Gigafactory, NIMBY, and Future of Ostrava

Adolph von Menzel: Building Site with Willows // Public domain

Ostrava is an often overlooked region in the Czech Republic, facing a very difficult and uncertain future over the next decades. The region has historically been entirely dependent on coal mining, which is an unenviable position at present time, as the mines are being closed.

Mining has historically made it the industrial backbone of the country, but heavy industry is currently in decline. The part of Czechia with Ostrava (called the Moravian-Silesian region) has long had the second-highest unemployment rate of all regions in Czechia. It is one of the three regions with a declining population (and the loss of skilled labor is a particularly big problem). Gross wages in the county are below average compared to the rest of the country.

However, in addition to these problems, Ostrava has had other, more pressing problems in recent months. In the village of Dolní Lutyně (a village with about 5,300 inhabitants bordering Poland), an offer to build a gigafactory on a green field appeared. The offer came from an unknown investor.

Fortunately, the heroic local patriots rose and gave this giant, which promised to moderate the regional dependence on mining, provide jobs for the skilled and unskilled, offer above-average pay for employees, ensure construction without significant damage to the environment, and build local infrastructure, a clear referendum saying ‘No! Nothing will be built in my backyard!’ The referendum in the village of Dolní Lutyně took place on June 7 and 8, 2024, together with the elections to the European Parliament. In the election, where more than half of the electorate voted, 88% of them expressed their opposition to the selected area being offered for the construction of a business park.

NIMBY – Not in My Backyard!

Before we delve deeper into the details of the gigafactory construction offer in Dolní Lutyně, let’s take a brief look at the acronym NIMBY. NIMBY is the often-used acronym for the phrase “Not In My Back Yard!”.

It refers to a situation in which people are asking for a public benefit project to be built, but at the same time are opposed to the project being built near them because it may (either in the short or long term) reduce their comfort. We all know that water treatment plants are necessary, yet few of us would be in favor of a proposal to have a water treatment plant built next to our backyard.

While the attitude of the locals in these cases is understandable and we can sympathize with them, we must not forget that in most cases their fears are irrational and only hinder the overall development of the region. Neighbors, as mere neighbors, do not have the right to decide how the owner of the surrounding land will make use of it.

A water treatment plant is generally beneficial to its surroundings and its neighbors, so it must be built somewhere. By blocking its construction, we will only add to the problems. So if the investor owns the land to build it, the best solution is to build it (and possibly compensate residents for short-term discomfort).

As another example, consider a homeowner with a large garden who one day decides to sell part of his garden to an investor to build more houses. When he confides this plan to the other neighbors, they are, of course, against it. They argue that they do not want more new buildings near their homes, that they will have to listen to the noise of the construction, and that this will reduce the price of their homes. In this case, however, the owner of the garden is selling his land, which his neighbors have no right to. The neighbors, therefore, should not have the right to prevent him from selling his garden to build a house, and the investor should compensate the neighbors for the noise of the building and other short-term inconveniences.

However, the problem arises when the land being considered for sale is in public ownership. In this case, the surrounding neighbors, who would not properly object to construction outside their land, may block or stop the construction. They can appeal to the public authorities to prevent the construction. They can persuade their representatives to preserve their vision of the neighborhood. And they can vote 88% against the project in a referendum on a project that could help the region’s key issues.

Ineffectiveness of Municipal Planning

Even so, I do not envy politicians and town officials for their task of deciding how to make use of each piece of commonly owned land.

Consider this hypothetical example. You are a civil servant in the municipality of Lodní Huryně and your task is to decide how to deal with a plot of land of about 100 hectares. For the time being, there is only grassland on this land. The land is not far from the town center, so it could be an industrial zone. However, the residents of Huryně are vehemently opposed to this. We could use the land as a small airport – the locals are in favor, but you know that most people do not travel to Huryně from far afar, so building an airport would not attract many new visitors to the town.

At the same time, some locals tell you that they like to walk their dogs on this land, so it should not be touched at all. The town needs to build a new hospital, a new shopping area would be handy, the kids want another playground, parking is needed, and it seems like every other visitor has their own new idea on how to use the land.

The problem seems intractable. You have no clue what to hold on to. How about a referendum? But who is going to vote? If only the immediate neighbors vote, they will oppose any interference. With a town-wide vote, the hospital or the parking lot would win. A vote including the neighboring towns would result in the win of the industrial estate. Not to mention that people who have no objection to the building have less incentive to go to these referendums than the neighbors closest to the property who want to prevent the building. We are in a stalemate and cannot discern which choice will deliver the most value to the people.

This problem is also known as the problem of economic calculation. Its author was the Austrian economist Ludwig von Mises in the 1920s. In his article Economic Calculation in a Socialist Community, Mises explains why any economic decision-making in the absence of prices is doomed to inefficiency.

A price is formed on the basis of a subjective evaluation of a particular good by actors in the market. If the neighbors of an empty lot in the town of Huryně value a piece of land so much that they can pay 1.2 million for it, then it has a high subjective value to them. An investor whose plan is to redevelop the land into an airport would be willing to offer 0.8 million for it.

If, however, an industrial investor is willing to buy the land for more than 1.2 million, then his expected profit is so high that he will outbid everyone else and will probably be able to dispose of the land in a way that will provide the most value for his customers. The investor would create services satisfying people’s needs so much, that they would pay him more than was the initial input. This way, the market is almost always able to transfer ownership to those who will most likely fulfill people’s needs. That is, in the way that other people value most – both with their values and with their wallets. In a free market, therefore, when deciding how best to use a piece of land, all that is needed is to sell the land to whoever is willing to buy it at the highest price.

Solution: Let People Build

However, the business park in the real town of Dolní Lutyně is not the only victim of the NIMBY phrase. There are many victims in Dolní Lutyně and the surrounding towns alone. The neighboring Orlová, like many towns, has had parking problems for years. Yet any proposals to create new parking spaces are thrown off the table in a heartbeat because no one wants to be disturbed by construction under their windows and have to listen to cars driving by at night. Many of the country’s larger cities are in a similar position. In nearby Karviná some nonprofits are interested in providing programs to help drug addicts, but no one wants these centers set up in their neighborhoods, so the city districts push them away.

However, the most obvious NIMBY problem is in the real estate market. The example of selling land to an investor in the second part of the article was chosen deliberately. The price of housing is rising, especially in big cities. The culprit is largely (apart from the over-regulation of new build projects) NIMBY. Neighborhoods block the construction of new projects because it would reduce the price of neighbors’ properties, or they argue that new projects will change the character of the neighborhood. It is just that the price of housing keeps going up and up. We simply cannot solve the problem of a shortage of housing and homes except by building.

Back to Gigafactory

For those interested in the issue of the gigafactory in Dolní Lutyně, I recommend watching the video recording of the debate with citizens on the strategic business plan from the end of March 2024, in which representatives of the region, Czech Ministry of Industry and Trade, and CzechInvest debate the project with local citizens.

Basic information is also available on the project website. There we learn that the investor, in cooperation with the region, plans to build noise barriers by the railway, build a new water treatment plant, build flood protection for the village of Věřňovice, build new roads, create a new public park, and other amenities if the project is implemented. All in cooperation with environmental associations.

The first phase of the project alone offers about 1,200 places for people with high school diplomas and 200 places for people with university degrees. Both are groups in dire need of job creation following the decline of heavy industry in the region. By comparison, the part of Dolní Lutyně called Věřňovice, near which the site would be located has only about 600 inhabitants.

In the second phase of the project, up to 5,000 additional jobs were to be created. A large investor is also able to strengthen the local economy by secondary job creation and by inspiring other entrepreneurs. Some objected that a forest would have to be cleared to build the site, but I would like to add that the forest occupies only a very small portion of the area and is located between fields. Věřňovice has wooded areas closer to its center.

The investor offered to build a park and compensate for the environmental damage. Václav Palička from the Moravian-Silesian Investment and Development organization commented on the future of the region in the above-mentioned debate: “It is not about surviving only on subsidies for the future, but we need to strengthen investment and private capital completely so that the economy grows.”

Although there are some reasonable arguments against the construction of the gigafactory, the proponents were met with comments like “Cancel it!”, “Go home!” and “But we do not care” (these are shouts cited from the debate). However, by canceling projects we are only prolonging the problem, by sending investors home we are only rejecting useful opportunities, and by lack of interest, we are only damning the Ostrava region for years to come.

The Ostrava region will not survive in a reasonable form in the future unless it adapts. It can only adapt through the creation of new projects and by accepting investors who are willing to invest capital in the future of this region.

Written by Ondřej Chlubna, a Students For Liberty local coordinator in Brno.

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