A Second Wind For U.S. Cities

Repeatedly over the past couple of decades, the death knell has been sounded for America's major cities. A combination of economic, social, and technological factors, it was argued, would render them obsolete. In their place, a network of suburbs and exurbs would buzz with activity.

But the seers were wrong. Yes, high costs, eroding public services, and a shrinking tax base hurt big cities. Rising crime rates and congestion also made urban areas less attractive. And the proliferation of telecommunications and computers did make it easier to work anywhere, anytime.

Still, none of these trends killed off cities. Look at New York: Still the financial capital of the world, it boasts a lively entertainment industry and a nascent new-media business. And the crime rate has fallen. If you think New York is an anomaly, look, of all places, at Detroit. The city's horrendous unemployment rate of 18.7% five years ago has been whittled to 8.4%, and auto makers are searching out of state for skilled workers.

Turns out it's the very density that characterizes cities that is their lifeblood. Economists have found that states and localities with concentrated levels of employment are more productive, thanks to "agglomeration" effects--the economies of scale, vast pools of skilled labor, rapid adoption of technological innovations, and other benefits that come from having lots of people interacting in one area.

Cities such as New York need to nurture these effects; cities such as Detroit need to cultivate them. How? Detroit should raise the education and skill levels of its workers. Efforts by Focus: Hope, a vocational training school, and the Henry Ford Academy gf Manufacturing Arts & Sciences, a new charter high school sponsored by Ford Motor Co., are a good first step. In this environment, too, it pays to encourage the development of "brownfields" through the reclamation of derelict urban industrial districts. Cities, it seems, have the wherewithal to be surprisingly resilient.

    Before it's here, it's on the Bloomberg Terminal.