upwave: city dynamics and the coming economic revival

John Montgomery 2011

The Upwave: Growth, Prosperity and Economic

Development

by John Montgomery, Urban Cultures Ltd.


The Argument

• The Banking Panic of 2008-2009

• The Problem with Economics

• How Economies Work

• Growth and Decline

• Long Waves of Economic Development

• City Dynamics


The Banking Panic of 2008-09

• The slowdown of 2008

• Monetary policy from 1999

• Debt – private

• Debt – government

• Lehman Brothers etc


The Sub-prime Crisis

• The Resolution Trade Corporation• Mortgage-backed Securities held by US

investment banks, pension funds and asset management firms = $6 trillion

• Sub-market was about $800 billion• Bad lending and bad debts• Fannie Mae and Freddie Mac• Consolidated Securities


Banking Panics

• Can happen at any time• Asset bubbles• Not necessarily linked to real economy• The South Sea Bubble, the Mississippi Bubble, the

Ayr Bank Collapse, the Commercial Crisis of 1857-58

• The real economy was growing well in 2007 and is again

• Not 1930s but the late 1950s


The Problem with Economics I

• Adam Smith – supply and demand, markets and trade = classical liberal

• Mathematical Modelling and Scientific Method- the ‘Marginalists’ eg Leon Walras

• Predictability and ‘Equilibrium’.

• Economics as a seesaw: unemployment v. inflation


The Problem with Economics II

• Neo-classical economics and modelling and rationality, eg Samuelson, Kenneth Arrow

• Economics as plumbing – Phillips Curves• Keynesianism – demand management• Stagflation in the 1970s• Arthur Okun’s ‘Discomfort Index’• Monetarism – Irving Fisher and Friedman• The non-accelerating inflation rate of

unemployment


The Problem with Economics III

• Real life is a disappointment

• Fear of Inflation

• New Keynesianism – stimulas and debt

• Sovereign debt

• Monetary policy is a blunt instrument and is over-used

• The Austrians = minimal intervention


‘The State of Macro’

• ‘For a long while after the explosion of macroeconomics in the 1970s, the field looked like a battlefield. Over time however, largely because facts do not go away, a largely shared vision both of fluctuations and of methodology has emerged…The state of macro is good’. Blanchard, O. The State of Macro, Cambridge Mass, MIT Working Paper 2008.

• Much of the elegant theoretical structure that has been constructed in the last one hundred years in economics will be seen over the next decade to have provided a wrong focus and a misleading and ephemeral idea of what constitutes equilibrium. If we consider two standard criteria for a scientific theory – prediction and explanation – economic theory has proved to say the least, inadequate. Alan Kirman (1999).


Economic Development (Smith, Jacobs, Porter)

• Location and Specialisation

• Firm Formation

• Exports and Trade

• Imports and Import Substitution

• Division of Labour

• Imitation and Innovation

• Local ConsumptionEx P C

I IS


Real Economic Development

• Markets and Prices and Trade

• Economic development is a natural characteristic of human societies

• Non-linear = no equilibrium!

• Adaptation and ‘Drift’

• ‘Complex adaptive systems


Real Places

• Growth occurs in real places• Self-generating development• Original use of local resources and materials• Traditions of work and skills• Adaptation and Improvisation• Dynamic and Creative• Cities and City Regions


Clusters, Networks and Milieux

• Industry clusters: Michael Porter• Networked economies: Manuel Castells• Creative Milieux: Tornquist,

Andersson, Hall

• Cities and city regions: Jane Jacobs


Theories of Creative Milieux

Gunnar Tornquist, 1978– Information (and exchange);– Knowledge (bodies of work and data-bases);– Competence in certain activities;– Creativity, combines these to create new

products, ideas and processes.


Theories of Creative Milieux II

• Ake Andersson, 1983– cities that have developed ‘almost subliminal abilities’ to produce new

work in art, technology and science. – Such places tend to be

• culturally diverse (in terms of tastes and preferences, rather necessarily than ethnic variety)

• rich in knowledge

• have a store of skills and competencies

• well-connected through communications infrastructure

• relatively compact places, so that

• variations and innovations coming from diverse small-scale elements in close proximity.


Transactions of Decline

• Collapse of staple industries

• Failure to adapt

• Loss of entrepreneurship

• Loss of skills and competences

• Low levels of investment, work and business formation

• Laggard regions and subsidy transactions


What Causes Growth?Schumpeter, Hall, Carlota Perez

• Technological revolutions

• New industries

• Investment surge and bubble

• New demands and new markets

• Inflection Point – where new technologies become part of the mainstream economy

• Followed by an Upwave or golden age


The Long-wave Business Cycle

• TOP OF THE BOOM• Going Up• Rising interest rates• Rising real estate prices• Rising share prices• Increasing demand• New products and

services• New inventions

• Falling demand• Falling rates of profit• Falling share prices• Falling interest rates• Rising real estate

prices• Coming Down • DEPTH OF

DEPRESSION


The Long waves of Economic Development

Wave Dates Industries Mode of Production

Leading Cities

I. 1789-1849 Cotton, Clothing, Mercantile to Industrial Capitalism

Manchester

New York

II. 1847-1896 Steel, rail, ship-building

Industrial capitalism

Glasgow, Pittsburgh, Chicago

III. 1896-1945 Automobiles, electrical eng.

Fordism Detroit,

Stuttgart

IV 1944-2004 Computers, aerospace,

pharmaceuticals

Post-fordism

(consumer and retail led)

Los Angeles

Seattle

V 2002-2060 Digital media, bio-technology, environmental science

Arbiters of Taste

West Coast Philadelphia, London


The Long WavesDiagrammed


Leading Industries of the Fifth Wave

• Digital revolution, communications, internet

• Software design

• Bio-technology

• Environmental Technology

• The ‘Cultural Industries’– Digital media

– Contemporary crafts and visual arts

– performance

• Tourism


The Role of Governments?

• Support – Organizational innovation– Technological innovation– Institutional innovation

• Ensure– Presence of a strong banking system– Availability of skills and educated people– Availability of energy and strategic infrastructure

• Simplified Taxation System and Low Taxes• Reduce red tape and ‘compliance’.


Leading Cities of the Fifth WaveHigh Growth-Modern

• Shenzhen• Los Angeles• Austin, Texas• Seattle • Tokyo• Milan• Shanghai

Low Growth-Modern• Detroit• Birmingham• Pittsburgh

High Growth-Traditional• London• Dublin• Helsinki• Portland• Mumbai• Melbourne• New York

Low Growth-Traditional• Edinburgh• Athens• Adelaide


City Dynamics

Technology

Commerce

Form

Culture

Local Environment

Infrastructure

Local Consumption


• SPATIAL PLANNING

– Metro-plans

– Areas, Precincts and Districts

– Growth Borders

• PLACE TYPOLOGIES– City Centres– Zones of Transition– Older residential areas– Older inner industrial and commercial

areas– Largely residential suburbs– Suburban commercial and industrial areas– Market and country towns– Coastal areas– Rural areas and villages– Sensitive landscapes– New settlements


Rules of Economic Development I

• In the absence of wealth-creating trading sectors of the economy, economies stagnate and die.

• Successful economies are adaptive and open-ended

• Technological advances lead to new products and services and markets


Rules of Economic Development II

• Dynamic economies depend on innovation and creativity

• Dynamic economies are based in real places

• Economies cannot be planned

• Growth occurs over short, medium and long business cycles or waves


Rules of Economic Development III

• Governments should keep taxes as low as possible• Governments should keep spending and borrowing

under control• Governments cannot spend their way out of

recessions• Governments should not print money• Moving interest rates up and down is largely

counter-productive• Trade does in fact bring peoples and countries,

cities and regions together.


Ends – thank you

• www.urbancultures.com.au

• John Montgomery’s book The New Wealth of Cities was published in 2007 by Ashgate.

• His latest book – The Upwave – will be published in 2011. Also by Ashgate.

upwave: city dynamics and the coming economic revival

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