William A Gardner

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June
2019

Economics

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Size Matters

Why We Love Growth Even when it Lowers our Standard of Living


Growth for the sake of growth is the ideology of the cancer cell. - Edward Abbey

We have all heard leaders speak about how their policies will promote growth in the economy and this growth will bring jobs and prosperity to all. This is not a left-wing or right-wing political issue. All parties repeat a similar mantra of growth and jobs because they know that the existence of, or promise of, a healthy economy - low unemployment and continued wage growth - is the path to maintaining or gaining power. Yet we also know that growth does not provide benefits without liabilities, and unconstrained growth ultimately leads to collapse. An understanding of this conundrum leads to the uncomfortable suspicion that society is being controlled by an economic imperative – the necessity of continued growth of GDP (gross domestic product), of consumption, and of population. And this continued growth puts the lie to the concept of sustainability which has become such a large part of our vocabulary and social goals. What does sustainability mean in this context of growth? Is sustainability little more than a myth that we use to hide our true desire which is for unlimited economic growth?

Size is important to us. Young people always want to grow up and get bigger. Parents even encourage it by complimenting children on how big they are getting. Thus we are inculcated from an early age into the conceptual belief that growth is good and bigger is better. In school we also learn that being big brings more power and can prevent bullying in the playground. Athletes are accorded great admiration and wealth and being physically larger frequently provides a competitive advantage. Even Dr. Seuss talks about how a big-hearted person is somehow better than a small-hearted person. By the time we are adults the positive value of growth and size has been firmly established in our subconscious. In a sense, our brain becomes hardwired to think that size matters and being larger brings many benefits. We seldom, if ever, consider what may be an optimum size.

It is natural for biological entities to grow until they can grow no more. Straw is piled on the camel's back until it breaks. We breed until disease or starvation or some other natural event makes an end. We desire more until there is no more and then we fight over what remains. The early warning signs are ignored because change is inconvenient at the time and growth feels good. We talk about sustainable cities as if infinite growth is sustainable. But will the sapien part of homo sapien overcome our base biological imperative?

This question of optimal size is fundamental to public policy and to successful civilizations. When we speak of growth while ignoring the question of appropriate size then we are continuing to tread stolidly, like that rough beast of Yeats, along the path into which all natural populations and human societies have previously worn deep ruts. That is, you grow until some impediment, often in the form of a crisis, stops the growth and initiates at best slow stagnation and at worst a steep decline. Despite our intelligence and technology, we humans have not yet found a method of interrupting this cycle by controlling our subconscious and economic impulse to grow. Is it even realistic for our society to establish a goal of a stable population and making life better rather than bigger?

Cities grow in size and the cities of Canada are no exception. Calgary has grown by 21.7% over the past decade (2009 – 2018, from Calgary Economic Development) and continues to promote further growth. But what is the effect of this growth on the citizens in terms of economic efficiency. On a per-capita basis, is the cost to run the city and provide quality services increasing, decreasing or remaining the same?

When you look at providing fundamental services such as water, sewer, roads, policing, parks and recreational facilities it is reasonably evident that, starting from a small size, the cost of fundamental services per capita will decline. It is more efficient to create a water and sewer system for 10,000 people than it is for 100. This would suggest that as the population increases the efficiency of providing fundamental services will increase and thus the cost per capita will decline. Yet experience would suggest that at some point other factors come into play that will turn the efficiency curve downward beyond some optimal size. For example, at some point the increased population will require that roads and bridges be rebuild at a cost far higher than the original structure, and this is in addition to regular maintenance. This rebuilding of infrastructure and other factors tend to ultimately increase costs faster than population growth. The efficiency of providing services then begins to decrease leading to higher taxes despite an equal or declining level of public benefit.

Other factors that promote this decline in efficiency and services include such factors as urban sprawl where the cost of servicing outlying subdivisions must be subsidized by existing taxpayers, more highways such as ring roads to relieve traffic congestion, increased regulation by the municipal government leading to an ever larger bureaucracy, increased subsidies for low-cost affordable housing, new or increased mass transit, more land fills or other garbage options, and many more. Then, to deal with the increasing problems of growth, a progressive city council may decide to remake the cityscape to promote an ideology including high density, low energy use and economic equality, thus increasing costs even more. A municipal policy to increase density - a stack'em and pack'em program - while a desirable policy, will only delay the inevitable.

Growth does have advantages. A larger population can support more cultural activities and facilities. Yet the question one must ask is, beyond a certain size, what social benefit is the average citizen gaining from a further growth in population? What is the marginal cost of adding another hundred thousand, or another million people and will that make the average citizen’s life better?

The above s-curve graph illustrates this relationship between population and the efficiency of providing services. History suggests that initially as population increases the servicing efficiency will also rise. But then the curve levels off and sooner or later begins to decline. With luck the decline will be slow and not catastrophic. As the graph above turns down, the level of taxes required per capita increases. The question then becomes simple. At what population does a given city provide a high standard of living while maintaining high efficiency and low taxes? Even before the economic downturn, Calgary was experiencing property tax increases beyond the sum of inflation and population growth. Now citizens are starting to wake up to large tax increases and potential service cuts even though population growth continues. Calgary is a city whose population is approaching two million. Are we at that point where a larger population will bring more liabilities than benefits?

I love cities. Vibrant cities with lots of cultural diversity and human interaction opportunities are great places to live. But cities are also huge consumers of energy, food and other resources. Like a large organism it must be fed and its waste removed and processed. What we sometimes forget is that the natural environment around a city has a limit as to what it can produce to support the city and its citizens without having to ship basic necessities over long distances. There is only so much water that it can capture and provide in streams and aquifers. There is only so much waste in the form of air or water pollution that it can absorb and process. There is only so much human recreation that the ‘wilderness’ can accommodate without environmental degradation. Some of these challenges can be met through the availability of low-cost abundant energy but that solution is becoming less and less viable. This argues for smaller efficient cities that do not outgrow the availability of local ecological services. Large cities can also suffer from what Thomas Homer-Dixon called brittleness. That is, they generally have less spare capacity and are therefore less able to adapt to unusual circumstances, or shocks, both natural and human-caused.

Cities are wonderful creations. It was the introduction of larger settlements that allowed human society to evolve from a subsistence hunter-gatherer existence to an agricultural one and thus encouraged the development of culture, arts and the accumulation of wealth through more efficient means of production. Most of the inventions of modern society can be traced to the sharing of ideas and knowledge which cities made possible. But size also brings liabilities. And today, much of the sharing of ideas and knowledge is done over the internet with the result that physical proximity is not as important. How many of a person's Facebook friends live in the same city? It puts a new face on the question of optimal city size.

I would argue that an optimal size for a modern city such as Calgary is in the order of two million people to two and a half million. Growth in population and size much beyond this limit threatens to create a Red Queen effect where budget problems are met with encouraging further growth that demands more money for infrastructure that increases budget problems and so on. It is an endless treadmill that can lead to less efficiency, increased costs, and even bankruptcy as illustrated by some US cities.

It is time that we had a serious discussion on optimal size for cities, a discussion on how to make our cities better rather than bigger. Such a discussion is very difficult when the federal government is determined to promote population growth to help resolve its own self-created financial problems. Thus the discussion needs to happen at all levels of government. And the best time to discuss optimal size is before growth becomes an unmanageable problem.

If we are serious about sustainability, then the discussion will be disingenuous without including the issue of population growth and optimal size.


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