Research | Pepperdine University | School of Public Policy

Research


The Future of the Center: The Core City in the New Economy

Joel Kotkin

PART 1: RE-INVENTING THE CORE

The current recovery of central cities around the country comes on the heels of nearly a half-century of demographic and economic decline. As recently as the early 1990s, cities were lagging far behind the peripheral regions in economic growth. Yet at the same time, even as the class chasm widened, major urban centers across the nation were beginning to rebound, adding nearly four million new jobs, attracting new residents, and enjoying improved fiscal health. At decade's end the two largest metropolitan regions—New York and Los Angeles—led the nation respectively in aggregate payroll and new job creation.

Yet the current urban recovery in these and other cities does not suggest downtowns are, as breathless media reports have it, "marching again to grandeur" or enjoying "a stunning revival" back to the glory days of the mid-20th century. Rather than recovering their place as geographic centers of the entire economy, city centers are adjusting to a more modest but sustainable role based on economic niches performed by the core from the beginnings of civilization (see Appendix).

Today the hope for central business districts and the urban economic core—from Houston and Los Angeles to Baltimore and Boston—lies not in the industrial-age paradigm of high-rises or massive factories, but in recovering their pre-industrial role as centers for the arts, entertainment, face-to-face trading, and in providing highly specialized goods and services. In this sense, the city center is evolving into something that reflects the broader dynamics of the digital era and shifting demographic trends; they are, in this sense, in a period of profound and dramatic change. "People can't expect the city to be the financial and corporate center anymore," says Ioanna Morfessis, President of the Greater Baltimore Alliance. "It will be where people go for health care, good restaurants, and entertainment."

Such notions represent a critical revolution in perspectives. Traditional boosters of central cities based their strategy on maintaining the manufacturing, corporate bureaucratic, and support services that adhered to the center city for most of this century. When these functions began to disintegrate in many cities, some political leaders and academics in the late 1980s and early 1990s assumed downtowns were destined to serve as "the preserve of the homeless, the so-called underclass and the persistently poor."

But rather than a necessarily dystopic end to the postindustrial city, it has been the essential, classic characteristics of cities that have bequeathed a future for the center. As cities have lost much of their mid-20th century role, the center's essential appeal lies precisely in providing the excitement and diversity unavailable in the countryside or small town. Writing of another city, Berlin, at the dawn of the past century, sociologist Georg Simmel hit close to the essential appeal of the dense urban district:

With each crossing of the street, with the tempo and multiplicity of economic, occupational and social life, the city sets up a deep contrast with small town and rural life with reference to the sensory foundations of psychic life.

Seizing on this "contrast" stands at the heart of center-city development strategies across a broad range of cities. This re-awakening can be seen not only in older cities, but even in more recently evolved cities such as San Diego, Oklahoma City, and Wichita, Kansas. They are taking place in what may be defined as "global cities"—such as Los Angeles, Chicago, New York, Houston, and the greater San Francisco area—with their growing immigrant populations and international trade centers and in smaller, mid-sized cities, such as Baltimore, Denver, or Columbus, which draw fewer immigrants and are far more domestically focused.

In virtually all these cities, the urban resurgence draws upon a series of social and demographic trends, including the drop in crime, that presage a small, but growing constituency—largely among the young and unmarried—for inner-city living. This is particularly notable in those central cores, such as San Francisco, Seattle, Boston, and Manhattan, that are widely perceived as being attractive and rich in cultural activities.

Yet even with these favorable trends, center cities are unlikely to become a new geographic center for mainstream Americans. Even the most optimistic predictions for downtown population growth over the next decade, for example, project an increase of less than 200,000 new residents for all the major downtowns in the nation combined. This is less than the total growth in the suburbs of one midsized city, Seattle, during the decade of the 1990s. By 2010, downtown's share of the metropolitan population will rise, but only from roughly 1.5 percent to, at most, slightly over two percent .

Even under the best of circumstances, the center city will not recover the economic pre-eminence enjoyed in the past century. The secular decline in the vitality of the 20th-century office culture, brought about by the downsizing and restructuring of major corporations, has reduced the demand for huge blocks of office space. This is one reason why, despite a stronger economy, most major downtowns, in contrast to the 1980s, have seen relatively little new office construction.

In fact, some downtowns long dependent on corporate headquarters, such as St. Louis and Cleveland, have continued to depopulate and decline relative to their regions. In the advanced, postindustrial setting of America, the era of ever more soaring skylines has also come to an end—even amidst a prolonged economic expansion—and the once common perception of the downtown as regional center now only applies to two major cities, Chicago and New York .

Some urban theorists, such as Susan Fainstein and Saskia Sassen, maintain that some large, global urban cores (i.e., New York and London) can continue to resist the down-scaling trend. They have argued that the "rising importance" of transnational information and financial flows increases the need for "centralized command and control" and a centralized geographic function. They point particularly to the growth of "producer services" that facilitate the development and sales of goods, which grew from 29 to 36 percent of Gross National Product (GNP) between 1947 and 1977. This sector has been widely seen as key to the permanent ascendancy of cities that possess sufficient depth in legal, advertising, international trade, and other expertise.

Yet recent experience and the technological revolution make such assumptions somewhat dubious. Indeed throughout the 1990s, high-end producer services, particularly finance, have continued to see employment shift towards the periphery. Traditional financial centers like Chicago's Mercantile Exchange, Board of Trade, and Options Exchange employ some 50,000 people, many of them keypunchers, runners, and clerical positions; yet in the new century, many of these jobs seem likely to be automated.

"Where it has taken hold, [the computer] has driven the open-outcry market [floor trading] out of business," notes pension fund manager Gary Knapp of GM Investment Management Corp. "That would be a huge loss for Chicago."

Indeed throughout the 1990s, high-end producer services, particularly finance, have continued to see employment shift towards the periphery.

Increasingly, for New York and other core cities, the real imperative lies not in luring institutions, building or subsidizing new grandiose edifices for them, but in finding ways to retain enough workers with the necessary "knowledge" that now constitutes the prime economic imperative. This includes skilled workers not only in finance but also across a wide range of creative workers in fields as diverse as advertising, graphic arts, entertainment, and internet firms, essentially artisan businesses of the postindustrial era.

New technology, particularly the internet, could allow for more of these relatively well paid, creative workers to "telecottage" comfortably in the urban setting that avails them access to the "privileged information" available by networking personally in a place like Wall Street, Hollywood, or the Silicon Valley. Employers who rely on such creative workers will still be forced to conduct business in central city, even if their own headquarters are located elsewhere.

At the same time, there are signs of a nascent resurgence of some forms of light manufacturing and warehousing near the urban core. To date, much of the growth in the information industries has taken place by swallowing the very places which in the past housed such blue-collar jobs. Yet the growth in demand for specialized products—fashion, furniture, ethnic and specialty foods—has led to a jump in industrial employment in cities such as Los Angeles and a slowing of manufacturing erosion in such places as New York.

E-trading and the Future of Wall Street

Even New York's expensive decision to spend an estimated $900 million on a new stock trading complex does not guarantee New York's long-term domination of the financial service industry as "financial bulletin boards" on the internet increasingly replace human "experts."1 At century's end, even major Wall Street players such as Merrill Lynch are shifting their emphasis to on-line trading in order to stay abreast of such innovative out-of-town rivals as Charles Schwab and E-trade. Although the company could well recover from the shift, the employment base can be expected to diminish over time.2

In the process, the long unassailable centrality of Wall Street as a physical center of the financial industry could become itself profoundly assailable, becoming less the description of a place than a kind of virtual community. Al Berkeley, President of Nasdaq, observes:

The Wall Street that matters will be more and more electronic. It will exist as a virtual rather than a geographic entity since technology makes it possible for people to work anywhere. The value is going to be in the risk-taking judgment of investors and the knowledge conveyed by broker dealers. What is valued and paid for is giving good advice on which securities to buy and sell.3

------------
1Charles V. Bagli, "$900 Million Deal is Reached to Keep Stock Exchnage in City," New York Times, December 23, 1998; Andreas Crede, "Electronic Commerce and the Banking Industry:The Requirement and Opportunities for New Payment Systems Using the Internet," Science Policy Research Unit, University of Sussex, 1997, p. 12.

2Charles Garsparino, "Facing Internet Threat, Merrill to Offer Trading Online for Low Fees," The Wall Street Journal, June 1, 1999.

3"It will be More Virtual: An Interview with Al Berkeley," Forbes Asap, August 23, 1999.

Arguably the most dramatic evidence of this trend can also be seen in Los Angeles, the nation's largest industrial region. After savage declines of the early 1990s, the region's manufacturing economy began a sustained recovery in a host of industries including toys, apparel, textiles, furniture, bicycle parts, industrial machinery, and biomedical devices. To the surprise of most economists and academic experts, Los Angeles's share of the nation's "diversified manufacturing" actually grew, and, between 1995 and 1998, it gained over 25,000 manufacturing jobs.

Although the roots of recovery in center cities have some similarities across the nation, the degree, economic origins, and geographic shape differ widely. A vast decentralized city such as Los Angeles simply does not fit into the traditional, highly compact city pattern; its expanse is so huge that it could encompass the entire land mass of Manhattan, San Francisco, Boston, Minneapolis, Cleveland, St. Louis, and Milwaukee, with room to spare. Instead, in Los Angeles the renaissance functions of the core city are being re-invented not so much downtown but in dynamic, smaller "downtowns" such as Beverly Hills, West Los Angeles, Santa Monica, Pasadena, Glendale, and even the oft-joked about "beautiful downtown Burbank."

In some of the stronger central cores—such as Boston, Manhattan, Seattle, Denver, San Francisco, and the historic core of Chicago—gentrification and tourism could create a new kind of boutique city dominated by demand for the services provided by new urbanite professionals. Yet even as they retain the look of 20th or even late 19th-century center cities, these areas will no longer serve, as they once did, so much as headquarters towns for large companies than as boutiques that cater to their diverse needs. San Francisco, for example, accounts for barely one in ten of the Bay Area's 500 largest companies .

Boutiques can thrive even though they no longer serve as the demographic and economic centers of their regions. Seattle, San Francisco, Boston, and Denver now account for an increasingly small fraction of their regions' populations. Similarly, San Francisco, which housed nearly 30 percent of the region's population in 1950, represents less than 13 percent today. By the late 1990s, these cities, feeding largely off economic growth in the surrounding sprawl, all enjoyed extremely low office vacancies, soaring property values, and the largest percentage growth rates in downtown residents. Notes San Francisco economist Lynn Sedway:

Ever since the 1980s the real growth in the Bay Area has been San Jose and the other peripheral areas. Everyone realized that San Francisco had to become a subsidiary of Silicon Valley. There's really no choice if we want to grow.

Other traditional downtowns, even those with attractive natural features such as harbors and riverfronts, could experience a similar downtown revival although mostly at a far lower scale. The boutiquing of cities such as Baltimore, Cleveland, and Philadelphia will remain severely constricted by the preponderance of nearby impoverished neighborhoods that boost security concerns and provide few skilled workers to the emerging postindustrial economy. They also may be less competitive with suburban areas in terms of entertainment and retail than mega-cities such as Chicago or New York, with their highly developed and celebrated central cores.

Many of these downtowns could well end up as something like Potemkin villages, surrounded by continuing decay, poverty, and destitution.

In the worst case, many of these downtowns could well end up as something like Potemkin villages, surrounded by continuing decay, poverty, and destitution. Notes Larry Little, a Baltimore city official in charge of razing dilapidated buildings in the city's inner core:

In Baltimore, it's all about the water. It's the mark of the two cities. If you have no skills, you stay in Cherry Hill and try to survive and hope the house doesn't fall on your head. But if something is on the water, you can fix it up and a yuppie will buy it. It may save some of the city, but it won't do anything for the city that is dying.

And perhaps the most tragic fate awaits those cities—usually built around the mass-industrial base—that lack even the basic amenities and attractions of a Baltimore, Philadelphia, or even Cleveland. Lacking any sustainable appeal for the new urbanites, cities such as St. Louis or Detroit could become the new Carthages, all but deserted relics of a bygone era of urbanism. For one thing, suggests University of Michigan demographer William Frey, there may not be "enough affluent yuppies to go around." Frey's migration data show that there may be enough of these new urbanites to revitalize well-placed cores such as San Francisco, Boston, or Manhattan, and perhaps even Baltimore, but, as he asks, "how many of these people want to move to downtown Detroit?"