Cities without limits

Investing in failing towns and depressed regions doesn't work. Only urban areas can drive nations forward. Edward L Glaeser argues the case for making the metropolis bigger, better and more important

(Getty)

We live in an age in which it is easy to email Buenos Aires, and browse the internet from the Grand Canyon. We could just dial in from whatever sylvan spot appeals to our biophilia. Yet, remarkably, many of the world's cities are more successful, healthy, innovative and fun than ever. Why?

This era of urban resurgence is all the more remarkable because 35 years ago, it looked as if the urban age was over. When I was growing up in New York City in the 1970s, it looked as if that erstwhile industrial giant was headed for the trash-heap of history. Manufacturing decline also made those years grim for London.

Almost all of the older cities of the UK and US had grown great on manufacturing industries built around transportation hubs. Britain built a great web of canals in the 18th century and railroads in the 19th century, and cities like Manchester, Birmingham and Liverpool could sell their goods world-wide because of those investments. In 1816, it cost as much to move goods 32 miles overland in the US as it did to ship them across the Atlantic, which explains why Americans perched on the eastern seaboard. The wealth of the American hinterland became accessible because of investments in a great transport network of water and rail. America's inland cities – Buffalo, Chicago, Detroit – appeared at critical points along that network.

While cities often form for mundane reasons, like taking advantage of a river, urban concentrations of talent then create chains of invention from Athenian philosophy to Florentine painting to Facebook. The industrial revolution was another child of the city. Richard Arkwright didn't invent the water frame in a vacuum, his success was the end-point of a cascade of Lancashire-centred insights, produced by Lewis Paul, John Wyatt, Thomas Highs, John Kay and others. James Watt's knowledge was nurtured by ties to Glasgow's scientific luminaries. His steam engine's eventual success required Birmingham collaborators, such as Matthew Boulton and John "Iron-Mad" Wilkinson, who was able to produce the superbly bored cylinders necessary for Watt's separate condenser engines.

Pre-industrial cities were places of skilled people, small firms and global connections but great industrial towns, from Manchester to Detroit, were something different. In these places, vast factories, walled off from the outside world, employed thousands of less educated labourers. For many decades, the productivity advantages of this model were enormous, but in the long run this model proved almost antithetical to urban reinvention. The great urban advantage is connection – letting people work together and learn from each other – but this advantage was lost when Henry Ford put all of his workers in his vast River Rouge plant, away from Detroit's other engineering firms.

Economic conditions changed and the age of the industrial city ended. It will not return in the West. Declining transportation costs, throughout the globe, eliminated the advantages that canal and rail once conferred on older cities. Industry moved to lower cost areas, and urban industrial jobs disappeared by the tens of thousands. Manufacturing employment in Greater London fell by 40 per cent between 1961 and 1975: a loss of 560,000 jobs.

But London and New York were able to come back, despite the death of distance, because the same density that once made it easy to get hogsheads on to clipper ships now speeds the flow of ideas.

Globalisation and new technologies increased the returns to knowledge and innovation. A good fashion idea, made in London, is worth more precisely because the garment can be made more cheaply on the other side of the planet. A great Hollywood script is more valuable than ever because it will be watched in Indonesia.

Humankind's greatest asset is our ability to learn from people around us. We get smart by being around other smart people. Cities matter because they cater to what makes us human – our ability to connect with and learn from other people. Cities make it easier to transmit the most complicated and valuable ideas, which are easiest to get lost in translation in cyberspace.

The outsized role that finance plays in the success of London and New York is unfortunate but understandable. Cities are healthier when they have more industrial diversity, but there is no industry where knowing a little bit more is more lucrative than finance and that's why financiers chose density. The value of information in that field explains why traders, some of the richest people on the planet, chose to forgo the pleasures of privacy to work right on top of each other in wall-less trading floors.

The importance of ideas for urban success explains why skills are so strongly associated with urban growth both in the US and the UK. Education is the best predictor of successful reinvention among older industrial towns. The wage benefits of working in a big city don't accrue to migrants when they first show up in a city, but rather come year-by-year in the form of faster wage growth. Small firm size, which indicates a culture of entrepreneurship is another important correlate of job growth, and entrepreneurship has played a big part in London's comeback.

The knowledge-driven success of big cities benefits not only those cities themselves but the nation as a whole. National tax revenues come disproportionately from more productive places. Cities are also national gateways to the rest of the world, and the rest of the world is only becoming more important. Cities often create innovations that are produced in outlying areas. Handicapping the cities of the US and UK through taxes and investment in failing regions is a dangerous business.

Don't invest in failing regions

Inner London's GDP is 3.5 times that of the rest of the UK. The power of urban connection helps us make sense of the two possible approaches to regional income disparities such as this. The first approach, "regional egalitarianism", pushes economic activity from the centre to less successful peripheral spots.

Better transportation networks, such as the proposed High Speed Rail 2 from London to the west Midlands, can be seen as a means of making outlying areas more successful. Tax incentives that encourage business location in poorer areas designated "enterprise zones" are another example.

The second approach, "building on success", sees instead migration to successful areas as the best way to spread the wealth. That approach focuses on eliminating the barriers to the expansion of the most successful regional economies.

The supporters of "regional egalitarianism" like to emphasise that historic transportation investments, such as Birmingham's canals, once enabled the growth of cities and region.

But these investments created a radical reduction in the cost of moving across space during an era where success hinged on natural resources and goods production. There is little evidence that such investments can do much to halt regional decline today.

The highways that entered depressed inner cities in postwar America seem to have acted primarily to enable suburbanisation.

Public works extravaganzas, such as Detroit's People Mover monorail, serve little purpose since streets are not typically congested in declining areas.

My own statistical work on regional interventions in the US, such as urban renewal, suggests that such public projects can do little to lean against the tides of history. The power of extreme urban density, where smart people connect and compete on a grand scale, is very hard for governments to replicate.

The evidence on enterprise zones is only somewhat more positive. Employment does respond to tax incentives, although the cost is often over £25,000 per job.

Economists have typically mustered a wide range of arguments against place-based investments. Often these investments, even when successful, primarily benefit property-owners rather than poor people.

And why should the government be in the business of bribing people to stay in less advantaged regions? Doesn't Britain needs its companies to be as productive as possible, and doesn't that mean allowing them to choose the locations that most enhance their productivity?

An alternative view is that countries should invest in poor people, but not particularly in poor places. Education has grown more valuable over time, and there is every reason to care for the children of depressed areas.

In many cases, those children will find a brighter future by moving to a more productive place and that's not a bad thing. The wealth of London can be spread either by taxing the city to spend elsewhere, or by allowing more people to come to London. The track record of the first strategy is weak, but people have found prosperity in great cities for centuries.

London must be upwardly mobile

If London is so productive, then why don't more people live there? Greater London's population has grown only modestly more than the national average since 1981, about 14 per cent. For many people, high prices prevent living in London. House prices in London are more than 50 per cent higher than the national average and more than twice prices in more depressed areas. Those official statistics understate the true cost of living in London, which also includes lengthy commutes and small living units in the urban core.

In countries throughout world, the intricate details of urban land use regulation increasingly impact both the economy and the environment. America's Silicon Valley is one of the most productive places on the planet. Yet its population growth has been modest, because highly restrictive zoning rules make it so difficult to build more homes.

There is no repealing the laws of supply and demand. When a place, such as London, is productive and fun, it will experience abundant demand for housing. When the supply of that housing is curtailed, either because land isn't available or because regulations prevent the delivery of density, then prices will rise. London's high prices, which restrict its growth, reflect the collision of robust demand against limited supply. Put another way, the population growth of an area is almost perfectly correlated with the growth in the housing supply of that area, and if homes can't be built, then population will not grow.

Cities can add housing by building up or by building out. Both avenues are restricted in Greater London. Environmentalism, as expressed by the city's green belt, limits the development of new homes on the urban edge. Preservationism, as expressed by myriad restrictions on rebuilding the urban core at higher densities, limits the development of more central residential towers.

Many economists oppose the environmentalists and argue for allowing more building on London's urban edge. Such construction would allow more people to work in London and still enjoy traditional British cottages and gardens. More skyscrapers in the city could provide plenty of space for people who want to live in the heart of London. Added density would create more demand for urban restaurants and cafes and stores and that would make the city even more exciting. The Tube is crowded, but congestion on public transportation is easier to accommodate than congestion on roadways. Ideally, new space could be provided in areas that could allow workers to walk to work.

The case against new construction is that London has a charming historic city centre, but it seems like a mistake to let a city's future be hostage to its past. Much of London should be preserved, but not every building needs to stand as a monument to the Victorian past. There is much to be said for the juxtaposition of old and new architectural masterpieces, especially when the new buildings' creators think carefully about context, so that viewers observe an architectural dialogue across centuries.

The great New York urbanist Jane Jacobs argued that since new buildings are expensive and old building are cheap, preserving old buildings helps keep cities affordable. That isn't how supply and demand works, and her old neighbourhood of Greenwich Village illustrates the fallacy of that reasoning. For more than 30 years, that area has been part of a Historic Preservation District and new construction has been almost completely forbidden. As a result, a neighbourhood that once welcomed middle class people, such as Jacobs herself, has become an exclusive preserve of multimillion dollar town homes affordable only to the ultra-affluent.

Environmentalism also bolsters the case for building up. Urban lifestyles are far less carbon-intensive than suburban living, because of less driving and smaller housing units. Suburbs may look green, but urban density is ultimately far kinder to the environment. Allowing more construction in central London means less driving on the urban edge. If India and China's per capita carbon emissions rise to the levels seen in the US, global carbon emissions will rise by 127 per cent. But if they stop at the levels seen in hyper-dense, but still wealthy, Hong Kong, emissions will rise by less than 30 percent. By building London up, Britain will have a stronger moral case when arguing for less energy-intensive high density living in Asia.

London has a great history of economic and cultural innovation and it is still a world leader today. The city remains the best hope for the British economy, but for that economy to be more inclusive, the city must build up. Height provides not only economic opportunity, but a model of environmental sustainability for the world.

'The Triumph Of The City' by Edward L Glaeser is published by Macmillan (£25.00). To order a copy for the special price of £22.50 (free P&P) call Independent Books Direct on 08430 600 030, or visit www.independentbooksdirect.co.uk