“The Keys to the City demonstrates Storper’s considerable knowledge of the literature that intersects urban and spatial economics with the new economic geography. This engaging book will play a major role in moving theoretical discussions forward into new territory and will find a wide audience in economic geography and fields engaged in urban policy.”–Susan Christopherson, Cornell University

“Every chapter of this book makes a significant contribution to some aspect of economic development. However, this book is unique and ultimately invaluable because it is by a geographer who is engaging seriously with economics. It is a great entry into economics for geographers, is insightful throughout, and develops a new framework for thinking about places and growth.”–Gilles Duranton, University of Toronto

“Fascinating and ambitious, this book borrows ideas, concepts, and results from geographical economics, economic geography, and institutional social sciences to explain the organization of and the change in the space-economy. Exploring the unequal development of societies as they unfold across space, this book provides insightful analyses of issues that have been far too neglected. It will attract much attention.”–Jacques Thisse, Université catholique de Louvain

Michael Storper is professor of economic geography at the London School of Economics and Political Science, professor of economic sociology at Sciences Po in Paris, and professor of urban planning and geography at the University of California, Los Angeles. He is the author of The Regional World: Territorial Development in a Global Economy.

Keys to the City

HOW ECONOMICS, INSTITUTIONS, SOCIAL INTERACTIONS, AND POLITICS SHAPE DEVELOPMENT

By Michael Storper

PRINCETON UNIVERSITY PRESS

Copyright © 2013 Princeton University Press
All rights reserved.
ISBN: 978-0-691-14311-8

Contents

Acknowledgments……………………………………………………ix1. Introduction. Cities and Regions in the Twenty-First Century: Why Do
They Develop and Change?……………………………………………1PART I THE ECONOMIC CONTEXT OF CITY AND REGIONAL DEVELOPMENT……………2. Workshops of the World Economy: People, Jobs, and Places…………….143. The Motor of Urban Economies: Specialization……………………….324. Disruptive Innovation: Geography and Economics……………………..525. Cities and Individuals: How We Shape Cities, But Not the Way We Want
To……………………………………………………………….67PART II THE INSTITUTIONAL CONTEXT OF CITIES AND REGIONS………………..6. Winner and Loser Regions: The “Where” of Development………………..927. Communities and the Economy………………………………………1048. Robust Action: Society, Community, and Development………………….115PART III SOCIAL INTERACTION AND URBAN ECONOMIES……………………….9. Technology, Globalization, and Local Interaction……………………14010. Local Context: The Genius of Cities………………………………15611. Face-to-Face Contact……………………………………………167PART IV THE POLITICAL CONTEXT OF CITY AND REGIONAL DEVELOPMENT………….12. Exit or Voice? Politics, Societies, and City-Systems……………….18413. Justice, Efficiency, and Cities: Should Regions Help One Another?……204Conclusion. Dear Policymaker: Some Keys for You……………………….224Notes…………………………………………………………….229References………………………………………………………..239Index…………………………………………………………….267

CHAPTER 1

Introduction

Cities and Regions in the Twenty-FirstCentury: Why Do They Developand Change?

Divergence and Turbulence

If the current residents of many countries were transported back just afew decades, they would not recognize many aspects of their cities andregions. This is paradoxical, since cities are durable structures made ofconcrete and steel, and in many ways, slow to change. The iconic dimensionsof cities—Manhattan’s skyscrapers, Los Angeles’ long boulevardsand freeways, and the historical core of Paris—stay with us. But manyother dimensions of cities, from the granularity of their neighborhoodsto the size and organization of entire metropolitan regions, and the mapof winning and losing regions, change radically in small amounts of time.

In 1950, the average American would barely be glimpsing what wouldcome to be the current “American way of life” in the suburbs and wouldnot be paying much attention to what we now call the Sun Belt. In 1960,few were worried about the decline of dozens of major metropolitanareas in the Manufacturing Belt, and the average resident of Detroit gavenary a thought to the idea that their metropolitan region would be consideredthe poster child of failure several decades hence. Nor would manyhave imagined that Houston and Las Vegas would be considered big successstories soon thereafter.

As late as 1980, the average American was not thinking about theresurgence of certain cities in the Frost Belt, such as New York, Chicago,or Boston, as would occur in the 1990s, or the gentrification of theirforlorn center-city neighborhoods. In the 1980s, few scholars thoughtabout the rise of “world cities,” such as Hong Kong or Shanghai, or howLondon or Paris would or would not be in their ranks. Nor would theParisian in 1950 be able to imagine the massive suburbanization of thatregion and thorough gentrification of central Paris, erasing most of itscharacteristic raucous rough parigot edges. The resident of Rio de Janeiroin 1940 would have laughed scornfully if presented with the prospectof São Paulo becoming Brazil’s as well as South America’s biggest, richestmetropolitan area. The deck of economic development is constantlybeing reshuffled, and the cards are being dealt out over different places inan uneven and changing pattern.

Urbanization has been on a sharp upswing since the trade revolutionthat began with the age of exploration in the late 1400s. It intensifiedwith the advent of the Industrial Revolution in the eighteenth century.This period has also witnessed the “Great Divergence” at the global scale,whereby the West after 1750 left the rest of the planet behind in wealthand income. As part of this divergence, in the eighteenth and nineteenthcenturies the world’s big cities became its richest places, but some citiesbecame a lot richer than others. In the merchant period, cities like Venice,or Xi’an at the other end of the Silk Road, found themselves losing out toManchester in terms of wealth. The industrial period generated a patchworkof higher-and lower-income regions. The Industrial Belt of northernEurope first had the highest incomes, followed by the core regionsof North America. In the Old Northeast of the United States, cities suchas Buffalo and Cleveland were points of high wealth in 1900, especiallywhen compared to Atlanta or Houston. The rise of California and the”first” New Economy in the early twentieth century added wealthy andgrowing city-regions on the Pacific coast to the ranks of the ten-richestlarge urban regions.

By the late 1960s, across Europe and North America, many of theformerly richest urban regions were losing employment and struggling tomaintain their income levels. The change in the United States was particularlydramatic, as a host of Sun Belt cities not only grew bigger than oldmanufacturing cities but also grew richer (Kim 2002). Some of the oldmanufacturing cities even had absolute declines in employment. Thoughthe US case is particularly marked, the same thing happened to Europeanmanufacturing cities such as Lille, Manchester, or Torino. This turbulencefor the United States can be seen in table 1.1.

The late 1980s and 1990s brought further change in the West. Certaincities that had been written off as declining manufacturing centers,including New York and London, began to attract people again, andmost dramatically, moved back up the urban income hierarchy as theireconomies were recomposed around high-paying New Economy industriesand jobs. Indeed around the world, a set of major urban regionsstarted to resemble one another and became essential switching points ofthe emerging global economy. Hong Kong, Tokyo, Singapore, São Paulo,Sydney, Toronto, Zurich, and many other cities grew bigger and richer,while many formerly rich, mostly middle-size industrial cities lagged themmore and more. With the increase in global trade and integration, majorindustrial cities in developing countries, especially China, kept attractingpeople yet also moving up the world income hierarchy of cities; Guangzhou,Belo Horizonte, Bangalore, Johannesburg, and Kuala Lumpur arejust a few of these places. Reflecting this reality, Richard Dobbs and hiscolleagues (2011) show that the six hundred largest cities in the worldhouse about a third of the global output, and two thousand urban centersproduce the majority.

In addition to this broad picture of urbanization, metropolitan areasare continuing to spread out physically. The great suburban wave inthe West is slowing, but suburbanization is gaining in emerging economies,perhaps with a slight nod to environmental concerns that push forgreater density and more collective transport—although it is unlikely tobe abandoned. Many metropolitan areas in the twenty-first century willexpand not only through greater employment density in their core butalso by replicating the polycentric metropolitan region model that is alreadyfound in Los Angeles, London, Paris, São Paulo, Mexico, and SanFrancisco.

Thus, within this shared global process of development, the pattern ofdevelopment will remain territorially unequal. There are two senses ofsuch inequality. The first is that urbanization is itself a form of extremeunevenness: it packs people, firms, information, and wealth into smallterritories. About 40 percent of US employment is located on 1.5 percent ofthe country’s land, and about 60 percent is situated on 12.5 percent of theland. In most countries, this has led in recent years to an increase in incomedivergence between major metropolitan areas and the remaining parts ofthe national territory. Some of this is offset through income transfer tothose areas, but the basic dynamic—of a split between the middle-andlarge-size metro areas and the rest—will likely characterize developmentin the opening decades of the twenty-first century. The second type ofunevenness of development is that individual metropolitan regions, overthe medium run of thirty to forty years, undergo considerable turbulencein their fates, rising and falling in the income ranks, and gaining or losingpopulation at different rates.

City-regions are the principal scale at which people experience livedreality. The geographical churn, turbulence, and unevenness of development,combined with the sheer scale of urbanization, will make city-regiondevelopment more important than ever—to economics, politics,our global mood, and our welfare. And managing it will pose one of themost critical challenges to humanity. The winning side of the process willexcite us and motivate talent, but the losing side will create displacementand anger, both within and between countries.

Growth and Change: The Challenge to Theory and Evidence

Social science has paid abundant attention to describing urban growth andchange—or more broadly, to the regional and geographical dimensionsof growth and change. Notwithstanding the progress that has been made,we are still far away from identifying the causes of such change. Changeand its causes are what matter most to human welfare. The big game tobe hunted is insights into the drivers of changes in the geography of economicdevelopment and population. The problem is that we still mostlyaccount for patterns in a post hoc manner, or attribute causes to them byoversimplifying, thus bracketing out most of the interesting interactions(“if this, then that” kinds of approaches).

Explaining the growth and change of regions and cities is one of thegreat challenges for social science (Perloff 1963). Cities or regions, likeany other geographical scale of the economic system, have complex economicdevelopment processes that are shaped by an almost-infinite rangeof forces. The thorny question is, What should social science aim to doin the face of such complexity? It would be unrealistic to ask any fieldof theory and research—especially in an area of such complex human-technicalinteraction as the spatial economy—to meet all these challengesfully. But a focus on change and causality, by which I mean studyingcities and regions as forward-moving development processes—shoulddetermine what is most relevant in defining the ambitions of the field.Concretely, then, the field should be able to respond to such questionsas: Why do city-regions grow? Why do some decline? What differentiatescity-regions that are able to sustain growth from those that are not?What are the forces that cause per capita income to converge or diverge,and under what conditions do they operate? Why are some city-regionsso much more productive than others? What is the relationship of a region’smaterial-physical structure to its economic performance? What arethe principal regularities in urban and regional growth, and what are theevents and processes that are not temporally or geographically regularbut instead affect pathways of development in irreversible ways?

Urban and regional development is a noisy and complex phenomenon.Its most significant causes cannot be understood through the tools ofany single discipline or theory, even the “economic” ones. This book’smain purpose is to consider the explanations we use for city and regionalgrowth and development, and organize the major questions along withthe toolbox we have for attempting to answer them. It draws principallyfrom economics, economic geography, and economic sociology.Four contexts of the development of city-regions compose the toolboxfor explanation that this book constructs: economic, institutional, socialinteraction, and political or normative. In each context, I focus on identifyingmicrofoundations: how individuals, households, firms, and groupsinteract to make cities and change them.

Economics and Geography

I begin with the task for economics and then move on to the other disciplines.The geography of uneven economic development is the centralconcern of development economics, economic geography, and regionalscience and urban economics. This book engages with all these fields. Themain difference that characterizes studying the mechanisms of developmentat the urban-regional scale from the national scale has to do withthe degree of openness of the economies in question. International flowsof goods, people, capital, and information are important to national development,and arguably ever more so in a period of intense globalizationsuch as the present one. But there are still many significant limits to openness.Nation-states have sovereign state structures with powerful tools toshape development. These include property rights, fiscal and monetarypolicy, the ability to intervene in the economy’s supply of factors througheducation, border controls as well as research and development (R & D)and tax policy. In addition, countries have informal institutions such ascommon languages, traditions, and social and economic networks. Thisallows countries to limit their degrees and types of openness in a widevariety of ways.

City-regions within a country do not have that kind of sovereigntyor separation. There are fewer barriers to trade as well as the mobilityof firms, capital, and people inside national economies than in theglobal system as a whole. City-regions also have limited fiscal capacitiescompared to nation-states and no independent monetary policy. City andregional governments do not set fundamental laws about such things asproperty rights, tax policy, and other basic institutional issues. In somecountries, there are local education systems, but they usually depend onnational norms and, often, national budgets. R & D may be more intensein some regions than others, but its basic structure and magnitudes arestrongly shaped by national policy. In a few countries such as Spain, Belgium,or Switzerland, the social and economic networks are sharply segmentedby language and history. In most countries, though, the nationallanguage and culture have strong unifying influences on city-regions.

In standard economic models of regional development, this high degreeof openness is captured by assuming the unlimited mobility of labor(people) and capital (firms), and low trade costs for goods and services(output) between regions. In these approaches, we thus assume high opennessand low costs of interaction with other regions, allowing research toturn to what we might call patterns of “sorting” of firms and people. Thismeans that urban and regional economics tends to reduce the questionof regional development to the interregional economics of the sorting ofcapital and labor. In part I of this book, I argue that standard urban andregional economics attributes too much importance to sorting, and that itgets the principal sources of sorting wrong. Whereas standard urban andregional economics sees sorting as driven principally by costs of living,housing markets, and local business climates, I see it as driven principallyby changes in technology and trade costs.

International development studies, by contrast, identifies concerns thatshould be at the heart of analyzing city-region development. Since countrieshave significant barriers to trade and factor mobility, developmentis structured not just by what is sorted to them but also by what they dointernally with the resources they have and create (Helpman 2011). Regionaldevelopment—like national development—is strongly influencedby interaction processes within the economy—notably in innovation,know-how, human networks, labor markets, and local social interactionsand political processes related to development. These internal developmentaldynamics of the productive economy in turn contribute to sorting,in a two-way interaction between the local and other scales of theeconomy.

The location of the leading-edge tradable activities of the economy—inshorthand, the “innovation sector”—is not just a sorting response tofactor costs and factor prices. In many ways it is the other way around.Regional business ecosystems or clusters generate or attract their ownfactor supplies, and create their institutional and interaction environments.These conditions cannot be readily imitated, nor can their costsor prices be bid down through interregional competition and sorting offirms and people.

Geographers, sociologists, and many students of urban politics typicallyconcentrate on these internal dynamics of regions. Unfortunately,these scholars inhabit separate worlds of academic and policy debatefrom those explored principally by economists. The disciplines of geography,sociology, and urban politics think about how business networksaffect entrepreneurship and specialization; how politics affect local labormarkets and wages; how social networks influence political attention andproblem solving; how ideas, traditions, and cultures impact the environmentfor firms; and how land use is shaped by many such local forces. Allthese contribute to the internal developmental dynamics of city-regions,and they differ strongly from city to city.

The Book

For the noisy and complex problem identified above, there will be nosingle “big-bang” model, but rather four analytic contexts, covering severaldisciplines: again, economic, institutional, innovation or interaction,and political or societal.

The economic context explored in chapters 2 through 5 concerns thegeography of production, or where firms and jobs go, and the geographyof individual household and worker locational choices. In chapter 2, Iask whether it is movements of people seeking quality of life or jobs/firmsseeking production locations that set off major sequences of change inurban and regional development. The response is that city-regions developmostly as workshops of firms, not playgrounds of individuals. Inchapter 3, I discuss why industries concentrate in general, and what kindof spatial-economic pattern of population and production they trace out.In chapter 4, I look at why some cities and regions have prices and wagesthat are so much higher than others, and how this fits into the overalleconomic process of wealth creation.

In chapter 5, I consider the role of individuals and their preferences forwhere to live; for firms, I examine their preferences for where to locate;and for both, I look at their preferences for public goods. Any broad economicprocess such as city-region development is the result of innumerableindividual choices. A critical issue in all studies of urban developmentis the extent to which the pattern of urbanization responds to such preferences.I will argue that the relationship between preferences and urbanoutcomes is fraught with tensions. This means that we can only rarely usethe characteristics of existing cities and urban systems to deduce “whatpeople want,” or what they would “prefer to prefer.”
(Continues…)Excerpted from Keys to the City by Michael Storper. Copyright © 2013 Princeton University Press. Excerpted by permission of PRINCETON UNIVERSITY PRESS.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.