In his 2005 book, The World Is Flat, Thomas Friedman argues, essentially, that the global economic playing field has been leveled, and that anyone, anywhere, can now innovate, produce, and compete on a par with, say, workers in Seattle or entrepreneurs in Silicon Valley. But this argument isn’t quite right, and doesn’t accurately describe the evolution of the global economy in recent years.
In fact, as I described in an earlier article for this magazine (“The World Is Spiky,” October 2005 [link opens PDF]), place still matters in the modern economy—and the competitive advantage of the world’s most successful city-regions seems to be growing, not shrinking. To understand how the current crisis is likely to affect different places in the United States, it’s important to understand the forces that have been slowly remaking our economic landscape for a generation or more.
Worldwide, people are crowding into a discrete number of mega-regions, systems of multiple cities and their surrounding suburban rings like the Boston–New York–Washington Corridor. In North America, these mega-regions include SunBelt centers like the Char-Lanta Corridor, Northern and Southern California, the Texas Triangle of Houston–San Antonio–Dallas, and Southern Florida’s Tampa-Orlando-Miami area; the Pacific Northwest’s Cascadia, stretching from Portland through Seattle to Vancouver; and both Greater Chicago and Tor-Buff-Chester in the old Rust Belt. Internationally, these mega-regions include Greater London, Greater Tokyo, Europe’s Am-Brus-Twerp, China’s Shanghai-Beijing Corridor, and India’s Bangalore-Mumbai area. Economic output is ever-more concentrated in these places as well. The world’s 40 largest mega-regions, which are home to some 18 percent of the world’s population, produce two-thirds of global economic output and nearly 9 in 10 new patented innovations.
Some (though not all) of these mega-regions have a clear hub, and these hubs are likely to be better buffered from the crash than most cities, because of their size, diversity, and regional role. Chicago has emerged as a center for industrial management and has rolled up many of the functions, such as finance and law, once performed in smaller midwestern centers. Los Angeles has a broad, diverse economy with global strength in media and entertainment. Miami, which is being hit hard by the collapse of the real-estate bubble, nonetheless remains the commercial center for the large South Florida mega-region, and a major financial center for Latin America. Each of these places is the financial and commercial core of a large mega-region with tens of millions of people and hundreds of billions of dollars in output. That’s not going to change as a result of the crisis.
Along with the rise of mega-regions, a second phenomenon is also reshaping the economic geography of the United States and the world. The ability of different cities and regions to attract highly educated people—or human capital—has diverged, according to research by Edward Glaeser of Harvard and Christopher Berry of the University of Chicago* , among others. Thirty years ago, educational attainment was spread relatively uniformly throughout the country, but that’s no longer the case. Cities like Seattle, San Francisco, Austin, Raleigh, and Boston now have two or three times the concentration of college graduates of Akron or Buffalo. Among people with postgraduate degrees, the disparities are wider still. The geographic sorting of people by ability and educational attainment, on this scale, is unprecedented.
The University of Chicago economist and Nobel laureate Robert Lucas declared that the spillovers in knowledge that result from talent-clustering are the main cause of economic growth. Well-educated professionals and creative workers who live together in dense ecosystems, interacting directly, generate ideas and turn them into products and services faster than talented people in other places can. There is no evidence that globalization or the Internet has changed that. Indeed, as globalization has increased the financial return on innovation by widening the consumer market, the pull of innovative places, already dense with highly talented workers, has only grown stronger, creating a snowball effect. Talent-rich ecosystems are not easy to replicate, and to realize their full economic value, talented and ambitious people increasingly need to live within them.
Big, talent-attracting places benefit from accelerated rates of “urban metabolism,” according to a pioneering theory of urban evolution developed by a multidisciplinary team of researchers affiliated with the SantaFe Institute. The rate at which living things convert food into energy—their metabolic rate—tends to slow as organisms increase in size. But when the Santa Fe team examined trends in innovation, patent activity, wages, and GDP, they found that successful cities, unlike biological organisms, actually get faster as they grow. In order to grow bigger and overcome diseconomies of scale like congestion and rising housing and business costs, cities must become more efficient, innovative, and productive. The researchers dubbed the extraordinarily rapid metabolic rate that successful cities are able to achieve “super-linear” scaling. “By almost any measure,” they wrote, “the larger a city’s population, the greater the innovation and wealth creation per person.” Places like New York with finance and media, Los Angeles with film and music, and Silicon Valley with hightech are all examples of high-metabolism places.
Metabolism and talent-clustering are important to the fortunes of U.S. city-regions in good times, but they’re even more so when times get tough. It’s not that “fast” cities are immune to the failure of businesses, large or small. (One of the great lessons of the 1873 crisis—and of this one so far—is that when credit freezes up and a long slump follows, companies can fail unpredictably, no matter where they are.) It’s that unlike many other places, they can overcome business failures with relative ease, reabsorbing their talented workers, growing nascent businesses, founding new ones.
Economic crises tend to reinforce and accelerate the underlying, long-term trends within an economy. Our economy is in the midst of a fundamental long-term transformation—similar to that of the late 19th century, when people streamed off farms and into new and rising industrial cities. In this case, the economy is shifting away from manufacturing and toward idea-driven creative industries—and that, too, favors America’s talent-rich, fast-metabolizing places.