CityEconomist 

 Density and Destiny Idea Cities Grow. (Posted by John Tepper Marlin, January 20, 2006)

In his New York City talk earlier this month (January 2006), Harvard Professor Edward Glaeser showed that highways and the automobile ended the need to have cities as fixed terminals for water or rail transportation. This fact and lower-wage competition from overseas also ended the need for U.S. cities as manufacturing centers. So he wondered out loud: What is today’s rationale for cities, other than as places for people to consume? He decides that cities today are places for the exchange and amplification of ideas:

• Financial institutions occupy the most central spaces of a city because they can profit most from new ideas and information.
• Electronic, print and face-to-face communication are not substitutes. They are complements – they reinforce one another.[1]

• NYC’s share of the U.S. population peaked in 1930. Since then, out of the ten most populous U.S. cities only NYC and Los Angeles have since gained population, because they have been becoming more skilled.
• Employers seek out skilled workers. Occupational patterns in 1880 and density of education in 1940 predict later population growth.
• In the Midwest and East, the share of cities’ populations with college degrees is associated with their subsequent growth.[2]

Why Idea Cities Grow Faster (Posted by John Tepper Marlin, January 21, 2006)

Why do idea cities grow faster? What is the connection between being a knowledge-based city and economic prosperity?

Well, one way this works is that the dense, knowledge-based city is one that will become a center of communications. London becomes the British communications center, Paris the French, New York the U.S.  People naturally gravitate toward communications centers. The print publications are more interesting because they represent a greater variety of views.  

But another way is the generation of commercializable ideas from scholarly excellence, a concept  actively promoted during the Depression by Karl Compton and Frederick Terman:

• Karl Compton was President of MIT and worked with Boston's business and political leaders to figure out how to replace the dying New England textile mills with other activities. He and  Ralph Flanders, President of the Federal Reserve Bank of Boston (later President of the Jones & Laughlin Machine Tool Company in Vermont) promoted the idea of the knowledge economy as the future of the Boston area. They decided to to provide risk capital to technologically innovative companies of the type that might be founded by MIT professors, students and graduates. Compton worked with Donald David, Dean of the Harvard Business School, to create American Research and Development as a joint effort to incubate and finance startups. This was a predecessor of the Small Business Investment Company, which was authorized in 1958.

• Frederick Terman received his Ph.D. in electrical engineering from MIT and picked up Compton's vision and message. He joined Stanford's electrical engineering department
  in 1925 and soon headed it. Using the MIT financing philosophy, Stanford encouraged the creation of electronics firms. Two of them - Heintz and Kaufmann (HK), and Federal - started the West Coast electronics industry in the 1930s. Two students named Hewlett and Packard in the late 1930s started their firm based on a resistance-tuned oscillator. [1]  

The key idea behind the knowledge-based community is communication among business, government and the academic sectors. The enemy of communication is rivalry - within or among each of these sectors - which can produce secretiveness out of fear or a preference for the status quo.

[1] Office of the Comptroller, City of New York, "The NYC Software/IT Industry: How NYC Can Compete More Effectively in Information Technology," April 1999, 60-61 (Compton), 68-69 (Terman).

What Cities Can Do to Generate Tech (Posted by John Tepper Marlin, 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.