Density drives economic growth

By Lou Glazer • on September 27, 2011

In our 2006 A New Agenda for a New Michigan we wrote: For many Michiganians, vibrant central cities are part of the past. No longer relevant or just something you visit in unique places like Manhattan, Toronto or Chicago. Think again! They are an important ingredient to future economic success. The pattern across the country is clear: high prosperity metropolitan areas have central cities with a concentration of knowledge workers. … So metropolitan Detroit, and to a lesser degree, metropolitan Grand Rapids, are highly likely to be the main drivers of a prosperous Michigan. In fact, it is hard to imagine a high prosperity Michigan without an even higher prosperity metropolitan Detroit.

Five years later the evidence is even stronger that that is the case. The Wall Street Journal reporting on just released data from the 2010 American Community Survey writes: Despite a decade of technological advances that make it possible to work almost anywhere, many of the nation’s most educated people continue to cluster in a handful of dominant metropolitan areas … The upshot is that regions with the most skilled and highly paid workers continue to widen their advantages over less well-endowed locales. … All of this came during a decade in which an increasing share of America’s wealth and population continued its shift toward cities, while rural areas in the Great Plains and Mississippi Delta continued to hollow out.

In a must read column in the New York Times Ryan Avent explains why this is the case. Why high density places are the most productive places and therefore the engines of economic growth. Avent writes: Cities have long been incubators and transmitters of ideas, and, correspondingly, engines of economic growth. … But what makes a city a city and a not-city a not-city is the fact that a city is dense and a not-city isn’t. … And when it comes to economic growth and the creation of jobs, the denser the city the better.

Avent continues: Density simply facilitates interaction. Interactions translate into wealth when a population is educated and local institutions support private enterprise and entrepreneurship. … The world’s richest places tend to be dense, with well-educated residents and a free-market-orientation (or tax havens or oil-rich) — think of New York and the Bay Area, of Singapore, Hong Kong and the Netherlands. Without a stock of skilled workers and a relatively open marketplace, density’s impact on growth and productivity will be limited.

He explains why this is the case using as an example a low tech industry: ethnic restaurants. Small towns, no Vietnamese restaurants; midsize maybe one; big metro many. And because of lots of customers and workers with the right skills to support many you get competition, variety and innovation. What works for Vietnamese restaurants, works for all industries. Density allows for greater specialization; increases competition which drives prices down and quality up and peer to peer learning. All of which increases productivity and spurs innovation and creativity which are the engines of economic growth particularly in an increasingly knowledge-based economy.

The data are clear. The most prosperous places are big metropolitan areas anchored by vibrant central cities with a high proportion of their residents with a four year degree or more. The states with the highest incomes – and most importantly the highest private sector employment earnings – are those with, at least, one even more prosperous big metro with a central city with high talent concentrations. (In the Great Lakes think Chicago and Minneapolis.)

Michigan’s  two big metros are lagging. Of 55 regions with populations of one million or more metro Detroit is 39th in college attainment and 41st in per capita income. Metro Grand Rapids ranks even lower at 44th in college attainment and 54th in per capita income. If those rankings don’t change Michigan is going to be one of the country’s lowest income states. End of story. Everything else we do to grow the economy are trumped by not having dense places with large talent concentrations.

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