The growth lesson America could take from China
The basic driver of remarkable economic growth in China — and India, Vietnam, Thailand, Brazil and pretty much every other developing country — is pretty simple: people migrating from rural areas, where they’re not very productive, to dense cities, where they are very productive. This is a tried-and-true strategy for making people and countries richer. But it’s not just for developing nations.
Over the past year, three terrific books have come out on the importance of cities in America's economy. In “Triumph of the City,”’ Harvard economist Ed Glaeser details how cities all over the world have supercharged human development and ingenuity. In “The Gated City,” Ryan Avent focuses more narrowly on the role cities play in making Americans better off. And in “The Rent is Too Damn High,” Matt Yglesias focuses on, well, why the rent is so damn high.
(Quick digression: Some of the best and most provocative books I’ve read over the last year have been short e-books. That’s true for Avent and Yglesias’s efforts, as well as Tyler Cowen’s “The Great Stagnation,” Alex Tabarrok’s “Launching the Innovation Renaissance” and Erik Brynjolfsson and Andrew McAfee’s “Race Against the Machine,” I’m increasingly convinced that the e-book format, which allows for more flexibility in both length and pricing -- all of these titles are between $1.99 and $3.99 at Amazon, and can be read in an hour or two -- represents a major advance for policy and polemical books, many of which suffer from being being too long and too costly.)
The three make similar arguments: First, cities make us smarter, richer and more productive. Avent sums up some of the (voluminous) evidence: “Economist Masayuki Morikawa finds that productivity rises between 10 and 20 percent when density doubles. Morris Davis, Jonas Fisher and Toni Whited estimate that a doubling of density may increase productivity by between 17 and 28 percent. Their work suggests that more than 30 percent of real wage growth over the past 35 years is attributable to changes in density.”
Cities, Glaeser says, are “our greatest invention.” People offer ideas and teach skills to, buy services from and engage in healthy competition with one another. Cities enable closer contact among the population. The results can be remarkable.
Glaeser cites the example of Silicon Valley: “The computer industry, more than any other sector, is the place where one might expect remote communication to replace person-to-person meetings; computer companies have the best teleconferencing tools, the best Internet applications, the best means of connecting far-flung collaborators. Yet despite their ability to work at long distances, this industry has become the most famous example of the benefits of geographic concentration.”
Second, we have choked off access to these remarkable growth machines for too many Americans. We haven’t done it on purpose, necessarily. But we’ve done it, mostly through regulations that make it either prohibitively expensive or downright impossible to buy or rent a home in the country’s most productive cities. Avent notes the disparity between the Bay area, with its “natural beauty, urban amenities, fantastic climate, cultural riches, and outstanding economic prospects,” and Phoenix, where “temperatures above 100 degrees are commonplace” and the income earned by the typical household “is only about 60 percent of that of the typical Silicon Valley household.” And yet, between 2000 and 2009, the San Francisco metropolitan area lost almost 350,000 residents, while Phoenix gained nearly half a million.
The reason isn’t that Phoenix is more desirable. It’s that San Francisco is prohibitively expensive. That’s in part because demand to live there is high. But it’s also because regulations make it almost impossible to increase the supply of housing stock. “Land is a scarce resource, so some increase in the price of housing is bound to happen as the economy grows,” Yglesias wrote. “But architects know how to design multifloor buildings and engineers can build elevators. Public policy that restricts their ability to do so — not construction costs or the limited supply of land — is the main cause of high rents in America.”
The different authors focus on various ills. Yglesias’s pulse is quickened by height restrictions, like the ones here in Washington. Avent takes aim at the local coalitions who band together to fight new real estate development for all manner of parochial reasons. Glaeser is particularly eloquent about the way ordinary buildings get designated “historical” to impede new development. But all make basically the same point: Because we don’t fully appreciate how important cities are in stoking economic development, we dismiss the economic costs of regulations that make them too expensive for many to live in.
Which gets to their solutions. They’re not arguing for pro-density policies. All three are careful to say that Americans should live where they want. They’re criticizing anti-density policies that make it effectively impossible for Americans to live where they want. The means should thrill the right, as the agenda effectively boils down to deregulation. The ends should engage the left, as the people who are priced out of the cities — and thus of the benefits they bring — are the poor and the middle class, not the wealthy.
And Americans of both parties should embrace the basic logic of the enterprise. It’s bad news indeed to realize that we have, for decades, ignored one of the most important dimensions of economic growth: place. The good news, of course, is that in this age of diminished economic expectations, there are still big ideas we can try to increase growth, innovation and productivity. Don’t believe me? Just ask China.