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Progressives Against Progress

Fred Siegel — Wed, 01 Sep 2010 17:32:18 -0400

For the first two-thirds of the twentieth century, American liberals distinguished themselves from conservatives by what Lionel Trilling called “a spiritual orthodoxy of belief in progress.” Liberalism placed its hopes in human perfectibility. Regarding human nature as essentially both beneficent and malleable, liberals, like their socialist cousins, argued that with the aid of science and given the proper social and economic conditions, humanity could free itself from its cramped carapace of greed and distrust and enter a realm of true freedom and happiness. Conservatives, by contrast, clung to a tragic sense of man’s inherent limitations. While acknowledging the benefits of science, they argued that it could never fundamentally reform, let alone transcend, the human condition. Most problems don’t have a solution, the conservatives maintained; rather than attempting Promethean feats, man would do best to find a balanced place in the world.

In the late 1960s, liberals appeared to have the better of the argument. Something approaching the realm of freedom seemed to have arrived. American workers, white and black, achieved hitherto unimagined levels of prosperity. In the nineteenth century, only utopian socialists had imagined that ordinary workers could achieve a degree of leisure; in the 1930s, radicals had insisted that prosperity was unattainable under American capitalism; yet these seemingly unreachable goals were achieved in the two decades after World War II.

Why, then, did American liberalism, starting in the early 1970s, undergo a historic metanoia, dismissing the idea of progress just as progress was being won? Multiple political and economic forces paved liberalism’s path away from its mid-century optimism and toward an aristocratic outlook reminiscent of the Tory Radicalism of nineteenth-century Britain; but one of the most powerful was the rise of the modern environmental movement and its recurrent hysterias.

If one were to pick a point at which liberalism’s extraordinary reversal began, it might be the celebration of the first Earth Day, in April 1970. Some 20 million Americans at 2,000 college campuses and 10,000 elementary and secondary schools took part in what was the largest nationwide demonstration ever held in the United States. The event brought together disparate conservationist, antinuclear, and back-to-the-land groups into what became the church of environmentalism, complete with warnings of hellfire and damnation. Senator Gaylord Nelson of Wisconsin, the founder of Earth Day, invoked “responsible scientists” to warn that “accelerating rates of air pollution could become so serious by the 1980s that many people may be forced on the worst days to wear breathing helmets to survive outdoors. It has also been predicted that in 20 years man will live in domed cities.”

Thanks in part to Earth Day’s minions, progress, as liberals had once understood the term, started to be reviled as reactionary. In its place, Nature was totemized as the basis of the authenticity that technology and affluence had bleached out of existence. It was only by rolling in the mud of primitive practices that modern man could remove the stain of sinful science and materialism. In the words of Joni Mitchell’s celebrated song “Woodstock”: “We are stardust / We are golden / And we got to get ourselves back to the garden.”

In his 1973 book The Death of Progress, Bernard James laid out an argument already popularized in such bestsellers as Charles Reich’s The Greening of America and William Irwin Thompson’s At the Edge of History. “Progress seems to have become a lethal idée fixe, irreversibly destroying the very planet it depends upon to survive,” wrote James. Like Reich, James criticized both the “George Babbitt” and “John Dewey” versions of “progress culture”—that is, visions of progress based on rising material attainment or on educational opportunities and upward mobility. “Progress ideology,” he insisted, “whether preached by New Deal Liberals, conservative Western industrialists or Soviet Zealots,” always led in the same direction: environmental apocalypse. Liberalism, which had once viewed men and women as capable of shaping their own destinies, now saw humanity in the grip of vast ecological forces that could be tamed only by extreme measures to reverse the damages that industrial capitalism had inflicted on Mother Earth. It had become progressive to reject progress.

Rejected as well was the science that led to progress. In 1970, the Franco-American environmentalist René Dubos described what was quickly becoming a liberal consensus: “Most would agree that science and technology are responsible for some of our worst nightmares and have made our societies so complex as to be almost unmanageable.” The same distrust of science was one reason that British author Francis Wheen can describe the 1970s as “the golden age of paranoia.” Where American consumers had once felt confidence in food and drug laws that protected them from dirt and germs, a series of food scares involving additives made many view science, not nature, as the real threat to public health. Similarly, the sensational impact of the feminist book Our Bodies, Ourselves—which depicted doctors as a danger to women’s well-being, while arguing, without qualifications, for natural childbirth—obscured the extraordinary safety gains that had made death during childbirth a rarity in developed nations.

Crankery, in short, became respectable. In 1972, Sir John Maddox, editor of the British journal Nature, noted that though it had once been usual to see maniacs wearing sandwich boards that proclaimed the imminent end of the Earth, they had been replaced by a growing number of frenzied activists and politicized scientists making precisely the same claim. In the years since then, liberalism has seen recurring waves of such end-of-days hysteria. These waves have shared not only a common pattern but often the same cast of characters. Strangely, the promised despoliations are most likely to be presented as imminent when Republicans are in the White House. In each case, liberals have argued that the threat of catastrophe can be averted only through drastic actions in which the ordinary political mechanisms of democracy are suspended and power is turned over to a body of experts and supermen.

Back in the early 1970s, it was overpopulation that was about to destroy the Earth. In his 1968 book The Population Bomb, Paul Ehrlich, who has been involved in all three waves, warned that “the battle to feed all of humanity is over” on our crowded planet. He predicted mass starvation and called for compulsory sterilization to curb population growth, even comparing unplanned births with cancer: “A cancer is an uncontrolled multiplication of cells; the population explosion is an uncontrolled multiplication of people.” An advocate of abortion on demand, Ehrlich wanted to ban photos of large, happy families from newspapers and magazines, and he called for new, heavy taxes on baby carriages and the like. He proposed a federal Department of Population and Environment that would regulate both procreation and the economy. But the population bomb, fear of which peaked during Richard Nixon’s presidency, never detonated. Population in much of the world actually declined in the 1970s, and the green revolution, based on biologically modified foods, produced a sharp increase in crop productivity.

In the 1980s, the prophets of doom found another theme: the imminent danger of nuclear winter, the potential end of life on Earth resulting from a Soviet-American nuclear war. Even a limited nuclear exchange, argued politicized scientists like Ehrlich and Carl Sagan, would release enough soot and dust into the atmosphere to block the sun’s warming rays, producing drastic drops in temperature. Skeptics, such as Russell Seitz, acknowledged that even with the new, smaller warheads, a nuclear exchange would have fearsome consequences, but argued effectively that the dangers were dramatically exaggerated. The nuke scare nevertheless received major backing from the liberal press. Nuclear-winter doomsayers placed their hopes, variously, in an unverifiable nuclear-weapons “freeze,” American unilateral disarmament, or assigning control of nuclear weapons to international bodies. Back in the real world, nuclear fears eventually faded with Ronald Reagan’s Cold War successes.

The third wave, which has been building for decades, is the campaign against global warming. The global-warming argument relied on the claim, effectively promoted by former vice president Al Gore, that the rapid growth of carbon dioxide in the atmosphere was producing an unprecedented rise in temperatures. This rise was summarized in the now-notorious “hockey stick” graph, which supposedly showed that temperatures had been steady from roughly ad 1000 to 1900 but had sharply increased from 1900 on, thanks to industrialization. Brandishing the graph, the UN’s Intergovernmental Panel on Climate Change predicted that the first decade of the twenty-first century would be even warmer. As it turned out, temperatures were essentially flat, and the entire global-warming argument came under increasing scrutiny. Skeptics pointed out that temperatures had repeatedly risen and fallen since ad 1000, describing, for instance, a “little ice age” between 1500 and 1850. The global-warming panic cooled further after a series of e-mails from East Anglia University’s Climatic Research Unit, showing apparent collusion among scientists to exaggerate warming data and repress contradictory information, was leaked.

As with the previous waves, politicized science played on liberal fears of progress: for Gore and his allies at the UN, only a global command-and-control economy that kept growth in check could stave off imminent catastrophe. The anti-progress mind-set was by then familiar ground for liberals. Back in the 1970s, environmentalist E. J. Mishan had proposed dramatic solutions to the growth dilemma. He suggested banning all international air travel so that only those with the time and money could get to the choice spots—thus reintroducing, in effect, the class system. Should this prove too radical, Mishan proposed banning air travel “to a wide variety of mountain, lake and coastal resorts, and to a selection of some islands from the many scattered about the globe; and within such areas also to abolish all motorised traffic.” Echoing John Stuart Mill’s mid-nineteenth-century call for a “stationary state” without economic growth, Mishan argued that “regions may be set aside for the true nature lover who is willing to make his pilgrimage by boat and willing leisurely to explore islands, valleys, bays, woodlands, on foot or on horseback.”

As such proposals indicate, American liberalism has remarkably come to resemble nineteenth-century British Tory Radicalism, an aristocratic sensibility that combined strong support for centralized monarchical power with a paternalistic concern for the poor. Its enemies were the middle classes and the aesthetic ugliness it associated with an industrial economy powered by bourgeois energies. For instance, John Ruskin, a leading nineteenth-century Tory Radical and a proponent of handicrafts, declaimed against “ilth,” a negative version of wealth produced by manufacturing.

Like the Tory Radicals, today’s liberal gentry see the untamed middle classes as the true enemy. “Environmentalism offered the extraordinary opportunity to combine the qualities of virtue and selfishness,” wrote William Tucker in a groundbreaking 1977 Harper’s article on the opposition to construction of the Storm King power plant along New York’s Hudson River. Tucker described the extraordinary sight of a fleet of yachts—including one piloted by the old Stalinist singer Pete Seeger—sailing up and down the Hudson in protest. What Tucker tellingly described as the environmentalists’ “aristocratic” vision called for a stratified, terraced society in which the knowing ones would order society for the rest of us. Touring American campuses in the mid-1970s, Norman Macrae of The Economist was shocked “to hear so many supposedly left-wing young Americans who still thought they were expressing an entirely new and progressive philosophy as they mouthed the same prejudices as Trollope’s 19th century Tory squires: attacking any further expansion of industry and commerce as impossibly vulgar, because ecologically unfair to their pheasants and wild ducks.”

Neither the failure of the environmental apocalypse to arrive nor the steady improvement in environmental conditions over the last 40 years has dampened the ardor of those eager to make hair shirts for others to wear. The call for political coercion as a path back to Ruskin’s and Mishan’s small-is-beautiful world is still with us. Radical environmentalists’ Tory disdain for democracy and for the habits of their inferiors remains undiminished. True to its late-1960s origins, political environmentalism in America gravitates toward both bureaucrats and hippies: toward a global, big-brother government that will keep the middle classes in line and toward a back-to-the-earth, peasantlike localism, imposed on others but presenting no threat to the elites’ comfortable lives. How ironic that these gentry liberals—progressives against progress—turn out to resemble nothing so much as nineteenth-century conservatives.

This essay originally appeared in City Journal.

Fred Siegel is a contributing editor of City Journal, a senior fellow at the Manhattan Institute, and a scholar in residence at St. Francis College in Brooklyn.

Photo: CarbonNYC

America's 21st-Century Business Model

Joel Kotkin — Tue, 31 Aug 2010 16:25:44 -0400

Current attitudes aren't too kind to the old American way of doing business. In our globalized economy, the most enthusiastically touted approaches are those adopted by centralized, state-dominated economies such as China, Brazil and Russia as well as--somewhat less oppressively--those of the major E.U. states.

Yet the U.S. may well be constructing the best sustainable business model for the 21st Century. It is an approach built on the country's greatest enduring strength--an innovative business culture driven increasingly by a diverse pool of immigrants.

This model, of course, lacks the kind of centralized control beloved by many pundits. Yet its virtues are also missing from statist-oriented European or East Asian capitalism. These other regions' systems may be more disciplined in their thinking, but they do not draw as well on the diversity of human experience and connections that drive America's post-racial economy.

This is not to suggest that state-based, national capitalism is inferior, but that it may not apply so well to this vast, highly diversified economy--just look at the stimulus. If the U.S. wants to retain pre-eminence, it needs to go with what makes it a great country: its protean national and increasingly post-racial business culture.

This evolution is increasingly evident at the very top of our economy. Between 1990 and 2005 immigrants started one quarter of all venture-backed public companies. Large American firms are also increasingly led by people with roots in foreign countries, including 14 of the CEOs of the 2007 Fortune 100. Even the top tier of corporate America--once the almost-exclusive reserve of native-born Anglo-Saxon--increasingly reflects the diversification of the larger society.

Already, for example, eight Indian American CEOs run U.S. corporations with over $2 billion in sales, including companies like Citicorp, Adobe Systems and Pepsico. Pepsi's historic rival, Coca Cola, is now run by Muhtar Kent, a native of Turkey. Foreign CEOs also include Kellogg's Australian-born David Mackay and Ethan Allen's M. Farooq Kathwari, yet another native of India.

This process will intensify in the coming decades. Take for instance the case of Li Lu, a former Tiananmen Square activist now widely expected to take the helm of Warren Buffett's Berkshire-Hathaway when the old billionaire retires. Imagine if a former American radical was placed in charge of one of China's huge state-supported enterprises. Not likely.

One critical harbinger can be seen in the current crop of students at top U.S. business schools. Between one-third and one-half all students at Stanford, MIT, University of Pennsylvania, University of Chicago and UC Berkeley come from abroad. These schools are training camps for immigrants transitioning into careers as American entrepreneurs.

Equally important, immigrant commerce also thrives at the grassroots level. It manifests most visibly in the proliferation of small stores, restaurants, food-processing businesses, garment factories and trucking lines. Overall, immigrants are 60% more likely to start a new business than native-born Americans. The number of self-employed immigrants has grown even in New York City, where the number of self-employed among the native-born has dropped.

Immigrant businesses have thrived by providing basic services, such as banks, insurance agents, funeral homes and grocery stores. Some of these businesses arose because the mainstream community had failed to identify opportunities in these markets or had consciously decided to exclude them.

This follows a historical pattern. In the past many immigrants succeeded by focusing on an economic specialty--Jews in the garment industry, Chinese in laundries, Greeks in diners, and Italians in green groceries, barbershops and fish stores. Ultimately, some moved beyond these niches and began to develop whole new business models. One clear example is A. P. Giannini's Bank of Italy in San Francisco, which eventually became Bank of America, a pioneer in mass market branch banking. Other ethnic businesses, often drawing on ways of doing business brought from abroad, have propelled the growth of whole industries, such as the garment industry in New York and later Los Angeles.

There is clearly something in the immigrant experience that encourages innovation--one can call it the advantage of non-acceptance. Take the founding generation of the film industry--Samuel Goldwyn, Louis B. Mayer, Harry Cohn, Jesse Lasky, Adolph Zukor. They had their roots in the Jewish enclave economy in the eastern cities. The great historian Irving Howe notes that the immigrant need to find an unoccupied or underserved niche shaped these often "vulgar, crude and overbearing" men. That they became founders of the nation's premier cultural industry, Howe noted, "was something of a miracle and something of a joke."

We are now witnessing a continuation of this process, and on a scale simply not seen in other countries. In 2005 the U.S. swore in more new citizens than the next nine countries put together. The national immigration debate may focus largely on low-skilled newcomers, but more than half of all skilled immigrants in the world also come to the U.S. Even with the continent's slow-growing population, Europe continues to be a major source of American immigrants, particularly skilled workers, with some 400,000 E.U. science and technology graduates residing in the U.S.

These newcomers are a prime source of entrepreneurial vitality. In the 21st century Asians, like the Jews and Italians before them, have concentrated in specific niches and expanded outside the boundaries of historic ghettos. Indians from the subcontinent, who arrived in large numbers starting in the 1970s, specialized in hotels and motels across the country. Koreans opened up green groceries in New York and Los Angeles. Vietnamese became well-known for nail parlors, and Cambodians for owning doughnut stores. Overall Asian enterprises expanded roughly twice the national average through the first several years of the new century.

This pattern can be seen particularly in food-related businesses. In Houston, once dominated by Southern cooking, nearly one in three restaurants serves Mexican or Asian cuisine. Together they account for more establishments than hamburger, BBQ and Italian restaurants put together. Nationwide, as pizza, hamburger and "traditional" fast-food restaurants have stagnated, new chains that sell quick, inexpensive Mexican or Asian food have flourished. Immigrant-founded firms such as El Pollo Loco, Wolfgang Puck and Panda Express, are emerging as the McDonalds of 21st-century America.

The emerging post-racial economy provides two distinct opportunities for American business. First the newcomers offer a new domestic "emerging" market. Taken together, purchases by African-Americans, Asians and Native Americans, according to the Selig Center for Economic Growth at the University of Georgia, have exploded, growing far more rapidly than the national average. Combined with Latinos, these minorities could account for over $2.5 trillion by 2010, close to $1 in every $4 in total U.S. consumer spending.

But perhaps even more important may be the uniquely international cast of American business. Heads of corporations and senior executives of many leading American firms will not have to go to graduate school in international training; they will have received theirs at home, talking to parents or grandparents who migrated from Mexico, Cuba, Russia, Iran, China, India, Israel or a host of other countries.

This diversity will allow Americans to tap the global market, and culture, in ways other countries and their state-based enterprises just can't match. It is in this model, not in imitating foreign ones, that American business can find the path to greater success in the globalized, dispersed economy of the 21st century.

This article originally appeared at Forbes.com.

Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in Febuary, 2010.

Photo by SEIU International

What’s Behind China’s Big Traffic Jam

Wendell Cox — Mon, 30 Aug 2010 21:17:15 -0400

The world press has been fixated on the "Beijing" traffic jam that lasted for nearly two weeks. There is a potential lesson here for the United States, which is that if traffic is allowed to far exceed roadway capacity, unprecedented traffic jams can occur.

The Inner Mongolia Traffic Jam: First we need to understand that this was not a "Beijing" traffic jam at all,or even on the outskirts of Beijing. The traffic jam came no closer to Beijing than 150 miles (250 kilometers) away, beyond the border of the city/province of Beijing, through the province of Hebei and nearly to the border of Inner Mongolia. The traffic jam then extended for more than 60 miles (100 kilometers) from near the Inner Mongolia border to Jingxi, in the region/city of Ulanqab. In reality this would be like calling a New York City traffic jam something that originated from Springfield, Massachusetts to Boston's I-495 beltway (Figure 1).

However, even the New York City example understates the complexity of the Chinese traffic jam. Beijing, China’s national capital, is one of the world's largest urban areas (with a population of nearly 14 million). The city is situated at the northwestern limit of the densely populated part of China (which is called "China Proper") that runs from Manchuria in the north to Yunnan in the south.

Beijing's urbanization ends at the mountains less than 30 miles from the Forbidden City, Beijing's core. The area beyond the mountains, through which the Great Wall runs, possesses only intermittent and generally minor urbanization. The area is dominated by grassland, and some rice farming. In this environment, it is not surprising that there were few alternatives for traffic to the G-110 Expressway (freeway), just as there would be few alternatives for traveling between Casper and Cheyenne, Wyoming on Interstate 25.

Continuing the I-25 comparison, the Inner Mongolian traffic jam more closely resembled traffic destined for Denver, with the congestion stretching from north of Cheyenne for another 60 miles, not far from the south end of the Powder River Basin, America's largest coal producing region. This is a particularly appropriate comparison, because the type of traffic that caused the Inner Mongolian jam, coal trucks, would similarly jam I-25, were it not for the high-capacity freight rail system that moves most of the coal from the Powder River Basin to the nation's electricity generation plants in the Midwest, East and South.

Like Interstate 25, the G-110 Expressway is a high quality divided and grade separated four lane road. As with Wyoming's I-25, Inner Mongolia has an old 2-lane road (National Route 110) that parallels the G-110 for much of the way. This is not a viable alternative for the truck traffic volumes that are needed to supply the megacity of Beijing with its electric power.

Beijing's First World Traffic: The Beijing city commission has announced that traffic flows continue to slow in Beijing. In the first half of 2010, the average speed dropped to 14 miles per hour (24 kilometers per hour). This is despite the fact that the urban area has a world class expressway system, with a fifth ring expressway (beltway) mostly completed (Note 1) and radial expressways feeding the inner areas. The surface arterial system in the inner area consists of a dense network of wide streets, providing capacity that certainly exceeds that of the city of Chicago or the four highly urbanized boroughs of New York, Manhattan, Brooklyn, the Bronx, and Queens (Note 2).

Beijing's inner area traffic congestion is like that of New York City. The population density is 30,000 people per square mile (the approximate density also of the four New York boroughs), too high to move the volume of traffic over a freeway and expressway system. Higher population densities are associated with greater traffic congestion, slower speeds, stop and go traffic and more intense pollution. Beijing and New York share all of these conditions.

There is a perception that the traffic situation could become substantially worse in Beijing, and that could well be the case. However, it is surprising that the Bejing (the city/province) is already well along in private vehicle ownership and use. Beijing has achieved a car ownership rate almost equal to that of New York City's dense boroughs. In 2008, the dense boroughs of New York City had 0.52 cars per household, while Beijing had achieved a 0.51 rate. One report now places Beijing's car ownership one third higher than in 2008, which would place Beijing's car ownership rate 20% above that of New York City.

By 2008, Beijing already had 1.5 times as many drivers per household as New York City's dense boroughs (Figure 2). The difference appears to be in commercial drivers licenses, which account for nearly one-half of Beijing's 9.4 million driver’s licenses. With the coal truck traffic and heavy truck traffic to the port of Tianjin, little more than 100 miles (160 kilometers) away, it is possible that trucks comprise a higher share of the traffic volume in Beijing than in New York City (Note 3).

Local authorities are seeking to reduce the traffic congestion problem by building one of the world's largest Metro (subway) systems. By the middle of the decade, nearly 350 miles (561 kilometers) should be open. Some lines will extend to outside of the fifth ring road, where much of the population growth is occurring. The Beijing Metro, like that of Mexico City, has been designed to better serve the contemporary urban area. Both are characterized by a concentration of grid routes and less by radial routes. Beijing also has ring routes. This design is especially appropriate for Beijing, which as is typical for many large Asian urban areas and unlike New York, Chicago or Hong Kong, has a decentralized core. Large office buildings in the center are more sparsely spread around a larger area, larger than these concentrated central business districts. Yet, even with this appropriate route design, the decentralization of retail and office activity necessitates time-consuming transfers that can make cars faster, even in Beijing's traffic.

China is also encouraging the use of electric cars, subsidizing buyers willing to switch from cars powered by fossil fuels. This will not ease traffic congestion, but it will reduce air pollution.

At the same time, a period review of traffic conditions on the Internet will show Beijing's worst traffic congestion to be concentrated in the high density core while in the much less dense expanding suburbs, traffic conditions are considerably better. Additionally, there is discussion of a seventh ring road and Beijing officials continue to improve their roadway network. As in US urban areas, Beijing's continued decentralization could allow traffic to eventually be managed. Economists Peter Gordon and Harry W. Richardson have found that "suburbanization has been the dominant and successful mechanism for reducing congestion."

Clearing the Traffic: Meanwhile, there are reports that authorities have eased the traffic jam in Inner Mongolia. A longer term solution might be to add a couple of additional lanes in each direction. This should not be too difficult in a nation that by the end of the year will have nearly as many miles of freeway (43,000 or 70,000 kilometers) as the original US interstate system and will probably lead the world early in the next decade. This is a key to improving the competitiveness of Chinese urban areas. Sufficient roadway investment to handle growing travel demand will be just as important to maintain the competitiveness of US urban areas.

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Note 1: Beijing has six ring roads, however the first is the arterial road surrounding the Forbidden City, which is not an expressway.

Note 2: Staten Island is excluded because its urban form is principally that of a post-war suburb, with a much lower population density.

Note 3: This assumes comparability of data, which may not be fully reliable due to incomplete information.

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Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris and the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life”

Photo of Beijing Fourth Ring Road by archlife

Australia 2010: Unstable Politics in a Prosperous Country

John Muscat — Sun, 29 Aug 2010 23:29:18 -0400

2010 has been something of an annus mirabilis in Australian politics. On 24 June a prime minister was dumped before facing the voters a second time. This was the first time ever for such an early exit. Then the election on 22 August produced a “hung parliament”, an outcome not seen since the 1940s. Having fallen short of enough seats to form government, the major parties are scrambling for the support of four independents and one Green in the House of Representatives.

If this looks like the politics of a nation mired in economic upheaval, the reality is far different. Australia was one of a handful of advanced countries to avoid recession during the financial crisis. The unemployment rate never rose much above 5 per cent. For some economists, Australia is “the wonder from down under”.

So why did the Labor government, elected in 2007, fall apart? There was certainly a lack of governing experience after eleven years in opposition. But in a broader sense, the political class is struggling to cope with Australia’s increasingly regionalised economy, and the divergent sources of its new-found prosperity.

Like many industrialised countries, Australia passed through a seemingly intractable malaise in the 1970s. The country’s predicament appeared worse than that of more diverse and innovative economies like the United States. Relying on agricultural and mineral exports, legacies of a colonial past, Australia’s manufacturing base was inward-looking, outmoded and sclerotic. Disparaging assessments like that of former Singapore Prime Minister Lee Kwan Yew - Australians were destined to be “the poor white trash of Asia” - were common. Some fretted about “the Argentine route”, a country failing to diversify its economy and sliding down world rankings of GDP per capita. As transformed manufactures and high-tech products gobbled up an increasing share of world trade, Australia seemed stuck in the slow lane of commodity exports.

And then came the 1980s. Protective barriers were slashed, the currency was floated, the financial system was opened up to foreign banks and state-owned agencies were sold off or treated to radical micro-economic reform. By the mid-2000s, the contours of the economy had changed. Activities such as business and property services rose from 10 to almost 15 per cent of GDP over the decade to 2006. Meanwhile manufacturing declined from 15 to 12 per cent. The new economy was dominated by services, now accounting for 68 per cent of GDP. Rather than drag down the economy, however, mining enjoyed parallel growth, from 4.5 to 8 per cent in the same period. China’s explosive arrival on the world scene shifted commodity exports into a very fast lane. These developments set Australia on a growth path that few could have foreseen in the 1970s. A small economy in relative terms to countries like China and the United States, it has evolved into a series of distinct geographic regions.

The booming commodities export sector, dominated by mining, is concentrated in the northern and western states of Queensland and Western Australia, which account for 74 per cent of onshore mining production. Business and property services are concentrated in the south-eastern states of New South Wales and Victoria, specifically the inner precincts of Sydney and Melbourne, the nation’s emerging global cities. Together, these cities host around 50 per cent of Australia’s finance industry jobs. Public sector services, mostly in health and education, figure prominently in the populous south-east, again skewed towards long-established inner-city localities, where the most prestigious institutions are found. Construction, consumer services, including retail, and light manufacturing, fuelled by demand for household goods and building supplies, thrive in the larger metropolitan regions with high rates of immigration and population growth, like outer Sydney and Melbourne, and increasingly south-east Queensland.

At the end the true driver of the economy lies with commodities. Today mineral resources make up just under 80 per cent of Australia’s commodity trade and around half of all exports (including services). Australia is the world's leading exporter of coal and iron ore and ranks high other minerals like zinc and aluminium.

Reaping the China bounty, former Prime Minister John Howard kept the federal budget in surplus and reduced government debt to zero, while handing out tax cuts and family income supplements. This winning combination delivered Howard eleven years in power. Towards the end of his rule, however, strains in the boom economy began to manifest themselves. Skilled labour shortages and the heated property market began to put pressure on inflation and interest rates, contributing to a sense of policy exhaustion in Howard’s later years.

By 2007, there was a widespread view that the benefits of the resources boom were not being distributed fairly. The service sector professionals of the south-east, especially in the public sector who dominate the national media, began to shift to Labor as did outer suburban workers, who saw the dream of home ownership slipping beyond their reach. Forced to compete for investment in the open economy, south-eastern state governments, controlled by Labor, were constrained to keep taxes low. An ever larger proportion of their budgets was channelled into health and education services, partly due to close links with powerful public sector unions. There was little left to pay for urban infrastructure on the booming fringes.

In response, infrastructure costs were shifted onto developers and local government, along with a new set of regulations, and urban consolidation (“smart growth”) was enforced as planning policy, ostensibly to reduce the need for extra resources. These choices reflected the green ideology taking hold in the planning profession, as well as among the professional classes.

The impact of these measures on housing affordability were disastrous. When the low interest rates of the Howard years began to creep up, the problem turned into a crisis, as the Demographia survey has shown. The property market slowed down, depriving the south-eastern states of even more funds, since property taxes are a significant share of their revenues. This contrasted with conditions in the mining states, prompting the Federal Treasury Secretary to declare Australia a “two speed economy”.

At the 2007 election, Labor leader Kevin Rudd claimed to have the solutions. Paying lip service to Howard’s fiscal conservatism, he signalled plans to divert mining boom proceeds towards infrastructure and services, including a new deal on health funding and an “education revolution“. Much of this was wrapped up in the rhetoric of climate change, talked up by Rudd as “the greatest moral challenge of our time”. His environmental centrepiece was an Emissions Trading Scheme (cap and trade), a massive revenue raising device for the federal government. In essence it was a mechanism for transferring wealth from the mining states, and their fossil-fuelled economies, to the populous south-east.

Rudd’s electoral success, and apparent public support for climate action, drove the agenda forward until the crash at Copenhagen. This precipitated a revolt in the opposition Coalition, which replaced ETS supporter Malcolm Turnbull with climate-sceptic Tony Abbott. When Abbott labelled the ETS “a great big new tax on everything“, and blocked its passage in the Senate, public interest in the scheme melted away, particularly in the mining regions. Rudd lost his nerve and shelved it until 2012. For many Australians, he was exposed as a weak leader without the courage of his convictions.

Rudd refused to give up his dream of redistribution though, turning to Plan B. Having commissioned a review of Australia’s taxation system, he announced a Resource Super Profits Tax, a complex device confiscating up to 40 per cent of mining profits above a threshold. Adopted without consulting the resources industry, it attracted furious opposition from the global mining companies, which launched a powerful advertising campaign against it. Opposition leader Abbott labelled the measure ”a great big new tax on mining”. Opinion polls showed strong opposition to the tax in mining states, and mild support in the south-east. Rudd’s poll ratings fell through the floor. He was soon deposed by his Labor Party colleagues.

Julia Gillard, the new prime minister, substantially modified the proposal after negotiations with the large miners, but smaller operators remained opposed, along with most of Queensland and Western Australia. Gillard quickly called an election to capitalise on her status as the country’s first female leader. But the legacy of Rudd’s undelivered promises shaped the outcome. Australia’s regional divisions were clearly evident in the voting patterns. Western Australia and Queensland swung to the Coalition, and Queensland proved to be a killing ground, depriving Labor of nine seats. New South Wales also swung to the Coalition, reflecting dissatisfaction with the long-serving state Labor government’s failure to address the infrastructure and housing needs of suburban western Sydney. In contrast, the southern states of Victoria, Tasmania and South Australia swung towards Labor.

Well over half of Labor’s lost votes moved left to the Greens, who more than doubled their share of the vote, rather than right to the Coalition. Increasing numbers of south-eastern professionals consider the Greens their preferred agent of redistribution. Handing the Greens the balance of power in the Senate, and possibly the House of Representatives (only one seat this time), may prove a better strategy than sticking with a fractured Labor Party. Inevitably though, regional and outer-suburban voters, with their divergent priorities, will react to a green-dominated agenda, which tends to dismiss suburban interests. Over time, and perhaps after the next election, this may mean a shift back to the right and a clear Coalition victory.

John Muscat is a Sydney lawyer and co-editor of The New City (www.thenewcityjournal.net), a web journal of urban and political affairs.

Photo by webmink

Summer in the Hamptons: UnReal Estate

Matthew Stevenson — Sat, 28 Aug 2010 06:37:44 -0400

If you are looking for a place where you can, in your day dreams, ride out the recession, might I suggest one of the Hamptons? These are the celebrity-drenched villages that stretch for thirty miles across the sand dunes and potato fields of Long Island’s South Fork, which ends at Montauk Point and its lighthouse.

Why the Hamptons for a depression-era exile? For starters, if you’re a seller, the Hamptons remain Paradise. Fishermen’s cottages start at $1 million, oceanfront property goes for about $7 million an acre, and the street value of guacamole rivals that of cocaine.

When I was growing up on Long Island (although closer to New York City than the East End), the Hamptons were popular, but not in the league of Newport, Malibu, or Key Biscayne. Southampton was notable for the childhood home of Carl Yastrzemski, the Boston Red Sox star. Montauk had a few old inns associated with railroad developments, and party fishing boats with names like the “The Codfather.”

Then as now, the beaches and the surf were invigorating. To spend time in the Hamptons, however, it wasn’t necessary to have the wealth of Stephen Spielberg, Jerry Seinfeld, or Martha Stewart (whose Hampton Style mansions I have passed when out biking).

Now, however, the Hamptons have become as mythical as Camelot, a place where for $26.7 million you can buy an oceanfront “cottage” that looks like a departure lounge at Raleigh-Durham Airport.

Part of the reason for this North Atlantic bubble is that the Hamptons allow tourists and residents to imagine themselves as extras in a romantic comedy.

If you have never been, it’s best to imagine the towns, once fishing and potato farming villages, as Hollywood backlots, although to play a leading role it helps to cultivate eccentricity. For example:

When Jerry Seinfeld bought his estate off Further Lane in East Hampton, he put in a baseball diamond, prompting his neighbors to insist that he screen the backstop, less someone think it was a public park.

In one of her piques of anger or carelessness, Martha Stewart apparently ran over her neighbor’s gardener.

The writer George Plimpton was arrested for shooting off fireworks.

As told in the documentary film Grey Gardens, in the 1970s East Hampton authorities and the ASPCA raided the house belonging to Jacqueline Kennedy Onassis’s aunt, who lived in a 28-room beachfront mansion with stray cats, broken windows, and unpaid electricity bills.

The house now belongs to the former Washington Post editor, Ben Bradlee, and his wife, Sally Quinn. I have puzzled over the connection between an East Hampton estate and Richard Nixon’s Watergate scandal, which Bradlee broke. Was one a reward for the other?

Even in World War II, the Hamptons had a make-believe aura. The local newspaper ran ads for “War Damage Insurance...resulting from enemy attack,” just in case your infinity pool got taken in some crossfire.

According to the popular legend (well packaged by J. Edgar Hoover’s FBI), on a foggy night in June 1942, a German U-boat landed four spies on Amagansett beach, plus enough money, weapons and explosives to make a dent in Pennsylvania’s Horseshoe Curve and New York’s Hell Gate Bridge.

A Coast Guardsman patrolling the beach came across the bumbling Germans, who claimed (in slightly accented English) to be local “Fischermenn” but then offered a $300 bribe to the officer to forget about the encounter.

The spies-like-us buried their stash in the sand, including a hat with a Nazi insignia (now that’s covering your tracks), and walked to the train station, where they bantered with the ticket agent, presumably about the weather in Berlin. Some days later in New York, Hoover’s G-men busted the ring. It's impossible not to wonder whether the FBI scripted such turgid summer theater from the beginning.

Technically, Montauk is not part of the Hamptons. Traditionally a fishing village, it is responsible for many East End legends, including the rumor that Howard Hughes was secluded here in one of his darkened rooms.

In 1792 President George Washington authorized the construction of the Montauk Lighthouse. Now it’s part of a state park, which charges $8 for parking and $9 per person for admission, and where bicycles and picnickers are treated as public nuisances.

In the Spanish-American war, Teddy Roosevelt and the Rough Riders were stationed at Montauk, although with so few rations that they had to live off food baskets from local housewives. Later, Montauk harbor became the preserve of bootleggers, who would land hooch and drive it to the Hamptons .

Through much of the early twentieth century, speculators traded land around Montauk, on the theory that it would become the “Miami of the North” or a commercial port for transatlantic shipping. Neither ever happened, although the Pennsylvania and Long Island railroads ran sleeping car service to the end of the island. Clearest proof of the Great Depression was the news in 1932 that the Pennsylvania had suspended its parlor cars from Pittsburgh to Montauk.

What do people “do” in the Hamptons? The beach and the surf are the main attractions, and near them are tennis courts and golf courses, not to mention all sorts of boutiques, including those selling skimpy $3,000 cocktail dresses.

What many visitors like to do is drive up and down Route 27, the only east-west corridor through the Hamptons. At all hours it is clogged with black SUVs, with tinted windows, that give the Hamptons the air of a parking lot at a Russian night club.

Full-time residents have an additional burden: their vacations are spent at various “benefits” to support libraries, whales, wetlands, and rain forests, all of which can be saved for about $1,000 a table.

The East Hampton Star, the local newspaper, and a great one at that, chronicles the summer charitable works with celebrity pictures and half-page invitations, all of which, as best as I can determine, promise to deliver the presence of Alec Baldwin.

Leaving aside the $100 guacamole and the multi-million dollar cottages, there is still a lot to love about the real-world in the Hamptons. The beach is glorious, and the sea breezes deal with most New York City heat waves. The view of the ocean and the dunes at sunset is timeless. I still like biking to the Montauk lighthouse, despite the Route 27 traffic and gruff staff.

One reason I return to the Hamptons is that it reminds me of childhood summers, which involved trips to the same beaches, sometimes by train. On still nights, lying in bed, I can hear the engine whistles of the Long Island Railroad, echoing at grade crossings in distant cornfields. They remind me of F. Scott Fitzgerald’s boats, those that “beat on, against the current, borne back ceaselessly into the past.”

Photo By Jeff Pearce, Montauk Lighthouse

Matthew Stevenson is the author of Remembering the Twentieth Century Limited, winner of Foreword’s bronze award for best travel essays at this year's BEA. He is also editor of Rules of the Game: The Best Sports Writing from Harper's Magazine. He lives in Switzerland.

Has America Caught the British Disease?

Michael Lind — Fri, 27 Aug 2010 01:11:00 -0400

As the economy stalls, analysts are worrying that the United States might repeat the experience of Japan’s “lost decade” (actually, two lost decades). Is America turning Japanese? We should be more worried about the prospect that America is turning British.

The United Kingdom went from creating the first industrial economy and establishing a global empire to lagging Italy by the 1970s. The neoliberal reforms of Thatcher and Blair, intended to modernize the economy, merely replaced a rotting manufacturing economy with an unstable rentier economy centered in the City of London. With a zombie economy characterized by industrial wastelands, off-limits aristocratic landholdings, tourist kitsch and a financial sector that choked on its own excesses, Tony Blair’s “Cool Britannia” looks more like “Ghoul Britannia.”

The decline of Britain was generations in the making, as Corelli Barnett has argued in his “The Pride and the Fall Books,” a series of polemics that include “The Audit of War” and “The Collapse of British Power.” The industrial strength that made the island nation the pioneer of the modern era was the result of unfashionable people – middle-class manufacturers – in the unfashionable industrial towns of the British midlands.

Unfortunately, Britain’s industrial revolution was not accompanied by a revolution in values that emphasized making things over inheriting things. The old elite of aristocratic parasites, Church of England drones, and their snobbish retainers like elite lawyers and professors despised upwardly mobile arrivistes, although their children and grand-children might become socially acceptable if they abandoned “trade” for the lifestyle of genteel rentiers and were laundered through public schools like Eton and Oxbridge. The equivalent of Germany’s technical high schools and polytechnics and America’s agricultural and mechanical colleges were (and are) sneered at in Britain as vulgar “redbrick” universities.

The failure to change Britain’s elite attitudes was accompanied by a failure to change Britain’s temporarily-successful free trade policies when they became anachronistic. From the Tudor era until the nineteenth century, the British state used mercantilist policies of the kind nowadays associated with the “East Asian model” – selective protectionism, subsidies to exporters, procurement, taxes on resource material exports to keep prices low. The American colonies, forbidden to manufacture anything and forced to supply the metropole with food and raw materials in return for high-value-added British manufactures, were part of the mercantilist system, like Scotland, Ireland and India.

By the 1840s, Britain’s technological supremacy allowed it to take off the protectionist training wheels and practice and preach free trade, confident that its manufactured exports would kill off infant industries in other countries. Beginning in the 1870s, however, the newly-united Germany and post-Civil War America adopted their own high-tariff policies of industry-supporting mercantilism. Despite the warnings of trade reformers like Joseph Chamberlain in the 1880s and 1890s, the British continued to practice one-way free trade, allowing German and American corporations based in their own giant, protected domestic markets to increase their shares of the market in Britain, its dominions and its colonies.

As British industry shrank under American and German competition, the City of London became even more important. Finance was a clean business, untainted by the grime and odor of the factory, and could be practiced by gentlemen. The British discovered too late that finance follows industry, as the epicenter of global banking migrated from London to New York during World War I.

Today the U.S. is repeating Britain’s mistakes. First the Japanese and now the Chinese have used a variety of methods, from nontariff barriers (Japan) to currency manipulation (both) to keep U.S. products out of their markets while enjoying unimpeded access to America’s consumer market, the biggest in the world. As in Britain, the center of gravity in the business world has shifted from manufacturing to finance. The catastrophic deregulation of the U.S. financial industry was based on the argument that unless the U.S. scrapped the New Deal era regulations that provided decades of financial stability and steady growth, Wall Street might lose out to the City of London or Hong Kong or Shanghai. For America’s bipartisan oligarchy, Wall Street is more important than Detroit.

Not content to re-enact the British cycle of deindustrialization and decline, the U.S. imports British pundits to lecture Americans on nineteenth-century free market ideology. Asking dogmatic British free marketers how to organize a successful economy in the twenty-first century is the equivalent of asking unreconstructed Japanese militarists how to run a successful foreign policy or asking Iranian mullahs how to create a world-class R&D sector.

Innovation without production is not the answer, as Britain’s sad history shows. Britain continued to have a world-class science and technology sector, inventing the jet engine and radar, among other things. But the British were unable to commercialize the products of British R&D because they lacked adequate mass production industries. Similarly, innovation will enrich few Americans other than technologists and venture capitalists if the new products that result are then licensed to be produced in industrial Asia or industrial Europe.

The irony is that, while the American colonists were right to rebel against their role of hewers of wood and drawers of water in the British Empire, the British mercantile system of the fifteenth through the nineteenth centuries was a great success story, producing not only temporary British supremacy but also modern technological civilization. The Germans, Japanese and Chinese have always practiced subtle and not-so-subtle versions of the technonationalism that Britain pursued before its misplaced confidence led it to adopt the free market ideology that accelerated its downfall. Modern America has more to learn from the pre-liberal, industrializing Britain of the seventeenth and eighteenth centuries that Adam Smith denounced than from the post-1840s Britain that sat nobly on its laurels as it sank beneath the waves it briefly ruled.

Michael Lind is Policy Director of the http://growth.newamerica.net/home >Economic Growth Program at the New America Foundation and author of The Next American Nation.

Photo by **Maurice**

The Housing Bubble: The Economists Should Have Known

Wendell Cox — Wed, 25 Aug 2010 22:54:23 -0400

Paul Krugman got it right. But it should not have taken a Nobel Laureate to note that the emperor's nakedness with respect to the connection between the housing bubble and more restrictive land use regulation.

A just published piece by the Federal Reserve Bank of Boston, however, shows that much of the economics fraternity still does not "get it." In Reasonable People Did Disagree: Optimism and Pessimism About the U.S. Housing Market Before the Crash, Kristopher S. Gerardi, Christopher L. Foote and Paul S. Willen conclude that it was reasonable for economists to have missed the bubble.

Misconstruing Las Vegas and Phoenix: They fault Krugman for making the bubble/land regulation connection by noting that the "places in the United States where the housing market most resembled a bubble were Phoenix and Las Vegas," noting that both urban areas have "an abundance of surrounding land on which to accommodate new construction" (Note 1).

An abundance of land is of little use when it cannot be built upon. This is illustrated by Portland, Oregon, which is surrounded by such an "abundance of land." Yet over a decade planning authorities have been content to preside over a 60 percent increase in house prices relative to incomes, while severely limiting the land that could have been used to maintain housing affordability. The impact is clearly illustrated by the 90 percent drop in unimproved land value that occurs virtually across the street at Portland's urban growth boundary.

Building is largely impossible on the "abundance of land" surrounding Las Vegas and Phoenix. Las Vegas and Phoenix have virtual urban growth boundaries, formed by encircling federal and state lands. These are fairly tight boundaries, especially in view of the huge growth these areas have experienced. There are programs to auction off some of this land to developers and the price escalation during the bubble in the two metropolitan areas shows how a scarcity of land from government ownership produces the same higher prices as an urban growth boundary

Like Paul Krugman, banker Doug French got it right. In a late 2002 article for the Nevada Policy Research Institute, French noted the huge increases auction prices, characterized the federal government as hording its land and suggested that median house prices could reach $280,000 by the end of the decade. Actually, they reached $320,000 well before that (and then collapsed).

In Las Vegas, house prices escalated approximately 85% relative to incomes between 2002 and 2006. Coincidentally, over the same period, federal government land auctions prices for urban fringe land rose from a modest $50,000 per acre in 2001-2, to $229,000 in 2003-4 and $284,000 at the peak of the housing bubble (2005-6). Similarly, Phoenix house prices rose nearly as much as Las Vegas, while the rate of increase per acre in Phoenix land auctions rose nearly as much as in Las Vegas.

In both cases, prices per acre rose at approximately the same annual rate as in Beijing, which some consider to have the world's largest housing bubble. According to Joseph Gyourko of Wharton, along with Jing Wu and Yongheng Deng Beijing prices rose 800 percent from 2003 to 2008 (Figure). This is true even thought we are not experiencing the epochal shift to big urban areas now going on in China.

The Issue is Land Supply: The escalation of new house prices during the bubble occurred virtually all in non-construction costs such as the costs of land and any additional regulatory costs. It is not sufficient to look at a large supply of new housing (as the Boston Fed researchers do) and conclude that regulation has not taken its toll. The principal damage done by more restrictive land regulation comes from limiting the supply of land, which drives its price up and thereby the price of houses. In some places where there was substantial building, restrictive land use regulations also skewed the market strongly in favor of sellers. This dampening of supply in the face of demand drove land prices up hugely, even before the speculators descended to drive the prices even higher. Florida and interior California metropolitan areas (such as Sacramento and Riverside-San Bernardino) are examples of this.

Missing Obvious Signs: There are at least two reasons why much of the economics profession missed the bubble.

(1) Unlike Paul Krugman, many economists failed to look below the national data. As Krugman showed, there were huge variations in house price trends between the nation's metropolitan areas. National averages mean little unless there is little variation. Yet most of the economists couldn't be bothered to look below the national averages.

(2) Most economists failed to note the huge structural imbalances that had occurred in the distorted housing markets relative to historic norms. Since World War II, the Median Multiple, the median house price divided by the median household income, has been 3.0 or less in most US metropolitan markets. Between 1950 and 2000, the Median Multiple reached as high as 6.1 in a single metropolitan area among today's 50 largest, in a single year (San Jose in 1990, see Note 2). In 2001, however, two metropolitan areas reached that level, a figure that rose to 9 in 2006 and 2007. The Median Multiple reached unprecedented and stratospheric levels in of 10 or more in Los Angeles, San Francisco, San Diego and San Jose- all of which have very restrictive land use and have had relatively little building. This historical anomaly should have been a very large red flag.

In contrast, the Median Multiple remained at or below 3.0 in a number of high growth markets, such as Atlanta, Dallas-Fort Worth and Houston and other markets throughout the bubble.. Even with strong housing growth, prices remained affordable where there was less restrictive land use regulation.

Seeing the Signs: Krugman, for his part, takes a well deserved victory lap in a New York Times blog entitled "Wrong to be Right," deferring to Yves Smith at nakedcapitalism.com who had this to say about the Federal Reserve Bank of Boston research:

It is truly astonishing to watch how determined the economics orthodoxy is to defend its inexcusable, economy-wrecking performance in the run up to the financial crisis. Most people who preside over disasters, say from a boating accident or the failure of a venture, spend considerable amounts of time in review of what happened and self-recrimination. Yet policy-making economists have not only seemed constitutionally unable to recognize that their programs resulted in widespread damage, but to add insult to injury, they insist that they really didn’t do anything wrong.

Maybe we should have known better: beware economists bearing the moment’s conventional wisdom.

------

Note 1: The authors cite work by Albert Saiz of Wharton to suggest an association between geographical constraints and house price increases in metropolitan areas. The Saiz constraint, however, looks at a potential development area 50 kilometers from the metropolitan center (7,850 square kilometers). This seems to be a far too large area to have a material price impact in most metropolitan areas. For example, in Portland, the strongly enforced urban growth boundary (which would have a similar theoretical impact on prices) was associated with virtually no increase in house prices until the developable land inside the boundary fell to less than 100 square kilometers (early 1990s). A far more remote geographical barrier, such as the foothills of Mount Hood, can have no meaningful impact in this environment.

Note 2: William Fischel of Dartmouth has shown how the implementation of land use controls in California metropolitan areas coincided with the rise of house prices beyond historic national levels. As late as 1970, house prices in California were little different than in the rest of the nation.

Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris and the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life”

Photograph: $575,000 house in Los Angeles (2006), Photograph by author

The China Syndrome

Joel Kotkin — Tue, 24 Aug 2010 14:45:15 -0400

China's ascension to the world's second-largest economy, surpassing Japan, has led to predictions that it will inevitably snatch the No. 1 spot from the United States. Nomura Securities envisions China surpassing the U.S.' total GDP in little more than a decade. And economist Robert Fogel predicts that by 2050 China's economy will account for 40% of the world's GDP, with the U.S.' share shrinking to a measly 14%.

Americans indeed should worry about the prospect of slipping status, but the idée fixe about China's inevitable hegemony--like Japan's two decades ago--could prove greatly exaggerated. Countries generally do not experience hyper-growth--the starting point for many predictions--for long. Eventually costs rise, internal pressures grow and natural limitations brake and can even throw the economy into reverse.

Instead the U.S. has a decent chance of remaining the world's pre-eminent economy not only over the next decade or two and even by mid-century. There are five key reasons for this contrarian conclusion.

1. If Water is the "new oil," China faces a thirsty future. China's freshwater reserves are about one-fifth per capita those of the United States, notes Steve Solomon, author of Water: The Epic Struggle for Wealth, Power and Civilization. Much of that supply has become dangerously polluted; ours , for the most part, has become cleaner.

More important, the U.S. has become more efficient in its water usage, says Solomon. China, with a far less developed economy, will face increasing demands from industrial and agricultural users as well as hundreds of millions of households that now don't enjoy easy access to clean drinking water.

2. China's energy demands are soaring, but it lacks adequate domestic resources. China impresses journalists and policy-makers with grand "green" projects and heavy investment in renewables, but two-thirds of the country's energy comes from that dirtiest of sources. China burns more coal than the U.S., Europe and Japan combined, often using very primitive technology. It has now overtaken the U.S. for the dubious honor of the most total energy use and highest greenhouse gas emissions. Since 1995 China's dependence on foreign oil has grown from near to approaching 60%, and the country, long a coal exporter, is becoming a major importer of that unfashionable fuel.

The U.S. meanwhile sits on largely untapped fossil fuel resources, including coal, natural gas and oil. Add Canada to the equation and North America ranks second, behind the Middle East, in energy resources. In contrast to China, America's energy use and greenhouse emissions appear to be dropping while still enjoying enormous, still largely untapped renewable resources, particularly from wind power in the Plains and biomass.

3. Food remains pressing problem for China. Scarce water, mass pollution and high energy costs all will limit China's future food production. By some estimates acid rain falls on a third of all agricultural land; some climate experts predict long-term reductions in the country's vital rice crop.

Plagued by floods, China now will have to look to U.S. and Canada to meet demand for crucial foodstuffs, particularly corn. And the food deficit may get worse over time: As China becomes wealthier, demand for high-protein foods like beef and pork will increase. The U.S. remains the world's most reliable supplier of many of those agricultural products.

4. China's rapidly aging population and shrinking workforce will slow growth, perhaps dramatically, by the next decade. Like that of the "Asian tigers" in the '70s and '80s, China's rapid growth has been propelled in part by an expanding young workforce. Due to a very low birthrate, however, this trend will reverse within a decade or two. By 2050 31% of China's population will be older than 60, compared with barely one-quarter in the U.S. There will be over 400 million elderly, with virtually no social security and few children to support them. Also worrisome: The preference for male children has skewed sex demographics dramatically, with roughly 30 million more marriageable boys than girls.

The logical solution to this dilemma would be immigration, but China's culture appears far too insular for such an event. Rather than a benevolent "socialist" super power China, whose population is made up over 90% Han Chinese, will bestride the world as a racially homogeneous, and communalistic "Middle Kingdom." In contrast, the U.S., despite occasional fits of nativism, remains remarkably successful at integrating cultures from around the globe.

5. Dictatorship thrives sometimes in a "take off" period, but often fails to compete well with more open societies during later stages of growth. Many American intellectuals and journalists celebrate China's achievements, much as some of their predecessors admired past "successful" economic regimes in fascist Italy, Nazi Germany and the late Soviet Union. The longest lasting of the authoritarian superpowers, the Soviet state massively misallocated its resources in its unsuccessful competition with the more flexible systems of the U.S. and its allies.

Big Brother economies experience more subtle problems. Chinese entrepreneurs , according to a survey by the Legatum Institute in London, depend far more than their more nimble and self-reliant Indian counterparts. Overweening Chinese state power also might be chasing many foreign businesses--and some developing countries-- toward more congenial investment and trade partners.

For all these problems, the Chinese emergence remains the dominant business event of our epoch. But world-wide dominion seems highly unlikely. One often overlooked factor: political problems stemming from growing inequality in this officially Marxist state. Over the past 20 years China's income distribution pattern has shifted from the relative egalitarianism of Sweden, Japan or Germany to that of countries like Argentina and Mexico.

The class divisions will deepen further as growth inevitably slows. Roughly one-third of 2008's 5.6 million university graduates have been unable to find work. Things are even worse for those less skilled, rural residents and small manufacturers.

Ironically, the Communist Party appears to further concentrate wealth and power; most of the richest people in China are linked to the party. Policies push growth, but with diminishing rewards to the masses. Over the last decade the share of GDP going to consumption dropped from 46% to less than 36%.

Of course, a comparatively small number of skilled, with often well-connected professionals and investors flourishing, but opportunities for economic advancement may now be scarcer for most workers compared to the earlier period of China's remarkable "liftoff" after 1980. Conditions for the working class in China remain more akin to Dickensian England than a Marxian "worker's paradise." China's dismal health care system for example, ranks according to the World Health Organization, among the world's most inequitable, 188th out of 191 nations.

Not surprisingly, class anger has reached alarming proportions, with almost 96% of respondents, according to one recent survey, agreeing that they "resent the rich."

America also faces its own share of social problems but not to such an extreme degree. Many Americans resent the affluent, but also dream of becoming them. How else to explain the popularity of paeans to bourgeois vulgarity like Housewives of New Jersey?

In the coming decades China, not the currently depressed U.S., may face greater headwinds. America's biggest enemy will prove to be not China, but itself. The U.S. needs to move toward a pro-growth course driven by investments in our productive economy, basic infrastructure and skills-based education as well as sustainable immigration and population growth levels. If the country does these things then Americans will someday look back at their current Sinophobia as a delusion dressed up as irresistible conventional wisdom.

This article originally appeared at Forbes.com.

Photo: Steve Webel

The Disappearance of the Next Middle Class

Owen McShane — Tue, 24 Aug 2010 01:07:45 -0400

Every week we read that yet another major housing project has been turned down by the Courts here in New Zealand because of the need to protect "rural character" or "natural landscapes". This may well have profound short and long-term consequences for the future of our middle class, as it does for the same class in countries around the advanced world.

Every week a multitude of smaller developers abandon their projects because Councils’ compliance costs and development contributions make the projects unviable – even if the land were free. And it’s not.

The New Zealand Institute of Economic Research says the ten-year norm for New Zealand is 26,000 new dwellings built per year. Statistics New Zealand reported only 16,000 dwelling consents issued in 2009. The NZ Property Investors Federation says we are building only 7,000 dwellings a year.

Some say the Property Investors Federation figures are too low given that Statistics New Zealand’s figures for the year to date suggest we shall issue between 13,000 and 11,000 consents this year, and that the “slippage” between consents and finished dwellings cannot be that great.

However, this is rather like wondering whether you are driving towards a concrete wall at 100 mph or only 80 mph.

Any current year estimates confirm we are on a slippery slope to catastrophe.

Unemployment, especially among young unskilled males is on the rise. Given these dreadful build-rates, should we be surprised, since these workers depend on construction for economic opportunity?

And why don’t we recognize the cause and do something about it?

First let’s look at the statistics. A Google search under “construction multipliers” turns up statements such as “building 1,000 houses generates 2,300 permanent full time jobs”. Another will say “Every dollar spent in the sector has a multiplier effect between 2.1 and 2.8.” These “low multiplier” statistics seldom spell out what is meant by “the construction sector”, and most are annual figures, and focus on “permanent full time jobs”. But the construction sector generates a multitude of short-term contracts that presumably slip through the net.

These low “construction” multipliers are reinforced by a post-modernist ideology that tries to persuade us that housing is an unproductive activity that takes productive rural land out of production and hence undermines the economy. This is the old “primary” industry myth, further reinforced by the quaint animist notion that subdivision causes “death by a thousand cuts”. The surveyors are out there wielding their long knives and watching the Earth Mother bleed to death.

Smart Growth planners claim the “urban sprawl” that grew around our cities during the post-war decades was the terrible price paid for housing the baby boomers and must be replaced with Smart Growth (or perhaps more accurately, Dense Thinking).

We have lost sight of the fact that those prosperous decades were actually in large part the result of those large-scale suburban developments.

US economists generally explain the post-war boom as being driven by the work force switching from weapons to washing machines.

In New Zealand we used to attribute those golden years to micro-management of the economy, and to import licensing in particular. In reality, our real genius was probably introducing the capitalized family benefit which led to our own “Levittown builders” such as Fletcher Construction and Neil Housing.

Back in the late sixties, while reading for my thesis in urban development economics, I read a report on the drivers of the post-war boom in America, during the twenty years from 1945 – 1965. Wildavsky’s Oakland Project focused on behavioural analysis rather than econometrics.

The authors concluded that the suburban development boom laid the foundations for the long-term development of the post-war American middle class.

An equivalent thought experiment would now read something like this:

We begin with a clean greenfields site, presumably being farmed, or just open space of some kind.
A developer decides the land is well located for a new 1,000 lot residential development and hires consultants or staff to prepare an application. The process alone takes five to six years and provides unproductive employment for a host of highly paid professionals.
The project is then killed off by either the Council or the Courts.

In a sensible world, as prevailed in the post war years, the project would move on to the next stage:

The land development teams move onto the site and start the final surveys, road-building, drainage and stormwater schemes, landscaping, and street-crossings, all required before the builders drive their first profile-pegs into the ground.
Then teams of contractors start building the houses, which will have been designed by architects, draughtsmen or architectural designers, and then processed through a simple consenting procedure.
The teams of carpenters, glaziers, plumbers, painters, roofers, stoppers, electricians and plumbers all move in to finish the houses ready for occupancy. A gang of maybe ten drain-layers could lay the drains for the 1,000 houses over a five year sales-and-build period – say 20 contracts a year.
These teams use products and materials cut from forests, mined from quarries, processed in mills, or produced in factories, or recycled products, all requiring employed labour.

So after a few years the 1,000 homes may be built and occupied. The analysts in the sixties suggested the 1,000 houses would generate say 5,000 direct contract-jobs over those early years.

However, they recognized that the real economic activity would continue for another fifteen years or more. The same happens today.

As the families move into the houses they buy kitchen equipment, drapes and light fittings, bookshelves, plasma TVs, computers, artworks and wine cellars and so on.
The owners lay paving, build decks, plant gardens, and landscape the property.
The gardens require lawn mowers, chain saws, hedge trimmers, nursery plants, and barbecues.
Then up go the Gazebos, the dog kennels, the play houses, the extra rooms, and so on.
And then come the swimming pools, spa pools, home offices, sleep-outs, and solar heaters.

Many of these improvements are produced by the “sweat-equity” of the DIY owners and are a major means of increasing household wealth and well-being. They arealso a potent form of saving, provided the owners are investing in tangible improvements and not over-priced land.

These suburban on-site improvements go on forever. Consequently, even today there are about 80,000 certified “alterations” a year in New Zealand – and many more that don’t get near a permit.

All these activities create jobs for the people who make the spa pools, the plasma TVs, the gardening tools, the cars, and the Gazebos.

After several years from start up the properties are likely to require a gardener once a week, and maybe a housekeeper one or two days a week, and baby sitters, and whatever else the modern family needs to manage its work-life balance. These are the on-site ‘jobs’, but the families also need teachers, doctors, day-care providers, retail staff and so on and so on.

The sixties report concluded that every 1000 houses would generate a total of 40,000 contracts and jobs. Which seems outrageous until you divide the 40,000 by the fifteen to twenty years, which comes back to the multipliers of 2.0 to 2.6.

The sixties thought-experiment reminds us that by driving our residential build-rate from 24,000 a year to a no more than 13,000 a year, and probably much fewer, we are turning off the boiler that regenerates our middle class.

It also explains why an economy with a low “build-rate” is unlikely to enjoy full employment.
Those suburbs were not “a sad price to pay for our post war housing” but were the economic driver of “the long summer of content” so well described by Bill Bryson in “The Thunderbird Kid.”

So why are we allowing our institutions to destroy the ability to regenerate our own suburban middle class?

Whatever happened to genuine sustainable development? Sustainable for middle class people and families too.

Owen McShane is Director of the Centre for Resource Management Studies, New Zealand.

Photo by pie4dan

China's Sliver of a Housing Bubble

Wendell Cox — Mon, 23 Aug 2010 00:48:04 -0400

Few finance issues have received such a wide range of opinions among financial experts than the "housing bubble" in China. This is an issue of international importance because what happens in what is now the world’s 2nd largest economy affects the rest of the world.

Differing Views: There are frequent reports of excessively high purchase prices on new housing, which when compared with measures of average household income make it appear that China has the highest house price to income ratios in history. Andy Xie, a Shanghai economist formerly with Morgan Stanley sees a huge housing bubble, which he expects to burst. Stephen Roach, chairman of Morgan Stanley Asia denies there is a bubble, claiming that there is sufficient demand from the continuing migration to the cities for the housing market to be healthy.

I have been reluctant to weigh in on the debate, simply because there has been insufficient data available to calculate inferior housing affordability measures (such as average price to average income), much less the data that would permit Median Multiples to be calculated. (The Median Multiple is the "middle" house price divided by the "middle" household income and is optimal for measuring middle income housing affordability).

The problems in assessing China's housing affordability have been manifold:

There has been virtually no median household income data.
There appears to be no data available on the median house price

This means that it is impossible to calculate the Median Multiple.

Housing Occupancy in Urban China

Having visited all but two of China's 20 largest urban areas and traversed them, east to west and north to south from the countryside to the countryside (as I do in obtaining photos and impressions for my "Rental Car Tours"), however, two things are obvious.

New high-rise housing is being built at a furious pace in the largest urban areas.
Nonetheless, the volume of this new housing pales by comparison to the lower rise, older housing that was built before the present boom (which appears to have started in the 1990s). It is clear that the vast majority of people do not live in the new high rise buildings.

Nonetheless the press has been filled with absurd reports to the effect that there are 65 million empty housing units in China. The absurdity of this now discredited number is illustrated by the following.

(1) All of China's urban areas with more than 500,000 population, where much of the new high rise housing has been built, have less than 300 million people. At the average household size, this means there are no more than 100 million households. In such an environment, 65 million empty units would stick out like a sore thumb. They do not.

(3) 65 million vacant units is more houses than have been constructed since 1990.

The New National Economic Research Institute Data: Finally, however, some clarity may be being brought to the issue. Credit Suisse sponsored groundbreaking research by National Economic Research Institute (NERI) of the China Reform Foundation in Beijing, which was led by Deputy Director Dr. Wang Xiaolu. Dr. Wang's principal contribution is to show that household incomes are considerably higher in China than official statistics indicate. This "grey income" or "hidden income" includes bonuses paid by local governments, payments to public officials, revenues from land development and other sources of income that are not reported in official data and amounts to 90% more than reported figures (report (Analyzing Chinese Grey Income, published by Credit Suisse). In the top decile (top 90-100% of household incomes), grey income added 200% to reported incomes, while in the second decile (80%-90%), grey income more than doubled reported incomes. Buried in the NERI report is median household income data and average multiple housing affordability indicators that are the best information yet made available.

China's Average Multiple: Credit Suisse analyst Jinsong Du takes the NERI further to calculate housing affordability indicators that are far below the claims about the Chinese housing bubble. The average (mean) house price was 4.0 times the average disposable household income in 2008, after accounting for "grey income." Based upon the national ratio of gross income to disposable income (from the China Yearbook), this would indicate an "average multiple" (average house price divided by gross average household income) of 3.7. This is similar to the US average multiple figure of 3.4 (Figure 1) in the same year (2008).

China's Median Multiple? This leaves the question of the Median Multiple. There is still no available median house price data. However, it is clear that the new housing is largely irrelevant to median house prices. According to data in the China Yearbook (Table 5-42), only 13% of the 31 million new houses were affordable to lower and middle income people (Figure 2). The new luxury units, with their widely touted prices, remain a minority of the houses, and, as a result, none of these can be the "middle" or median price

In fact, the median priced house could be of a design similar to a Danwei (live-work unit) type design built before 1990. This is the type of housing that any walk or drive through a Chinese urban area will demonstrate to be dominant (and which is illustrated in the photograph above). There are huge disparities in both house prices and incomes in China. It would not be surprising for China's Median Multiple to be similar to its average multiple, as is the case in the United States.

Further, there is a huge difference between the US bubble and the Chinese bubble. In the United States the bubble drove up prices across all income spectrums in the impacted metropolitan areas. It burst largely because middle income households had taken on debt they could not afford. In China, the bubble may be limited to the top of the income scale, the very households that NERI finds are making two to three times as much as the official reports indicate.

China's Sliver of a Bubble: None of this is to suggest that house prices at the top of the market are not high. One of America's leading housing economists, Joseph Gyourko of Wharton, along with Jing Wu and Yongheng Deng found that residential real estate auction prices rose 800% from 2003 to 2008 in Beijing (Note). Recently the government has taken action to cool the high end of the market and to encourage development of more housing for middle and lower income households. At the same time, the Gyourko research team found that new house prices had fallen relative to household incomes in Chengdu, Wuhan, Tianjin and Xi'an, all urban areas with more than 4,000,000 population.

To accurately assess housing affordability it is necessary to have complete data. Housing affordability cannot be assessed in London using data from Belgravia, nor will Upper East Side data tell an accurate story about New York. The same is true in China. Stephen Roach said that China has a "sliver of a bubble." That's what the data seems to show.

------------------

Note: This annual rate of increase is approximately the same as was experienced in per acre government land sales in Las Vegas and Phoenix before the peak of the bubble (both urban areas are tightly ringed by "virtual" urban growth boundaries composed of government owned land).

Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris and the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life”

Photograph: Median priced (?) flats in Fushun, Liaoning (photograph by the author)

Can We Socialize Ourselves to Good Health?

Nima Sanandaji — Sat, 21 Aug 2010 13:43:04 -0400

How can we reduce health problems in society? Should we tackle poverty and social problems such as crime and drug abuse, or is the problem inequality in itself? If we reduce the income in a middle class neighborhood, will this in itself improve the health of poor people living in the same city?

The latter form of reasoning is perhaps not so popular in the US, but quite so amongst European social democrats. A new book highlights how the European left is as concerned with fighting wealth as it is with fighting poverty.

One year after its publication, the “The Spirit Level: Why More Equal Societies Almost Always Do Better” - by social epidemiologists Richard Wilkinson and Kate Pickett - has been embraced by many European intellectuals and politicians. The Social Democratic Party leader Mona Sahlin relies on the book as one of her main arguments during the current Swedish election campaign.

Even conservative British Prime Minister David Cameron has praised the book, which claims that income inequality in itself causes more or less every problem in society. The argument goes: if your neighbor’s income increases, so does you chances of catching cancer.

The authors of the book, Wilkinson and Pickett, seemingly make as strong argument for the notion that social ills are caused not by poverty but rather by inequality itself. Inequality, they say, acts like a “pollutant spread throughout society,” with rich and poor equally susceptible to its toxic effects.

The book will likely soon appear also on the bookshelves of many US intellectuals, not least amongst the left. It is interesting then to note that its notions are dismissed by current research.

Last year for example, the “Oxford Handbook of Economic Inequality” was published. There we could clearly read that income inequality in itself is not the cause of health problems or lifespan: "The preponderance of evidence suggests that the relationship between income inequality and health is either non-existent to too fragile to show up in a robustly estimated panel specification."

The same conclusion has been drawn in research conducted by Professor Angus Deaton, one of the world’s leading health economists. After a comprehensive survey of the scientific literature he concludes:
“[I]t is not true that income inequality itself is a major determinant of public health. There is no robust relationship between life expectancy and income inequality among the rich countries, and the correlation across the states and cities of the United States is almost certainly the result of something that is correlated with income inequality, but is not income inequality itself.” (Published in Journal of Economic Literature, 2003).

One could say that one of the main theses of the European social democracy – that inequality in itself is the problem – has been proven wrong by recent scientific studies. Social problems in themselves do cause inequality.

If there are problems with drug abuse, racial tensions, unemployment, etc., in one neighborhood for example, this will decrease the income of the citizens. Thus income inequality arises compared to the middle class. Reducing social problems will also reduce inequality. But inequality in itself does not cause social problems.

The socialist approach – to shrink the income of the middle class instead and hope this will aid the poor – is simply based on a skewed analysis of the correlation between social problems, poverty and inequality.

A comparison between Sweden and the US is often used to argue that the European social democratic approach will reduce social problems and expand life span. As noted in a previous New Geography article, this reasoning is misleading.

Sweden was characterized by an even income distribution, low poverty and long life spans already before the introduction of high-tax welfare policies. The difference in lifespan between Swedes and Americans was the same (2.6 years) in 1950 as it is today (2.7 years). And lastly, the 4.4 million Americans with Swedish origin are not only 50% more rich than Swedes living in Sweden, but also have the exact same level of poverty.

It is simply wrong to assume that high tax welfare state policies automatically improve health. In 1960 Sweden was a low-tax country, with the third highest lifespan in the world. Switzerland was ranked on the sixth position. 45 years later, it was Switzerland that had the second highest lifespan, whilst Sweden was ranked on sixth position. Evidently, retaining a low-tax system did not hinder Switzerland from catching up to and surpassing Sweden.

Low taxes might however explain why the poorest fifth of Swiss citizens have a considerably higher purchasing power compared to the same group in Sweden (the US figure is slightly, but not much, lower than in Sweden).

And it is simply not true that socialist policies always lead to low income distribution, whilst free-markets increases inequality. Reforming away from communism to a very free-market oriented approach has for example allowed the Czech Republic, Slovakia and Slovenia from gaining a high living standard. But these nations do not have a low, but rather relatively high level of income equality. Moving away from socialism has benefited not only a small handful of capitalists, but rather the population as a whole.

History teaches us that one society simply cannot change to another by simply changing its policies. Much can be achieved by focusing on the root of social problems – such as unemployment, crime and drug abuse – but society has little to gain and much to lose from thinking that we should hinder those who strive towards success in the name of social equality.

Nima Sanandaji is president of the Swedish think tank Captus. He is the author of the book ”Entrepreneurs who go against the stream – what the 90s successful entrepreneurs can teach us” (Swedish title: ¨”Entreprenörer som går mot strömmen – vad 90-talets succéföretagare kan lära om dagens utmaningar”) for Fores.

Photo by: JavierPsilocybin

Vancouver: Planner’s Dream, Middle Class Nightmare

Steve Lafleur — Thu, 19 Aug 2010 18:25:41 -0400

Vancouver is consistently rated among the most desirable places to live in the Economist’s annual ranking of cities. In fact, this year it topped the list. Of course, it also topped another list. Vancouver was ranked as the city with the most unaffordable housing in the English speaking world by Demographia’s annual survey. According to the survey criteria, housing prices in an affordable market should have an “median multiple” of no higher than 3.0 (meaning that median housing price should cost no more than 3 times the median annual gross household income). Vancouver came in at a staggering 9.3. The second most expensive major Canadian city, Toronto, has an index of only 5.2. Even legendarily unaffordable London and New York were significantly lower, coming in at 7.1 and 7.0 respectively. While there are many factors that make Vancouver a naturally expensive market, there are a number of land use regulations that contribute to the high housing costs.

Vancouver is a unique real estate market: it’s the only major Canadian city that doesn’t experience frigid winters. This makes it a major draw for high skilled, high salary employees. It is also a major destination for wealthy Canadian retirees, who choose to actually spend their winters in Canada. There is little doubt that it is a naturally expensive real estate market. As with coastal California cities, people pay a premium for (in this case relatively) hospitable weather. The proximity to world class skiing, fishing, and hiking are no doubt another factor in the city’s high real estate costs. There is certainly a premium to be paid for living less than two hours away from the world’s best ski resort.

Moreover, Vancouver has become an appealing real estate market for overseas investors, particularly Chinese nationals. There has been a good deal of news recently about how many of the nouveau riche in China are now looking to Vancouver, rather than Los Angeles or New York as an immigration destination. In absolute dollar terms, Vancouver is still cheaper than either city. This, combined with the more hospitable Canadian immigration system, has made Vancouver so attractive to overseas investors that real estate agents are now organizing house hunting tours for potential Chinese buyers.

To be sure, geography deserves much of the blame for Vancouver’s high housing costs. But a large chunk of the blame lies with restrictive municipal and provincial land use policies. Since the introduction of the city’s first comprehensive plan in 1929, Vancouver has used various land use regulations to create dense mixed use development in order to protect green space surrounding the city. In 1972, the provincial government passed legislation aimed at protecting BC farmland. This left less than half of the already scarce land in Greater Vancouver off limits to developers. As a result, the city is circled by undeveloped land, referred to as the Green Zone. The Green Zone acts as a de facto urban growth boundary, largely designed to prevent sprawl.

As a result, Vancouver is one of the few North American cities that have been growing almost exclusively upwards, rather than outwards for the last century. Its narrow streets and lack of a major highway running through the city make it one of the least automobile friendly cities on the continent. Unsurprisingly, Vancouver was ranked the most smart growth oriented city in the Pacific Northwest by the Sightline Institute. Roughly three times more Vancouver residents live in compact neighborhoods as a percentage of the population compared than Portland or Seattle. This arguably makes Vancouver the most smart growth oriented city in North America.

Smart growth has become a truism for urban planners. Walkable communities with a mix of commercial and residential units combined with strict zoning regulations to encourage transit usage is a formula increasingly prescribed for North American cities. Though many smart growth principles are attractive, there is an strong correlation between heavy land use regulations and housing costs. Using data from the Wharton Residential Land Use Regulation Index (WRLURI), and Demographia’s International Housing Affordability Survey, a simple scatter plot diagram has been included to illustrate this correlation.

The WRLURI measures the stringency of land use controls imposed on various US jurisdictions by state and local governments. There is a clear correlation between high regulations, and low housing affordability. Though the index does not include Canadian cities, it does include neighboring Seattle. Seattle ranks fifth of 47 cities on the Wharton Index. According to a recent study in Boston College International & Comparative Law Review by David Fox, Vancouver is decades ahead of Seattle in terms of smart growth policies. This means that Vancouver would rank at least fifth in North America on the index, though it is more realistic to assume it would most certainly top the index.

In addition to smart growth policies, Vancouver also has very stringent inclusionary zoning laws. Inclusionary zoning requires developers to provide a certain number of affordable housing units in any given development. This policy might seem to make the city more affordable, but it functions exactly like rent control. Those fortunate enough to find spaces in the affordable housing units pay less, but the subsidized rent is made up for by higher rent in adjacent units. In a study of inclusionary zoning in California cities, Benjamin Powell and Edward Stringham from the Department of Economics at San Jose State University found that inclusionary zoning imposes an additional $33,000-$66,000 cost on adjacent market rate units.

There have been some recent policy initiatives that may reduce the cost of housing marginally. In 2004, the city amended its zoning code to permit secondary suites throughout the city. Secondary suites are subdivided units of owner occupied homes that are used as rental units. This zoning change brought tens of thousands of relatively low cost units into the market. There are currently 120,000 secondary suites in the province. The city recently went one step further to allow homeowners to convert laneway garages into rental units. These units have a maximum of 500 square feet. There are 70,000 homes in Vancouver that are eligible for conversion, though it is unclear how many will take up the offer. This will add to the stock of relatively affordable rental housing in the city, but may not significantly reduce housing costs. In fact, by increasing the revenue generating potential of houses, it may actually increase the cost of purchasing a single dwelling home. After all, if the potential rental income of a single dwelling unit increases, the market price of the unit is likely to do the same. This isn’t necessarily an argument against the policy, though it does underscore the fact that housing costs in Vancouver will never decrease without liberalizing municipal and provincial land use policies.

In short, the City of Vancouver and Province of British Columbia have chosen to favor compact growth over affordable housing costs. This likely makes the city more attractive to affluents from both the rest of Canada and abroad, but increasingly makes it unaffordable for middle class families. There is certainly some substance to the Economist’s claim that Vancouver is the most livable city on earth. It is a very attractive place for those who can afford it. Nevertheless, creating a city fit only for the wealthiest segments of society and non-families is hardly something to be proud of.

Downtown Vancouver photo by runningclouds

Steve Lafleur is a public policy analyst and political consultant based out of Calgary, Alberta. For more detail, see his blog.

City Thinking is Stuck in the 90s

Aaron M. Renn — Wed, 18 Aug 2010 17:55:30 -0400

The 1990s proved to be quite a nice decade indeed for most of America's largest cities. It was an era of general prosperity in all of America to be sure, but in contrast to previous decades, the turnaround also extended from the suburbs to many of the nation's biggest cities, notably New York, Chicago, Miami, San Francisco and San Jose. The notion – popular in the 70s and 80s – associating cities with a sour and fatalistic sense of decline and dysfunction, or even anarchy, in the 90s finally began to evaporate. There emerged a bracing new sense of optimism that these large cities had found a new role for themselves in the world.

This is evident from the large decreases in crime in these cities where lawlessness once reigned and also from the job numbers from that decade, when all of America's tier one metros added jobs.

Some of these places lagged overall US growth, but considering their lower rate of population growth most of these cities enjoyed robust economies. The aerospace and defense center of Los Angeles, hit hard by the post-Cold War “peace dividend”, and the devastating 1992 riots, was a partial exception.

The 90s saw the convergence of two trends that profoundly benefited these cities: the digitization and globalization of business. The 90s were the heart of the digital revolution. At its beginning, corporate “data processing” was still dominated by mainframes and personal computers were not yet fully deployed even on corporate desktops. By the end of it, the internet was widespread and had caused a business revolution. In the middle were several waves of technology change and disruption: first client/server, then internet based computing, PC and mobile phone ubiquity in business, the Y2K retrofit, and the beginnings of integrated Enterprise Resource Planning systems.

The 90s also saw a lesser known revolution in American business: deregulation and structural changes. In the past many businesses that had previously operated on a local or regional basis – banking, utilities, retail, etc – got rolled up into much larger super-regional, national, and increasingly global players.

These shifts provided big benefits to these tier one cities. Obviously high tech havens like the Bay Area, DC, and Boston did particularly well in this decade. Also performing strongly were professional services hubs like Chicago. These rapid waves of technology and business change created a lot of new openings for professionals to master, not just by creating and implementing technology, but also in adapting business processes to the new realities as well as managing the organizational change journey. These newly rolled up businesses also needed the types of services firepower typically located in larger locales, stimulating further demand. Notably, virtually all of this demand was satisfied with employment growth on shore, much of it in these tier one cities.

The 2000s, however, were a very different story. This decade began with the dot com bust and its associated recession, a funk from which the Bay Area economy has yet to fully recover despite Silicon Valley's continued reign as high tech capital. Similarly, while specialized professional services still flourish, the more mainline areas, such as IT implementations or business process outsourcing, found themselves under significant pressure as digital business matured.

This caused one commentator to famously declare that “IT Doesn't Matter.” Then the offshore wave, which had been a born in the 1990s, began to suck away services work just as had occurred previously in manufacturing. This included not just low skill business process outsourcing like invoice processing, but also high value IT engineering and other services not dependent on face to face interaction. This, we found out, could be performed by high skill, low cost labor in places like India.

This helped to create a so-called “lost decade” of job creation in the US during the 2000s. The tier one metros, save for recession-proof Washington, fared even worse, losing jobs during the decade.

These are facts and trends that barely impacted the world of urbanists, who continued to act as if nothing had changed. The media, located almost totally in primary cities, bought the message but rarely looked at the basic facts.

As a result, when it comes to thinking about America's big cities, too many people remain stuck in the 90s.

Partially this is understandable. The 2000s saw strong increases in GDP per capita in many of these cities. Also, they experienced huge real estate booms and an associated increase in high end amenities of all kinds: swanky hotels, starchitect buildings, upscale new restaurants and shops, etc. But a lot of this has proved somewhat self-delusional. Like Citigroup CEO Chuck Prince's now infamous statement that “As long as the music is playing, you’ve got to get up and dance,” these cities continued to party like it was 1999 even as their job base continued to erode and the real estate bubble headed for a crash.

Today, as the Great Recession has civic finances in a vice grip, and places like Chicago and Los Angeles face stunning budget shortfalls, people are less sanguine. Advocates for the big city model still refuse to face up to the core problems that face our large cities. The real issue should not be how to restart the condo boom, but how to restore what drove the resurgence of the 90s: job creation. This is a national problem to be sure, but not one that seems to interest most big city advocates. It’s almost as if there's an assumption the jobs will come without working for them. The stimulus and bailout, which helped key urban sectors like green building, university research and public employees, is now running out of steam and political support. In the long run they may have served largely to exacerbate complacency.

So rather than a focus on private sector job growth, many urban boosters have remained free to focus on other things like sustainability and lifestyle enhancers in the assumption they would generate jobs But what if it doesn't work out that way? What if the current economy, unlike those boom years of the 90s, does not generate enough money and employment to support these huge regions?

These cities would be well-advised to go beyond counting skyscrapers, new condo construction, green roofs, and bike share programs. Those things are all good, but basic measures of civic health and dynamism like job growth ultimately underpin those things for the long haul. More than anything, these cities need to be fundamentally focused on their commercial success. Their great challenge is figuring out how to recapture that previous era of job growth, and once again become engines of employment.

Aaron M. Renn is an independent writer on urban affairs based in the Midwest. His writings appear at The Urbanophile.

Photo by Werner Kunz (werkunz1)

Sarah Palin: The GOP's Poison Pearl

Joel Kotkin — Tue, 17 Aug 2010 11:47:39 -0400

Sarah Palin has emerged as the right's sweetheart, a cross between a pin-up girl and Joan of Arc. For some activists, like the American Thinker's Lloyd Marcus, she's "my awesome conservative sister" who the mainstream media wants to "destroy at any cost."

On a more serious note, leading right-wing pundit Roger Simon argues Palin's is now the biggest name in Republicandom, which he admits is not too great an accomplishment. Armed with "something more than intellect," he praises her unique ability to "connect with the base." He also believes, citing some polls for 2012, that she could run a close race against President Obama.

These Republicans may grow to regret their embrace of Sarah Palin: She will likely prove less a gem than a poison pearl for conservatives. Sure, she can stir the base, but her crossover appeal remains limited. Recent Pew surveys show that she's still toxic for the Independents and moderate Democrats who generally determine national elections.

Palin keeps building her brand, but she may also be diminishing the GOP's. She has helped propel several potentially weak, marginal "Tea Party" candidates such as Rand Paul in Kentucky and Sharron Angle in Nevada into the general elections. These could end up losing seats that more earth-bound Republicans could have won.

But if conservatives really want evidence of Palin's limitations, they only need to talk to people in her home state of Alaska. "She represents a constituency that is rural, but that's it," says Jim Egan, executive director of Commonwealth North, a local think tank. "What she says and does makes little sense in the urban environment that most Americans live in." If it does not sell across the board in Anchorage, home to almost half of Alaskans, you wonder how well her message will play in Omaha or suburban Houston, much less New York or Los Angeles.

Conservatives in Washington might also cool their drool, Egan suggests, if they examine Palin's Alaska record. True, she did initially take on some in-bred corruption, but she left the state as dependent on oil revenues and federal largesse as before. She left no strong legacy, particularly in comparison with the late former Sen. Ted Stevens--known widely as "Uncle Ted"--who brought heaps of federal blubber to the Last Frontier.

In contrast, Palin is seen by many Alaskans--including business-oriented conservatives--as a hopeless lightweight. "She's a narcissistic individual," suggests Republican State Sen. Craig Johnson. "What bothers me is people think we are like Sarah Palin. We're not."

To Johnson and many Alaska political veterans Palin is more self-promoter than serious politician. Even as some are touting her as a serious candidate for president of the United States, it's important to realize she proved ill-prepared to be governor of Alaska--more interested in powdering her nose than putting it to the grindstone.

And remember that Alaska, a vast, underpopulated state of 700,000 hard-working individuals, does not require the horsepower needed to rule a disaster zone like Michigan, much less a mega insane asylum like California. For one thing, Alaska, due to its huge mineral wealth, is a comparatively rich state, with the eighth highest per capita income in the nation. Over 80% of the state budget comes through energy-related taxes. Everyone even gets a nifty $1,300 check as well, also paid for by the energy companies.

Egan and others argue that Palin, who boosted the return to taxpayers from oil revenues, failed to capitalize on these assets. The state's bulging revenues during the energy price spike of 2007-08 could have been applied to badly needed infrastructure and education, not to buy new snowmobiles and shotguns. "She epitomizes the whole idea of we get a piece and no sense of planning for the future, about thinking about what we need to do," Egan says.

In this sense Palin appeals to the grifter spirit of America--opportunistic and self-centered. This was amply evidenced by her decision to quit office mid-way through her first term for the more lucrative job of cashing in on her personality cult. "Sarah Palin was a breath of fresh air," says one-time supporter Iris Gardner, who with her husband operates a mercantile store in Alaska's scenic Seward (population 3,000). "But she blew all that when she quit. People have soured on her."

This view is widely shared in Alaska. Today, according to Alaskadispatch.com, about half of Alaskans want to be "done with her." Only 56% of Republicans count themselves as Palin fans. She is widely unpopular among both Democrats and Independents, the state's largest electoral base, the Dispatch noted.

So we have to ask why Palin continues to be attractive for so many conservatives? It has more to do with subliminals than the subtleties of public policy. Palin's power is not that of serious policymaker but rather as someone with a keen understanding of message and branding. Still, Palin's appeal cannot be easily dismissed. Certainly charisma does not necessarily translate into a lack of gravitas. Prominent conservatives like Norman Podhoretz have pointed out that Ronald Reagan too was considered a lightweight by many in the mainstream media.

Yet those who knew and covered Reagan--like my old boss Lou Cannon--always argued Reagan was a serious figure, surrounded by a coterie of very smart advisers. He had spent decades in and around politics before ascending to the White House. Palin, in contrast, seems to be making up her politics along the way.

Reagan also served two terms as governor of California, despite running for the nomination in 1976. Even today he enjoys some considerable respect from longtime opponents, as well as something close to adoration among friends. As those who interviewed him can attest, he also was very sharp: Reagan would have never allowed a Katie Couric to get the better of him. To paraphrase the famous Lloyd Bentsen's quip about Dan Quayle, Sarah Palin is no Ronald Reagan.

Still Palin's populist appeal seems well-suited against a Democratic Party--and a president--burdened with what seems like a congenital inability to connect with most middle- and working-class concerns. Barack Obama has turned intellectualism into a liability.

There's also the novelty factor working in Palin's favor. "It's a sense of mystery we can't keep away from," Jim Egan suggests. In this sense, oddly, she's a bit like Barack Obama--someone people enthuse over not because they are ready for the job but because they appeal to some emotional need for novelty. But, as Palin herself would say, how's that working out for ya?

This article originally appeared at Forbes.com.

Photo: geerlingguy

Urban Legends: Why Suburbs, Not Dense Cities, are the Future

Joel Kotkin — Mon, 16 Aug 2010 17:30:07 -0400

The human world is fast becoming an urban world -- and according to many, the faster that happens and the bigger the cities get, the better off we all will be. The old suburban model, with families enjoying their own space in detached houses, is increasingly behind us; we're heading toward heavier reliance on public transit, greater density, and far less personal space. Global cities, even colossal ones like Mumbai and Mexico City, represent our cosmopolitan future, we're now told; they will be nerve centers of international commerce and technological innovation just like the great metropolises of the past -- only with the Internet and smart phones.

According to Columbia University's Saskia Sassen, megacities will inevitably occupy what Vladimir Lenin called the "commanding heights" of the global economy, though instead of making things they'll apparently be specializing in high-end "producer services" -- advertising, law, accounting, and so forth -- for worldwide clients. Other scholars, such as Harvard University's Edward Glaeser, envision universities helping to power the new "skilled city," where high wages and social amenities attract enough talent to enable even higher-cost urban meccas to compete.

The theory goes beyond established Western cities. A recent World Bank report on global megacities insists that when it comes to spurring economic growth, denser is better: "To try to spread out economic activity," the report argues, is to snuff it. Historian Peter Hall seems to be speaking for a whole generation of urbanists when he argues that we are on the cusp of a "coming golden age" of great cities.

The only problem is, these predictions may not be accurate. Yes, the percentage of people living in cities is clearly growing. In 1975, Tokyo was the largest city in the world, with over 26 million residents, and there were only two other cities worldwide with more than 10 million residents. By 2025, the U.N. projects that there may be 27 cities of that size. The proportion of the world's population living in cities, which has already shot up from 14 percent in 1900 to about 50 percent in 2008, could be 70 percent by 2050. But here's what the boosters don't tell you: It's far less clear whether the extreme centralization and concentration advocated by these new urban utopians is inevitable -- and it's not at all clear that it's desirable.

Not all Global Cities are created equal. We can hope the developing-world metropolises of the future will look a lot like the developed-world cities of today, just much, much larger -- but that's not likely to be the case. Today's Third World megacities face basic challenges in feeding their people, getting them to and from work, and maintaining a minimum level of health. In some, like Mumbai, life expectancy is now at least seven years less than the country as a whole. And many of the world's largest advanced cities are nestled in relatively declining economies -- London, Los Angeles, New York, Tokyo. All suffer growing income inequality and outward migration of middle-class families. Even in the best of circumstances, the new age of the megacity might well be an era of unparalleled human congestion and gross inequality.

Perhaps we need to consider another approach. As unfashionable as it might sound, what if we thought less about the benefits of urban density and more about the many possibilities for proliferating more human-scaled urban centers; what if healthy growth turns out to be best achieved through dispersion, not concentration? Instead of overcrowded cities rimmed by hellish new slums, imagine a world filled with vibrant smaller cities, suburbs, and towns: Which do you think is likelier to produce a higher quality of life, a cleaner environment, and a lifestyle conducive to creative thinking?

So how do we get there? First, we need to dismantle some common urban legends.

Perhaps the most damaging misconception of all is the idea that concentration by its very nature creates wealth. Many writers, led by popular theorist Richard Florida, argue that centralized urban areas provide broader cultural opportunities and better access to technology, attracting more innovative, plugged-in people (Florida's "creative class") who will in the long term produce greater economic vibrancy. The hipper the city, the mantra goes, the richer and more successful it will be -- and a number of declining American industrial hubs have tried to rebrand themselves as "creative class" hot spots accordingly.

But this argument, or at least many applications of it, gets things backward. Arts and culture generally do not fuel economic growth by themselves; rather, economic growth tends to create the preconditions for their development. Ancient Athens and Rome didn't start out as undiscovered artist neighborhoods. They were metropolises built on imperial wealth -- largely collected by force from their colonies -- that funded a new class of patrons and consumers of the arts. Renaissance Florence and Amsterdam established themselves as trade centers first and only then began to nurture great artists from their own middle classes and the surrounding regions.

Even modern Los Angeles owes its initial ascendancy as much to agriculture and oil as to Hollywood. Today, its port and related industries employ far more people than the entertainment business does. (In any case, the men who built Hollywood were hardly cultured aesthetes by middle-class American standards; they were furriers, butchers, and petty traders, mostly from hardscrabble backgrounds in the czarist shtetls and back streets of America's tough ethnic ghettos.) New York, now arguably the world's cultural capital, was once dismissed as a boorish, money-obsessed town, much like the contemporary urban critique of Dallas, Houston, or Phoenix.

Sadly, cities desperate to reverse their slides have been quick to buy into the simplistic idea that by merely branding themselves "creative" they can renew their dying economies; think of Cleveland's Rock and Roll Hall of Fame, Michigan's bid to market Detroit as a "cool city," and similar efforts in the washed-up industrial towns of the British north. Being told you live in a "European Capital of Culture," as Liverpool was in 2008, means little when your city has no jobs and people are leaving by the busload.

Even legitimate cultural meccas aren't insulated from economic turmoil. Berlin -- beloved by writers, artists, tourists, and romantic expatriates -- has cultural institutions that would put any wannabe European Capital of Culture to shame, as well as a thriving underground art and music scene. Yet for all its bohemian spirit, Berlin is also deeply in debt and suffers from unemployment far higher than Germany's national average, with rates reaching 14 percent. A full quarter of its workers, many of them living in wretched immigrant ghettos, earn less than 900 euros a month; compare that with Frankfurt, a smaller city more known for its skyscrapers and airport terminals than for any major cultural output, but which boasts one of Germany's lowest unemployment rates and by some estimates the highest per capita income of any European city. No wonder Berlin Mayor Klaus Wowereit once described his city as "poor but sexy."

Culture, media, and other "creative" industries, important as they are for a city's continued prosperity, simply do not spark an economy on their own. It turns out to be the comparatively boring, old-fashioned industries, such as trade in goods, manufacturing, energy, and agriculture, that drive the world's fastest-rising cities. In the 1960s and 1970s, the industrial capitals of Seoul and Tokyo developed their economies far faster than Cairo and Jakarta, which never created advanced industrial bases. China's great coastal urban centers, notably Guangzhou, Shanghai, and Shenzhen, are replicating this pattern with big business in steel, textiles, garments, and electronics, and the country's vast interior is now poised to repeat it once again. Fossil fuels -- not art galleries -- have powered the growth of several of the world's fastest-rising urban areas, including Abu Dhabi, Houston, Moscow, and Perth.

It's only after urban centers achieve economic success that they tend to look toward the higher-end amenities the creative-classers love. When Abu Dhabi decided to import its fancy Guggenheim and Louvre satellite museums, it was already, according to Fortune magazine, the world's richest city. Beijing, Houston, Shanghai, and Singapore are opening or expanding schools for the arts, museums, and gallery districts. But they paid for them the old-fashioned way.

Nor is the much-vaunted "urban core" the only game in town. Innovators of all kinds seek to avoid the high property prices, overcrowding, and often harsh anti-business climates of the city center. Britain's recent strides in technology and design-led manufacturing have been concentrated not in London, but along the outer reaches of the Thames Valley and the areas around Cambridge. It's the same story in continental Europe, from the exurban Grand-Couronne outside of Paris to the "edge cities" that have sprung up around Amsterdam and Rotterdam. In India, the bulk of new tech companies cluster in campus-like developments around -- but not necessarily in -- Bangalore, Hyderabad, and New Delhi. And let's not forget that Silicon Valley, the granddaddy of global tech centers and still home to the world's largest concentration of high-tech workers, remains essentially a vast suburb. Apple, Google, and Intel don't seem to mind. Those relative few who choose to live in San Francisco can always take the company-provided bus.

In fact, the suburbs are not as terrible as urban boosters frequently insist.

Consider the environment. We tend to associate suburbia with carbon dioxide-producing sprawl and urban areas with sustainability and green living. But though it's true that urban residents use less gas to get to work than their suburban or rural counterparts, when it comes to overall energy use the picture gets more complicated. Studies in Australia and Spain have found that when you factor in apartment common areas, second residences, consumption, and air travel, urban residents can easily use more energy than their less densely packed neighbors. Moreover, studies around the world -- from Beijing and Rome to London and Vancouver -- have found that packed concentrations of concrete, asphalt, steel, and glass produce what are known as "heat islands," generating 6 to 10 degrees Celsius more heat than surrounding areas and extending as far as twice a city's political boundaries.

When it comes to inequality, cities might even be the problem. In the West, the largest cities today also tend to suffer the most extreme polarization of incomes. In 1980, Manhattan ranked 17th among U.S. counties for income disparity; by 2007 it was first, with the top fifth of wage earners earning 52 times what the bottom fifth earned. In Toronto between 1970 and 2001, according to one recent study, middle-income neighborhoods shrank by half, dropping from two-thirds of the city to one-third, while poor districts more than doubled to 40 percent. By 2020, middle-class neighborhoods could fall to about 10 percent.

Cities often offer a raw deal for the working class, which ends up squeezed by a lethal combination of chronically high housing costs and chronically low opportunity in economies dominated by finance and other elite industries. Once the cost of living is factored in, more than half the children in inner London live in poverty, the highest level in Britain, according to a Greater London Authority study. More than 1 million Londoners were on public support in 2002, in a city of roughly 8 million.

The disparities are even starker in Asia. Shenzhen and Hong Kong, for instance, have among the most skewed income distributions in the region. A relatively small number of skilled professionals and investors are doing very well, yet millions are migrating to urban slums in places like Mumbai not because they've all suddenly become "knowledge workers," but because of the changing economics of farming. And by the way, Mumbai's slums are still expanding as a proportion of the city's overall population -- even as India's nationwide poverty rate has fallen from one in three Indians to one in five over the last two decades. Forty years ago, slum dwellers accounted for one in six Mumbaikars. Now they are a majority.

To their credit, talented new urbanists have had moderate success in turning smaller cities like Chattanooga and Hamburg into marginally more pleasant places to live. But grandiose theorists, with their focus on footloose elites and telecommuting technogeniuses, have no practical answers for the real problems that plague places like Mumbai, let alone Cairo, Jakarta, Manila, Nairobi, or any other 21st-century megacity: rampant crime, crushing poverty, choking pollution. It's time for a completely different approach, one that abandons the long-held assumption that scale and growth go hand in hand.

Throughout the long history of urban development, the size of a city roughly correlated with its wealth, standard of living, and political strength. The greatest and most powerful cities were almost always the largest in population: Babylon, Rome, Alexandria, Baghdad, Delhi, London, or New York.

But bigger might no longer mean better. The most advantaged city of the future could well turn out to be a much smaller one. Cities today are expanding at an unparalleled rate when it comes to size, but wealth, power, and general well-being lag behind. With the exception of Los Angeles, New York, and Tokyo, most cities of 10 million or more are relatively poor, with a low standard of living and little strategic influence. The cities that do have influence, modern infrastructure, and relatively high per capita income, by contrast, are often wealthy small cities like Abu Dhabi or hard-charging up-and-comers such as Singapore. Their efficient, agile economies can outpace lumbering megacities financially, while also maintaining a high quality of life. With almost 5 million residents, for example, Singapore isn't at the top of the list in terms of population. But its GDP is much higher than that of larger cities like Cairo, Lagos, and Manila. Singapore boasts a per capita income of almost $50,000, one of the highest in the world, roughly the same as America's or Norway's. With one of the world's three largest ports, a zippy and safe subway system, and an impressive skyline, Singapore is easily the cleanest, most efficient big city in all of Asia. Other smaller-scaled cities like Austin, Monterrey, and Tel Aviv have enjoyed similar success.

It turns out that the rise of the megacity is by no means inevitable -- and it might not even be happening. Shlomo Angel, an adjunct professor at New York University's Wagner School, has demonstrated that as the world's urban population exploded from 1960 to 2000, the percentage living in the 100 largest megacities actually declined from nearly 30 percent to closer to 25 percent. Even the widely cited 2009 World Bank report on megacities, a staunchly pro-urban document, acknowledges that as societies become wealthier, they inevitably begin to deconcentrate, with the middle classes moving to the periphery. Urban population densities have been on the decline since the 19th century, Angel notes, as people have sought out cheaper and more appealing homes beyond city limits. In fact, despite all the "back to the city" hype of the past decade, more than 80 percent of new metropolitan growth in the United States since 2000 has been in suburbs.

And that's not such a bad thing. Ultimately, dispersion -- both city to suburb and megacity to small city -- holds out some intriguing solutions to current urban problems. The idea took hold during the initial golden age of industrial growth -- the English 19th century -- when suburban "garden cities" were established around London's borders. The great early 20th-century visionary Ebenezer Howard saw this as a means to create a "new civilization" superior to the crowded, dirty, and congested cities of his day. It was an ideal that attracted a wide range of thinkers, including Friedrich Engels and H.G. Wells.

More recently, a network of smaller cities in the Netherlands has helped create a smartly distributed national economy. Amsterdam, for example, has low-density areas between its core and its corporate centers. It has kept the great Dutch city both livable and competitive. American urbanists are trying to bring the same thinking to the United States. Delore Zimmerman, of the North Dakota-based Praxis Strategy Group, has helped foster high-tech-oriented development in small towns and cities from the Red River Valley in North Dakota and Minnesota to the Wenatchee region in Washington State. The outcome has been promising: Both areas are reviving from periods of economic and demographic decline.

But the dispersion model holds out even more hope for the developing world, where an alternative to megacities is an even more urgent necessity. Ashok R. Datar, chairman of the Mumbai Environmental Social Network and a longtime advisor to the Ambani corporate group, suggests that slowing migration to urban slums represents the most practical strategy for relieving Mumbai's relentless poverty. His plan is similar to Zimmerman's: By bolstering local industries, you can stanch the flow of job seekers to major city centers, maintaining a greater balance between rural areas and cities and avoiding the severe overcrowding that plagues Mumbai right now.

Between the 19th century, when Charles Dickens described London as a "sooty spectre" that haunted and deformed its inhabitants, and the present, something has been lost from our discussion of cities: the human element. The goal of urban planners should not be to fulfill their own grandiose visions of megacities on a hill, but to meet the needs of the people living in them, particularly those people suffering from overcrowding, environmental misery, and social inequality. When it comes to exporting our notions to the rest of the globe, we must be aware of our own susceptibility to fashionable theories in urban design -- because while the West may be able to live with its mistakes, the developing world doesn't enjoy that luxury.

This article originally appeared at Foreign Policy

Photo: Mugley