The Evolution of Great World Cities is a celebration of cities and those who have inquired as to how they work. It tells the tales of several great cities at key junctures in their history: London rebounding after the Great Fire of 1666; New York City triumphing in the Bank War to become financial hegemon of the United States; Seville as unofficial capital of Spain's New World Empire; Hong Kong transforming from a colonial backwater to become a great trading city; and others. The book recounts insights on how urban economies function from great scholars such as Xenophon, William Petty, Johann von Thünen, Jane Jacobs and Fernand Braudel. Also in this list are philosophers and economists whose works have addressed wider subjects, but I interpret in an urban context: Thomas Aquinas, Richard Cantillon, Adam Smith, Alfred Marshall and John Maynard Keynes. In a methodological sense, the book uses urban history to examine how economic theory explains two phenomena: first the determination of wealthy cities, and second the economic growth of cities more broadly.
The wealthiest cities of all tend to be financial centres that host major banks and financial markets, and where the wealth of citizens, measured through the value of their assets, is greatest. How then does a city become wealthy? The book draws upon a four step process identified by economic historian Norman Gras. The historical evidence, as Gras observed, shows that cities progress through three early phases - as centres of commerce, centres of industry, and then transportation hubs - before becoming financial centres. Many cities can become commercial or industrial centres, but competition to become transportation hubs, and even more so financial centres, is fierce.
"The historical evidence, as Gras observed, shows that cities progress through three early phases - as centres of commerce, centres of industry, and then transportation hubs - before becoming financial centres."
In a case well known to Canadians, Toronto emerged ahead of Montreal in the 1970s to become the financial capital of the country. Montreal, in the 1960s, had been a 21st century ahead of time, opening for example the world's most modern stock exchange facilities and hosting the World Exhibition of 1967. Compared to Toronto, however, Montreal did less well on transportation infrastructure investments - and in the case of Mirabel airport got it horribly wrong. Toronto emerged as the preferred international air hub, and soon became the sole financial centre too. This was aided by the Quebec separatist movement, which sent hundreds of white collar jobs fleeing Montreal. When the Bank of Montreal effectively moved to Toronto in 1977, the competition between the two cities was over.
City economies do, however, continue to grow, without being financial centres. The second half of the book looks more broadly at the economic growth of cities revealing connections between the physical shape of cities and their economies. Sailing in the face of Say's Law - that supply determines demand - I make some bold headway into understanding how household consumption - shaped by the design of cities - has been an equal partner to efficiency of production in growing urban economies.
Economic growth entails not only growth in output and income, but consumption too. Key insights on consumption come from Keynes, who noted that "a man's habitual standard of life usually has the first claim on his income." What I add is that "Our habits are shaped by the environment around us; our consumption is governed by the size and shape of the physical space that we inhabit and the paths and distances we must travel to satisfy human wants and needs." Many examples in history demonstrate how evolution in infrastructure and urban planning produced cities that entailed greater levels of consumption: the new building codes in London following the fire of 1666; the advent of omnibuses, streetcars and subways in the 19th century city that locked in commuter lifestyles; and the emergence of New York City in the 1930s as the first motorway metropolis.
"Economic growth entails not only growth in output and income, but consumption too... Many examples in history demonstrate how evolution in infrastructure and urban planning produced cities that entailed greater levels of consumption"
Looking through the lens of consumption, the much maligned urban sprawl should be seen as a physical manifestation of 20th century economic growth. The construction of auto dependent suburbs has created jobs for many people: car salesmen, road-construction workers, gas-station workers, insurance brokers, mechanics, parking-lot attendants, etc. Sprawling urban form has also created growth in other sectors too, because automobile-based urban design has enabled lot sizes and hence house-sizes to grow. This means greater sales in building materials - and a whole bunch of other stuff such as paint, carpets, bathtubs, furniture, electrical and electronic equipment, garden shrubs, and paving stones. There is a sting in the tail, however. Sound economic theory shows that there must be a balance in household consumption and savings to support long term economic growth. In recent decades, household savings rates have fallen significantly in several Western countries, particularly those with sprawling, low density cities, such as Canada and the USA. The highly consumptive 20th century urban form may have sprawled too far, eroding household savings, and causing what Cambridge economist Joan Robinson described as a Bastard Golden Age.