The city as a growth engine
WASHINGTON: The basic driver of remarkable economic growth in China — and India, Vietnam, Thailand, Brazil and pretty much every other developing country — is pretty simple: migration of people from rural areas, where they’re not very productive, to dense cities, where they are very productive. This is a tried-and-true strategy for making people and countries richer. But it’s not just for developing countries.
Over the past year, three terrific books have come out on the importance of cities in America’s economy. In “Triumph of the City,” Harvard economist Ed Glaeser details how cities all over the world have supercharged human development and ingenuity. In “The Gated City,” Ryan Avent focuses more narrowly on the role cities play in making Americans better off. And in “The Rent Is Too Damn High,” Matt Yglesias focuses on, well, why the rent is so damn high.
The three make similar arguments: First, cities make us smarter, richer and more productive. Avent sums up some of the (voluminous) evidence: “Economist Masayuki Morikawa finds that productivity rises between 10 and 20 per cent when density doubles. Morris Davis, Jonas Fisher and Toni Whited estimate that a doubling of density may increase productivity by between 17 and 28 per cent. Their work suggests that more than 30 per cent of real wage growth over the past 35 years is attributable to changes in density.”Cities, Glaeser says, are “our greatest invention.” People make each other smarter, richer and more productive. They give each other ideas, buy services from one another, teach each other skills and engage in healthy competition. And cities put a lot of people next to one another.
Glaeser cites the example of Silicon Valley: “The computer industry, more than any other sector, is the place where one might expect remote communication to replace person-to-person meetings; computer companies have the best teleconferencing tools, the best Internet applications, the best means of connecting far-flung collaborators. Yet despite their ability to work at long distances, this industry has become the most famous example of the benefits of geographic concentration.”
Second, we have choked off access to these remarkable growth machines for too many Americans. We haven’t done it on purpose, necessarily. But we’ve done it, mostly through regulations that make it either prohibitively expensive or downright impossible to buy or rent a home in the country’s most productive cities. Avent notes the disparity between the Bay Area, with its “natural beauty, urban amenities, fantastic climate, cultural riches, and outstanding economic prospects,” and Phoenix, where “temperatures above 100 degrees are commonplace” and the income earned by the typical household “is only about 60 per cent of that of the typical Silicon Valley household.” And yet, between 2000 and 2009, the San Francisco metropolitan area lost almost 350,000 residents, while Phoenix gained nearly half a million.
The reason isn’t that Phoenix is more desirable. It’s that San Francisco is prohibitively expensive. That’s in part because demand to live there is high. But it’s also because regulations make it almost impossible to increase the supply of housing stock.
“Land is a scarce resource, so some increase in the price of housing is bound to happen as the economy grows,” Yglesias wrote.
“But architects know how to design multi-floor buildings and engineers can build elevators. Public policy that restricts their ability to do so — not construction costs or the limited supply of land — is the main cause of high rents in America.”
The authors focus on different ills. Yglesias’ pulse is quickened by height restrictions, like the ones in Washington. Avent takes
aim at the local coalitions that band together to fight new real estate development for all manner of parochial reasons. Glaeser is particularly eloquent about the way all manner of ordinary buildings get designated “historical” in order to impede new
development. But all make basically the same point: Because we don’t fully appreciate how important cities are in stoking economic development, we dismiss the economic costs of regulations that make them prohibitively expensive to live in.
Which gets to their solutions. They’re not arguing for pro-density policies. All three are careful to say that Americans should live where they want. What they’re arguing against are anti-density policies that make it effectively impossible for Americans to live where they want. The means should thrill the right, as the agenda effectively boils down to deregulation. The ends should engage the left, because the people who are priced out of the cities — and thus their benefits — are the poor and the middle class, not the wealthy.
And Americans of both parties should embrace the basic logic of the enterprise. It’s bad news indeed to realise that we have, for decades, ignored one of the most important dimensions of economic growth: place. The good news, of course, is that in this age of diminished economic expectations, there are still big ideas we can try to increase growth, innovation and productivity. Don’t believe me? Just ask China.
By arrangement with The Washington Post/Bloomberg News Service