Urban Economic Specialization Not Good? Should we do BRE? An alternative look

There are competing theories in urban economics that challenge or complement the ideas of city specialization and agglomeration. While these concepts focus on the benefits of concentrated industry clusters, other theories argue for the advantages of urban diversity, dispersed development, and more balanced economic growth. Some of the main competing theories include urban diversity theory, new economic geography, and polycentric urbanism. Here are the key competing theories:

1. Urban Diversity Theory (Jacobs' Externalities)

One of the most prominent alternatives to city specialization is urban diversity theory, often associated with the work of urbanist Jane Jacobs. In her influential book The Economy of Cities (1969), Jacobs argued that cities thrive not because of industry specialization but because of the diversity of economic activities within them. According to Jacobs, economic growth comes from a city's ability to foster cross-industry innovation and knowledge spillovers across different sectors, rather than within a single specialized sector.

Jacobs' externalities suggest that:

• A diverse urban economy fosters creativity and innovation by facilitating the exchange of ideas between different industries.
• The variety of industries present in a city creates a more resilient economic base, reducing vulnerability to downturns in any single sector.
• Innovation often arises when industries collide and share knowledge, rather than being confined to a single specialized ecosystem.

Empirical studies have found that cities with more diverse economies tend to experience higher rates of innovation and long-term resilience compared to cities that rely heavily on one specialized sector (Glaeser et al., 1992).

2. New Economic Geography (Paul Krugman)

While agglomeration theory emphasizes the benefits of businesses clustering in one geographic area, New Economic Geography (NEG)—developed by Nobel laureate Paul Krugman—adds complexity by analyzing how market size, transportation costs, and trade influence where firms locate. According to Krugman, the concentration of economic activities in certain cities or regions is not only driven by agglomeration economies but also by market forces like economies of scale and access to larger consumer bases.

NEG highlights the tension between centripetal forces (pulling firms and workers toward urban centers due to agglomeration effects) and centrifugal forces (pushing them outward due to congestion costs, high rents, and competition).

Some important distinctions of NEG compared to traditional agglomeration theory:

• NEG focuses on the importance of transportation costs and market access in determining firm location, arguing that firms may prefer to be in large urban centers to reduce transportation costs and be near large markets.
• NEG explains the phenomenon of regional disparities by showing how economic activities can concentrate in certain regions or cities, leading to uneven development.
• It also considers how infrastructure improvements or reductions in trade barriers can lead to the dispersion of firms to secondary cities or regions, counteracting the agglomeration forces.

3. Polycentric Urbanism

The theory of polycentric urbanism focuses on the development of multiple economic and urban centers within a larger metropolitan area or region, rather than a single dominant core city. This contrasts with the idea of urban specialization and monocentric agglomeration, where one city specializes in a particular industry and serves as the hub.

In a polycentric model, multiple cities or sub-centers within a metropolitan region share economic functions, which can reduce congestion, spread economic benefits more widely, and create a more balanced urban growth model. Examples of polycentric cities include Los Angeles, which has several key economic sub-centers such as Hollywood, Downtown LA, and Santa Monica, or Germany’s Rhine-Ruhr region, which has multiple major cities, including Düsseldorf, Cologne, and Essen.

Polycentric development:

• Distributes the benefits of urban growth more evenly across a region, preventing over-concentration in one urban center.
• Can reduce the negative externalities of agglomeration, such as traffic congestion, high housing costs, and pollution in core cities.
• Encourages regional collaboration between multiple cities and towns, which may have complementary economic activities.
• Some studies suggest that polycentric regions may be more resilient to economic shocks because they do not depend on a single economic center (Meijers, 2008).

4. Dispersed Development and the Role of Infrastructure

While agglomeration theories emphasize concentration, another view posits that advances in technology and infrastructure reduce the necessity of being geographically concentrated. The "death of distance" argument, stemming from advancements in telecommunications and digital technologies, suggests that the importance of physical proximity may diminish over time. As work becomes increasingly digital, some argue that firms and workers can disperse across regions without suffering the loss of productivity traditionally associated with distance from industry hubs.

This perspective is backed by the idea that remote work and distributed teams are reducing the need for physical clustering in cities. The COVID-19 pandemic accelerated this trend, and researchers are exploring whether the long-term impact of remote work will lead to the de-agglomeration of industries traditionally concentrated in major cities (Florida, 2020).

5. Urban Resilience through Economic Diversification

This theory challenges the risks of over-specialization by emphasizing the benefits of economic resilience through diversification. Cities that rely heavily on a single industry may enjoy significant growth during boom times but become vulnerable to economic downturns or shifts in global demand. A classic example is Detroit, which thrived as a hub for the auto industry but suffered severe economic decline when the industry faced challenges.

Economically diversified cities—like New York, with its finance, media, technology, and healthcare sectors—tend to show greater resilience to industry-specific downturns. Researchers like Duranton and Puga (2004) have argued for the importance of urban versatility over rigid specialization, where cities evolve to host a range of industries that offer flexibility and adaptability to changing economic conditions.

Conclusion: A Nuanced View of Urban Development

The competing theories to specialization and agglomeration present a nuanced view of how cities grow and succeed economically. While specialization and agglomeration undoubtedly bring advantages in terms of industry-specific innovation and productivity, they are not the only pathways to urban prosperity. Urban diversity, regional polycentricity, and economic diversification offer alternative approaches that emphasize resilience, adaptability, and balanced growth.

Urban planners, policymakers, and business leaders need to assess these various theories when designing strategies for urban development. A combination of specialized industries, diverse economic activities, and infrastructure that enables both concentration and dispersion may offer the best approach for long-term urban sustainability and success.

References:

• Glaeser, E. L., Kallal, H. D., Scheinkman, J. A., & Shleifer, A. (1992). Growth in Cities. Journal of Political Economy, 100(6), 1126-1152.
• Jacobs, J. (1969). The Economy of Cities. Random House.
• Krugman, P. (1991). Increasing Returns and Economic Geography. Journal of Political Economy, 99(3), 483-499.
• Duranton, G., & Puga, D. (2004). Micro-foundations of urban agglomeration economies. Handbook of Regional and Urban Economics, 4, 2063-2117.
• Florida, R. (2020). The Rise of the Rest? The Future of Cities in the COVID-19 Age. Bloomberg CityLab.
• Meijers, E. (2008). Measuring Polycentricity and its Promises. European Planning Studies, 16(9), 1313-1323.