Edward L. Glaeser

America’s revival begins in its cities

By Edward L. Glaeser
December 30, 2010

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DURING ECONOMIC downturns, we begin to fear that we are entering a permanent period of decline. But we can avoid that depressing prospect if we recognize that a revival will not come from federal spending or another building boom. Reinvention requires a new wave of innovation and entrepreneurship, which can emerge from our dense metropolitan areas and their skilled residents. America must stop treating its cities as ugly stepchildren, and should instead cherish them as the engines that power our economy.

America’s 12 largest metropolitan areas collectively produced 37 percent of the country’s output in 2008, the last year with available data. Per capita productivity was particularly high in large, skilled areas such as Boston, where output per person was 39 percent higher than the nation’s metropolitan average. New York and San Francisco enjoy similar per capita productivity advantages. Boston also seems to be moving past the current recession, with an unemployment rate well below the national average of 9.8 percent.

Since 1948, the national unemployment rate has exceeded 9 percent only one other time: the grave 1982 recession. During the 1980s, we looked at Japan and saw an economy that seemed to be surpassing our own. Today, we watch with unease as China surges.

Yet American decline is not inevitable. During the 25 years after 1982, our real gross domestic product increased by 3.3 percent per year, which was also the rate of growth during the quarter century before 1982. Our post-1982 growth involved massive economic restructuring. Manufacturing employment fell by 39 percent from its peak of 19.4 million jobs in 1979. The 1979-2009 manufacturing decline was more than offset by the 126 percent increase in employment in “professional and business services” and the 184 percent increase in education and health jobs.

Boston provides a model of how cities can foster such transformations. In the 1970s, Boston seemed headed for the trash-heap of history. Manufacturing jobs had vanished, and social chaos ensued. But Greater Boston experienced three great decades, as a former industrial hub became a capital of the information age. Our area’s high levels of productivity reflect the value of ideas that are made in Boston.

To succeed in the future, the country needs to produce a stream of new ideas, like personal computers, Facebook, and steerable catheters. We must produce goods and services innovative enough to command the high prices needed to cover high labor costs.

Such breakthroughs rarely come from solitary geniuses. The movie “The Social Network” hints at the messy, interactive process that created Facebook, which now has over 500 million users and is valued at about $40 billion. Mark Zuckerberg benefited from being surrounded by smart peers, whose ideas about social networking helped his company get started.

The roots of Boston Scientific reveal a similarly collaborative process that started in the basement of a Belmont church. The brilliant inventor (and spiritualist) Itzhak Bentov created a steerable catheter, catering to the demands of Boston’s medical community. Boston connected Bentov with John Abele, who brought his business vision, and later connected Abele with other partners, who helped him create a medical innovation behemoth.

Cities have long enabled economic creativity. Detroit in 1900 looked a lot like Silicon Valley in the 1960s, with an entrepreneur on every street corner. In that urban hotbed, innovators like Ford and Buick and the Fisher Brothers supplied and financed each other — and borrowed ideas freely. The urban edge in engendering innovation explains why globalization and technology have made cities more, not less, important. The returns to being smart have increased, and humans get smart by being around smart people in cities. While all workers in the Boston area benefit from the region’s human capital, the flow of knowledge seems strongest in the dense clusters of Boston and Cambridge.

For decades, the American dream has meant white picket fences and endless suburbs. But the ideas created in dense metropolitan areas power American productivity. We should reduce the pro-homeownership bias of housing policies, such as the home mortgage interest deduction, which subsidize suburban sprawl and penalize cities. We should rethink infrastructure policies that encourage Americans to move to lower-density environments. Most importantly, we should invest and innovate more in education, because human capital is the ultimate source of both urban and national strength.

As we grope towards a brighter future, we must embrace our cities, and invest in the skills that are central to their success.

Edward L. Glaeser, a professor of economics at Harvard, is the author of the forthcoming book “The Triumph of the City.’’