Monday, November 30, 2015

Cities and economic growth

Frank Rose reviews Matt Ridley's The Evolution of Everything: How New Ideas Emerge in yesterday's NY Times. I am enjoying the book. I'm a huge fan of Ridley so all of this is great fun.

In the review, Rose mentions "Highways are designed; traffic happens." Of course. The world we have is the upshot of top-down as well as bottom-up actions. The latter is much better at error correction and learning from feedback.

A la Ridley, consider the big picture. Prosperity and economic growth require robust specialization and exchange. This means the formation and maintenance of numerous complex supply chains. These include supply chains for things and supply chains for ideas.

All supply chains have a geographic dimension. Firms carefully choose what to make vs what to buy and also where to buy it, from near or far. The whole system tends to a pattern of locations that denote realized transactions (and transactions costs) as well as realized externalities. The city remains a competitive producer if these costs are contained.

Cities have been seen as “engines of growth.” This means they offer attractive supply chain formation and management opportunities. Networking and location opportunities are significant as these choices are made. Flexible land markets, if we can have them, denote more such opportunities.