Saturday, August 17, 2013

Urbanization and De-urbanization: China and Detroit

Michael Pettis has a great post on China's emphasis on promoting urbanization providing a juxtaposition for the Economist's post on "the roots of metropolitan collapse" highlighting Detroit's failures. Pettis points out that urbanization follows need rather than the other way around:

If China is growing so quickly that it desperately needs to move people out of low-productivity jobs in the country and into high productivity jobs in the city, then urbanization is wealth enhancing for China. But urbanization itself does not make China richer. It only allows China to become richer if there is already desperate need for workers in the cities.

So as in the case of razing Chicago to the ground, urbanization itself will not cause growth. It will allow growth to happen if the conditions are already there for rapid growth, and if urbanization allows a transfer of labor from lower productivity jobs to higher productivity jobs. If China isn’t already growing quickly, however, forced urbanization will make it poorer, not richer.
The Economist also questions the utility of policy interventions to "turn around" cities like Detroit:
The much harder question is assessing what if any redevelopment strategy would be effective and would pass a reasonable cost-benefit analysis (the steps outlined above obviously wouldn't). There is a decent amount of evidence which suggests things that don't pass muster, and almost none pointing to things that clearly do (ex ante, at any rate, and taking into account opportunity costs).

In thinking about possible strategies in a general way, one runs into one really hard problem centred on the increasing returns dynamic that drives city growth in the first place. A person living and working in one city is a person not living and working in another. And so to the extent that successful creation of a cluster in one place draws workers away from a cluster elsewhere—reducing the scale, and thus the productivity, of the origin cluster—it's very hard to see how one is generating net benefits.
It's particularly instructive for city leaders everywhere that their ability to "invest" in projects that will never generate an economic return is limited.

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