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

Joel Kotkin

November 1999

PART 6: LEARNING FROM REALITY: GUIDELINES FOR POLICYMAKERS, INVESTORS, AND ENTREPRENEURS

To survive in the new century, cities will have to secure a new place in the nation's geography. They will not be able to rely on advantages—concentration of large firms, location near ports, cheap labor, or raw materials—that helped propel their growth during the previous century. Instead they must refocus on those functions carried out by cities for the past three millennia, such as cross-cultural trade, the arts, and making of highly specialized goods. The previous analysis suggest four lessons for local policymakers, investors, and urban entrepreneurs.

The primacy of qualitative over quantitative values represents the key to this renaissance. The city of the 21st century is unlikely to thrive, like its industrial-age antecedent, by simply feeding off ever-greater population growth or economies of scale. In the past decade, most urban areas have actually "thinned out," becoming half as densely populated as in the immediate post-World War II era; only 11 of the 30 largest have more people than they did in 1950. Even in Los Angeles, a city long synonymous with explosive growth, increases in population grew by only 2 percent between 1990 and 1996. Indeed, much growth that has taken place, even in western or southern cities, has been more the result of annexation than greater density in the historic space.

Yet these demographic trends need not reflect a permanent decline for urban areas. Indeed, slowing or even reduced population can provide the basis for creating a more livable city that is more like its pre-industrial antecedents. Florence in the 14th century numbered less than 100,000, yet profoundly influenced not only Italy, but also the entire European world. At its height Venice's population of 190,000 flourished by serving a mainland hinterland of two million as well as its far-flung global clientele.

One can still sense this kind of concentrated influence in older cities such as Amsterdam, which achieved greatness in influence without ever achieving much girth. At its height in the 17th century, Amsterdam's 200,000 souls dominated a province, Holland, with more than three times its numbers, a nation, the United Provinces, with tenfold its population, and, over time, an empire many times larger. "Amsterdam has been a world city for a long time, but it's always been a small world city," observed Dutch historian Geert Mak. "You could conduct business globally but walk from one end to the other in 20 minutes."

In its physical aspect as well, the future city resembles increasingly its archaic predecessors. Unlike the mass-industrial city of recent memory, where development could be seen as a city's "basic industry," urban areas no longer can identify their futures through building ever taller buildings, or building ever more dense downtown office districts. Such massive development projects are more common today in cities within developing economies, such as Malaysia and China. None of the hundred tallest buildings built in the last five years has been built in America and only one, an apartment tower under construction near the United Nations, will join the top one hundred club.

Whether in the form of a sprawling agglomeration like Los Angeles or Houston or a compact city such as Boston, Seattle, or Baltimore, the archetypical future city must see itself, first and foremost, as a collection of cosmopolitan, functional, and living neighborhoods. These communities, or urban villages, both separately and as part of a citywide archipelago, seek to offer residents a wide range of experiences, sights, and sounds not readily accessible through a computer console or in the suburban expanse.

The potential of this new dynamic can be seen in hosts of neighborhoods around the nation where so much of the cutting-edge activity of the knowledge-value economy now clusters. This occurs even in unexpected places, such as downtown Dallas, where the old African-American entertainment district know as Deep Ellum has become a hotbed for homesteading young professionals, visiting suburbanites and new technology firms, including Broadcast.Com. Brady Wood, a 31-year-old New Orleans-reared developer, restaurateur, and nightclub owner, suggests:

People are getting bored with housing tracks and strip malls. They want to go someplace where they can experience something different. It's all about texture and character. People want a sense of the past, the spontaneous and more than anything, the different.

To bolster this economy, cities must learn to do those things that the young people Wood targets care about—whether in terms of safety, tax policy, and a tolerant regulatory regime. Most of all, the economy and culture should be given free rein to express its spontaneity and diversity—without the deadening hand of government or city-sponsored "urban renewal."

The urban-renewal approach was lethal in the 1990s—leading to failed office projects, deserted inner-city malls, and underused transit projects. As a general rule, let the city renew itself from the marketplace and the ground up; replacing a Maxwell Street or Westside Baltimore with a "mall in brick" undermines the very message of differentiation that cities need to convey. If gentrification does come, suggests Lou Boulmetis, a hatter leading the opposition to Baltimore's Westside development, it should stem from marketplace forces:

It would be one thing if this was driven by some demand from the consumers. This area evolved because it serves the market. Let it evolve. Not everything has to be the same like any suburban mall. It's not just a matter of pretty buildings. It's our livelihood.

The promise of the knowledge-value economy will not be enough for most cities. Ultimately this depends on the ability of future cities not only to attract the young and adventurous but also to incorporate a large enough share of its population into its civic and economic web. The growth of knowledge-value industries and the migration of the new urbanites that service them represent a starting-point for an urban renaissance, but not an end in itself.

Communities need to maintain a strong presence of specialized industrial, warehousing, and other blue-collar industries in addition to the postindustrial sectors. The great European cities of the Renaissance and early modernity—Florence, Venice, Amsterdam, Antwerp, London—reached their economic peaks by combining thriving shipbuilding, textiles, and glass industries with their traditional trade functions. On the other hand, historian Lauro Martines traces much of the decline of great trading cities such as Florence and Genoa to the gradual weakening of the artisanal sectors even as the transactional economy continued to expand.

In the late 20th century decline in the artisanal economy has had tragic consequences. As recently as 1960, New York's manufacturing industries employed over 900,000 workers; since 1974 that number has dropped from 610,000 to roughly 280,000 two decades later, a 54 percent decline. Philadelphia lost well over a third of its manufacturing workforce in a single decade between the early 1980s and early 1990s. Chicago, another major artisanal center, suffered a similarly huge drop, losing 60 percent of its manufacturing jobs between 1970 and 1996.

The consequences of this decline—as occurred earlier in Venice, Amsterdam, and other cities—was to pull up one of the traditional vital ladders of upward mobility for the urban poor. Even with the trend towards lower pay and less unionization in manufacturing, industrial jobs generally still pay higher than service positions; overall industrial workers remain half as likely to earn incomes below the poverty line than their service counterparts. In Chicago, the city was basically replacing industrial jobs paying $37,000 with service positions earning an average of $26,000.

This de-industrialization may also help explain why—despite an unprecedented Wall Street boom—unemployment in New York remained at better than twice the national average at the end of the 1990s, well above most major cities. The city's geography of wealth has also been transformed, becoming more concentrated in Manhattan, which accounts for barely seven percent of the city's landmass, while poverty has remained stubbornly persistent in predominately minority and working-class areas in Queens, Brooklyn, and the Bronx. The repeal of much of the industrial geography particularly harmed new immigrants with modest educational backgrounds. In 1960 nearly 85 percent of working-age Puerto Ricans in the city were in the labor force; four decades later that had dropped to barely half.

Successful cities in their prime—like Florence in the 15th century, Amsterdam in the 16th century, London in the 19thcentury, or New York in the early 20th century—have often been driven by grasping "new men" from the countryside, abroad, or even their own slums.

This decline has been exacerbated by the tendency in many cities to ignore industrial firms while lavishing tax breaks and other incentives on favored sectors such as financial services or large firms. Today most business, professional, and political elites see the future of their cities as connected almost exclusively to the growth of a few coveted high-end sectors and name-brand companies. Attracting capital, corporations, and talent, from the rest of the country or abroad, often becomes the primary focus of their economic-development activities. Even in times of budgetary stress, and in the face of enormous public debt, cities such as New York have lavished hundreds of millions to retain large multinational firms as a primary part of their economic development strategy.

In comparison, a strategy that also looks to boosting a broader industrial economy, often with the use of well-developed producer networks, represents a more "progressive" economic policy than that usually suggested by most activist city governments. Rather than obsess on large firms or symbolic projects like stadiums, center cities need to encourage grassroots entrepreneurship, which taps the skills and energies of their own people, both as entrepreneurs and workers.

Successful cities in their prime—like Florence in the 15th century, Amsterdam in the 16th century, London in the 19th century, or New York in the early 20th century—have often been driven by grasping "new men" from the countryside, abroad, or even their own slums. Writing about New York in the 1950s, urbanologist Jane Jacobs observed: "A metropolitan economy, if it is working well, is constantly transforming many poor people into middle class people. . . greenhorns into competent citizens. . . . Cities don't lure the middle class, they create it."

Creating this middle class means promoting the growth of smaller firms across a broad spectrum of industries. This notion is even more relevant in an economic geography where large companies are increasingly rootless and where most new job creation stems from smaller, upstart firms. A quarter century ago, for example, Fortune 500 companies provided one out of every five private-sector jobs; today that ratio is less than one in ten.

This is as true today in the industrial sector as in the internet. In 1980 roughly half of all industrial employment took place in plants of fewer than 500 workers; by 1994 roughly two- thirds of industrial workers labored in small factories. These firms tend to pay somewhat less than larger ones, yet they also provide greater opportunities for entrepreneurship; roughly 40 percent of owners of factories with less than 33 employees were themselves once production workers.

Like their counterparts in New York and elsewhere, small firms heavily reliant on close co-operation between suppliers, designers, and customers increasingly dominate the Los Angeles industrial economy. Los Angeles's furniture makers, for example, tend to be far smaller, averaging around 34 per establishment compared to a national average of 54 and 129 for North Carolina, the largest center for the industry. The same can be said in the garment industry, where Los Angeles has surpassed longtime rival New York as a manufacturer. Since 1990, the number of garment and textile firms in the region has grown from slightly over 4,000 to near 5,700. Only eleven of these firms have over 500 employees; Los Angeles has only five percent of the nation's large garment firms but almost 20 percent of firms of less than one hundred.

Much of this growth has generated largely low-wage employment, yet immigrants, the primary working population in Los Angeles, generally enjoy higher wages in more de-industrialized cities such as New York, in part because of the proliferation of such small factories. Ultimately, these firms cannot survive simply by paying lower wages, but by becoming more specialized, and artisanal in their approach. This model of production—described by MIT economists Michael Priore and Charles Sabel as "flexible specialization"—which stresses co-operation between networks of small firms already has become widely credited with boosting wages and opportunities in other urbanized parts of the world, most notably in southern Germany and Northern Italy.

Across both Europe and Asia, as well as in America, notes Japanese economist Kenichi Ohmae, there has been a similar flowering of what he calls "global regionalism," where various regions jockey with rivals both domestically and abroad for capital, skilled labor, and markets. At some level the devolutionary pressures could serve to weaken, and even eliminate, some national governments around the world, in places as disparate as Scotland, Flanders, Lombardy, Catalonia, Quebec, and western Canada. The breakup of the former Soviet Union and Yugoslavia, as well as resurgent regionalism inside China, may only be harbingers of future trends.

America's existing federal form of government and the nation's historic affection for decentralized structures makes it ideal for re-animating local government.

Changes in information technology promote this "reverse flow of sovereignty." As news, currency, and technologies now flow seemlessly and ever more cheaply across national borders, particularly with the advent of the internet, states and localities and even small towns now must struggle to position themselves within global competition. As John Eger, executive director of San Diego University's International Center for Communications, points out:

Locally based companies that once competed with firms only in their own area code, for instance, now must battle companies throughout the world for their customers' loyalty and dollars; local governments that once had to compete for high-value residents against only nearby municipalities now must struggle to attract such residents in a world where a growing number of people can live nearly anywhere they want and still have access to the same jobs, the same income, and the same products and services to which they have become accustomed.

This new competitive reality has also expressed itself in negative terms—such as with moves to break up existing cities like Los Angeles and New York—by those who feel that these municipal leviathans have become too bureaucratic and self-absorbed. Several states, California, Kansas, as well as New York, have had periodic secessionist movements. Some observers, like economist Robert Reich, have denounced some of these movements as "secessions of the successful," yet they reflect a healthy debate about the proper scale for conducting public policy.

Whatever its final form, America's existing federal form of government and the nation's historic affection for decentralized structures makes it ideal for re-animating local government. Critically this appeals not only to conservatives, who traditionally have favored smaller government, but also many progressives. Elaine Kamarck, shortly before assuming her post as chief domestic policy advisor to Vice President Gore hailed "devolution" as a movement "rooted in the reaction against centralized, bureaucratic command-and-control structures that have been undermined all over the world by the information age." Her successor at the Vice President's office, Morley Winograd, also co-authored a major book that endorsed devolutionist principles.

Similarly, the most effective practitioners of devolutionary principles include not only Republicans such as Indianapolis's Mayor Steven Goldsmith and San Diego's Susan Golding, but Democrats like Milwaukee Mayor John Norquist and Cleveland's Michael White. At the same time opposition to the idea comes from within both parties—Republicans, who seek a conservative "American Imperium" directed from Washington and those left-liberals still wedded to an expansionist central state. These ideological disparate elements, as Reason magazine editor Virginia Postrel has pointed out, often share a common dismay over the development of technology, the internet, or the breakdown in the unitary nation-state.

Political practicality recommends a new emphasis on localism to central cities since their representation in both Washington and the statehouses has declined. It is increasingly irrelevant to most of the nation what constitutes the "urban agenda." Today it matters mostly to precisely those who reside, invest, or work in cities—it cannot be expected to be front and center in any national debate for the foreseeable future (see Table 3).

Notably, in the current environment, the U.S. Conference of Mayors asks not if an agenda is liberal and conservative, but whether it is in tune with the new economic, technological, and social challenges facing each community. What is needed, suggests Peter Drucker, cannot be found in repeating the mistakes of the recent past or a nostalgic return to the mid-20th century:

The government will need to transcend both groups. The megastate that this century built is bankrupt, morally as well as financially. It has not delivered. But its successor can not be `small government.' There are too many tasks, domestically and internationally. We need effective government—that is what the voters in all developed countries are clamoring for.

Drucker's challenge to find a means to "effective government" and challenges of governance should represent the central task of policy makers. But this should not be regarded merely as modern-day version of the national approach adopted during the 1950s and 1960s.

Given the devolutionary realities of these times, a reinvigorated public policy debate will also, by necessity, focus far more on local concerns. This is particularly necessary given the demographic and cultural differences between different regions of the country. Many urban centers (i.e., Los Angeles, New York, Chicago, Miami, and Houston) have as much as three to four times the percentage of foreign-born residents as other cities, much less small towns and suburbs. At the same time patterns of demographic and economic growth are also shifting, away from the northeast, where the governmental and public policy apparatus is concentrated, and towards the southern and western parts of the country.

In response, the policy debate likewise needs to shift its traditionally centralized focus towards a greater emphasis both on the differing regions of the country and towards more focus on initiatives relevant to the ascendant west and south. Clearly the policy imperatives in one part of the country can differ significantly from one region to another. Multimedia, digital animation, or fashion-related training programs might make sense in Los Angeles, San Francisco, or New York, but the needs in mid-south cities might be in other fields.

The fate of the center city, indeed that of all communities, turns on recovering their economic and political sense of uniqueness.

The fate of the center city, indeed that of all communities, turns on recovering their economic and political sense of uniqueness. In their struggle for capital, skilled workers, and entrepreneurs core cities must calculate what their natural advantages are and then market themselves on that basis. This contrasts markedly with the traditional urban political approach, which has sought out aid from outside by emphasizing dysfunction and what historian Fred Siegel calls "the riot ideology," that is, basing appeal in the not-to-subtle threat cities hold to the overall social order.

In the emerging digital age, where cities hold a diminishing share of the population and where economic function can take place increasingly in a variety of locations, cities must instead seek their salvation not from outside, but within. The role of civic elites—business people, labor leaders, educators, media—will prove increasingly critical. If the elites do not believe in the city and its unique role for the future, it is unlikely that the bulk of urban residents will do so.

The lack of assertive civic elites, perhaps more than anything else, is what distinguishes the classical, Renaissance, and early modern city from its contemporary successors. As late as the mid-1950s sociologist E. Digby Baltzell could still talk about "goal integrating" and assertive elites committed to the fate of Philadelphia. New York's dominant classes, notes former Tammany Hall boss Edward Costikyan, may have been ruthless and self-interested, but they identified themselves explicitly with Gotham; the same can be said of leadership groups in Los Angeles, Chicago, and a host of other cities.

In recent decades this web of loyalties has begun to fray as ever more sophisticated telecommunications technologies have made it easier for companies and elites to ignore their responsibility to a particular city or place. In the new century, some believe this rootlessness will be further exacerbated by the development as well of virtual communities that will replace communities built of brick and mortar. The "cities of the future," argues William Mitchell, are by nature antispatial:

The worldwide computer network—the electronic agora—subverts, displaces and radically redefines our notions of gathering place, community and urban life. The Net has a fundamentally different physical structure, and it operates under quite different rules from those that organize the action of public places of traditional cities.

To some enthusiasts, these "virtual communities" represent the ultimate solution to urban, indeed all human, problems. Just as Edison saw that electricity would do everything from improve women's mental capacities to eliminate the need for sleep and allow communication with the dead, some, such as MIT's Nicholas Negroponte, see "digital technology" as "a natural force drawing people into a greater global harmony."

Technology changes reality, and the geography of cities and communities, but ultimately does not solve the essential problems of human relations. As Daniel Bell argued almost three decades ago, the nature of postindustrial economy, can also serve to divide and individualize, breaking people into more nonspatially oriented interest groups, epitomized in our time by the rise of "chat rooms" on the internet. If the new technology opens both utopian perspectives of a better, more livable city, it also conjures up the recurring vision of the cult movie classic Blade Runner, which portrays a polarized, polluted and decayed 21st Century Los Angeles.

In this sense, perhaps more than any other, the great cities of the past, and their cultures, loom most impressively as models for those communities seeking to secure their place in the geography of the future. The leading citizens of the ancient Greek polis, the Italian city-state, early-modern Amsterdam and London all shared a peculiar passion for the mythology, history, sites, sounds, and smells of their cities. This remains the critical intangible element in urban culture. Even in a virtualized world, cities remain, as Jane Jacobs noted, "thoroughly physical places." Cities, indeed all communities, need to survive as something more than soulless zip codes of brick and glass interconnected by fiber-optic cables.

Residents of New York, Chicago, Los Angeles, Houston, and a host of other, smaller communities must seek first and foremost to revive the ancient civic spirit in the new. They can do this only by fostering a sense of connectivity—in human bonds, not just electronic links—- between the various communities, businesses, and neighborhoods of the city. More than anything, this reclaimed sense of civic spirit, not technology or government intervention, will determine how central cities can secure their place in the geography of the digital age.