Thursday, May 1st, 2014

The Necessary City

My latest column is online over at Governing magazine and is called “The Benefits of Being a Necessary City.” Part of their international issue, I take a look at the global city concept and add to it the dimension that some cities, for industry-specific or other reasons, have become “necessary cities.” That is, these are cities that you can’t help visiting or doing business in or with if you operate in certain areas of the globe and/or in certain industries. Think New York, London, Singapore, Dubai, Houston, and San Francisco, for example. Do business in Asia-Pacific, you’re almost certain to be dealing with Singapore. If you’re in the tech industry, it’s the Bay Area. Here’s an excerpt:

One aspect of globalization that has received tremendous attention is the concept of the so-called “global city” — a place like New York or London that is in some sense an exceptionally successful and dominant player on the world stage. These have been variously defined, but often with a focus on specific business services like finance, and on overall economic size, diversity of culture and attractiveness as a tourist destination.

These are all important dimensions to be sure, but one area that’s gotten less attention is the seemingly old-fashioned idea of cities as centers for corporate headquarters. Even in this global age, it’s still an important idea. Some cities are simply “must do” locations for corporate heavyweights. This makes them in some sense “necessary cities” — ones you can’t help but visit or deal with when doing business globally because of their popularity or their specific industry.

One intriguing finding is that some places not conventionally viewed as global cities nevertheless are in a sense necessary global cities in select global industries. Take Detroit and the auto industry. The major global equipment manufacturers are widely dispersed, but when you look at leading global parts suppliers, they virtually all have their North American headquarters in Detroit — including the German, Japanese and Korean ones. Among them are companies like Robert Bosch, Denso, Yazaki and Hyundai Mobis. If you’re in the auto industry in America, you have to deal with Detroit. Unsurprisingly, Detroit boasts several nonstop flights to key Asian destinations.

Topics: Economic Development, Globalization

24 Responses to “The Necessary City”

  1. John Morris says:

    Singapore wasn’t always a “Necessary City”- it was invented from scratch by the British who offered a better trade and business climate. Hong Kong has a similar history of eclipsing previously important centers.

    Los Angeles’s role as a necessary city for the film industry seems to be fading rapidly.

  2. Eric Fazzini says:

    Detroit metro airport is a serious international airport.

  3. John Morris says:

    The fastest path to becoming is a non necessary city is probably to be sure you are one.

    The world is littered with post industrial cities built around temporary logistical advantages-canals, portages, coal or iron deposits that seemed bulletproof.

    Paris thought it was the center of culture and fashion.

    This is probably the key to Columbus, Indiana’s success.
    Nobody at all thought the town was automatically “necessary” and they had to work every day to make it attractive.

    In spite of their huge size, massive government investments and captive markets- few of China’s major cities are in the necessary city category.

    Bangalore probably focused on tech because it lacked so many other logistical advantages.

  4. Jonah says:

    @JohnMorris – I think you’re conflating a few things here.

    Sure, fewer blockbusters are shot in LA; but do you see the film studios decamping from “Hollywood”? The fact that Silicon Valley doesn’t employ as many people on computer chip assembling lines would be a good parallel; the brains of the operation has stayed, while some of the labor has gone elsewhere. If you want to be a star, or a producer, or a director, you’re not going to head to Michigan, or Georgia, or whoever has the latest tax break scheme. I think that’s why we’re continuing to see things like this –

  5. John Morris says:

    You might have a point, but interestingly a lot of the stars seem to be moving towards NYC, which already has huge advantages as a deal making and media center.

    LA isn’t just losing blockbusters. Few films seem to be made there.

  6. the urban politician says:

    Chicago is a necessary city if you must have deep dish pizza or a Maxwell St Polish sausage, I must say.

  7. John Morris says:

    Chicago is a really weird case of a necessary city, neglecting the attribute (Rail transportation- linkage to Midwest) that made them necessary.

  8. Matthew hall says:

    Eric, if only Detroit had a city to go along with its airport. Jonah,

  9. @John Morris – Chicago’s status as a “Necessary City” seems to be more rooted in its ability to be a high level generalist in a lot of different areas as opposed to a specialist (i.e. Detroit with the auto industry). Now, there are certainly some key areas where Chicago is considered to be a global center (financial markets being a big one – note that being a “global city” today typically means having strength in finance and/or technology), but the hallmark of the Chicago economy is that it’s not too concentrated in any one sector.

    Your reference to rail is noted, although Chicago is still a key transportation center with its airports. If you’re in an industry where easy access to both the East and West Coasts is important (such as consulting, legal services, and accounting), then you’re almost certainly going to have a large presence in Chicago. The city is still a critical connection point to the rest of the country, but it’s more about air as opposed to rail now.

  10. @Frank the Tank, Chicago is the paradigmatic example of a city that is large and important, but not a necessary city from a global economic perspective. It is a simply a regional business center for the Midwest United States, with a handful of global specialities tacked on. I came up with this idea out of my analysis of Chicago a few years ago in which I observed it is not the epicenter of any important 21st century macro-industry, and that explains why it generates far less wealth and output per capita than the likes of New York and San Francisco that dominate industries.

  11. One thing about LA is that it’s still the major TV production center by a *massive* margin, and the non-sexy truth about Hollywood is that its profits and revenue are much more driven by TV than films. Consider the case of Disney, which is monolith in film. This is a company that is consistently putting out the largest and most profitable films every year – the Marvel films like The Avengers, the Pixar films, new animated films like Frozen, the Pirates of the Carribean franchise, and now the Star Wars franchise. If you have young kids like me, the giant sucking sound from the Disney empire toward your wallet is constant.

    Yet, there is one part of Disney that dwarfs everything else when it comes to profits: ESPN. In fact, if you took the market value of *everything else* that Disney owns (and just look at what I listed above for films, much less Disney Parks, licensing Mickey Mouse and other characters for toys and clothes, etc.), it would be less than what the market value of ESPN alone would be. That’s how unbelievably lucrative basic cable subscriber fees are (and why there’s such a fight by everyone in Hollywood to avoid any type of a la carte cable options). ESPN’s historical HQ is in Connecticut, but they’re shifting more and more to LA. A single run-of-the-mill TV show can provide many more jobs and has a longer lasting economic impact than a blockbuster movie, and LA still has hundreds (if not thousands) of them being produced at any given moment. Silicon Valley is a good analogy that someone pointed out – the brains of the operations are still there and even with competition from other locales, the sheer scale of how much takes place in LA for the entertainment industry can’t be underestimated.

  12. John Morris says:

    But LA has lost a huge share of TV production work.

    From Matthew hall’s link,

    “New York is a bigger factor in a more troubling metric.

    “In 2005, there were only seven one-hour television series shot on location in New York,” Vans Stevenson, the Motion Picture Association of America’s senior vice president for state government affairs, pointed out. “Today, there are 19.”

    California’s market share of one-hour network series — the highest-spending and most steadily employing sector of the TV business, which doesn’t qualify for the state’s incentive — shrunk from 65 percent in 2005 to just 36 percent in 2012. Things look significantly worse for SoCal regarding the nine-figure budget blockbuster movies that generate hundreds of jobs.”

    Will be interesting to see how this plays out. Until a few years ago, NY’s media took a back seat to the finance, insurance & real estate sectors. Now, NYC really wants this industry.

  13. John Morris says:

    The city I am really watching is Atlanta. A lot of the infill I saw around seemed related to TV & Film production.

    “Raleigh Studios, the site of AMC’s hit show “The Walking Dead,” is booked solid through the end of the year. “I don’t have an extra square foot to rent right now,” Tigchelaar said.

    Raleigh Studios is evaluating a $15 million investment in building out four new sound stages and support facilities.
    In Atlanta, Viacom has produced several shows for its BET, MTV and VH1 networks.

    Viacom seeks to “produce programming more efficiently,” CEO Philippe Dauman said at a Deutsche Bank conference on March 4.”

    Without help from NJ and the surrounding area, NYC probably lacks the space for lots of TV production facilities & sound stages. The Brooklyn Navy Yard, Kaufman Astoria & Silvercup Studios in Queens are the big ones I know. I think there is one deeper in Brooklyn around Flatbush. The overall expense of housing in the city also has be a negative.

    I know technology has radically reduced the need for physical space but I still think it’s a factor.

    Atlanta has a huge international airport, diverse population and lots of infill areas to put lots. My guess is it will become a larger player in this sector.

  14. urbanleftbehind says:

    ^Good for Atlanta. Film industry activity in addition to Tyler Perry and Left Behind (and no, my handle has nothing to do with the books/movies) can only help.

  15. One thing about film production is that they definitely gravitate toward whichever location is providing the best tax and financial incentives. Places like Georgia and New York (and pretty much all of Canada) have been much more aggressive on this compared to California. That’s not necessarily different than any other industry that’s attempting to cut down costs (whether it’s for tax reasons or labor costs), although Hollywood studios seem to be particularly openly brazen about tax credits driving so many film and TV location decisions. The hot shooting location is virtually always in the state with the latest and greatest tax incentives.

    That being said, the real decision makers in the entertainment industry are still largely in LA (despite a big presence in NYC) and that isn’t likely going to change. As even Aaron pointed out in this post, Detroit still retains auto industry management despite the fact that so much of the actual production has moved elsewhere.

    The irony is that the “knowledge” workers in industries, which are the people that are supposed to be more mobile, seem to be more tied to being in a handful of specific locations than the production workers that are being spread out to wherever the lowest costs might be at any given time (despite the need for greater fixed physical infrastructure for production).

  16. wkg in bham says:

    Atlanta also home of Turner Broadcasting (CNN, TCM, TNT, etc.) and the Weather Channel.

  17. Chris Barnett says:

    The irony is that the “knowledge” workers in industries, which are the people that are supposed to be more mobile, seem to be more tied to being in a handful of specific locations than the production workers that are being spread out to wherever the lowest costs might be at any given time (despite the need for greater fixed physical infrastructure for production).

    This is a great point, and it argues in favor of these “supercenters” of various industries.

    The “mobility” is more about moving between and among firms in the industry which are clustered, than about actually picking up and moving to a new city.

    That is definitely true in Silicon Valley.

  18. Derek Rutherford says:

    One could divide major metros into two sets:

    1) Those dominant in, or at least very closely associated with specific industries: Wall St (NYC), Silicon Valley (Bay Area), Houston, Detroit, Hollywood (LA). Note the prevalence of nicknames.

    2) More diversified metros, that tend to have strengths in several areas, but not dominant in any: Boston, Chicago, DFW, Atlanta, Seattle, Denver, Miami, etc..

    There are pros/cons to being in each group. The first group, which Aaron calls “necessary” in this article can reap very high margins from their dominance of important industries. Their weakness is that they rise and fall with the trends in that industry, and a failure to adapt and stay on top can be devastating – think Detroit. There is a tendency in the “necessary” cities to price out industries outside of the dominant one, which can lead to the area being an economic monoculture. The more diversified metros tend to be less “sexy”, and perhaps a little less wealthy, but more resilient over the long term.

    Regarding LA, its worth noting that Hollywood is really only dominant in part of LA. While the high-end part of Hollywood is doing fine, the rest of the LA area is struggling for mostly unrelated reasons. That is a subject for a different article.

  19. wkg in bham says:

    Some other necessary cities:
    Consumer products, hardware, garden crap, etc.: Batesville, Ark
    Cruise Industry: Miami
    Gambling: Los Vegas
    NASCR racing: Charlotte
    Wine: Napa Valley
    Porn: LA
    Wheat: Minniapolis
    Carpeting: Dalton, Ga.
    Book publishing: NYC
    High end art: NYC
    LDS: Salt Lake
    Military equipment: Washington
    Big Time College Sports: Birmingham, Indianapolis
    Construction equipment: Peoria (I think that’s where Caterpillar is located)

  20. @Chris Barnett – Exactly. It’s why even though the rise of the Internet was supposed to allow us to work from anywhere and disperse knowledge workers, we’ve actually seen greater clustering and consolidation of these “industry supercenters” in a handful of areas. On a related note, that’s why lower cost of living alone isn’t really that much of an enticement for knowledge workers compared to economic clustering and lifestyle choice factors. I remember back in the late-1990s when telecommuting was in its nascent stages that Rust Belt cities were hoping that they could lure people there based on lower real estate prices. Instead, we’ve seen the opposite effect, where people that have the ability to work anywhere are saying, “Why live in a place that isn’t attractive today when I can do my work from NYC/LA/SF/Chicago/Austin/etc.?”). We even see that dichotomy within metro areas themselves with people choosing between cities, suburbs and exurbs. Meanwhile, it’s the lower wage workers that are making more choices based in cost of living (and that increasingly means heading to the Sun Belt if they aren’t there already).

  21. wkg in bham says:

    Some more:
    Country Music: Nashville
    Hip Hop: Atlanta
    Coffee: Seattle
    Horse Racing: Lexington
    Motor Cycles: Millwalkee
    Home Improvement: Atlants,Charlotte

    @John: “LA has also lost its dominance in the Porn industry”. Well that sucks.

  22. the urban politician says:

    LA’s loss of dominance in porn sure blows.

    Regarding NYC, I think it is one of the few cities that fits in the category of being both highly specialized and diversified at the same time.

  23. Eric says:

    @ Matthew hall Trolllllllllllll

The Urban State of Mind: Meditations on the City is the first Urbanophile e-book, featuring provocative essays on the key issues facing our cities, including innovation, talent attraction and brain drain, global soft power, sustainability, economic development, and localism. Included are 28 carefully curated essays out of nearly 1,200 posts in the first seven years of the Urbanophile, plus 9 original pieces. It's great for anyone who cares about our cities.

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Aaron M. Renn is an opinion-leading urban analyst, consultant, speaker, and writer on a mission to help America’s cities thrive and find sustainable success in the 21st century.

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