Digital Economy

Two Sides of the Same Coin

The Overdevelopment of American Magnet Cities, the Decay of the American Town, and How the Digital Economy Can Help

The White House in Washington, DC and City Hall in Baltimore, Maryland, are just 40 miles apart. Barring much traffic, a trip between the two takes but an hour. Though Baltimore is older, the two cities share similarities. Neither features many skyscrapers, for example. Instead, their streets have been historically lined with rowhouses, many of them spacious, elegant and centuries old. Also, both received large numbers of Black migrants from the South in the late 19th and early 20th centuries, leading to majority African American populations by the second half of the latter.

The two cities, however, have taken sharply divergent trajectories in recent decades. Washington which boasts thousands of stable, (somewhat) recession-proof white-collar jobs, has become a hotbed of gentrification. A 2019 study from the National Community Reinvestment Coalition found that the U.S. capital was the nation’s most gentrified urban area from 2000 to 2013, a time that coincided with the displacement of 20,000 Black residents. Massive urban development led to the destruction of countless historic rowhouses in favor of modern, high-rise luxury condos. In turn, rents spiked to some of the highest levels in the country, and mom and pop stores gave way to chains and expansive restaurants with deep pockets thanks to outside funding.

Meanwhile, decades of underinvestment in Baltimore has led to decaying urban infrastructure. Thousands of rowhouses there that could easily hold million-dollar valuations in Washington sit vacant and hollowed out. Baltimore grapples with chronic substance abuse, and people who would benefit from access to health facilities are left to fend for themselves.

This striking imbalance is played out across the U.S. Over the last 40 years, the American economy has increasingly transitioned to knowledge and service-based activities, and employment has followed suit. The resulting jobs have become increasingly concentrated in certain larger cities at the expense of smaller communities nationwide.

It’s a domestic manifestation of “brain drain”, by which the most talented and ambitious Americans leave home to work in finance in New York, in government in Washington, in tech in San Francisco, or, perhaps, in entertainment in Los Angeles.

This internal migration hurts both the magnet cities and the towns left behind. In the employment centers, growth in the cost of living exceeds that of salaries. In all four aforementioned cities, the median cost of renting a one-bedroom apartment far exceeds US$2,200 (in the case of San Francisco the figure hit a whopping US$3,600 in 2019), well over twice the national median. But the median family income in these cities is significantly less than twice the national median.

In all four aforementioned cities, the median cost of renting a one-bedroom apartment far exceeds US$2,200 (in the case of San Francisco the figure hit a whopping US$3,600 in 2019), well over twice the national median.

The exaggerated cost of living in magnet cities drives out anyone lacking the access to high-paying jobs. Eight of the 10 biggest American cities are actually shrinking for this reason. The trend serves to widen the distance between the U.S.’s highly educated, economically successful enclaves and the rest of the country, which consequently fuels the country’s political polarization.

But the dynamic does not necessarily benefit those who continue to live in a metropolis. The real estate firm Unison estimates that it would take between three and four decades for most young professionals to save for a 20% down payment on a home in the nation’s biggest cities. These millennials are often better educated than their parents but have little hope of matching--let alone surpassing--the previous generation’s living standards.

Meanwhile, property in America’s mid-sized cities and towns can be had for a bargain. Gorgeous, centuries-old homes in the leafy suburbs of Philadelphia languish on the real-estate market, with asking prices dropping below half that of a small condo two hours’ drive south in the nation’s capital. But such reasonably priced communities offer few jobs. The towns and cities of the Rust Belt, the Midwest, and the Southeast have been crippled by automation and international trade.

Working in Our Digital World

Maybe the No Collar Economy can help restore balance. The increasing number of jobs that can be performed remotely challenges the chokehold certain cities have on employment opportunities--if employers are willing to break away from the traditional office format. And employers themselves may decide that the cost of running an office in Manhattan isn’t worth it, especially when far cheaper options exist, such as the one a short trip south to the suburbs of Philadelphia. In business, location may be everything, but in the digital age we are all essentially located next to one another, and the most important locations and storefronts are often online.

There is also the hope that the “Silicon Holler” effect could take hold, which offers rural Americans the possibility of developing tech-oriented business skills in their own communities. This would eliminate the need for staff relocation and creates high-paying jobs in towns that lost them in the latter half of the 20th century.

All these potential developments ̶ working remotely, office relocation and organic development ̶ are feasible in our No Collar Economy and would deliver critical spillover effects in righting the imbalance between the megacities and the rest of the country. Could they actually take hold?

The Impact of the Coronavirus Epidemic

One side effect of the coronavirus epidemic, which has claimed the lives of more than a quarter million Americans as of December 2020, is the revelation that the magnet-city approach may not be necessary in the modern economy. Just prior to the crisis and the subsequent successful transition of millions of white-collar workers to a home office, Gallup released research indicating that remote working did not lead to decreased production.

This is not to argue that a home office has no drawbacks or is universally accessible. Especially in a pandemic, the work-from-home experience can often be isolating and monotonous. And the inability of many service-sector and gig workers to take their jobs into quarantine has laid bare deep-seated flaws in the U.S. economy.

Just prior to the crisis and the subsequent successful transition of millions of white-collar workers to a home office, Gallup released research indicating that remote working did not lead to decreased production.

However, it is to argue that the experience offers evidence that America’s highly trained employees need not necessarily be in magnet cities to partake of specific labor markets. Tech employees do not need to be in San Francisco to do their jobs. In fact, rents in the Bay Area have come off their eye-watering peaks in recent months.

A COVID-19 vaccine may be on the horizon, but some experts believe that elements of the remote-work era will persist. If employees are expected to be in office, say, three days a week, longer commutes may become more acceptable, and workers may be more willing to move further away from their places of employment. This would help breathe life back into America’s mid-sized and small towns, and ease some of the inflationary pressures sustaining sky-high prices in select cities.

Of course, if such a trend emerged, so would new challenges requiring attention. A Baltimore that became a more viable residential option for occasional Washington commuters could spur the same kind of development that has led, in the nation’s capital, to displacement and the erasure of long-standing cultures and ways of life (themes explored in depth in our new documentary GoGo City). Still, the prevailing trend of overdeveloped magnet cities accompanied by decay elsewhere is unsustainable. The digital economy provides opportunities for needed change, and the adjustments provoked by the pandemic crisis offer evidence that such change is possible.

Print

Samuel George

Global Markets and Digital Adviser
Bertelsmann Foundation

samuel.george@bfna.org