Agglomeration economies still matter

With covid, and how central business districts and office buildings hollowed out as white collar employees were able to work from home, there's been a lot of discussion about how this will change everything, and people won't need to work in conglomerations.

Given that I am a huge proponent of the concept of agglomeration economies and the value of cities as places for exchange, I've never thought that all the world's congestion and other problems could be solved by telecommuting.

Interestingly, a book, Anthro-Vision: How Anthropology Can Explain Business and Life, has just been published that touches the topic, and it comes down decisively on the value of people working together ("The empty office: what we lose when we work from home," Guardian).

... But one of the most revealing details from Beunza’s interviews concerned performance. When he asked the financiers at the biggest American and European banks how they had fared during the wild market turmoil of spring 2020, “the bankers said that their trading teams in the office did much, much better than those at home,” Beunza told me in the autumn of 2020. “The Wall Street banks kept more teams in the office, so they seem to have done a lot better than Europeans.” That may have been due to malfunctions on home-based tech platforms. But Beunza attributed it to something else: in-person teams had more incidental information exchange and sense-making, and at times of stress this seemed doubly important.

Jon Talton, the business columnist of the Seattle Times also writes about this, "Pandemic didn’t rob superstar cities like Seattle of their appeal, so heartland cities will still struggle," and he references a recent Brookings study that acknowledged despite its advocacy for relocating business headquarters and economic activity left behind by the focusing of business activity on major cities, it isn't happening.

...one thing that’s already becoming clear: The pandemic isn’t going to save the heartland by jarring loose companies and high-skilled workers from superstar cities such as Seattle in favor of Cincinnati, St. Louis and other places left out of “winner take all” urbanism...

Also, the numbers don’t support the narrative that the “COVID-19 pandemic has created a massive pool of footloose workers who are rapidly exiting the big coastal tech hubs and heading for the heartland, where they will boost the inland economy.” ...

Before lax antitrust enforcement, cities of any size had their local banks, department stores, railroad operations, and many hosted airline hubs (Dayton was a Piedmont Airlines hub) and headquarters of major corporations (Dayton was home to National Cash Register, later NCR, and Mead paper, both moved away). 

Now these economic crown jewels are long gone from most heartland cities. Bad luck, technological changes and corporate betrayal were to blame, but also bad policy and not only antitrust or even trade’s effect on manufacturing. Some of the wounds were self-inflicted. No wonder most of the 240-plus localities competing for Amazon HQ2 never stood a chance. 

Much of the heartland prized tax cuts, hurting education funding and investments in future-leaning projects. The state of North Carolina spent years building the Research Triangle, anchored by three major universities. Ohio failed to do so. 

Today, when Big Tech spreads its wings to places without enough talent, universities, quality of life and tolerance it means low-end operations such as data centers, call centers and Amazon warehouses. All are considered big economic wins in “loser” locations, but they’re not equal to the widespread benefits of the old industries.

-- "Remote Work Won't Save The Heartland," Brookings

Although I was surprised to see that the large paint and coatings company, Sherwin-Williams, remains committed to Cleveland ("Sherwin Williams HQ Proposal Includes 36-Story Skyscraper, Two-Story "Pavilion" on Public Square," Cleveland Scene) now a laggard city.  That's probably because the company has so much invested there in terms of knowledge, capacity, and facilities, that it's too expensive to move.  

In this Aug. 27, 2018 photo shows the main office facility for Caterpillar Inc. in downtown Peoria. Peoria wasn't always a company town. It was a distillery town, a farm implement town and a river town before the Caterpillar Tractor Co. set up shop in the 1800's. A bond developed between company and town that became a mutually-beneficial relationship. While Caterpillar is moving 300 executive and staff jobs to Deerfield, Ill., 12,000 employees remain in central Illinois.(Ron Johnson/Journal Star via AP) 

By contrast, Caterpillar moved its headquarters from Peoria to suburban Chicago (they chose the suburbs over the city in favor of proximity to O'Hare Airport ("Caterpillar moving headquarters to Deerfield," AP, "Caterpillar's move left behind 12,000 workers," Daily Herald) and Boeing from Seattle to Chicago (although that was to diminish the political power of Washington-based trade unions in influencing corporate decision making, and we can argue that it diminished the quality of decision making rather than improved it, given the  737MAX fiasco, "The 1997 merger that paved the way for the Boeing 737 Max crisis," Quartz).

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And as discussed, "superstar cities" like DC, or well-located but laggard cities like Baltimore or Philadelphia can't rest on their laurels.  

-- "Transit "wokeness" in DC and Baltimore" (the discussion on both DC and Baltimore saying they don't want maglev, even though it could strengthen their central business districts)

For example, initiated by Mayor Bloomberg, the city is investing in a business and tech higher education, research, and business development initiative to maintain the city's business competitiveness ("Naturally occurring innovation districts | Technology districts and the tech sector").