Gravel is a humble, low-priced material, but one that modern economies need in large amounts. It can be extracted with far fewer environmental effects than coal or metal ores, but noise and dust problems are common, and a modern gravel pit in an urban area usually increases road traffic.
These circumstances all mean that not-in-my-backyard disputes are almost inevitable whenever someone tries to open a new pit or even reactivate an existing one.
That is happening in Scandia right now, where the Tiller Corp., a Maple Grove-based operator of gravel pits around the Twin Cities, is trying to re-open an existing pit that has not been used in more than two decades. The pit is near the intersection of two state highways and while not visible from the river, it is in the valley of the St. Croix, a National Scenic Riverway.
The pit now is also surrounded by high-value suburban housing. Many of the neighboring homeowners are educated and articulate. That means a well-organized opposition, something that usually is much less prevalent when such projects go into lower-income areas.
Don’t be too quick to criticize these neighbors. Life is more pleasant next to an unused pit than an active one, and property values are higher. Nearly all of us would feel the impulse to oppose the actions of others that might hurt our interests. There is nothing wrong with people expressing their concerns in the public-policy process.
However, one must also recognize that society as a whole has an important interest in adequate sources of low-cost rock, sand and gravel. It affects the cost of commercial and residential construction, as well as public works projects like roads, streets and bridges.
Such aggregates have to come from somewhere. Ban a pit in Scandia and one may have to be opened in Lake Elmo. A different set of neighbors will be outraged, but the net effect on society will be no less. Force all such pits to locations outside of urban areas and you put more trucks on arterial roads, burn more diesel fuel and force dramatic increases in the costs of these vital materials.
There is ample economic theorizing about how outcomes that are optimal for society can be reached in situations that impose external costs on others.
Nobel Laureate Ronald Coase argued that ongoing or active government regulation was unnecessary for efficient use of resources as long as one strictly defined property rights at the outset. They can be defined so that one can do whatever one wants with one’s property, such as extract gravel. Or such rights can be defined so that one cannot do anything that harms others. If these defined rights are not respected, those harmed can bring lawsuits.
Either way, Coase argued, you have incentives for efficient resource use. (Fairness was not his priority.) Give business owners the right to do what they want and adversely affected neighbors have an incentive to bribe them to avoid such harm. If they are not willing to pay anything, the harm must not be great. Alternatively, give neighbors the right to veto offending uses, like gravel extraction, and business owners will have to pay off the landowners to be able to operate. Of course, the cost of this will be incorporated in the cost of their product. But that is the point, to reach a solution where the extra value to society of one more unit of something equals the total extra cost of producing it.
Coase is a hero to many libertarians, but his prescription is hard to implement in practice. It depends on good information and low transaction costs for bargaining or suing. But the general idea that it is better to have clear rules, agreed upon ahead of time, rather than resolving conflicts on a case-by-case basis, is an important one.
Land-use zoning was seen by economists as one practical way to reduce the economic inefficiencies of such situations. Consistency in applying zoning rules reduces the uncertainty of investment. The more interest-group muscle succeeds in circumventing the uniform enforcement of established zoning policies, the more risk there is in buying property for either personal or business use. That in itself wastes resources and reduces the goods and services available to meet society’s needs.
But even with consistent application of rules, some people will be harmed by legal uses. Government officials calculate that allowing a resumption of gravel mining will reduce the value of properties within a quarter-mile radius by up to 5 percent while the pit is active. Devotees of efficient market theory will argue that because the possibility of resumed mining existed when many of these landowners bought their property, they got it cheaper than if this risk had not existed. But that is the subject for a separate column.
© 2011 Edward Lotterman
Chanarambie Consulting, Inc.