5 september 2020

Will COVID kill the big cities?

Lockdown, in response to the Covid-19 pandemic, has changed the perception of geographic space for billions of people. For weeks on end, social and professional interactions have been conducted digitally which has reduced physical contact and blurred the lines between the digital and real world. This unprecedented socio-economic experience risks having long-lasting effects, potentially transforming numerous aspects of our lives and causing people to ultimately consider their choice of dwelling. The hierarchy between the urban centre and the suburbs, predominant in the western world since the first industrial revolution, may be about to be turned on its head.
For some time, economists have tried to understand what makes towns and cities so appealing. Over a century ago, Alfred Marshall asserted that proximity creates the ideal atmosphere for businesses which work in the same sector of activity.
As he stated, there is something “in the air” which allows ideas to circulate freely from one business to another, which inspires them to innovate continually. Moreover, manufacturers in the same region have easy access to a large pool of qualified workers and specialist suppliers. Historically, entrepreneurs have also wanted to reduce their costs by locating themselves close to the markets in which their main inputs were produced or their products were sold. Inevitably, when a town prospers and draws more talent and capital, many other towns become less relevant from an economic perspective. That’s why, there are always clearly perceptible urban hierarchies, which correspond to significant differences in wealth. But this trend is not consistent in all fields.
In a highly centralised country such as France, for example, the majority of economic activities are concentrated in Paris, whereas in a federal country such as Germany, they are more fairly distributed across regions.

Less physical groupings
In any event, large cities continue to prosper and grow, while globalisation and the reduction of transport costs push many businesses to disperse their production capacity across the world. The reason this urban expansion continues is simple: knowledge-based jobs in technology and financial centres depend to a large extent on face-to-face interactions which allows those who hold them to stay one step ahead. That’s why, for example, patents are positively correlated with the size of city. But new technologies could well reduce incentives for physical groupings, which is very likely to change urban hierarchies. Digital platforms, in particular, offer opportunities to interact remotely in both social and professional settings. Conference calls, virtual collaboration tools, meeting apps and various other innovations have all been effective tools to build on certain benefits of remote urban living. This potential, evident before the pandemic, can now be seen on a massive scale.
If the demand for face-to-face meetings were to decline permanently, the costs of urbanisation of overpopulated, polluted and expensive cities, could start to outweigh the benefits, even pushing qualified professionals out to smaller towns, where they will enjoy a much greater purchasing power and a higher standard of living.
In the past, when people left declining cities, it was to move to the capital with its job opportunities coming together in a new large urban hub. But currently, the movement could be in the other direction: from wealthy urban areas to economically deprived areas, where those with a disposable income can enjoy a much better life while keeping their jobs with offices located elsewhere.

The death of the city?
This doesn’t mean “the death of the city” is on the cards. Virtual life will never be an equivalent substitute for face-to-face interactions, just as most of the movement will not be towards a hermitic life in the countryside, but rather to smaller and medium-sized towns.
Moreover, the job markets will always place strict limitations on things. Today, around a third of jobs in the United States and Europe can be conducted remotely. And at the end of the day, cities where jobs are officially based will always retain relatively greater economic power than others. Nevertheless, even a partial and progressive re-population to less developed areas could bring considerable advantages, notably by contributing to reducing regional divisions which have been exploited by populist politicians in all western countries in recent years.
According to the economist, Enrico Moretti of the University of California at Berkeley, the introduction of a highly qualified job into a local economy tends to create at least 5 less qualified jobs, thus contributing to increasing the standard of living for all those living in the same region. Therefore, over time, the influx of qualified workers into previously marginalised towns could create more dynamic and more robust local economies, thus preparing the ground for a fairer growth model from a geographic and socio-economic perspective.
Government authorities should seek to facilitate such a transition by building adequate digital infrastructure in peripheral areas, by providing tax credits for relocations and expanding incentives for remote working. In Europe, where thousands of cities with centuries of history have been completely deserted, the benefits of such measures would be enormous: this would notably make it possible to alleviate the geographic disparities much more efficiently than by levying more onerous taxes on the urban elite.
Until just a few months ago, megacities were the future. But in the post-pandemic world, medium-sized towns will have more attributes which will work in their favour.

Source: L’Echo, 5 September 2020