The news that Amazon decided to split its new headquarters between New York City and Washington, D.C.—two big East Coast metros already equipped with roaring economic engines—came as little surprise to urbanists who’d been keeping a close eye on the year-long HQ2 pageant. Instead of dropping their “prosperity bomb” in a struggling city that would have been utterly transformed by an influx of high-salaried workers, the tech behemoth picked a pair of superstar towns already laden with them. For any number of business reasons, that decision made a lot of sense.
As CityLab’s Richard Florida wrote in his take on a Brookings Institution report that came out earlier this week, this was a textbook demonstration of “winner-take-all urbanism.” That report details the alarming dimensions of the growing gulf between America’s boomtowns and its “left-behind places”: Just 2 percent of the country’s biggest, showiest metros have enjoyed the bulk of employment gains since 2008. The rest are largely languishing—unable to recover after repeated blows of de-industrialization and globalization.
The Amazon sideshow may have thrown a spotlight on this phenomenon, but it’s hardly new: These two groups of cities started pulling away from each other starting the mid-1980s. Until recently, however, the response to the problem from economists and policy wonks has been, well, dispirited. “Even when there was any discussion of policy, it was mostly around how little policy would work and how it would all sink into graft and not be effective,” said Mark Muro, policy director of Brookings’ Metropolitan Policy Program and an author of the paper. “But now we have a very, very stark problem and many across the economic spectrum are acknowledging that.”
So what’s the fix? CityLab caught up with Muro and his co-author Clara Hendrickson to chat about strategies to bridge what seems like an insurmountable gap among American cities.
How are you both framing these solutions?
Hendrickson: For a long time in the policymaking and economic communities, there’s been this false tradeoff between maximizing equity on the one hand and ensuring regionally balanced growth and maximizing efficiency on the other side by supporting growth and agglomeration hubs [such as Silicon Valley]. But as we point out in the report, agglomeration on its own will not spread opportunity across regions. And this is a problem not only for the places left behind but also for the places that are doing so well today.
We think that spatial divergence hurts everyone—people in places that are left behind where productive firms are unwilling to locate and the super-successful cities that are dealing with congestion and expensive housing markets. That’s why we see the need for the set of policy interventions and actions that we lay out [in the report], which respect efficiency within superstar cities as good for the economy in the aggregate, but also tries to spread growth across a wider swath of places.
You mention that the first step is to review some popular approaches that have so far not worked. Could you give examples?
Muro: Top of mind is the idea that somehow places could change their lot by attracting from elsewhere a big whale of a economic catch, like Amazon. So we have this massive industry built up around subsidies to encourage business location. It’s extremely clear that this has a terrible record. We’re spending substantial amounts of money. [Economist] Tim Bartik says at least $40 billion. We think that’s a low bar: So some $40 to $60 billion are being spent by the municipalities and states on these attractions that they don’t often really help them. Meanwhile for a nation, this is just a reallocation of business activity from one place to another. So that’s very expensive and doesn’t work.
Hendrickson: Folks in Europe have been much more sensitive to the need for balances in the economy and in the political system. But the European policy approach has largely failed, too, because the places that are the largest beneficiaries of territorial cohesion funds from the European Union are the places that have really embraced nationalism and anti-European sentiments. We think this is because most of the investments have been targeted towards physical infrastructure, which has led to creating a lot of beautiful roads in some of these lagging regions but has not helped put these places on a path toward self-sustaining growth. Austria, Hungary, Poland, and some of the newer member states, for instance, have thousands miles of cycling tracks and new bridges. But infrastructure is only one input to economic growth.
The European Union also has a very top-down approach to administration territorial cohesion funding. They don’t really include a lot of the regional administrations that are probably best-equipped and most eligible to decide what places will need to jump-start growth. Those bases are sort of left out of the governance equation.
OK, so neither the U.S. nor the E.U. has fully figured out this modern economic dilemma. What are some basics that need to be put in place before non-superstar cities can pursue a growth agenda?
Muro: We think that certain aspects of the modern economy are really shaping economic outcomes so we should take them into account. One of them is this is that we have a profoundly digital economy and it will only become more so. So a starting point absolutely has to be skills solutions—vastly improved 21st century skills for everyone and in every place is now a baseline. We have to be serious about this, in one way or another.
It’s also clear, relatedly, that this digital economy requires being online and I think it’s largely thought that somehow we mostly dealt with the broadband challenge—that we’re finished working on that. Well, research from my colleague Adie Tomer shows gaping holes in coverage—and especially, speed—of linkage. That is profoundly spatial 21st century infrastructure that still has to be dealt with.
Hendrickson: We also talk about places that we call “capital deserts,”—that have insufficient funding to support local business and the local startup community.
The conversation in the banking world has really focused on the dynamics of the post-recession world. A lot of folks have been pointing to overly burdensome Dodd-Frank regulations as responsible for the pullback in small lending, especially in less densely populated parts of the country. But as we show in our report, this has been a problem going back to the mid-1990s, with the steep decline in the number of small community banks in the U.S. started due to regulatory changes at that time. That gave rise to much more top-heavy industry and that became a real problem in a recession. After the financial crash, big banks started pulling back their lending to small business. A lot of banks stopped giving loans below the $100,000 threshold completely.
Big banks that rely on quantitative standardized approach to evaluate loan applicants were also overlooking folks that would have previously benefited from the interpersonal dynamics at play when they go to their local community bank. We also know some structural problems: Small business lending is really expensive, and there aren’t that many ways to offset the risk of lending to small businesses.
Neither Mark or I are experts at financial engineering, but we start as folks who are more knowledgeable in this area to make some proposals that make it easier for banks give loans to small businesses. We also consider some non-bank, alternative sources of lending, namely venture capital, which has been incredibly geographically concentrated to the coast. We detail what we call a “fund of funds”—investors giving to regional venture capital consortiums—to folks who are being knowledgeable about the local business climate so that they can best make decisions about where that funding should go.
Muro: We really don’t think that the capital deserts reflect deserts of intellectual enterprise, entrepreneurial bent, and talent. There’s something awry in this system.
In order to spark growth, you mention the need to balance both place-centric and people-centric strategies. What do these look like?
Muro: I’ll talk right off about what we’re calling the need to support the emergence of very significant growth poles. This approach is about aiding and abetting growth closer to more of the places left behind.
We now have this very segregated superstar map in which the most vibrant places are mostly along the coasts and we have a vast kind of territorial center of the country that is filled with some up-and-coming places, but a lot of spaces that are pretty moribund and lacking real vitality. We doubt that as a nation, we’re going to be able to catalyze growth in the 400 small or medium-sized metropolitan areas and even micropolitan America. But we think that if we were to catalyze—to really stimulate—the growth and dynamism of, say, a dozen places closer to many of those communities, we might really change the map of the country.
So select 10 to a dozen places that already that are up-and-coming in the region, that have strong technology communities, vibrant startup communities—and importantly, a research university—and try to help them move to the next echelon to become truly significant regional hubs.
We think there’s a lot of underutilized people, underutilized talent, underutilized universities, underutilized entrepreneurial skills, underutilized airports, and underutilized housing stock. This would help us begin to tap into a lot more of the talent and skills in the country. That’s about getting growth out to more people.
Hendrickson: The mobility strategy, I feel, has long been the choice strategy of free-market conservatives who think that the solution to more regionally-balanced growth is to ensure perfect mobility in the labor market.
Ours is an endorsement of that idea that there needs to be support for relocation to ensure that workers are moving to places where there are greater opportunities. But that’s not the only solution. Right now, there is a little bit of a mismatch between mobility and opportunity—where people are moving to aren’t always the places with opportunity. So we talk about ways to increase affordability in prosperous regions.
We also acknowledge that humans are not perfect economic actors. and are often motivated by things that aren’t strictly economic. A lot of people want to live with their family and stay in places where they grew up. And so we support an alternative to long-distance moves, which is short-distance commuting that will allow people to stay in their home communities and access economic opportunities in nearby locations so that they can have the best of both world. This comes out of the growth poles idea that Mark just outlined.
Muro: Because there’s not been much focus on this, the solutions aren’t as mature as they arguably should be at this stage. We think that we’re going to have to embark on some experiments—ultimately pretty big ones as this is a big problem. We’re trying to be humble about the state of what is truly known and fully evaluated and encourage a period of giving new ideas their due and trying to think trying to see what works.
The inequality between American cities seems so entrenched and determined by global forces. I wonder how optimistic you feel about them?
Muro: There has to be a humility about the sheer scale of the dynamics at hand. Our work suggests this is deeply tangled with the entire structure of a globalized economic order. So there’s all of that be concerned about. With that said, I think we see a lot of vibrancy in this next echelon of cities that are not in the very short list of these coastal superstars. They are committing themselves over a 20 year period to very serious strategic approaches to improve their economies, and showing real success. Think of Indianapolises of the world, the Ashevilles, the Columbuses. Then there’s the whole list of university towns. We see things that are working. There are places that have excellent leadership and are working on improving their lot. So I think that there are possibilities.
Hendrickson: Given the structure of our political system, I do think that there are incentives for the Democrats to target regions that have been left behind. Those places are the same places that enjoy outsized political power in our electoral system. Conservatives, for their part, have successfully tapped into a lot of that discontent but whether or not they’re actually going to be able to deliver anything to these places remains to be seen. There is a need now to reject the politics, which is about globalizing the geographic space on either side, and really speaking across the region to stitch the country back together economically and politically.