Which Cities will Survive/Thrive?

Here is my semi-random list of potentially decisive urban dynamics.

The bankruptcy of Detroit, though long-anticipated, has unleashed a wave of speculation about the health of other cities in the U.S., and indeed, in the world--for example, China.

The Detroit Syndrome - Coming To A Chinese City Near You Soon(Zero Hedge)

A List of China’s ‘Most Alienating’ Cities Goes Viral

Despite the visible importance of urban centers and cities for thousands of years, it seems our understanding of their dynamics is still incomplete.

I spent the summer of 1968 in Detroit while our stepfather attended summer school at Wayne State University. 

Detroit's auto manufacturing industry was at the apex of its dominance, and I recall an odometer-type billboard proudly displayed the total number of vehicles produced year to date in Detroit.

I doubt that anyone in 1968 predicted Detroit would lose most of its industrial base and half its population over the next 40 years (1970 - 2010). Such a forecast was beyond even the most prescient futurist.

Four decades is not that long a time period, and our inability to predict large-scale trends over that time frame reveals intrinsic limitations in forecasting.

Nonetheless, the dramatic decline of Detroit and other industrial cities makes me wonder if there are dynamics that we can identify that could enable us to predict which cities will thrive and which will decay.

Here is my semi-random list of potentially decisive urban dynamics:

1. Since most people live in cities, global trends that appear abstract from 40,000 feet manifest in cities.

2. Single-industry cities are highly vulnerable to disruption if that one industry declines.

3. Cities that are dependent on highly centralized institutions and industries are more vulnerable to disruption that cities with a broad base of smaller, decentralized employers and sectors.

4. Cities that depend on highly centralized employers attract people seeking to become employees; cities that are not dominated by centralized organizations but foster rapidly growing decentralized sectors are more likely to attract entrepreneurial talent and capital.

5. The cities' primary industries must pull in profits and capital from the nation and world.

6. Highly centralized industries with rigid hierarchies, local political control and vertical supply chains do not foster the same entrepreneurial spirit and ecosystem as decentralized, fragmented industries that are still open financially and politically to competition and cooperation.

7. Rigidly controlled, centralized dominant political and financial organizations cannot foster the complex ecosystem of innovators and risk-takers that generate new wealth.

8. The Ratchet Effect is key: it is easy to expand payrolls, land area, benefits and pensions as the tax base and tax revenues expand; it is essentially politically impossible to shrink payrolls, benefits and pensions as the tax base shrinks and tax revenues decline.

9. Cities with dynamic ecosystems of mobile knowledge workers, innovators, risk-takers and mobile capital will tend to attract these same wealth creators from less dynamic and opportunistic cities and towns, in effect poaching the most potentially productive people and capital from 2nd tier and 3rd tier cities.

Here is a relevant quote from the above article on the poaching of capital and human capital by major cities:

As metropolises such as Beijing, Shanghai, and Guangzhou become black holes for resources, medium and small-sized cites have encountered difficulties in their development. “The most frustrating part about Tianjin [an industrial city an hour southeast of Beijing] is that we don’t own the resources that commonly exist in first-tier cities – good resources are all taken by Beijing."

10. Cities that offer cost-effective good governance are attractive to non-elite productive people; cities that skim wealth via corruption and do not provide efficient services offer disincentives to productive people who have a choice of where they live. 

11. Wealth is not just the financial wealth of the residents or the tax revenues generated by the tax base. Social and human capital, and the networks that enable flows of information, talent and capital are critical types of capital. We can adapt Bob Dylan's line here: "Those cities not busy being born are busy dying." 

12. Cities are ultimately constructed not just of infrastructure and political policy but of incentives and disincentives and individuals who respond to those inputs. In this view, the infrastructure of transit, parks, libraries, etc. and non-material policies and cultural-economic zeitgeist create the incentives and disincentives that people respond to.

Cities that offer incentives--most importantly, a healthy ecosystem of like-minded people--to innovators, risk-takers and mobile capital to fund new enterprises will generate a self-reinforcing feedback loop that attracts more productive people and wealth. Those cities that centralize cartels and political elites who naturally suppress competition as a threat to their control are vulnerable to systemic decay as the disincentives to the most productive overwhelm the self-liquidating incentives of rigid, sclerotic, centralized hierarchies.

The one thing we can safely predict is that technological and social innovations will continue to arise and disrupt the Status Quo. If cities are like ecosystems, then we can see that cities that are static monocultures are much more prone to decay and collapse than cities that encourage a complex wealth of competing and cooperating enterprises and networks.

Perhaps these dynamics apply not just to cities but to entire nations.

This essay was drawn from Musings Report 30. The Musings Reports are emailed weekly to subscribers and major contributors to oftwominds.com.

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Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart: 

1. Debt and financialization
2. Crony capitalism and the elimination of accountability
3. Diminishing returns
4. Centralization
5. Technological, financial and demographic changes in our economy

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

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