U.S. Economy

Fighting the Economic Power of the Coastal Elite

Efforts to keep jobs and wealth from concentrating have been out of fashion.

Remember Main Street?

Photographer: Jay LaPrete/Bloomberg

Back when it was home to a DHL shipping hub, Wilmington, Ohio (population: 12,449 and shrinking), seems like it was a lively little city. In 2007, a local bookstore, Books ‘N’ More, threw a release party for “Harry Potter and the Deathly Hallows” that drew 10,000 people downtown.

DHL left in 2008. Books ‘N’ More closed in 2014. But now Amazon.com is beginning to use Wilmington’s airport for its own delivery airplanes. In his Bloomberg Businessweek cover story this week about Amazon’s shipping offensive, Devin Leonard recounts a funny little exchange illustrating the mixed feelings that this generates. John Stanforth is Wilmington’s 71-year-old mayor. Marian Miller and Bret Dixon are local officials who are extremely enthusiastic about having Amazon in town.

“They are a feel-good company,” says Miller. “Who wouldn’t want a feel-good company like Amazon? Look at the way they treat their customers and their employees!”

The conversation turns to those Harry Potter events. Stanforth perks up. “Well, we had a local bookstore that really promoted it and took the initiative,” he says. “Sad to say, it’s closed up. Wonder who closed them up?”

Miller gives him a look. “Don’t say it.”

“Where does everybody get their books now?” Stanforth says, grinning.

“Don’t say that,” Miller warns him again.

“Amazon,” Stanforth says.

“I knew you were going to say it,” Dixon says, shaking his head.

The relationship between independent bookstores and Amazon is a little more complicated than that: Amazon’s rise has been hardest on big chains such as Barnes & Noble and Borders (RIP), and the chains’ decline has actually ushered in a modest indie resurgence.

Still, Mayor Stanforth is onto something: The rise of big national retailers has been devastating for many pillars of local communities such as Books ‘N’ More. This is a story that long predates Amazon, and one can make the case that the effects have been on balance positive. Here’s Jason Furman, now the chairman of the president’s Council of Economic Advisers, making a numbers-based defense of Wal-Mart in 2005:

There is little dispute that Wal-Mart’s price reductions have benefited the 120 million American workers employed outside of the retail sector. Plausible estimates of the magnitude of the savings from Wal-Mart are enormous -- a total of $263 billion in 2004, or $2,329 per household. Even if you grant that Wal-Mart hurts workers in the retail sector -- and the evidence for this is far from clear -- the magnitude of any potential harm is small in comparison.

What such an accounting leaves out, though, is the value of locally owned businesses, of local control. I don’t quite know how to quantify that value, but it isn’t nothing, and political leaders used to fight hard to preserve it. As the New America Foundation’s Phillip Longman wrote in the Washington Monthly last year:

Throughout most of the country’s history, American government at all levels has pursued policies designed to preserve local control of businesses and to check the tendency of a few dominant cities to monopolize power over the rest of the country. These efforts moved to the federal level beginning in the late nineteenth century and reached a climax of enforcement in the 1960s and ’70s.

Since the 1980s, economic activity and wealth in the U.S. have become increasingly concentrated in a few big metropolitan areas, mostly along the Atlantic and Pacific coasts. The standard explanation for this Great Divergence, as University of California at Berkeley economist Enrico Moretti has dubbed it, is that, as I wrote in February:

The most vibrant, important sector of the economy is what he calls the “innovation sector,” and its workers thrive in the presence of lots of others like them. So clusters of innovation such as the San Francisco Bay Area, New York, Boston and Austin, Texas, will keep creating good jobs, and most other places won’t.

If that’s the main force driving the divergence, then the policy response should probably involve (1) finding ways to build more housing in those innovation clusters so workers can afford to live there and (2) helping people from struggling towns and cities move there. Maybe we could also foster the development of a few more innovation clusters, but that’s really hard to get right.

Longman’s thesis, though, is that the divergence is mostly due to a shift in government policy that began in the late 1970s. Government went from fighting economic concentration to tolerating it (by cutting back on antitrust enforcement) and even egging it on (by deregulating transportation and finance, increasing protection for intellectual property, and other means).

This was all well before the dawn of the commercial internet, of course. Because the internet is a decentralized, distributed network, many boosters predicted during its rise in the 1990s and early 2000s that it would counter the trend toward economic concentration and bring a new age of decentralization and individual empowerment. In some areas (economics commentary, for example) this has arguably happened. But on the whole, U.S. economic activity has just been getting more concentrated in large companies. And when you read about Amazon’s bold plans to make it ever cheaper and more convenient to get everything you need delivered to you at home by Amazon, it seems clear that it’s only going to get more concentrated.

So here’s the question: Should Americans be fighting against this? My Bloomberg View colleague Conor Sen argued last week that we shouldn’t get too worked up about crazy housing prices in innovation clusters such as New York and San Francisco, because they are having the positive effect of driving talented people and economic activity to other cities. But what about taking things a step further, and actively legislating against economic concentration? Remember, doing so used to be the norm in the U.S. It seems terribly retro right now -- sort of like a locally owned bookstore on a small-town Ohio Main Street. But ideas do have a way of coming back into fashion.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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    Justin Fox at justinfox@bloomberg.net

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