Wednesday, June 15, 2011

Great cities inspire us to reach for the sky

As I'm sure you've heard, for the first time in human history more than half the world's population lives in cities. In the developing countries, particularly China, the urban population is growing by 5 million a month. In rich and poor countries alike, cities are a magnet. But why are people so keen to crowd into congested, expensive cities?

The explanation has to be primarily economic, but most economists studiously ignore the spacial dimension of economic activity. There is, however, a notable exception: Professor Edward Glaeser, of Harvard University, is one of the world's leading experts on urban economics.

In his new book, Triumph of the City, Glaeser proclaims cities to be humans' greatest invention. Why? Because they make us rich. ''Urban density provides the clearest path from poverty to prosperity,'' he says. People who live in big cities not only earn a lot more than those who don't, they're more productive.

Cities are ''the absence of physical space between people and companies''. This closeness generates ''economies of agglomeration''. Producing a product close to a large market cuts costs by allowing large-scale production and reducing distribution expenses. The bigger the city, the greater the scope for firms to specialise in particular fields. Firms know they'll have less trouble finding the labour they need in a big city; workers come to cities knowing there'll be plenty of good jobs.

Historically, big cities often arose because they were convenient hubs for national or international trade in particular products. Many developed their own manufacturing industries - garment-making in New York, cars in Detroit, for instance. But such areas of strength can be challenged by changes in technology. Big reductions in the cost of transport and communications have brought about ''the death of distance'' and shifted much manufacturing to developing countries where labour is cheaper.

Detroit has never recovered from greater competition with Japanese and other Asian carmakers. Its population is less than half what it was. New York lost most of its manufacturing industry, but began reinventing itself in the 1970s. Today, more than 40 per cent of Manhattan's payroll is the financial services industry.

This experience leads Glaeser to emphasise a different driver of the benefits of cities: knowledge.

''Humans are an intensely social species that excels, like ants or gibbons, in producing things together. Just as ant colonies do things that are far beyond the abilities of isolated insects, cities achieve much more than isolated humans,'' he says.

''Cities enable collaboration, especially the joint production of knowledge that is mankind's most important creation. Ideas flow readily from person to person in the dense corridors of Bangalore or London, and people are willing to put up with high urban prices just to be around talented people, some of whose knowledge will rub off.''

Cities magnify humanity's strengths. Because humans learn so much from other humans, we learn more when there are more people around us. Urban density creates a constant flow of new information that comes from observing others' successes and failures. Cities make it easier to watch, listen and learn.

Pundits have predicted that improvements in information technology will make urban advantages obsolete. Once you can learn from Wikipedia in Gilgandra, why pay Sydney prices?

''But a few decades of high technology can't trump millions of years of evolution,'' Glaeser says. ''Our species learns primarily from the aural, visual and olfactory clues given off by our fellow humans. The internet is a wonderful tool, but it works best when combined with knowledge gained face to face, as the concentrations of internet entrepreneurs in Bangalore and Silicon Valley would attest.''

An experiment challenged groups of six students to play a game in which everyone could earn money by co-operating. One set of groups met for 10 minutes' face-to-face to discuss strategy before playing. Another set had 30 minutes for electronic interaction. The groups that met in person co-operated well and earned more money. The groups that only connected electronically fell apart, as members put their personal gains ahead of the group's needs.

This fits with many other experiments, which have shown that face-to-face contact leads to more trust, generosity and co-operation than any other sort of interaction.

Cities, and the face-to-face interactions they engender, are tools for reducing the ''complex-communication curse''. Long hours spent one-on-one enable listeners to make sure they get it right. It's easy to mistakenly offend someone from a different culture, but a warm smile can smooth conflicts that could otherwise turn into flaming emails.

Glaeser says the ''central paradox of the modern metropolis'' is that proximity has become even more valuable as the cost of connecting across long distances has fallen. His explanation is that the declining cost of connection has only increased the monetary returns to clustering close together. Before, high transport costs limited the ability to make money quickly from selling a good idea worldwide. ''The death of distance may have been hell on the goods producers in Detroit, who lost out to Japanese competitors, but it has been heaven for the idea producers of New York, San Francisco and Los Angeles, who have made billions on innovations in technology, entertainment and finance.''

So what do you have to do to be a successful city? Well, first, you have to overcome the three main costs of cities: disease, crime and congestion. After you've achieved clean water (solved the sewerage problem), the harder goals are safe streets, fast commutes and good schools.

Cities thrive when they have many small firms and skilled citizens. Industrial diversity, entrepreneurship and education lead to innovation. Innovation allows cities to overcome setbacks and stay prosperous.

''Human capital, far more than physical infrastructure, explains which cities succeed,'' Glaeser concludes. ''Infrastructure eventually becomes obsolete, but education perpetuates itself as one smart generation teaches the next.''