More on urban costs

I was overly facile in the last post. First, I was referring to knowledge/service jobs more than manufacturing. Even in knowledge related jobs, you can separate out business processes and functions to determine which are high value added and which are not. This is the basis of outsourcing. But in high cost areas, you can shift cost centers (as opposed to profit centers) to lower cost locations. In the pre-crash financial center of Manhattan, this was the justification for offloading certain kinds of service functions to places like Jersey City or Brooklyn.

The same goes for DC. The problem you have to watch out for is monoculture and overdependence on one kind of industry. Because rents are high in DC proper and the demand is high (in part due to the restricted amount of space available due to the constraint of the height limit on buildings), a greater diversity of businesses gets crowded out in favor of the high value businesses (government, law firms, certain trade associations, lobbyists, and other government support functions).

One of the early popularly written tomes which discusses these broad ideas is Intelligent Enterprise by James Brian Quinn. From the book description:

Managers, Quinn asserts, must define each value-creating activity as a knowledge based service and determine whether or not they can perform that service -- be it research, design, inventory control, accounting, distribution, or advertising -- better than anyone else in the world.

Using examples from companies such as Merck, Honda, Apple, Boeing, and Wal-Mart, Quinn describes how forward-looking companies can best perform needed analyses and implement strategies around selected core competencies. By eliminating or "outsourcing" less important functions to superior outside vendors, firms become more responsive, decentralized, and lean. They become the "intelligent enterprises" of the 1990s, leveraging human and capital resources much more than other firms.