approach of London-based Panos, an international development NGO, in financing the most basic of urban infrastructure needs: water supply. To get away from the past practice of building unsustainable showcase projects that poor societies can’t possibly maintain – the Third World is littered with boondoggles that begin to rust soon after the photo-ops have concluded – Panos proposes different drinking water systems for the rich and for the poor.

As an example, Panos describes the water privatization of Buenos Aires, where a private firm, Aguas Argentinas, won a 30-year concession to supply the city’s residents, including 200,000 who lived in favelas, or unserviced shanty towns. How could the company lay new water and sewage pipelines, and provide new connections, for households that lack the ability to pay for them?

"In association with a local non-governmental organization, the company created the Low-income Settlement Programme to ensure that the service would be extended to the poorer areas and that it would be affordable and sustainable," Panos explains in Governing Our Cities: will people power work?, a book released in conjunction with the conference. Because conventional water service would not be feasible, the poor areas agreed to obtain most of their water needs (for washing clothes and bathing) from unpotable groundwater, and to purchase their drinking water from the utility. "The charges were worked out to ensure affordability; this in turn helped in collection of user charges," the Panos book explains. "It also proved that poor communities are willing to pay if they can get reliable service and if they have a chance to participate in the decision-making process." Elsewhere in the book, Panos favourably describes how South Africa’s Durban Metro Water provided water to a shanty town through a combination of household tanks – which were replenished daily if the household’s utility payments were current – and common standpipes, which provide water for a per-bucket charge.

The moral of the story: "It is crucial to bear in mind that a concession contract for a city with low-income areas cannot be socially and economically sustainable if it provides a single homogenous service with no variation in levels of service throughout the area covered by the contract. A pro-poor concession should offer different levels of service at different prices and the contract should include provision for subsidies."

The New York City meetings – dubbed Istanbul + 5 – are a follow-up to the United Nations’ 1996 Habitat II conference in Istanbul. Rather than fight globalization, the Istanbul conference decided to harness globalization’s power to feed and house the world’s poor. "Gone is the assumption that central Governments will provide housing for the poor," says Istanbul + 5’s conference materials. "The traditional welfare state model is giving way to partnership and participation," for example by giving property rights to people who now live in the shanties – typically on land owned by governments that refuse to privatize the land. Once people have secure tenure, communities become stable. "Such stability helps cities to attract corporate and individual investment, which in turn can improve the access to services and the living conditions of the urban poor."

Neither the Istanbul + 5 conference nor development groups such as Panos believe the process of globalization will be easy – many governments are corrupt or incompetent, democratic institutions are often weak, and abuses are sure to occur.

But the movers and shakers in the global movement to strengthen city governments also recognize that, without property rights, privatization, user pay and other globalization principles, no economy can be sustainable. In their model, the private sector will often supply the capital and the expertise needed for water infrastructure and other public services. That’s what the private sector does best.

And governments, accountable to the people, will regulate the private sector providers. That’s what governments do best.

Robert Matas
Globe and Mail
January 23, 2002

Vancouver has gone through a complete makeover since the world came to the foot of its mountains for Expo 1986. A surge in development inspired by the latest trends in urban design strategies has transformed the city’s downtown into a collection of eclectic neighbourhoods in which to live, work, shop and play.

With several construction sites signalling that the process of change is not yet over, it may be too early to take a final measure of the remake.

However, Vancouver had a chance last week to find out how things are going so far when internationally renowned urban thinker Jane Jacobs visited the city.

Ms. Jacobs, who has influenced generations of urban planners, asked the city’s top planners to show her around. What she found was a city that had grown from something she deemed drab in the 1970s, to a place rich in diversity.

Ms. Jacobs, 85, wrote The Death and Life of Great American Cities more than 40 years ago. The book, a searing indictment of large-scale urban renewal megaprojects, is still considered as one of the most important books written about cities in the 20th century.

With her gentle smile, glasses and a walker to steady her on her feet, Ms. Jacobs appears to be exactly the type of person she says must be accommodated in urban renewal projects to ensure that neighbourhoods remain vibrant.

As an urban activist, she has spearheaded efforts in New York and Toronto to ensure a human scale to development. As a critic on tour, she kept her eye on the activity on the street as the barometer to the health of the city.

Vancouver’s top planners, Larry Beasley and Ann McAfee, began their show-and-tell in the oldest part of downtown, driving by restored commercial buildings of Gastown, new low-income housing units in the drug-infested downtown east side and higher-priced condominiums a few streets over.

Mr. Beasley said the city had managed to ease the pressure to gentrify the older neighbourhoods by clearing the way for new development in other parts of the downtown core.

But gentrification is okay, Ms. Jacobs said. The infusion of people with money can help revitalize an older, poor neighbourhood. "Gentrification is okay if it goes ahead at a gradual pace," Ms. Jacobs said. "It’s when it’s a feeding frenzy that it becomes a problem."

As they drove through Chinatown, which is struggling to survive the exodus of the Chinese community to the suburbs, Ms. Jacobs asked about co-op housing. Dr. McAfee said the city was building 200 units a year, compared to 2,000 units 20 years ago. The dramatic drop was attributed to a shift in federal housing policy.

Mr. Beasley shifted the discussion from building housing to building neighbourhoods.

Unlike most cities in North America, Vancouver in the past decade has succeeded in drawing people back downtown. About 35,000 people moved in during the past 10 years, almost doubling the downtown population. Another 5,000 are expected in the next 24 months.

It’s not just the numbers that are impressive. Every new area is a mix of income, age and household type, Mr. Beasley said.

One-quarter of the new housing is set aside for families with small children; one-fifth is for low income. Along the waterfront at False Creek, a $4-million condominium is a stone’s throw away from $325-a-month rentals. Elderly people are within earshot of daycare centres and parks. Passing by shiny new high-rise towers, with two- and three-storey brownstone-type homes for families with children or pets along the streets, Ms. Jacobs gave Vancouver top marks for ensuring diversity in the neighbourhood. She also endorsed the concentration of glass towers.

Despite her support for people-oriented places, she does not believe that development must be kept small to be beautiful. "I do not think high density is bad," Ms. Jacobs said. "Vancouver could not be as vibrant as it is with lower density. But you need a mixture of uses with high density."

The city’s west end – a forest of high-rises reputed to be the highest concentration of people in Canada – was uninteresting because it lacked diversity, she added.

As Mr. Beasley drove along a street of stores set back behind a parking lot, Ms. Jacobs criticized strip malls. "They’re ugly. They separate the shops from pedestrians," she said. "The mind behind them thinks that movement in the city is only by automobile."

Ms. Jacobs also bemoaned her familiarity with the store names. "There’s no individuality," she said. City shopping areas need unique stores to draw people from across the city as well as to serve their own neighbourhood. "People feel it is their city, that the city belongs to them, when they are using all parts of it, not just their own neighbourhood," she said.

After inspecting new communities along the water and new housing in older neighbourhoods, Ms. Jacobs was asked how Vancouver is doing. She did not rely on a lot of theory to make her evaluation.

"Diversity is one of the keys to a great city. In spite of the tall buildings, there is a feeling that it is a human kind of place. The street has been domesticated," she said.

"I think this would be a nice place to live."

Lawrence Solomon
Policy Options/January-February issue
February 1, 2002

"In 250 to 2000 words, describe the book that had the greatest influence on the way you think about policy, why you think it hit you so, and what you think you learned from it." – Policy Options

The Economy of Cities, by Jane Jacobs, Random House (1969)

– Adam Smith
The Wealth of Nations

[T]hrough the greater part of Europe the commerce and manufactures of cities, instead of being the effect, have been the cause and occasion of the improvement and cultivation of the country.

Adam Smith’s one-sentence summary of the economic relationship between city and country was Jane Jacobs’s starting point for her astonishing book, The Economy of Cities. For while she and Smith agreed that cities fostered rural development, and not the other way around, they disagreed over whether this had always been so.

Smith accepted "The Dogma of Agricultural Primacy," as Jacobs calls it. Under this dogma, civilization began with little groups of hunters and gatherers thus became agriculturalists and, after many thousands of years of agricultural village life, about 3500 B.C. cities arose. Smith was not alone in accepting this dogma, of course. We were all raised with it, and most of us still accept it, unaware of the confusion about the nature of development that it sows to this day.

Jacobs shows this dogma to be mere conjecture, and highly implausible conjecture at that. Hunters and gatherers were also traders who lived in dense, permanent settlements, she shows us, putting to rest the old belief that permanent settlements weren’t possible before agriculture. Ancient cities invented agriculture and later exported it to the outskirts, she argues persuasively. When archeologists are asked why they hold to The Dogma of Agricultural Primacy, they explain that economists had established its truth. Economists, meantime, attribute their acceptance to archeological evidence. Jacobs traces the root of this great confusion over the origins of economic development to none other than Adam Smith himself, who relied on the accepted view of his day. This accepted view, in turn, had its origins in the Bible, which placed man’s origins in a garden.

I discovered The Economy of Cities during a rift in the late 1970s between Energy Probe and Pollution Probe, two organizations housed within the same Pollution Probe Foundation. Underpinning the many differences between the organizations were different world views. Pollution Probe saw natural resources as limited and population growth as unlimited, a combination of circumstances that would inevitably lead to rapacious conduct and the need for government regulation. Energy Probe, where I worked, rejected talk of population explosions, viewed the potential for economic growth as unlimited, and sought to regulate the economy by internalizing environmental costs into economic decisions. Jacobs’ book, and its city-driven theories of economic development, was replete with historical examples of how city economies had solved environmental problems, and it succinctly explained why population explosions, and resource shortages, are phoney issues:

Wild animals are strictly limited in their numbers by natural resources, including other animals on which they feed. But this is because any given species of animal, except man, uses directly only a few resources and uses them indefinitely. Once we stopped living like the other animals, on what nature provided us ready-made, we began riding a tiger we dare not dismount, but we also began opening up new resource-unlimited resources except as they may be limited by economic stagnation.

Analogies of human population growth to animal population growth, based on the relation of population to current resources, are thus specious. The idea that, under sensible economic planning, population growth must be limited because natural resources are limited is profoundly reactionary. Indeed, that is not planning for economic development at all. It is planning for stagnation.

Jacobs stressed that environmental destruction stems less from too many people exploiting too rapaciously than from restraining human ingenuity. "To be sure, developing countries are all too ruthless to nature, but their depredations do not compare in destructiveness to those of stagnating and stagnant economies where people exploit too narrow a range of resources too heavily and monotonously for too long, and also fail to add into their economies the new goods and services that can help repair their depredations." Developed countries, too, can become stagnant, to the harm of the environment. "In the United States, lack of progress in dealing with wastes, and overdependence on automobiles – both evidence of arrested development – are becoming very destructive of water, air and land."

The diversity needed to avoid stagnation cannot be achieved by economic policies that are blind to the importance of cities to economic growth. Unlike other environmental groups, which sought lower economic growth and a return to the land, Energy Probe would split off from Pollution Probe to become the continent’s only environmental group that placed cities and economic efficiency at the centre of environmental well-being. To Jane Jacobs, Energy Probe was a "breakaway" – a British term she employed to describe the process by which new work begins. She became a founder of Energy Probe Research Foundation and served for almost two decades as a director, helping the upstart understand the importance of competition, property rights, global trade and cities in nurturing human development