An article on the ascendancy of the large city in the 21st century:
In the early 20th century, American cities were industrial powerhouses that were fed by natural resources extracted from the rural interior of the United States. The ties that once bound the city to the hinterland have now been severed. Materially, big cities have detached from the surrounding region because they can now be supported with natural resources from around the world; intellectually, big cities are now interconnected with one another as they focus more on services.
The companies that now drive the Bay Area’s soaring wealth — and that represent part of the American economy that’s booming — don’t need these communities in the same way. Google’s digital products don’t have a physical supply chain. Facebook doesn’t have dispersed manufacturers. Apple, which does make tangible things, now primarily makes them overseas.
“These types of urban economies need other major urban economies more than they need the standardized production economies of other cities in their country,” said Saskia Sassen, a sociologist at Columbia who has long studied the global cities that occupy interdependent nodes in the world economy. New York, in other words, needs London. But what about Bethlehem, Pa.?
Such a picture, Ms. Sassen said, “breaks a past pattern where a range of smaller, more provincial cities actually fed the rise of the major cities.” Now major cities are feeding one another, and doing so across the globe.
Ram Mudambi, a professor in the Fox School of Business at Temple University, offers an even more unnerving hypothesis, in two parts: The more globally connected a city, the more prosperous it is. And as such cities gain global ties, they may be shedding local ones to the “hinterland” communities that have lost their roles in the modern economy or lost their jobs to other countries.
Today, major cities are where knowledge workers gather together. Their interaction with one another has a magnifying effect that dramatically increases their productivity and draws in other professionals and creative types. There is no substitute for a metropolis as an economic engine fed by the presence of white-collar "symbolic manipulators".
Cities full of highly educated workers like Boston, San Francisco and New York began to pull away. And that pattern, Ms. Giannone finds, has been driven entirely by what’s happening with high-skilled workers: When they cluster together in these places, their wages rise even more. That widens inequality both within wealthy cities and between wealthy regions and poorer ones.
“Big changes have been happening over the last 30 years,” Ms. Giannone said. “Now we’re actually seeing the impact of them.”
Those changes have come from multiple directions — from globalization, from computerization, from the shift in the United States away from manufacturing toward a knowledge and service economy. These trends have buffeted many smaller cities and nonurban areas. The uncomfortable political truth is that they’ve also benefited places like San Francisco and New York.
“The economic base has shifted in a way that highly favors cities — and big cities — because it’s now based on knowledge, on idea exchange, on agglomeration,” said Mark Muro, the policy director of the Metropolitan Policy Program at the Brookings Institution.
Programmers benefit from having more programmers nearby, in ways different than whenassembly line workers gather together. The forces of agglomeration, which big cities enable, are strongest in the kind of knowledge work that has become central to the economy.
Major cities also benefit from their connections with other major cities.
The advantages bestowed by the global economy keep compounding from there. Research by Filipe Campante at Harvard and David Yanagizawa-Drott at the University of Zurich finds that when two cities are linked by direct flights across the globe, business links between them increase as well, such that places with more connections grow more economically. Those economic benefits, though, don’t appear to touch places more than 100 miles beyond the airport.
Harald Bathelt at the University of Toronto has found that firms in leading tech clusters in Canada tend to invest in leading tech clusters in China, and vice versa. They’re pouring resources into and linking up to places that are already similarly successful.
“The Torontos, Ottawas and Waterloos in countries like Canada and the U.S., they will link with Shenzhen in China, they will link with Munich and Stockholm in Europe,” Mr. Bathelt said. “And other places will be kind of left out.”
The article in no way contradicts the general view of Trump supporters -- in particular, that the liberal urban elites have economically abandoned the working class, especially in the industrial and rural sectors. However, Trump supporters differ from the gloomy diagnosis of the article in that Trump fans imagine that the Old Economy will come roaring back with Trump's leadership. The article, in contrast, points out that these changes in the economy can be traced back to the year 1980 -- when Ronald Reagan ascended to the presidency -- and, more importantly, are rooted in the predictable long-term evolution of the global economy that has been ongoing for centuries.
In an editorial from the economist Paul Krugman in response to the above article, Krugman says that he found the article "stimulating", but he neither confirms nor denies its validity.
In particular, I’ve been trying to clarify my thoughts after reading Emily Badger’s stimulating piece on how megacities seem to have less and less need for smaller cities. I found myself asking what might seem like an odd question: what, in the modern economy, are small cities even for? What purpose do they serve? And this question leads me to a chain of thought that’s a bit different from Badger’s, although not necessarily contradictory.
Rural areas were once dedicated to agriculture, and later factories supplemented the rural economy.
Once upon a time, it was obvious what towns and small cities did: they served as central placesserving a mainly rural population engaged in agriculture and other natural resource-based activities. The rural population was dispersed because arable land and other resources were dispersed, and so you had lots of small cities dotting the landscape.Over time, however, agriculture has become ever less important as a share of the economy, and the rural population has correspondingly declined as a determinant of urban location. Nonetheless, many small cities survived and grew by becoming industrial centers, generally specialized in some cluster of industries held together by the Marshallian trinity of information exchange, specialized suppliers, and a pool of labor with specialized skills.
But for Krugman, this raises a question. Why did some rural cities die and others continue to prosper?
What determined which industries a small city developed? In some cases particular features of the location and nearby resources were important, but often it was more or less random chance at first, then a sequence in which one industry created conditions that favored another.
In effect, Krugman turns the issue on its head by observing that obsolescence is natural and inevitable, and that it is survival that is peculiar. Farms, villages, small towns and small cities have been disappearing for centuries in the wake of modernity and its transformations. The real puzzle is how some of them managed to survive. The problem is not that urban elites have forsaken the small-town heartland, but that the small towns was economically doomed centuries ago with the advent of the Scientific Revolution and the Industrial Revolution. How did these rural areas manage to persist for so long?
Krugman has developed the model of "path dependence", which might help to explain how some localities survive while most do not.
Path dependence explains how the set of decisions one faces for any given circumstance is limited by the decisions one has made in the past or by the events that one has experienced, even though past circumstances may no longer be relevant.
That sound like the Hindu notion of karma, albeit without the ethical component.
There are many models and empirical cases where economic processes do not progress steadily toward some pre-determined and unique equilibrium, but rather the nature of any equilibrium achieved depends partly on the process of getting there. Therefore, the outcome of a path-dependent process will often not converge towards a unique equilibrium, but will instead reach one of several equilibria (sometimes known as absorbing states).
The orthodoxy within the field of economics is Adam Smith's concept of "comparative advantage". Countries and regions tend to specialize economically in what they are naturally good at. Scotland is good at raising sheep, and Portugal is good at growing grapes, and so Britain would be best at exporting wool and Portugal should export wine. Free trade meshes perfectly with the way countries naturally specialize in products based on their geography.
But that is not always true. Some places develop despite their geographic disadvantages. It is early investment that give such locales a disproportionate advantage. One example might be the rise of Las Vegas. There is no reason why a major American city would emerge in the deserts of Nevada, but gambling laid the foundation for further economic diversification. Now that Las Vegas is established, few other locales in North America can seriously compete with it in terms of gambling, hosting conventions and entertainment.
This dynamic vision of economic evolution is very different from the tradition of neo-classical economics, which in its simplest form assumed that only a single outcome could possibly be reached, regardless of initial conditions or transitory events. With path dependence, both the starting point and 'accidental' events (noise) can have significant effects on the ultimate outcome.
Most relevant to the issue at hand, there does seem to be some agreement between Adam Smith and Krugman on how the fate of localities is not based on their inherent characteristics, but on which of them developed first and subsequently diversified the most.
Economists from Adam Smith to Paul Krugman have noted that similar businesses tend to congregate geographically ("agglomerate"); opening near-similar companies attracts workerswith skills in that business, which draws in more businesses seeking experienced employees. There may have been no reason to prefer one place to another before the industry developed, but as it concentrates geographically, participants elsewhere are at a disadvantage, and will tend to move into the hub, further increasing its relative efficiency. This network effect follows a statistical power law in the idealized case,[13] though negative feedback can occur (through rising local costs).
Diversification is risky. Sometimes it works, and sometimes it fails. Big cities can fail multiple times with fewer repercussions, whereas smaller cities cannot weather such setbacks so easily. So size matters, and so does luck. If a small city can somehow manage to grow and diversify, then that buys it time so that in the future it can again grow and diversify, buying it more time yet again. The alternative is obsolescence and doom. Krugman writes:
This was typical of small industrial cities: even if what a city was doing in, say, 1970 seemed very different from what it was doing in 1880, there was usually a sort of chain of external economies creating the conditions that allowed the city to take advantage of particular new technological and market opportunities when they arose.
Obviously, this was a chancy process. Some localized industries created fertile ground for new industries to replace them; others presumably became dead ends. And while a big, diversified city can afford a lot of dead ends, a smaller city can’t. Some small cities got lucky repeatedly, and grew big. Others didn’t; and when a city starts out fairly small and specialized, over a long period there will be a substantial chance that it will lose enough coin flips that it effectively loses any reason to exist.
I’m not saying that there weren’t patterns of success and failure. Small cities were and are more likely to fail if they have miserable winters, more likely to come up with new tricks if they’re college towns and/or destinations for immigrants. Still, if you back up enough, it makes sense to think of urban destinies as a random process of wins and losses in which small cities face a relatively high likelihood of experiencing gambler’s ruin.
Again, it was not always thus: once upon a time dispersed agriculture ensured that small cities serving rural hinterlands would survive. But for generations we have lived in an economy in which smaller cities have nothing going for them except historical luck, which eventually tends to run out.
Krugman points out that trade is not a villain in the processes of obsolescence. With or without international trade, small cities and rural regions tend to become obsolete over time, anyway. No, the problem is not China and Mexico.
Notice, by the way, that globalization and all that isn’t central to this story. If I’m right, the conditions for small-city decline and fall have been building for a very long time, and we’d be seeing much the same story – maybe more slowly – even without the growth of world trade.
Are there policy implications from this diagnosis? Maybe. There are arguably social costs involved in letting small cities implode, so that there’s a case for regional development policies that try to preserve their viability. But it’s going to be an uphill struggle. In the modern economy, which has cut loose from the land, any particular small city exists only because of historical contingency that sooner or later loses its relevance.
Complicating Krugman's analysis might be the infamous "resource curse". Societies that have an abundance of natural resources tend to fail to diversify their economies. In fact, they often remain in a state of frozen economic, political and cultural development. A classic case would be Saudi Arabia, which would seem to have been a fossil in every societal respect -- until the revolution in unconvential oil and natural gas extraction (the "fracking boom") brought permanently "low" oil prices (oil at $60 a barrel is, in fact, several times the historical norm for the price of oil). Now Saudi Arabia seems racked by a "revolution from above" as the ruling elites panic. But there is no revolution from above in rural America. Small-town people perceive their own ever-growing bounty in coal and corn and are puzzled by its diminishing economic returns, but the desire for radical transformation of their economy or lifestyle is alien to them.
The resource curse, also known as the paradox of plenty, refers to the paradox that countries with an abundance of natural resources (like fossil fuels and certain minerals), tend to have less economic growth, less democracy, and worse development outcomes than countries with fewer natural resources. There are many theories and much academic debate about the reasons for and exceptions to these adverse outcomes. Most experts believe the resource curse is not universal or inevitable, but affects certain types of countries or regions under certain conditions.
What should the response be to rural economic obsolescence? Paul Krugman is sad to say that in terms of economic policy, not much can be done.
There do not seem to be any voices evident in the mass media offering practical, realistic, honest, useful, hopeful and creative advice to those who live in rural areas. In fact, the closest thing to encouraging people to move away from rural stagnation is an article on how people in New Orleans who were permanently relocated far from their poor, dysfunctional urban neighborhoods were eventually way better off.
Things are so dire in rural economies and realistic solutions are so lacking that perhaps brainstorming amongst the general public is in order.
Here goes nothing....
At the personal level, perhaps individuals should move away from rural areas. They are most resistant to move from their communities, however, because community and family mean everything to them. For those who do move, they tend to move to the outer suburbs (for example, the ever-expanding suburbs of Texas), but never to a city or its inner suburbs. Perhaps a useful word of advise might be to suggest that it is a good idea to move to a place within one's region that has twice the population of one's current town. This might be well within an emotional comfort zone.
Here are some random thoughts on government policy in rural areas. The government should:
1) assist migration to somewhat larger places;
2) pay for people living in rural areas to move to a more populous and more dense areas;
3) close down government services like the post office in places where it simply is not efficient;
4) have programs to re-wild rural areas, which would temporarily bring in revenue as rural areas transition;
5) declare such areas national parks.
