Why big cities matter more than ever
The information revolution, we used to hear, would break the shackles of geography and make cities irrelevant. Thanks to e-mail, the Internet, and an ever-widening array of technological devices, you would be able to work just as effectively in South Podunk as in the Big Apple. A new, post-metropolitan era would open in which creative and flexible firms could locate their operations anywhere. The age of the big city would come to an end.
But that hasn’t happened. Big cities have continued to grow. In rich nations today, urbanization levels are on the order of 80 percent or higher. China and India are urbanizing at breakneck speed, with Shanghai and Bombay racing each other to become the world’s largest metropolitan area and eclipse Tokyo (currently 33 million strong). Why is it that cities have lost none of their powers of attraction, despite the new freedom that information technology brings individuals and firms? The economic advantages of cities—of urban “agglomeration,” in the language of the people who study these things—are difficult to measure precisely and not the same for all firms. But they are quite real, and we can capture them in what I call the Seven Pillars of Agglomeration.
Let’s start with the most basic pillar, one that has historically supported the great manufacturing economies of big cities: economies of scale in production. That is, as the scale of production increases, unit costs fall. That basic rule of economics makes it profitable for firms to manufacture goods in just a few large factories, rather than in many smaller ones. And if you’re going to have just one or two big plants, it makes sense to locate them where you can find a lot of workers: densely packed urban areas. This logic explains the growth of large manufacturing cities like Detroit in the earlier part of the twentieth century. Nowadays, though, it applies most readily to midsize cities, because real estate in larger cities often costs too much to build big factories. READ MORE…