Public policy about "Place Making" has been greatly influenced by the recent writings of Richard Florida,
though the literature on this subject stretches back to the early 80's. Indeed some mainstream economists
had become familiar with Jane Jacobs's ideas of endogenous growth even earlier than this.
Florida and his school posit a virtuous cycle of talent based regional development, arguing that in the post
industrial economy, the pre-eminent resource is human creativity (Figure 1). Thus, cities should make themselves
as appealing as possible to this creative class if they want to secure sustainable prosperity.
This makes intuitive sense, and we can see apparent evidence of the Florida effect all around us - Melbourne's
rebirth since the early 1990's recession, the remaking of Glasgow, Bilbao's renewal on the back of a major
cultural investment, Wellington's repositioning from a dour colonial outpost to funky euro style capital of NZ.
There is little doubt that the ‘creative class' does want a city with a vibrant ‘buzz', as per the Florida thesis.
But does this fully explain why some cities succeed while others languish? Some more old-fashioned
economics is likely to be at play as well, particularly that to do with agglomeration economies and human
capital development.
We tend to associate ‘agglomeration economies' with dense urban cores and co-location of mutually supportive
businesses. Again, this is a vital part of the story, but not the whole story. Another crucial facet of agglomeration
economies relates to "effective density" - the number of suppliers and distributors a business can reach within a
given travel time.
Figure 1
UK evidence shows that productivity at the firm level is positively related to effective density. Recently, for
the first time in Australia, SGS generated similar evidence for Australian cities, in this case Melbourne.
This is illustrated in Figure 2 (below), for the Property and Business Services Sector. Productivity, measured
in terms of gross value added per hour worked, increases strongly with increases in effective job density.
Figure 2
This relationship partially explains the vigorous competition for central sites amongst advanced business service
firms - the premium they pay for such sites is more than compensated by the additional value added from their
operations in these strategic locations. It also explains why it is difficult to attract these types of businesses to
suburban locations, notwithstanding the sound planning arguments for setting such a goal.
This type of analysis suggests that if the distribution of jobs, or the transport system can be adjusted to build
‘effective density', a city can gain a competitive advantage - even if other things remain constant, for example,
resource endowment and industry structure.
What is true of productivity at the level of the firm is also true in terms of human capital development. The more
opportunities households can reach within a reasonable travel time, the more they learn and acquire skills and
the more productive they become.
Again, this is illustrated with reference to Melbourne data in Figure 3. Workers in more ‘connected' places tend
to contribute more to value added, other things equal. This is evident in the lifetime earnings of unskilled workers.
The three locations in the chart are broadly similar in terms of quality of schools and SEIFA index [1]. However,
the residents of Stonnington can reach substantially more jobs within a 30 minute drive (and 45 minute public
transport ride) than their counterparts in Monash South West.
It appears that workers in Stonnington acquire more skills and earn more partly as a result of their accessibility
advantage, even though their income at that the start of their working life is reasonably close to those of Monash
and Glen Eira residents. As this is cross-sectional rather than longitudinal data, there are limitations on the
conclusions which might be drawn from these divergent trajectories, but the differences between the localities
are striking. Again this evidence points to spatial restructuring as strategy for building economic competitiveness
through human capital development.
Figure 3
So whilst the Florida thesis is undoubtedly relevant, connectivity and access to opportunity are likely to provide
a key platform for prosperity - ‘Florida is the icing on the accessibility cake'.
The long postwar boom probably had a lot to do with the major boost to agglomeration economies (as defined
here) and human capital development enabled by near universal access to the car. It is likely that society will
find substitutes for the oil powered car because of the absolute imperative to keep this productivity advantage
alive. Nevertheless, there is an equally demanding imperative to rein in greenhouse gas emissions which means
finding ways of maintaining connectivity without excessive growth in private vehicle use (not just in terms of fuel
consumption but also with regard to the manufacturing and distribution process).
Urban form therefore has a critical part to play in building prosperity. The challenge is to develop urban ‘buzz', as
per the Florida thesis, but optimize connectivity and accessibility at the metro level to capture agglomeration
economies and human capital benefits, all the while reducing car dependence.
In larger cities, say 5 million plus, the answer seems clear - a poly centric city structure is likely to work best.
In smaller cities, say less than 2 million, a stronger focus on centrality is more likely to generate ‘buzz' whilst
optimizing public transport access to opportunity (Figure 4). Metropolitan strategy in these cities needs to have
a strong focus on building up the central city.
Figure 4 City Structures for Connectivity and Accessibility
Footnote
[1]. Australian Bureau of Statistics (ABS) Socio-Economic Indexes for Areas (SEIFA)