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Often an innovation is right in front of us but we can’t see it because of notions that we formed, or had formed for us, in the past. A colleague of mine calls this hidden future the “adjacent possible.” For many once-great American cities, this adjacent possible exists, but it is overwhelmed by the competing priorities of the federal government and urban planners who think they know the best way to achieve prosperity. Winston Churchill, one of the world’s most gifted innovators (few know this statesman invented the tank and made the Royal Navy abandon coal for fuel oil), understood the adjacent possible, the solution hiding in plain site. He once said: “People often stumble over the truth, then they pick themselves up and hurry along as if nothing had happened.” In the weeks ahead I will explore the adjacent possible that is part of what might be called the economics of place, or perhaps urban dynamics, since its overarching characteristic is change (as I discussed in my previous blog). I will look at the adjacency phenomena of unions, taxes, light rail, planners, politicians, philanthropists, and developers and discuss how they have shaped the fate of cities. All this must be considered in the larger frame of how the nation’s economy is made up of the economies of many thousands of places. To federal policy makers with a national perspective, the dynamics of local places seem to be of little importance. In fact, the meta-phenomenon of urbanization proceeds apace in the United States and in the world. And there are enough expanding newer cities to counteract the notion that the nation is failing as a whole. But more cities appear to suffer the rapid cycle of historic growth and current decay, rather than experiencing present-day growth. The wrecks of Newark, Buffalo, Detroit, and Gary cannot be ignored, and they challenge the assumption that there is a direct link between the economic health of a nation and that of its cities. We should be cautious about advancing any national urban policy, at least as it relates to the federal government’s role in assisting cities with their economic aspirations. Government action, based on the wrong thesis, can hurt, and likely has hurt, more than it has helped. Gleaming City on the Hill All cities aspire to the vision of the Mayflower Compact — they want to be gleaming places on the sunlit hill, drawing people toward them. Once a city’s day on the hill has passed, however, it is hard to think about a new reality. For many cities, a new reality does prevail, and it is bleak and unappealing. Take Detroit, for example. No one seriously believes that Woodward Avenue will ever be home again to some of the nation’s fanciest shops, finest museums, and other cultural institutions that were once the envy of many world capitals. Credible champions of renewal are hard to find in many of our cities. Rather, prompted by tired visions that drive federal funding formulae, today’s politicians speak of building “green zones” and creating schools that will prepare their residents for “green-collar” jobs. No one dares to even question what these terms mean. Many of our cities will never come back if they conform to the designs of the federal government. But this is a difficult reality to confront for two reasons. First, rejecting the federal vision of urban economic development means no more federal grant money, upon which most cities now depend. Second, there is no competing vision of urban renewal other than what the government promulgates as it descends from schools of urban planning, architecture, and public policy. So the futures of many American cities seem bleak indeed. Formerly great cities such as Detroit are like empires in twilight. Just as when countries contest, and some gain and some lose power, some failing cities just do not have the economic resources to compete with other towns. Their innovative human capital has left, and with it the only real weapon a place has to forge a new future. Worse, many of the obligations of the past cannot be abandoned, so the spiral of downward decay becomes more certain. No new business would move to Chicago so its employees could take on the certain responsibility to pay, through higher taxes, the pension costs of city employees now retired for 20 or 30 years. Reasons to Leave A comparative look at population shifts that result from and cause cities to grow and shrink helps illustrate the problems endemic to national urban policy. Joel Kotkin, Mark Schill and Ryan Streeter recently reported on migration in the Midwest. No surprise: Chicago, Detroit, and Cleveland are losing their populations to out-migration. People move for three reasons: more jobs, lower cost-of-living, and lower taxes. While it confounds elite planners, who by their nature believe they can set conditions for people to remain where they are, it appears that many people make informed economic decisions. People actually leave even though their former cities may be the “beneficiary” of disproportionate attention and funding from federal programs intended to “save” them. The people fleeing Detroit, and many other cities, don’t seem convinced that the place where they reside has a future. It seems the people of Detroit know the city’s future is directly tied to the ability of the federal treasury to bail out its auto companies. The record speaks for itself. For all the stimulus spending aimed at keeping jobs at G.M. and Chrysler, net employment is substantially lower than it was in 2008. So while continuous federal subsidy is unlikely, it is a certainty that real property and state income taxes will rise. As more and more people move away, there are fewer left to foot the city’s tax bill, and therefore tax rates must rise. Washington policy sachems, principally on the left, have long believed that people are not sensitive to income or property taxes. While one has to be cautious regarding speculation on causation, any real estate agent in Florida — a state with no state income tax — knows tax rates matter. The analysis presented by Kolkin et al. suggests some interesting migration patterns for Midwestern cities. Outbound Detroiters (who, as in New York State, outnumber inbound migrants by many magnitudes) go to four main places — Florida and Texas, which have no state income tax, and Maryland and Virginia, which have the densest concentration of federal jobs. Minneapolis, Los Angeles, San Francisco, and Seattle also welcome former Detroiters. One could speculate that their well-established reputations for generous social benefits might play a part. Columbus and Indianapolis lose their residents to Florida and Texas too. But both metropolitan areas happily enjoy substantial in-migration from high-tax cities such as Los Angeles, Chicago, New York, Detroit, and Miami. Kolkin and his co-authors argue that these Midwestern cities are attractive not only because they have jobs, but also because their costs-of-living —which are connected to tax burdens — are substantially lower than the places from which people moved. Without polling data, the only thing one can conclude with certainty is that there are patterns to such movement, and it appears that some places receiving new citizens have economic attributes that are judged sufficiently attractive to motivate a change in residence. What’s interesting is that no one can ever make a convincing case that people move for all the things that planners believe are important to making a city operate well. Few cities enjoy reputations for differentially better infrastructure. No one really brags about their airport or expressways (in fact, just the opposite with regard to the latter). No place (with the possible exception of cities and towns in Iowa) is widely understood to have remarkably better public schools. And, as is increasingly the case, when planners and developers bet on a brighter future and overbuild office and commercial space, the message is actually negative: In most cases the impression is that the place has insufficient business or negative population growth. Private Sector ‘Planners’ Unsuccessful federal strategies have spawned a private-sector industry offering solutions. Some urban consultants sell plans for making cities more hospitable to “creatives” hoping to entice people who will be good at creating new micro-economies (as in the arts, software, and food). These consultants advise as to how a community can remake itself into a more tolerant place with things like innovative housing (meaning in most cases industrial space recycled into loft apartments). They seldom relate the obvious, namely, that this prescription has proven of little consequence in the other cities where the same advice has been offered. After all, there are only so many mobile “creatives” in the country to go around. A competing private-sector solution is to recommend pursuit of the Silicon Valley model. Cities that have followed the prescriptions of consultants who pretend to know how “The Valley” works are allowing hope to triumph over experience. The eco-system that works in Santa Clara County is as unique as the eco-system in every city. Simply put, the sparkling ideas that visitors take away seldom seem to work back home. This is because the political structures, economic history, culture, and people in one place are so profoundly different from those in another. Growth Must Come From Home The real lesson, seldom learned, is that any hope that growth will emerge in any given place is best placed upon the indigenous population. The right policy is to induce creativity from those who presently live there. Creativity will not move to a city in sufficient numbers unless it is San Francisco or New York, or perhaps Boston or Los Angeles. If you are a mayor of any other city, you have to expect growth to come from the people living in your town today. This is not the planner’s answer. Hard economic reality doesn’t sell well. And the largest offender is the federal government as it conceives of new ways to benefit this place or that place (inevitably at the expense of another). Local competition among economies is one thing, but when the federal government engages in urban planning it cannot help upsetting the scale with its giant thumb. When it seeks to privilege a specific locale, or a specific industry (e.g., oil production or drug manufacturing, which is always concentrated someplace, most often a region), or a particular company (e.g., General Electric or Solyndra), it cannot help distorting the national economy. The economic cost of this is much greater than imagined. The national economy functions most effectively when markets signal where business should locate and accordingly where people can optimize their welfare by living. Ironically, often the locale that is the intended beneficiary of federal largesse ends up getting hurt the worst. Think, for example, of the attempt by the National Labor Relations Board to favor the aerospace workers’ union by attempting to block the opening of a nearly completed new manufacturing plant that Boeing had built in South Carolina. Had the plant not been able to open — the Administration’s intended political solution — the local community would have been left with an enormous unused facility into which it had sunk hundreds of millions of dollars in new roads, sewers, and new police and fire protection equipment. At the same time, had the jobs been forced to remain in Washington, it would have been only be a matter of time before Boeing would have moved more manufacturing offshore to avoid the reach of pro-union labor-law enforcement. What is fundamentally in question in all this is the right of people to live where they want and where markets take them. Working against this freedom, any national urban policy must tend toward compelling and inducing people to stay put. Existing cities, with the investment that property owners have in them, exercise their political power with the end of making themselves into more desirable places. Inevitably this means thinking in terms of the physical. Planners see the future in the vocabulary of new offices, schools, hospitals, roads and bridges, and new airports. But as time goes on, as the economy changes with more and smaller firms becoming its constituent units, grand structures like office buildings will become relics of bygone ages. The traditional office building is not likely to be the preferred venue for doing business. This is not just an American phenomenon. Next time you visit Shanghai, look up at the tens of thousands of empty windows. The traditional function of the planner should be abandoned. In its stead should be new city theorists who practice a kind of pragmatic urban geo-politic. The indigenous economies that work, those that bring forth local entrepreneurs who build locally-based firms, are the ones that will survive. Those cities that continue to look to the federal government’s vision of building the new “physical” to sustain the functionality of older urban economies will pay dearly. Now more than ever, America’s cities must be freed to discover their own “adjacent possible.”
TARIFF-IED: Trade Talk with Matthew Rooney
This week, trade relations between the U.S. and India are continuing to escalate. Earlier this month, the U.S. stopped granting India special trade privileges by taking away the Generalized System of Preferences (GSP) program, and India has responded by enforcing more tariffs of its own. The George W. Bush-SMU Economic Growth Initiative Director Matthew Rooney breaks down the trade conflict: For more information on trade groups and the global economy, visit www.bushcenter.org/scorecard.
How Trade Spreads Holiday Cheer
It is projected that the average American household will spend more than $1,000 during the holidays this year.
Deporting Salvadorans May Lead to Economic Decline
We should think carefully about a policy whose major impacts are likely to be reductions in employment and economic activity here at home, and increased instability and lawlessness along our borders.
Bush Institute's Laura Collins Talks Immigration on Good Morning Texas
Last week, Deputy Director of Economic Growth at the George. W. Bush Institute Laura Collins spoke with Good Morning Texas about immigration myths. During the interview, Collins had the opportunity to set the record straight and address common misconceptions about legal immigrants living in America today. The segment was inspired from facts released earlier this fall by the Bush Institute in the third edition of America's Advantage: A Handbook on Immigration and Economic Growth. Watch the full Good Morning Texas interview here.