Urban economics

Economy is one of the crucial dimensions of urbanization and urbanism. Here are a few key concepts from urban economics.First concept: economy/efficiency. To be profitable, an process of production and trade must be efficient. In the late 1700s, this form of efficiency was called ‘economy.’ We still use ‘economy’ in this older sense, when we say that something was accomplished “with an economy of means.”

Efficiency remains a powerful ideological tool in urban policy. It retains several associations: for engineers, it means an effective system or process. For environmentalists, it means reducing wastefulness. During most of the 20th century, urban planners assumed that the way to modernize a city was to make it more efficient: better traffic planning, better infrastructure, better governing–all of which supported economic growth. To this day (2013) the term ‘efficiency’ is used as a code-word for pro-business planning, versus planning that might be more socially just or environmentally equitable.

Second concept: economy of scale. In this expression, ‘economy’ still means ‘efficiency.’ The mass-production of commodities is profitable because of economies of scale. For example, it may cost several thousand dollars to design the first prototype of a ballpoint pen. But if you can make hundreds of thousands of copies from that prototype, the cost goes down to a few cents.

Third concept: agglomeration economies. Ever notice that used-furniture stores tend to cluster in one part of a city? Or, if a city becomes known for producing carpets, other carpet-producers will locate factories there? Both on the retail and the production side, it is more efficient for firms to cluster for several reasons. 1) sharing advanced business services (legal, finance, design, marketing, prototyping), where these special service-providers understand the primary business. 2) sharing/swapping labor: in a town where there is a carpet factory, there is likely to be a reserve of skilled carpet-makers. Furthermore, people who want to make carpets are more likely to move to that town. 3) on the retail side, customers are more likely to go to one location with a reputation for one type of good.

Fourth concept: urbanization economies.  Beyond agglomeration economies, large cities are where firms can profit from cross-sector skill sharing. Silicon Valley is a fine example: it began as a site of electronics design and production. Software is actually very distinct from computer hardware, but software firms were attracted to Silicon Valley because engineer skilled in the design of computers and machine-language drivers are more likely to be able to design end-user applications.
In the SF/Emeryville/Marin area, it is easier to set up a special-effects or animation studio because there are may people here who have related skills from other sectors: computer programming, graphic art, storytelling. Examples: ILM, Pixar, Tippett studios.
Sassen uses the concept of agglomeration economies to explain why cities continue to grow and concentrate in the age of the internet, with its low-cost, long-distance communication. It turns out that face-to-face relationships remain crucial.

Fifth concept: the new international division of labor (NIDL). To understand this concept it helps to first understand the old international division of labor.
Old IDL: In the 1950s, recently-decolonized countries extracted and sold raw products at a low price to industrial countries (usually their former colonial overlords). In return those industrialized countries designed and produced expensive commodities which they sold back: electronics, pharmaceuticals, automobiles.
The New International Division that emerged in the 1970s: companies could divide up their production-chain into segments that could be located in different parts of the world. So in the NIDL, the division of labor is inside the companies. For any garment you wear, the cloth, thread, and buttons may have been produced in three different countries, and the parts may have been sewn together and packaged in a fourth country. The labeling, marketing, design, and legal services probably still take place in the US.
This NIDL not only shapes urbanization across the world, it shows the deep interconnectedness of cities in this world-spanning process.


Leave a Reply