View this post on the web at [link removed]

Dr. Kristian Niemitz is the Editorial Director and Head of Political Economy at the Institue of Economic Affairs
In a lot of IEA publications, the postwar decades are described as a period of heavy-handed economic interventionism, while the 1980s and the 1990s are described as a period of relative liberalisation, with policy trends since then being somewhat ambiguous.
This is because these publications focus on policy areas where that is indeed the pattern. But there are also major areas where it is not.
Urban planning has to be the prime example. I first got interested in urban planning in the early 2010s, when I was writing about poverty in Britain. This quickly led me on to the issue of housing costs, which, in turn, quickly led me to urban planning. There was not much empirical literature that was specifically about the British situation, so I read the American literature and tried to extrapolate from there.
Economic Affairs is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.
One thing I noticed was that the urban economists tended to have a fairly positive view of the postwar decades, which they described as a period when housebuilding was still relatively liberal. They had a much more negative view of policy trends since the 1980s, which they described as a period of steadily tightening supply-side restrictions.
It was almost a reversal of the pattern I was used to. All of a sudden, the postwar period was the relative golden age, while the 1980s and 1990s were the period of regulatory tightening. Mark Pennington noticed this contrast as well when he said in his book Liberating the Land (2002):
‘In recent years the political economy of the United Kingdom has been subject to […] a redrawing of the boundaries between the private market and the state. […] [T]here is now acceptance (though often grudging) of the importance of allowing market forces to operate at least relatively freely. […]
One area of contemporary public policy where it is […] perhaps only a little overstated to suggest that we continue to ‘practise socialism’ is in the management of land-use change. In spite of the rhetoric of deregulation that has characterised much of the last twenty years, at present the ownership and use of land in the United Kingdom is subject to a greater array of statutory controls than at any time since the introduction of the 1947 Town and Country Planning Act.’
We get a similar pattern reversal for international comparisons. We often think of the Anglosphere as the relatively more market-friendly part of the developed world, and of France as representing the opposite approach, with others being somewhere in between. In the context of urban planning, though, it is almost the other way around. France has nearly 600 housing units per 1,000 people [ [link removed] ], one of the highest levels in the world. Britain has fewer than 450 (which are also a lot smaller), which is at the bottom end of the spectrum.
Urban planning is not a complete outlier: something similar is true for energy generation and infrastructure provision. Here, the postwar period was, relatively speaking, the better period, while the current situation in terrible. Britain is at the most restrictive end of the spectrum, while France represents a more permissive approach.
Maybe none of this is terribly surprising. No country follows any political economy model with perfect consistency, and there is no reason to expect them to. When we describe a country or a period as ‘liberal’ or ‘statist’, this is not meant to be more than a very crude simplification. ‘Liberal’ places can be remarkably illiberal in some respects, and ‘illiberal’ places remarkably liberal. My old home country has a reputation for being a highly regimented society obsessed with petty rules, and I can see where that perception comes from, but it also consistently ranks as the most live-and-let-live place on Chris Snowdon’s Nanny State Index. In France, private for-profit healthcare is a completely normal part of the healthcare system, and a multi-billion-euro industry. In Britain, an NHS hospital can’t even buy a pencil from a private company without triggering hysteria about ‘creeping privatisation’ in the Guardian. Singapore is often held up as the closest thing to a laissez-faire economy, and we can see how they got that reputation, but Singapore also has high levels of public land ownership, and a sovereign wealth fund.
And so on. So far, the Economic Freedom of the World (EFW) index, alongside its various cousins, has done a good job at measuring and aggregating these diverging policy trends. It tells us, for example, that Denmark, despite its high tax burden, is actually a fairly liberal market economy, while Russia, despite its low tax burden, is very much not. (The latter may seem obvious now, but I remember a time when Russia had a reputation for ‘Wild West capitalism’, because in the 1990s, Russia produced the outcomes that fashionable opinion attributes to such a system.)
All of which remains very useful and informative. But I’ve begun to wonder whether EFW indices are well-prepared to capture the limitations on economic freedom imposed by NIMBY vetocracies. It’s not that EFW indices are blind to those issues. Restrictions on building things would show up under ‘Regulatory burden’ and/or ‘Bureaucracy costs’. But these are subcategories of a subcategory of a subcategory.
Imagine a hypothetical economy where you cannot build anything. No houses, no offices, no factories, no roads, no power stations – nothing. Whatever you want to do, you have to squeeze it into the built-up environment that already exists. Once you have secured some space, though, the government leaves you alone. It does not tax or regulate you heavily, it does not deter you from trading with foreigners or use foreign currencies, and whatever contractual relationships you want to voluntarily enter, the government would respect them, and enforce them if necessary.
Such an economy could have a fairly high economic freedom score. It could, indeed, be a genuinely free economy, if the built-up environment they already have is adequate, and the building ban is not much of a constraint. But we can imagine it becoming a very severe constraint, to the point of becoming a growth bottleneck.
Economic freedom scores work like school reports, where you can compensate bad grades in one area with good grades in others. They do not incorporate bottleneck dynamics. In the above example, suppose you want to set up a business, but cannot find any suitably premises for it. In that case, all the business freedoms that exist on paper do not help you.
Britain is not that economy. But an Economic Freedom score of 7.9, which supposedly makes Britain the 13th-freest economy in the world, seems implausibly flattering for NIMBY Island [ [link removed] ].
Economic freedom indices were first launched in the mid-1990s, and reflect the economic policy battles of the time: free trade vs protectionism, high-tax vs low-tax, nationalisation vs privatisation etc. YIMBY vs NIMBY may have been a thing on the ground in some places, but few people would have framed economic policy debates in those terms. How you would incorporate these policy-induced bottlenecks in the index, or whether this can be done at all, I don’t know. But it’s quite clear to me that the freedom to build things is not just an important economic freedom in its own right, but also forms the basis for many other economic freedoms.
Thanks for reading Economic Affairs! This post is public so feel free to share it.

Unsubscribe [link removed]?