In this work I attempted to explore the problem of market failure and its consequences within social dimension of sustainable development, in particular, for heritage property – man-made market and non-market goods with cultural values, and identify the ways of designing effective public policy in preservation cultural capital for present and future generations.
Properties (buildings and private apartments) are both excludable and rival goods, as “property rights” are given to a single owner or group of owners. The owner has a right to establish a monetary value and sell his property unit for a price that is agreed between 2 parties: seller and buyer. The price reflects the willingness of each party to make a transaction. In the market the buyer who values the most or pays the most becomes a new owner of the property. “Value” in this context is expressed in money equivalent, a buyer who values a good but cannot pay off its monetary value drops off the market. When supply meets demand the market works out its main function – resource allocation. At this point it’s clear that the market disregards people with low income who could potentially place higher value to a good but unable to participate in the bid due to limited purchasing power.
The laws of free market raise ethical issue around fair distribution and indicate market failure. This is especially true for assets with cultural values.
When residential property acquires a special status of “heritage building” it becomes private and public good at the same time, which adds more complexity. From a legal perspective, the rights don’t change significantly. The owner might be exempt from paying a housing tax as an incentive for maintaining the property in a better way, but at his own cost. The policies differ across the countries. In most of the cases the owner is committed to maintain the Heritage standards of the building and bear the costs of maintenance. The local government might subsidize restoration works of the facade or entire building, depending on the local law.
In Bogota, Colombian capital, financial burden of maintaining the building and its facade, became the main reason behind emergence of abandoned houses around the city. The residents simply cannot afford expensive maintenance and soon realize that leaving the property or selling it is the most practical decision. Despite government’s support in terms of tax exemption, private owners of heritage property still struggle to comply with standards and maintenance requirements. In Bogota the question of having too many heritage buildings was raised in attempt to reduce economic costs and rationalize the scale of preservation.
What is specific to most heritage buildings the owner and his family have strong connection to the property itself. The property is likely to be inherited through generations, and separating the owner from the property violates integrity and interrupts the cultural flow.
Heritage building is not viewed as architectural structure only. Besides aesthetic beauty it conveys sense of uniqueness and integrity. Cultural values have multi-dimensional character. Thorosby (2001) defined the following elements of cultural heritage: Aesthetic Value, Spiritual Value, Social Value, Historical Value, Symbolic Value and Authenticity Value. Very few of these values could be translated into monetary terms.
Some heritage properties are donated by owners to the city, and turned into museums. In this case, the property becomes non-excludable and non-rival. We know that public goods are often underfunded, as community has open access to the benefits of publicly-owned heritage and is not incentivized to invest in it. In some countries, due to lack of public funds and government inaction, this leads to poor management of the property and its degradation.
Solutions to preserving cultural heritage
Government intervention and policy making is required for preserving cultural values of heritage, as the market fails to embrace complexity of the values. Governments can use monetary tools such as taxation or public expenditure, as well as regulatory tools. Non-monetary methods include education and awareness campaigns to promote heritage conservation and enhance cultural values. Listing of heritage is another regulatory instrument that provides information about the social value of heritage and stimulates public interest to preserve the site from the list. The government needs to ensure that its decisions have positive impact on the community, and encourage participatory approach and stakeholder engagement. It is important to collect and analyze broad-base community inputs in decision making and policy adaptation. For top listed heritage sites it should involve a wide advisory board of specialists such as historians, archaeologists, cultural and education specialists and others. For museums and heritage sites a local community can organize fundraising campaigns and encourage local, national and international investment.
Both cultural and economic return on investment can be measurement of successful policy, but should not be limited to it.
Heritage does not have depreciation cost, as the value rises with the time in most of the cases. However future decay is possible. Cultural heritage is not a renewable resource in the context of its historical value, however new stock of cultural capital that will acquire heritage value with the time may replace some of the stock.
The market failure described in this work is ineffectiveness of the market to efficiently allocate the resources and solve the problem of Heritage preservation. If people are motivated by self interest and profit maximization only, public goods will be under-provisioned and may cease to exist at all, as a result, the community may lose entire stock of cultural capital. Psychology of free rider makes implication on sustaining the funds yielding cultural benefits. Whether heritage asset is private or public, the government should play a major role in regulating the stock of cultural capital, protect heritage buildings and sites and raise public awareness and education.
- Personal interview with Heritage conservator Felipe Guitierrez from Colombia in Dubai