Urban success

It's tough for me to blog this week because I have a bunch of things to do/going on etc. So I might end up posting some "best of" entries. In the meantime, Ryan Avent has an excellent entry on the factors which predicate the success of cities, in "The City to my Success." He attributes this to:

four key variables–location, population skill level, cost, and amenities.

I pretty much agree, however cost isn't as big an issue as people might think. E.g., DC and NYC are high cost places. But the agglomeration benefits make cost less of an issue. And as a major factor, taxes are never as big an issue as made out to be by local business elites.

Taxes end up being about 5% of total cost of a business. Most urban economists say, and research bears this out, that taxes aren't a major factor in business choice (at least up to a certain point, after which taxes can in fact be onerous), which is one reason that economic opportunity zones with reduced taxes don't end up accomplishing all that much in increased economic activity ESPECIALLY in areas with other negatives (location, labor quality, amenities).

On the other hand, costs can be a deciding factor when other factors such as location and amenities are problematic. For example, high taxes in Philadelphia, not to mention crime etc. mean that a fair amount of business operations have leaked to the suburbs. Still places like Philadelphia and Baltimore lose out to better locations as large businesses continue to consolidate (many Philadelphia area chemical and pharmaceutical companies have merged, leaving the area, while in Baltimore the large financial and insurance companies have been acquired and for the most part decamped). Each has not figured out its place in the NYC to DC region and how to leverage its proximity to and quality transportation connections.

In DC, there were and are problems, but then again, by law 60% of federal employment is supposed to remain within the District of Columbia proper, which means that it pays to be close to customers if you are a trade association, lobbyist or law firm, there are great neighborhoods to live in close to the central business district (Georgetown, Dupont Circle, Cleveland Park, Capitol Hill, etc.), and the subway system means it is relatively efficient to get around.

Strengthening his post, he has another one, "Boom and Bust" which links to a graphic in the New York Times on growing and declining regions. He's right. It's a fascinating graphic.

However, while he ascribes the Washington's region success in part to its tech focus, I think that it is slightly misleading. DC's technology focus is less entrepreneurial and more institutionalized, focused on government-related computing. It's the same kind of difference that benefited Silicon Valley in the long run, while the Boston technology sphere declined as the latter was spun out of Draper Laboratories and focused on big iron (minicomputer companies like Apollo, DEC, Wang, etc.), rather than companies focused on both the large institutional customers (Sun, SGI, Intel, etc.) as well end user type companies. (And while Intel continues to succeed, technology specific companies like Sun and SGI have declined precipitously.)
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WRT DC and Philadelphia, in 2003 I wrote this, "An outsider's vision for saving Philly" which appeared in the Philadelphia Daily News.