Everyone can’t have what they want

Even in a free market, one-way ratchets limit our choices

There’s a phenomenon I keep noticing that I think need a label. It explains (fully or partially) why sometimes, even when a large percentage of people want something, they can’t get it. It’s related to network effects, and is a kind of path dependency. But the specific thing I want to describe is narrower. I’m going to call it a one-way ratchet.

The best way to describe this is with a few examples.

The original network effect

A single telephone is useless — there’s no one to call! Two telephones are barely useful. But as each new person got a phone, the value of owning one increased for everyone already connected. That’s the network effect: each new user adds value for all existing users.

By the early 20th century, this effect made AT&T into a natural monopoly so complete that the U.S. government regulated it as a utility. No competitor could gain a foothold because no one wanted to join a phone network where they couldn’t reach everyone else, and everyone else was already using AT&T.

But that’s not the only way a market can collapse toward a single option.

Cash

From the individual perspective, it makes no difference how anyone else pays for things. Neither your cash nor your debit or credit cards “work better” or “do more” when more people use them.

According to the Federal Reserve, cash, credit, and debit are all about equally popular. More than 90% of consumers say they intend to keep using cash, and nearly 80% carried cash on their person during any given month. You’d think that in a free market with three equally popular payment methods, merchants would be happy to accept them all.

But despite the general popularity of cash, as the majority of purchases move to credit and debit cards, it’s becoming common to find merchants that don’t take cash at all. That makes cash less useful, which forces some people who would rather use cash to have a card as well, which gives merchants even less reason to deal with cash.

The feedback loop looks like a network effect, but the cause is different. It doesn’t happen because users benefit from other users. It’s caused by the cost of maintaining two systemswhen having only one would be easier and cheaper. And so this effect is playing out, even though the change is so unpopular that some cities and states are now passing laws to stop it.

Cash and cards are mostly symmetrical. No matter how you pay, the value of money is the same. Almost anything you can use one for, you can use the other for.

When the options are asymmetrical, this effect is even more powerful.

Smartphones

More businesses and institutions are moving to web and mobile apps as their only interface. Ninety-one percent of U.S. adults now own a smartphone, so our whole society has started treating the smartphone as the default interface, ignoring the people who don’t have them.

This is a lot like the momentum to converge on cards over cash, but with one key difference. A person with a smartphone can still pay in person, read a paper menu, and use a printed ticket. But if you don’t have a smartphone, you can’t use a parking app, scan a QR code menu, pull up a mobile boarding pass, etc. The substitution is strictly one-directional. That’s the one-way ratchet.

This effect is inequitable for adults, but painful for parents and children.

The majority of parents would prefer their children not have phones before age 14, but the 81% have one before age 12. Two-thirds of parents report feeling pressured to give their children smartphones. My wife and I have felt that pressure for our kids. As their friends are getting phones, more of their activities assume they have one. The logistics will keep getting harder, until we’ll eventually have to get each kid a phone, lest they be excluded.

That’s the one-way ratchet at work. In this case, a majority would prefer not to need phones for their kids, but those who are able will buy them anyway because the one-way substitution makes it too costly not to opt-in.

Driving

Before cars, cities were pedestrian-oriented. How else could they be? But as automobiles arrived, cities began to change.

It’s worth noting that automobiles were controversial. Most people were happy with their lifestyle and logistics. Cars were expensive, and many people didn’t feel they were worth the cost. People were also angry about cars speeding through their neighborhoods and running people over. There were anti-car protests, and proposals to ban them from central areas, or require governors to limit their speed.¹

But the number of drivers increased, cities changed. City and state governments widened roads. Property owners tore down buildings to make parking lots. Each accommodation for the new driving minority made driving better and walking worse, which nudged the walking majority toward switching.

The biggest ratchet was building new places that you couldn’t reach without a car. Driving could substitute for walking, but walking could not substitute for driving. Developers started building subdivisions without sidewalks, set-back strip malls, and cul-de-sacs miles from the nearest streetcar stop.²

As people who preferred the early suburbs moved out, the friends and family who preferred to stay in the city nevertheless had stronger and stronger reasons to eat the cost and get a car.

This is fascinating because cars actually have an inverse network effect. Every other driver on the road is in your way, causing traffic jams and making it harder to park. The more people started driving, the worse everything got. But once the government prioritized cars, degrading the pedestrian environment in cities and requiring car-orientation for all new development, there was no going back.

That one-way ratchet explains how we could end up with a situation like the one we have today. Around half of Americans would prefer to live in a highly walkable area and not drive or minimize driving, but only 8% live in an actually walkable neighborhood.

The ratchet makes it nearly impossible for cities or developers to respond to this demand. Suppose you owned a 4ac vacant lot within an old, walkable city. You could fill it in with more walkable mixed use, or you could plop a big box store on it, either one could work. But if you owned a 4ac vacant lot in the suburbs, you couldn’t build anything walkable on it because it’s not connected to a walkable surrounding context. There’s nothing to walk to! Your option is car-oriented or nothing.

Now that America’s old, walkable neighborhoods have been surrounded by car-only development, we basically can’t create new walkable development, unless we build whole new towns from scratch. That’s really hard, so it rarely happens.³

What makes the one-way ratchet worth naming is that it reveals a limit of free markets. Nobody has to conspire to eliminate the minority (or majority!) option. No regulator has to mandate it away. The system just gradually stops serving a category of people. The ratchet only turns one way, and once that happens, it’s very, very hard to go back.

1. For an extended look at the history of this transition, I recommend Peter Norton’s Fighting Traffic. He extensively documents the public hostility to automobiles in the 1920s. Cities held mass mourning events, and raised monuments to the children killed by cars. But the auto industry fought hard to redefine streets as belonging to cars — even coining “jaywalker” to shift blame for pedestrian deaths from drivers to walkers. The ratchet didn’t just turn on its own.

2. Many early suburban developers — particularly in the 1920s and 1930s — explicitly designed subdivisions to be accessible only by private automobile. The absence of transit access marketed as a feature to white, middle-class buyers who associated streetcars and buses with the working class and racial minorities.

Later, car-orientation became mandatory, as zoning codes required parking minimums, large lots, and separated-use districts, and the FHA’s underwriting standards mandated wide streets and low density — making walkable development impossible to finance with federal backing.

3. The New Urbanists have pulled this off, to some degree, in a number of master planned communities. But those end up being isolated pockets, because they assume that everything that is subsequently built around them will be car-oriented, so they intentionally wall off the walkable development rather than extend the streets to the edge of the development so the pattern could extend into neighboring properties. It’s a self-fulfilling prophecy.