More on the Rise and Fall of Urban Economies

by: Ryan Avent

Alec MacGillis has responded to my post on his Prospect piece in a blog post, and I think he’s misread me in a few ways. He says I have endorsed Richard Florida’s view

that many parts of the country have been hit so hard by the recession that they’re no longer worth trying to prop up.

That’s not accurate. My argument about struggling cities has nothing to do with the recession and everything to do with the agglomeration economics that generated their rise in the first place. What’s more, I explicitly call for countercyclical and adjustment aid to failing cities.

MacGillis returns to his criticism of Florida and my defense of him, saying:

I can see where Avent is coming from, though I don’t think his points ultimately hold up. But what really caught my attention is that he leaves unaddressed my main argument: Florida has been delivering his pricey sales pitch to the very towns he now declares hopeless. There’s a case to be made for helping people move from depressed areas to more prosperous ones — it is one side of a long-running debate over whether it’s better to invest in people or places. But it’s a bit rich for that argument to come from Florida, who got wealthy telling these places that they could be saved if they only followed his advice on attracting the all-hallowed young creatives. Many people in these places took Florida at his word and have been spending a great deal of money and time on following through with marketing campaigns, bike paths, loft development — you name it. Now that same person, the best-known urban development guru in North America, declares them goners. I find it curious that Avent doesn’t seem troubled by this…

Florida’s successful sales pitch alone was not my main concern, since “it’s a free market and the cities were willing buyers.” It was the pitch in conjunction with his latest declarations. That said, Avent seems a bit blithe here. For one thing, many of the cities shelling out money to him were not “major American cities” but smaller ones like Elmira, N.Y., featured at the top of the article. And in many cases, Florida didn’t simply leave cities to make their own judgments: He did all he could to turn his $35,000 speeches into $250,000 consultancies, in which he and his assistants spent months working with the cities, giving out specific advice such as to “identify and amplify organically evolving nodes of creative energy.” Finally, it seems to me that there are other occasions in which we find reason to object to salesmen taking cities for a ride, even if the cities are willing buyers — say, when investment firms sweep in to promise bigger gains for the local pension fund. Last time I checked, it’s journalists’ job to help inform cities and their residents what they’re getting for their money.

I don’t disagree in the least that it’s journalists’ job to inform people about things. It’s city leaders’ job to decide whether or not available evidence supports decisions they’re making about the future of their city. And I don’t see anything “rich” about the change of heart coming from Florida, or anything dastardly about it at all. As far as I can tell, he’s changed his mind — perhaps based on the trouble some of his clients have had getting his ideas to work — which is a perfectly reasonable thing to do. I don’t think there’s any evidence that Florida was deliberately scamming anyone or peddling ideas in which he didn’t believe.

What’s more, just because investments in struggling towns didn’t necessarily generate a wholesale turnaround doesn’t mean that the investments didn’t yield any return at all. Cities may be disappointed that they’re not a new Portland, but are they really filled with deep regret about their decision to become more tolerant, and artist- and bike-friendly?

MacGillis continues:

Cities are essentially being told that to be successful they need to be successful. Avent edges toward the implications of this closed circuit: “[T]he result is an urban geography that’s very lumpy” that will “decay into a world with haves and have nots.” But he stops short of fully grappling with this winner-take-all landscape. He does not engage the many Florida skeptics that argue that we don’t necessarily need to breezily accept this outcome. He also does not address the obvious fact that Florida, by calling for us to give up on whole swaths of the country and instead redouble our investments in the prospering creative hubs, is only exacerbating the disequilibrium.

No, I’ve grappled with it, and I think he’s misunderstanding the dynamic I’m describing. When I say haves and have-nots, I’m referring to concentrations of economic activity, not people or places. Not every city can be a San Jose or a New York — that equilibrium is not sustainable because it’s advantageous for certain kinds of activity to group together. If we try to force economic activity to spread evenly over the landscape, we’ll be saddling ourselves with some significant economic costs.

Think about the innovative cluster in Silicon Valley. Workers there move between firms all the time, spreading ideas and knowledge. They bump into each other while out and about, creating opportunities for moments of serendipity. They develop relationships with venture capitalists and other firms, boosting entrepreneurship. We know that these things are important because people and businesses are willing to pay very high land costs to be in Silicon Valley. In one sense, this concentration may not seem fair; why not try to get half of the agglomeration to move to Detroit? But on the other hand, the innovations that have come out of Silicon Valley have enriched people all over the world.

Now, it’s not impossible to create such agglomerations where they didn’t exist before. Silicon Valley itself is a product of government funding for education and research. Raleigh — a successful imitator and my hometown — began developing its technology concentration on the strength of two public universities and a public-private partnership to recruit high-tech firms.

But where Raleigh and Austin have been successful in developing human capital concentrations, many other cities have failed, not because they didn’t want it bad enough or because Raleigh and Austin have splendid climates, but because not every place can sustain such concentrations. As tech workers and tech firms have come to Raleigh, Raleigh has become more attractive for other workers and firms. Other imitators can’t compete.

These concentrations generate increases in societal wealth, and they needn’t at all manifest themselves as general income inequality. Meanwhile, I don’t think MacGillis has grappled with the implications of his complaint that investing in prosperous hubs “exacerbat[es] the disequilibrium”. Investments in prosperous places yield high returns, providing governments with more resources to use in other ways. And no one is suggesting we abandon whole swathes of the country.

I don’t think I could have been more explicit in saying that both countercyclical aid and adjustment assistance for struggling cities are justified. Investments in growing cities also help struggling areas by increasing the overall size of the national economy, and by creating more opporunities for migrants. And MacGillis needs to recognize that if you pour a ton of money into places that lack an underlying economic justification, you’re attracting a lot of people into cities that represent economic dead ends.

MacGillis goes on:

Florida rationalizes regional shifts precisely because they are “a healthy part of economic adjustment.” Florida writes, “Different eras favor different places, along with the industries and lifestyles those places embody.” Avent goes on to say that investment in the left-behind places is still justified, since many will stay in them, and since it is possible that in the natural course of things, a few of them could rebound. What should be avoided, Avent seems to suggest, are top-down, paternalistic investments that aren’t in sync with the natural economic flow, since “it’s never clear what transition is going to look like and what the right distribution of people and capital is going to be.”

But here’s the thing: Florida’s sorting of the country into winners and losers along with his declaration that the former should get the bulk of our investments is, in its own right, an assumption that we know “what the transition is going to look like.” This means making a judgment call about who will and won’t turn the corner, which history has shown to be a foolhardy endeavor. As Karl Stauber, head of the Danville Regional Foundation, said to me in a remark I had to trim from my piece, comeback success stories like Asheville and Chattanooga are not recognized as such until after the shift has happened. Where does one draw the line now? Does Upstate New York, for instance, make the cut? It’s been in decline for years, but Buffalo and Syracuse have weathered the recession better than many other cities. So, do they get to be part of the “new geography”?

I think the above argument quickly falls apart when one thinks about the details. A declining city suffers from a sinking tax base. This will lead to tax increases and service cuts, which are likely to chase away remaining residents, further shrinking the tax base and leading to a fiscal death spiral. This dynamic is painful for the people who remain, it may lead to them being trapped in the area thanks to plummeting housing costs and deteriorating educational standards, and it significantly reduces the likelihood that they’ll recover thanks to the natural economic ebb and flow. The solution to this is easy — you use federal money to make sure that the police force and schools are amply funded, you make sure money is available to care for or dispose of vacant properties, and you make sure the streets don’t fall apart and the pipes don’t bust.

Growing cities, on the other hand, need new infrastructure. New York’s infrastructure strains to accommodate its current population. This acts as a limiting factor on growth; choked subway trains and streets limit the extent to which the city can absorb new workers and create new wealth. Remove those constraints, and the city will employ more people at high salaries. There’s no picking of winners involved; you simply make the investments that make sense.

But what about something like high-speed rail for Detroit? Again, I don’t think these questions are particularly hard, or that they involve the picking of winners. Given a limited pool of money, you start with the highest yielding investments, because that will give you more future revenue with which to tackle other problems. So high-speed rail to Detroit would not be as high a priority to me as high-speed rail on the east or west coast, or indeed elsewhere in the Midwest.

At the same time, I think it makes sense to acknowledge the disadvantage that relative remoteness has had for Detroit. Improved connections between Detroit and more successful cities like Chicago and Toronto are likely to pay dividends. Essentially, you’d be shrinking the distance between Detroit and other large metropolitan economies, thereby increasing Detroit’s economic potential.

It seems clear, however, that the economic conditions that generated the Detroit of old no longer prevail. Trying to recover that Detroit would be hugely costly. Sometimes cities need to shrink, and many times workers and other resources need to be reallocated across the economy. Perhaps the problem here is that MacGillis is viewing a decline in population totals as a decline outright. I think it’s important to try and preserve a certain quality of life in shrinking cities.

It is not important or noble or good to try and ensure that a city never has any fewer jobs or people than it had 50 years ago. Cities are many things, but one of their functions is similar to that of the firm — they bring together people, ideas, and resources to produce valuable outputs. Sometimes a firm’s business model no longer makes sense. To use federal money to preserve the old shape of the firm would be hugely wasteful and costly, and unfair to the people the firm employed (and everyone else).

Should Florida apologize? Or be forced to pay back the money? Meh. Again, the man went from city to city encouraging leaders to be gay-friendly, to support artists, to encourage creativity, and to build amenities like bike lanes. Perhaps he was wrong to suggest that these measures would deliver an economic turnaround. I’d say he was less wrong about the secret to urban success than those urging cities to throw tax incentives at potential employers, or those suggesting that we ought to adopt an industrial policy aimed at returning Midwestern cities to manufacturing glory.

Moreover, I certainly hope that if I ever see that my ideas aren’t working quite as I thought they would that I have the courage to say so.