The common good in Penang's progress

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Our old concept of the public sector supplying basic amenities no longer holds, since the private sector now does a lot of what local authorities used to do. However, development that merely profits the developer and satisfies the consumer but does not contribute to the common good cannot really be called development.

Is development good or bad?

Private development, we are seeing with increased intensity in Penang, is actually a deal made between private business and its customers. Basically, it is a solicitor-client relationship – private profit for one side and the satiation of private consumption for the other.

But there has been much public outcry, because changes to the landscape can bring about environmental damage, traffic congestion, increased strain on the public delivery system and greater polarisation of the citizenry, isolating rich from poor. For these reasons, public appraisal of private development (presumably a role best played by the local authority) is necessary so that public costs and benefits are also given due consideration before private development can be given the go ahead.

The approval process, however, has led to controversy, judging from debates we read in blogs and other public media. Project evaluation and social benefit-cost analysis directed at public provisions of goods and services that would improve the welfare of folks prompted the preparation of “howto” procedural manuals on making choices between good and bad development funded with public monies1.

Today, many countries, including Malaysia, have re-evaluated public investment and are considering market efficiencies that can be achieved through private provisions. Even though the government still formulates five-year plans, the 10th Malaysia Plan (2011- 2015), the 13th of a long uninterrupted series, differs from previous development plans because the 12 national key economic areas (NKEAs) implemented under the Economic Transformation Programme or ETP are largely (more than 90%) funded privately rather than via public investments2.

Benefit-cost analyses of private projects, on the other hand, are basically financial feasibility assessments done by calculating benefit-cost ratios or internal rate of return (IRR) numbers that overlook both the wider implications as well as the impact on society’s overall welfare. The interaction of different conflicting interests in the common sphere leads to much confusion and therefore a common framework for analysis would be useful for sorting out the good from the bad for Penang as a whole. The idea is to highlight the distinction between private wants and collective goals. Being able to buy the things one wants depends on individual affordability, and so some will have more and others less. The collective goals, however, are for the common good, so that all can enjoy life together as a society.

Knowing what the collective goals are is recognisably a challenge, and so a progressive Penang will continue to struggle with the question of what the common identity is that makes us a community. Development that is good for Penang, albeit privately initiated, is therefore one that takes one step further in forging such an identity.

The common good revealed through community action

For Penang to avoid a development that is a free-for-all money-making frenzy and a satiation of private wants, both town planners and local authorities must be conscious of the need to pursue the common good.

The Penang Forum is a coalition of local progressive public-interest civil society groups that aims to promote democratic participation and sustainable planning and development in the state. Through events and campaigns a process of “consultation and consensus as a collective” is attempted, after which feedback is passed to the Penang state government. Many of the groups were involved in successfully campaigning and stopping the development of the Penang Global City Centre (PGCC) in 20073.

Then there is community action that also arises from residential associations, e.g. the Tanjong Bunga Residents’ Association which is active in local issues. In a posting on the association’s homepage on January 16, 20084, members were informed about the critical importance of looking out for notices by the local government soliciting feedback for local plans. A couple of months before, the draft local plan for parts of Petaling Jaya and Subang Jaya in Selangor were open for comments and public objections, yet the advertisements placed by the local authority were small and obscure.

Taking the time and effort to understand how development will affect one’s neighbourhood and then exercising one’s rights can help ensure that development also produces common good alongside private profits and private consumption. Giving public notice of draft plans is required under the 1976 Town & Country Planning Act (TCPA), to ensure public participation in the planning process. Authorities should thus have the interest of the public at heart and encourage feedback, not shun it.

The affected Petaling Jaya and Subang Jaya residents were asked to go out and purchase the plan, priced at RM100 a copy, and to read it carefully. They could then pool resources as a community and seek expert opinions on how the plan might affect them; their comments and objections were to be in writing and residents were to seek a hearing to voice their views; ideally, they would collectively draw up a master objection document and submit it on behalf of many for it to carry more weight; and also challenge unreasonable assumptions, statistics and projections, because if wrong numbers were used, the whole planning would be wrong. This is important, because once passed and gazetted, the local plan becomes law5.

The 1976 TCPA

The article which was reproduced on the Tanjong Bunga Residents’ Association blog was written by Derek John Fernandez, an expert in town planning law. He alluded to several aspects of the TCPA in which development practices appear to have skirted the moral aspects of the town planning law, even though from a technical point of view these practices remained legally compliant.

For example, Section 18 of the TCPA clearly states that land use and buildings must comply with the local plan, but any fresh local plan or revisions of existing local plans “shall not affect the continuance of the use of any land or building for the purpose for which and to the extent to which it was lawfully being used prior to the date when a local plan first came into effect in the area concerned6.”

Section 19 of the TCPA that follows then goes on to state that development cannot be undertaken unless planning permission has been granted. Note that Section 19 also says that planning permission will not be necessary if changes occur only in the building interior, do not affect existing building or land use, do not alter the external appearance, increase building height or floor area, do not alter drainage, sanitary arrangements or soundness or become inconsistent with the local plan, or if changes are only temporary.

Sections 18 and 19 of the TCPA thus seem to give emphasis to preserving the status quo of land use in existence, and if owners want to change things without approval by the authorities, restrict them to only the building interior, out of sight to others. Even when the authorities want to invoke a local plan, the spirit of the law is that care must be taken to protect the continuing land and building use already in existence. It is thus not enough to say that yes, one can seek planning permission to develop one’s own property the way one wants, because it is not necessary that the authority should freely grant such a permission.

Who controls whom?

At a recent local government forum7, one astonishing remark heard was “who controls whom – the government big businesses or vice versa?” Apparently, being proactive on public delivery, the federal government has reduced the period for rulings on environmental impact assessment (EIA) reports required for major development projects to two months (from six). This then reduces the period set for public inspection and rebuttals to only one month.

EIA reports are professionally prepared, which means that time is taken for data to be assembled and analyses to be conducted. Having one month to read, understand and rebuke a plan will not allow for a competent reassessment by interested parties when numbers in the report come into dispute. The point made by Derek Fernandez concerning rebuttals on local plans is thus well taken. Even though there is potential conflict of interest when developers themselves report what kinds of environmental impacts might be expected, there will not be enough time for interested parties to independently come out with alternative sets of data, given the shortened public inspection period. To give another example, George Town is a city developed when cars were rare, which seems to mean that little can be done today about insufficient parking spaces and delays caused by traffic jams. Learning from this experience, one would imagine that we would be smart enough to avoid the same problems when new townships are created. Not true. New townships are being built today using the same archaic principles. Few houses can accommodate more than one car even though residents tend to own more than one. Roads are too narrow to allow cars to be parked on both sides; blocked traffic in turn causes congestion and economic costs from delays.

It’s bad enough that we cannot solve today’s problems; yet we are adding more problems that will need solutions in the future. The reason, we are told, is that the rules are set this way. Road width specifications away from the main routes in housing estates are like that. Narrow ones can be legally built and there is little that regulators can do to reject these when plans are submitted.

Wider roads help but it will mean less land left for development. Who then has more control when it comes to development in Malaysia – the government or big businesses?

The situation is not the same in the UK, on which many Malaysian laws, including the TCPA, are based. Consider the story posted by Clutton Cox8. A pensioner in Somerset had painted the front door of her house a light shade of blue, when all other houses in the area had doors traditionally painted a particular shade of yellow. The local South Somerset District Council objected and ordered the pensioner to repaint her door to the original colour. The owner then sought, unsuccessfully, to have the new colour retrospectively approved by the Council. A legal dispute, challenging the decision of the planning inspector, went on for the following two years. In the end, the owner was served with an enforcement notice and ordered to pay £50 in costs after agreeing to reinstate her front door to its original colour.

It’s not just heritage buildings that are subject to stringent building guidelines. Fairford Leys is a modern high density housing estate about 40 miles from London. The development guidelines for alterations to all freehold properties contain passages that read, “…must use materials and details matching those of the original building”, “removal or adaptation of existing front porches is not acceptable and the addition of new front porches will not be approved”, “painting of fairface brickwork is not permitted” and “replacement of external doors will only be permissible if the original pattern and colour is maintained”, plus a host of other restrictions including “no aluminium nor steel windows are allowed9.”

Placing emphasis on the common good

The UK examples of legal tussles over development issues with the authorities involve weighing individual freedom against collective standards or norms. The authorities, we see, are vigilant in preventing individual wants from encroaching into the norms found in public space. Section 19 of Malaysia’s TCPA holds the same spirit, even though public enforcements here do not appear to do so.

In Penang, after months of protracted debate with the government, the Tanjong Bunga Residents’ Association sought legal clarification whether Tanjung Bungah is in the primary (in which case, the density limit is 30 units per acre) or the secondary corridor (density limit of 15 units per acre) outlined in the Penang Structure Plan, which was gazetted on June 28, 2007. However, the High Court ruled to strike out, with cost, the application by the residents, stating that the residents did not pursue the right mode of action which meant going through a judicial review instead of filing an originating summons against the local authority10. Regardless, the choice density limit of any area should have been collectively set, after which the role of government is to enforce such norms. In Tanjung Bungah, the local authority, backed by the court, set one standard, but the people in the area think otherwise.

The matter is, of course, not so simple. Land is precious in Penang and increasing densities will offer greater access to housing for non-Tanjung Bungah residents. If this is the case, then the local authority cannot act independently. Instead, it must seek a mandate from Penang people that densities have to increase at selected locations. The law provides for this through the structure planning process and the institution of the local plan.

The draft local plan has been in existence for some years. It was passed by the Penang Island Municipal Council (MPPP) at the end of 2008. A year ago, Tan Seng Chai, a spokesman for the Coalition for Good Governance Penang (CGGP), asked for the local plan for Penang to be released (downloadable for free) to the public and to allow a minimum of three months for public feedback. The Coalition would also be able to help organise briefings, dialogues and training sessions to residents’ associations and other interested groups11. One year later, this important document remains hidden from public scrutiny. The local plan is not a tool of government power. It is instead, an expression of collective social choice, mandated by public consensus to be then enforced by the authorities in the form of policy for the pursuit and the protection of public good.

Power to the people

Will yesterday’s residents’ associations become tomorrow’s local governments?

Penang has, since the country’s independence, been ruled from the centre by people who are hardly in “door-to-door touch with the people who voted for them.” Authorities who are in tune with the aspirations of local folks are thus wanting. Yet, desperate for a say over what goes on in their own neighbourhoods, people are turning to volunteerism and community support instead of their elected representatives in government. What has happened is that local government plans may have swayed far away from what local folks actually want.

Public appraisal of private development

We need to tell ourselves that the government in a civil society is meant to do little beyond being referee. The government’s role of directly supplying goods and services has been reduced because of market efficiencies achievable through private delivery. Distinguishing specific development projects as belonging either to the public or to the private sector, however, poses a challenge.

In an account by Devarajan, et al. (1997)12, development that is profitable at market prices implies that similar public provisions will not yield additional benefits to society. The government need not bother about such development other than to ensure that there will be no added social cost for the rest of society to bear. At the other extreme, pure public goods have little prospect for private provisions and therefore the usual IRR basis for project appraisal has to be set aside and decisions taken will depend instead on national priorities.

Matters such as public delivery of national defence, public healthcare and education have to be ensured regardless of cost-benefit ratios. Appraisal of public projects is thus relevant for only those “in-between” types of development where market failures occur. Even for such goods, it does not necessarily mean that public provision is the answer, because this would entail price and quantity distortions from public finance via combinations of taxes and public borrowing.

Returning to the referee’s role of the authorities, the first concern is to ensure that plans submitted for development comply with engineering and safety standards and other stipulations found in by-laws and building codes. Second, public appraisal of private development is also to ascertain what the resulting social costs and benefits are when the plan has been fully implemented. If regulations are written in such a way that it protects private development from giving rise to additional social costs, then these two roles merge seamlessly into one. In the given examples from the UK, the regulations, which are vigilantly enforced, prevent private expressions of development from altering the prevailing norms found in the area.

In the case of Malaysia, even though Sections 18 and 19 of the TCPA aspire to similarly preserve the status quo of current land use, how the local authority goes about deciding on planning permission sought under these sections of the law is less clear. It may be that the local council merely looks into aspects of engineering and safety standards but cares less about the impact on current uses of surrounding land and buildings. True, the council does dutifully invite objections, but from the discontentment voiced in the media, one can’t help but gather that the developer usually comes up on the winning side by successfully securing planning permission.

A basis for granting planning permission

Benefit-cost analysis is a “with and without” comparison to account for the collective social costs and benefits if a particular development occurs against current circumstance, that is, without the development. Private costs and benefits of the project are ignored, because these will not be publicly disclosed anyway.

The rationale is that if private development increases its private costs to mitigate all the additional social costs, then private benefits will not come at the expense of the rest of society. More often, private costs are reduced to the bare minimum, ignoring (or externalising) social costs; in which case, private benefits from private development result in so-called externalities (social, economic and environmental costs) to society.

This is done to let buyers enjoy private benefits more cheaply and at the same time increase profits for sellers. When this happens, the task of mitigating the unbearable social costs, to the extent that is possible, falls on the government and has to be remedied by public expenditure. In other words, as private developers make profits and their clients enjoy the benefits, the rest of society pays for the externalities. This cannot be sustained indefinitely.

Competent public appraisal of private development means that developers submitting plans must consider the externalities their projects create, because what they or their customers do not pay (private cost), the rest of society has to (social cost), hence the reason for public outcry. Approval of private development must be based on the principle that costs are internalised within total private costs and would not give rise to social costs.

Private sector provisions of public goods

Being able to fully internalise all development costs as private costs and creating no externalities would be ideal, but unfortunately this is only possible in theory. In practice, private costs and benefits are spent and enjoyed within the confines of a development project but social costs (and social benefits) would be impossible to contain and are likely to be diffused over a large area. Mitigation within a project would not succeed even if the project proponents were willing to pay for it.

The solution lies in sorting out the difference between individuals and everyone in society as a collective. Economists found it convenient to regard externalities (i.e., the part that individuals ignore) from individual private consumption as a form of market failure. We used to think that social, economic and environmental issues can only be effectively dealt with by the government. Seen in this light, government existed to ensure the delivery of public goods.

In the past couple of decades, however, there has been an emergence of research on private sector provisions of public goods that required some tinkering to the basic notions of economic analysis through the introduction of values such as altruism and non-profit13. Prospect of delivery by groups such as nongovernment organisations (NGOs) is also considered whereas previous analysis has restricted delivery of goods and services by only either profit-making private companies or by the elected government.

The idea of pooling funds from many different sources for a common solution for everyone might turn out to be an effective approach to ensure delivery of public amenities. Lee Chor Wah, president of the Malaysian Institute of Architects, said that “people shouldn’t oppose development” but they should get the developer “to give something back to the community14”. For example, developers are expected to also provide minimum parking space when they submit planning permission, but sometimes it is more efficient to pay a penalty fee in lieu of sufficient parking space. This is not as sinister as it sounds, because car parks may be better sited elsewhere away from the proposed development.

Traditionally, people look to the local authority to supply public infrastructure including car parks, green parks, recreational space and other public amenities. The catch is public amenities are costly and the technical expertise employed by the government have long played the planning supervision role rather than design them. Why not also let private planners, architects and engineers work on public amenities?

In contrast, the private sector today can also provide public goods. This has been referred to as the next generation of corporate social responsibility or CSR15. It is not a role that implies corporate generosity. Instead, private delivery of public goods is one way to transfer social cost that had arisen from private development into private cost as a mitigating measure.

There are RM2bil worth of upcoming new properties in Penang announced on the Property in Penang homepage (Table 1). With such massive development distributed throughout Penang these projects cannot be expected to mitigate all the external social costs within their respective sites. Meanwhile, the local authorities have to plan and develop the surrounding areas so that overall land use is rationalised, keeping Penang functional and efficient.

Rather than each piece of development proceeding independently and ignoring the rest, everyone should be made to sit at the same table so that while projects are designed for the benefit of house buyers, the land use for the entire Penang is also designed at the same time. Whether we call this public-private partnership or CSR, the result is: buyers get to buy their dream homes, private businesses get to make money and at the same time help contribute to economic growth, while the rest of us get to see aesthetic changes by way of improved social amenities in the state.

Setting five per cent of RM2bil aside for offsite development would create RM100mil worth of funds for this task. It is time for Penang’s town planners, both public and private, to get their act together.

Conclusions

The urban public in Malaysia is today more engaged, wanting more say about development in their neighbourhoods, making unclear the distinction between regenerating existing “brownfield” land use and the development of new “greenfield” spaces.

It’s time for an end to petty bickering among the community, private business and the government because development is good and something that everyone wants. What is built and how we go about it, however, needs more consensus that will satisfy business profits (that drive the nominal rate of growth of our economy and help improve welfare over time) and private consumption (better living standards), and yet deliver public goods (social, recreational and other amenities). Our returning to nature may not be a bad idea actually, but the way society is heading, development properly carried out remains the path towards fulfilment of a common good.

1 Partha Dasgupta, Stephen Marglin and Amartya Sen (1972), Guidelines for Project Evaluation, New York; I M D Little and J A Mirrlees (1974), Project Appraisal and Planning, Heinemann, London; Lynn Squire and Herman van der Tak (1975), Economic Analysis of Projects, Johns Hopkins; J Price Gittinger (1972), Economic Analysis of Agricultural Projects, The Economic Development Institute, World Bank and Johns Hopkins University Press; Robert Dorfman (1965), Measuring the Benefits of Government Investments, Studies of Government Finance, The Brookings Institute Washington DC.
2 The first five-year development plan was called the Draft Development Plan, 1950-1955. On the ETP, see www.epu.gov.my/ html/themes/epu/html/RMKE10/ img/pdf/ etp.pemandu.gov.my
3 http://penangforum.net/about/
4 Derek John Fernandez,"Residents lament loss of open space”, http://tanjongbunga.blogspot. com/2008_01_01_archive.html
5 Ibid.
6 1976 Town and Country Planning Act (Act 172), Section18 (3).
7 December 12, 2011 at Cititel Penang, chaired by YB Chow Kon Yeow.
8 Clutton Cox (2011), “Planning permission for listed buildings: black and white or yellow”, www. yell.com/solicitors/blog/planningpermission- for-listed-buildingsblack- and-white-or-yellow
9 www.environ.ie/en/.../ BuildingStandards/ FileDownLoad,20692,en.pdf; www.coldharbour-pc.gov.uk/ download/FLguidelines.pdf
10 http://bfrapenang.blogspot. com/2011/05/sad-day-forresidents- of-tanjong-bungah.html; http://tanjongbunga.blogspot. com/2011/08/higher-densitiesdespite- penang.html
11 “Make draft of Penang Local Plan accessible”, The Star, January 27, 2011. http://thestar.com.my/metro/story. asp?file=/2011/1/27
12 Shantayanan Devarajan, Lyn Squire and Sethapui Suthiwartt- Narueput (1997), “Beyond Rate of Return: Reorienting Project Appraisal”, The World Bank Research Observer 12 (1): 35-46.
13 See survey by S Rose-Ackerman (1996), “Altruism, Non-profits and Economic Theory”, Journal of Economic Literature XXXIV:701-728.
14 Jade Chan, (2009), “Residents offer views and ideas on urban renewal programme”, http://thestar.com.my/metro/story. asp?file=/2009/5/6/central/3818712&sec=central
15 Watson Institute of International Studies, Brown University, lecture series, www.watsoninstitute. org/event_type.cfm?id=68

Chan Huan Chiang is a senior research fellow at the Penang Institute.



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