The Notion and Value of ‘Sustainable Urban Finance’
A keynote talk I gave at the Urban Economy Forum UEF4 conference in Toronto, October 2022
I’m going to use my time today first to discuss the notion and value of ‘sustainable urban finance’. Then, in that context, to discuss one particular approach to the financing of local public goods. The opening point I want to make is that sustainability isn’t good in itself. There are plenty of things that, in themselves, it would be bad to aim to sustain: bad regimes, bad habits, bad states of affairs, and so on. So, I’m assuming that the notion of ‘sustainability’ we’re all interested in here is something more like ‘the sustaining of relevant good things’.
Beyond this, it seems clear that certain goals, relating to certain economic goods, are recognised within the standard notion of ‘sustainable urban finance’ that many of us here will have encountered. It’s a notion that—with reference to the Sustainable Development Goals Overview — entails, for instance, sufficient resources to provide universal access (within a locality) to adequate housing, transport, green spaces, and so on. In this context, when we talk about ‘sustainable urban finance’, we mean the kind of finance that minimally ensures that goals pertaining to these goods are met.
Nonetheless, ‘sustainability’ in this sense that we’re interested here — or, at least ‘sustainability’ of the kind that I think we should be interested in — surely doesn’t pertain to efficiency maximisation. I mean, to use an overly heavy example (a classic philosopher’s example), let’s imagine that the economic goods that are needed here would be optimally brought about, in efficiency terms, by central government imposing something horrible on the people of the local area: the forcible selling of their organs, for instance. Now, this approach — let’s call it the ‘Horrible Approach’ — could well be ‘sustainable’, in the sense of being able to be maintained (as long as enough people kept being born, and so on). But clearly the fact that the Horrible Approach — within our thought experiment — would optimally bring about the resources necessary to provide universal local access to adequate housing, transport, and so on — clearly that wouldn’t justify such an approach.
One of the reasons for this is that the Horrible Approach would not only be against the overall interests of the citizens, it would also violate their rights in various ways. It would violate their rights in the obvious sense of violating their bodies. But the state here would also be failing to recognise that people are agents with the right to determine their own ends. And that this includes, when people live together as groups, the right to determine how they live, as a group, in various important ways.
This is a key requirement of democracy — it’s something that is constitutive of living democratically — this idea that we decide as a group, how we live. Of course, this doesn’t mean it’s a total free for all. There are basic preconditions to be taken into account: the general recognition of certain equally-held moral rights, for instance, beyond the right to determine one’s own ends. But our capacity as human beings to combine intention with action, to rationalise, to deliberate — on our own, and in groups — is something morally significant, to the extent that it’s reflected in, and protected by, various moral rights.
Group decision-making is also instrumentally valuable, of course. When we think about the common good, in the sense of the particular good of any particular group, it seems clear that the members of that group will have privileged information about the content of that good. To this end, there’s a nice focus on the epistemic benefits of local decision-making in last year’s UEF Brampton Resolution. The Resolution document refers to members of local communities as ‘knowledgeable stakeholders’. And it states that ‘many solutions for urban challenges arise at the local level because the local [level] has the greatest understand[ing] of their situation’.
But what I think we really need to emphasise is that beyond the overall epistemic benefits of tapping into local knowledge is something even more important. The further idea that people in local communities have the right to be involved in local decision-making, grounds, I think, the Brampton claim that ‘[g]overnments should provide opportunities for knowledge and education of different approaches, perspectives, and traditions’. This is found under the heading ‘Dignity and Respect’ in the Resolution document.
And this, I think, reflects the idea that local people should have a voice in local decision-making, even when this does not lead to the most efficient outcomes. After all, providing opportunities for ‘different approaches’ means respecting approaches that, in purely outcome-based terms, will not be optimal, in efficiency terms. Again, this doesn’t mean that efficiency — or the goods we want to be brought about efficiently — must thrown out of the window. We can still set valuable goals relating to those goods, including baseline requirements. But it does mean that those goals cannot be the full picture. Rather, it means that local decision-making — the ‘empowering [of] local communities’, to use the Brampton language — should be recognised as good in terms of something beyond its good outcomes.
This kind of thinking reflects a commitment to the principle of subsidiarity, as understood in an Aristotelian sense. Subsidiarity, to Aristotelians, is not limited by the need to provide better or more efficient services. Rather, at its core, it is about the interrelation of justice, the common good, and the value of human autonomy. Along these lines, the contemporary political philosopher John Finnis defines ‘subsidiarity’ as shorthand for ‘the principle that it is unjust for a higher authority to usurp the self-governing authority that lower authorities, acting in the service of their own members (groups and persons), rightly have over those members’. On such an account, the Horrible Approach is unjustified not only because it represents the state harming people and treating them as a means to an end. That approach is also — albeit relatedly — unjustified because it represents the state usurping those people’s right to form, and contribute to the direction of, local decision-making bodies.
I’d like to finish, therefore, by focusing briefly on one key approach on which at least some of the good goals of ‘sustainable urban finance’ can be brought about in a way that reflects the principle of subsidiarity. This approach is fiscal decentralisation: that is, tax policy being set at as local a level as possible. Fiscal decentralisation seems a crucial area of focus within the remit of ‘sustainable urban finance’, because the kind of sustainability that we’re looking for here must—on the conception we’re discussing—ensure sufficient resources to provide universal local access to certain public goods, including transport systems and green spaces. And, as public goods, these are goods that must be brought about through collective action, through collective finance — not least through tax revenues.
Now, there are many strong arguments, backed up by international evidence, for the increased economic efficiency and growth stimulation of genuine fiscal decentralisation. This is particularly when revenue-raising powers are devolved alongside spending powers; indeed, the uncoupling of the two has been shown to be more likely to result in worse economic consequences. Classic arguments in favour of fiscal decentralisation suggest it leads to: more overall and local economic growth; the better matching of services to local needs and preferences; greater efficiency; greater competition and the advantages of experimentation; increased productivity; and tax-base growth.
Again, however, it is not necessary for the case for fiscal decentralisation to be made on the basis of maximisation. Rather, it reflects the principle of subsidiarity. Yes, it seems highly likely that proper fiscal decentralisation, focused on revenue-raising as well as spending, enables local knowledge to drive policy in an epistemically-privileged manner. But it also reflects the right of local people to direct local-decision-making, even when the good ends this brings about could be achieved in other more efficient ways.
