Coffee and a Lesson in Economics

The other day I took a detour off the M1 north to get a take-away coffee from my favourite coffee shop in Melrose Arch. Melrose Arch is a large office/residential/retail development between Sandton and Rosebank in Johannesburg, and it models what essentially can be called a private suburb. Stunning architecture, beautifully tiled pavements and roads, elegant trees and lights, as well as universal wi-fi make Melrose Arch an amazing experience. In a city of malls, it is also almost unique because its stores open onto the street and its restaurants spill out onto the pavements.

Melrose Arch, like other private suburbs and towns such as Dainfern and San Lameer (in KZN), is fascinating because it contradicts every law of public economics. For example, I was told that certain things like roads could only be managed by government. In Melrose Arch, however, the roads are privately owned. How could that be? People can close off access? Private homeowners who don’t want to sell their property can block road developments! Who maintains the roads? Somehow, Melrose Arch and towns like it do have private roads that are accessible to the public, and, what’s more, without potholes, flooding or litter.

Once inside Melrose Arch, like a true Jo’burger, spent about one minute looking for a legitimate parking spot before giving up and parking on the side of the road nearest the coffee shop. With no real incentive to park legally, South Africans too often obstruct traffic by parking on the side of the road. Of course, they would say they are “only blocking the left lane”. This is essentially the same as blocking any lane so one may as well park in the middle or right lanes! Of course, it would be preferable to have laws that prevent people from blocking any of the lanes on the road, but our state owned law enforcement is dismal at dealing with this.

As I climbed out of my car, now parked on the side of the road, to pop across to the coffee shop, I was intercepted by a guard who, with a smile, politely explained that even though I would be only five minutes collecting my coffee, by the time I returned there would be a large yellow clamp on my wheel. My appeals were unsuccessful and I was forced to relent and move. Eventually I found a parking bay some distance from the coffee shop.

Melrose Arch has a security guard on almost every corner, security cameras, bus stops, robots, wide pavements and neat barriers to protect pedestrians from potential stray vehicles. It has roads, rules and enforcement. They can fine people for breaking speed limits or shooting red robots by demanding a penalty payment, and then prevent the offending vehicle from re-entering their premises until the fine is paid. The security guards operate as a private police force employed by the Melrose Arch management who, unlike a bureaucrat, have a personal incentive to enforce reasonable laws and to ensure security.

Without security, or with blocked roads and clogged traffic, or with authoritarian or nanny-state rules and regulations, Melrose Arch would suffer. People would vote with their feet by going to live and shop in “freer” neighbouring suburbs. If Melrose Arch created some elitist or racist rule barring certain people from accessing its facilities, or if security deteriorated, then the number of visitors would drop. Stores and restaurants would lose customers, and this would force a reduction in the rents charged on stores and apartments owned by Melrose Arch shareholders. At the next board meeting, those shareholders would fire the incompetent management and replace it with one that would entice visitors back by doing what pleases most ordinary people; a management that doesn’t impose bad laws and that delivers vital public goods like security and infrastructure maintenance.

In towns like Melrose Arch, the public communicate to shareholders who communicate to management what is good and bad, and what works and what doesn’t. Ultimately, the biggest distinction between this system and the workings of government is that the public really owns the public goods in Melrose Arch. It is the ordinary people who control the will of the shareholders, and the Melrose Arch management are not the rulers, but the employees, of the shareholders. They really are public servants.

Melrose Arch is a true democracy where ordinary people have the liberty to make their feelings felt immediately by how they spend. It is a demonstration of how a free market, where there is private ownership instead of government ownership, is a far more powerful driver of liberty and prosperity than any political system has been or ever can be.

Author: Gavin Ray works as an Intern at the Free Market Foundation. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.

FMF Feature Article / 18 May 2010