CityEconomist

Density Is Destiny 5: What Cities Can Do January 22, 2006

Here are five things (not mutually exclusive) cities can do to grow their economies:

1. Invest in Infrastructure (Medium Difficulty)

The ancient Egyptians, Greeks and Romans, and their cathedral-building European successors, lined up community resources behind building something. This concept of economic development endures in the form of city sponsorship of convention centers and stadiums. Some monuments are durable and useful, like the New York City subway system, the water tunnels or the USTA Tennis Center. Others have turned out to be much more expensive than planned, or to have lacked human scale. The key to this strategy is to pick something useful to build, that pays for itself and doesn't displace too many voting residents. 

2. Create an Efficient City (Hard to Do)

In the Progressive Era, the idea was to increase city efficiency because it was the right thing to do.  You ran cities well by ending corruption and using business methods to create more efficiency. In New York, this thread runs from the days of the truly great Worcester, Mass.-born City Comptroller Andrew Haskell Green through to reform Mayor William Jay Gaynor. The idea was to make cities safe and provide them with good schools and public transportation. During the pre-World War I era, the model was Prussia, where universal education was adopted as a way of ensuring that soldiers could follow orders, and where the cities were models of efficiency. In the United States, the great innovation in the cause of efficiency was the city-manager form of government - the idea of having a city managed by a paid professional appointed by the elected City Council. This idea was invented by Richard S. Childs of New York City and became the dominant mode of government in the United States, but was never adopted in the inventor's home town (or indeed in any of the large older cities, Dallas being the largest city-manager city). Running an efficient city is the hardest of the five options, because it requires leadership and skill for a mayor to get the most out of city workers, and they are organized and can exercise political influence of their own. Mayor Rudy Giuliani said that reducing crime was his number-one economic development priority. 

3. Attract Companies with Tax Breaks or Planning Help (Easy to Claim Results) 

In the 1960s and 1970s, new highways opened up shiny new suburban areas to the automobile. The central cities lost many of their residents, raising crime rates and lowering the quality of schools and transportation. Businesses followed their employees to suburban areas. City revenues shrank and Mayors were faced with bigger problems and smaller resources.  They borrowed money until that game was ended by insolvency and control boards. In this context, the economic development idea was to give businesses a tax break to come to or stay in the city. But a business confronting the end of its lease could routinely go to the economic development agency and ask for a tax break on a new lease. The economic development agency would in turn announce "saving" x number of jobs, i.e., all the people employed by the company.  The worse the problems of the city, the more actively the economic development agencies have negotiated tax breaks.[1] The advantage of this strategy is that with these tax breaks the Mayor can be seen to be doing his or her best to keep business in town. The problems with the strategy are: 

• The taxes have to be paid by someone. If businesses are given breaks, then everyone else must cover the shortfall.
• If the tax abatements really make do a difference, they may merely keep alive a company for a few more years that will not be able to stay competitive much longer. 
• Companies will line up for their share of tax breaks even if they have zero interest in leaving town.
• The process of awarding tax breaks may be or may be made to appear subject to political influence.  

Richard Florida has argued that the "creative class" is the key to the future of cities. He says that more than 30 percent of the American work force is creative and that they will ride the wave of the future. He ranks San Francisco, Austin, Boston and San Diego at the top of his list of 50 cities; New York City ranks ninth. He recommends supporting bicycle paths and art centers to attract the creatives.[2] He sounds vaguely like proponents of education in the efficient city, but they focus on high school diplomas and college degrees as measures of "skills" rather than culture. Edward Glaeser notes that if the share of collage graduates is included in Florida's equations showing the importance of culture, the significance of these variables disappears. The advantage of Florida's prescription is that it involves mainly an attitude change and some inexpensive showpiece city projects.