Tag Archives: economic development

On restaurants, retail, and clustering – agglomeration economies and urban retail trends

A few intersecting stories regarding retail and restaurants:

In DC, a group of activists are pushing a moratorium on new liquor licenses for 14th and U and environs. There has been substantial pushback to the idea of a moratorium, yet proponents insist the dominance of bars and restaurants are crowding out brick-and-mortar retail establishments. From Jessica Sidman’s summary in the Washington City Paper:

Joan Sterling of the Shaw Dupont Citizens Alliance, the group that proposed the moratorium, kicked things off by reading from a written statement in which she talked about the negative impact the proliferation of bars and restaurants has had on neighborhood noise, parking, and rat problems.

Sterling also talked about the need for a better balance of businesses. Who wouldn’t want grocery stores, hardware stores, movie theaters, galleries, and retailers like Urban Outfitters, Container Store, or an Apple store, she asked? “These are all businesses that will improve the daytime foot traffic and strengthen the neighborhood more than strip after strip of taverns,” she said. (The moratorium would not, of course, mandate that any of those other retailers come in, nor does the status quo ban them.)

Two obvious problems arise from Sterling’s desire for a greater diversity of retail offerings. Sure, who wouldn’t want more shopping? The problem is that there’s no such thing as a neighborhood Container Store. You might have a Container Store in your neighborhood, but retail of that nature requires a much larger audience to survive than just one neighborhood (The Container Store, for example, has only four locations in the entire Metro DC area – Tenleytown, Clarendon, Tysons Corner, and Rockville – with a fifth location in Reston on the way).

Richard Layman consistently comes back to this point in his blogging. Not only does retail require a wider area to draw from, it also likes to cluster together into districts: “with transportation costs being relatively equal, people choose to shop in the retail district with the  greatest variety of stores and the most appealing choices.” Not every retail district will be full of the regionally significant stores. However, many of them can be filled with a cluster of neighborhood-based bars and restaurants.

The other problem is mistaking the symptom and the cause: the old adage holds that retail follows rooftops. The real-life decisions are obviously more complex, but additional stores are likely to feed off daytime traffic more than drive it.

Retail shops are but one form of aggolmeration. In last week’s City Paper, Jessica Sidman writes about the growing cluster of restaurants in part of the proposed moratorium zone. 14th Street, H St NE, 8th St SE, and others – in addition to the city’s already established dining zones. Payton Chung takes note of the trend – that retail is restaurants. Payton cites Terranomics: “There is only one segment of the market where we are seeing aggressive growth plans from inline users and that is the restaurant sector.” Payton adds:

Yes, we’d all love to be able to walk to the corner and buy some bolts from a corner hardware store, or socks from an apparel shop, but let’s face it: not enough of us do that often enough to sustain very many such businesses, particularly in areas that don’t have enough foot traffic to guarantee significant cross-shopping. Such uses will increasingly congregate within metropolitan subcenters — probably focused on today’s fortress malls or midtown destinations — so there will be winners and losers among retail nodes. At least everyone will have someplace to eat, though.

(BTW, connectivity to those subcenters will be necessary from ever-wider catchment areas. This will require rapid transit, not just walk accelerators like streetcars or bikeshare, in order to connect neighborhoods to retail focal points.)

Hard to fight the trend, particularly when additional restaurants can add value to neighborhoods – particularly when they cluster together. Payton’s point about the rising importance of regional transit to link these regionally significant centers together is a good one, as well – the pattern of transit-oriented development around transit stations can be a positive feedback loop for additional transit ridership and development. Regional significance can mean that a place achieves that critical mass where the retail draw is indeed pushing daytime traffic – but those kinds of centers will be limited to a few key parts of each region.

 

Shaping Silicon Valley

Roosevelt Island Tram - CC image from The Eyes of New York

A couple of items that came across the internet about technology, innovation, the economy, and urban form:

Tech & the City

Nancy Scola pens a long piece in Next American City about the future of the technology industry in the city.  The piece looks at how policy can shape an industry cluster – or not.  New York’s tech university on Roosevelt Island is a key piece of the puzzle in helping shape an industry within a city:

Fortunately, by the late 2000s, the tech sector was on an upswing. Venture capitalists were nosing around the city. Talk of a “Silicon Alley 2.0” was in the air. Start-ups were starting up in DUMBO. But, says Pinsky, when the city held hundreds of conversations on economic development with everyone from academics to business leaders to community groups, they came to the realization that while there was, in raw terms, a good amount of applied science activity afoot, New York City’s economy is a huge one. There simply wasn’t the critical mass needed to create the sort of idea sharing and hopping from company to company that helped spread innovation in Silicon Valley. They concluded that there was a dearth of trained technologists able to do the heavy lifting.

Now, far be it from me to dissuade an investment in education – but there’s a concern about focusing too closely on chasing a specific sector rather than setting the rules and conditions to be ripe for innovation:

So what worries her? It’s the way government is getting involved. Along with Stanford, Silicon Valley had a mess of government contracts in the 1950s, particularly in the fields of naval research and aerospace. “Silicon Valley was never a purpose-built science city,” says O’Mara. “Dwight Eisenhower didn’t say ‘We’re going to build a tech capital on the west coast.’” Sure, there was a ton of money injected into the region. But there were few strings attached. It was pure profit that went to building out iconic tech companies like Hewlett-Packard and Xerox PARC. “In a way, it was a happy accident,” says O’Mara. “Part of my skepticism about this whole enterprise is a belief that government can have this great market impact. In the case of technology, it’s just a little more slippery and unpredictable.”

One common theme is the rejection of the idea that the strip-mall office park of Silicon Valley is critical to the kind of technological innovation seen there – that linkage of form and innovation is spurious:

Cities have, of course, made a comeback in recent decades, and much modern thinking — O’Mara points to Steven Johnson’s Where Good Ideas Come From — “really emphasizes the urbanity of innovation,” with the accidental encounters and collision of ideas that are the product of density seen as creative fodder.

The Boston area’s high-tech corridor that grew along Route 128 pioneered what became known as the East Coast model: Giant firms that did everything in-house. But in New York, real estate costs alone might encourage that tech firms stay small, says O’Mara, in keeping with “the other industries that have been in New York for so long that have a similar small-scale communitarian [culture] — the creative industries, fashion, media…” In that way, even a tiny start-up can be part of something bigger: An industry, an economy, a city.

Speaking of the building that will house your enterprise…

A couple of items on Facebook’s planned Frank Gehry HQ.  First, from Allison Arieff in the NYT:

The choice of Gehry might have been “game-changing” — to use the parlance of the start-up community — two decades ago. Today, it’s a safe bet, representing Facebook’s true transition from rogue start-up to the establishment (no matter how strenuously they might dispute that designation).

Writing at the New Republic, Lydia DePillis (she’s back) sounds off similarly:

That’s a frustrating response. As shrouded in moss as it might be, the 10-acre campus is fundamentally no different from the tech parks of old: Single-use, completely isolated, and shamefully wasteful of the kind of space that commands such a premium on the other end of the Bay. The designs highlight the accommodations they’ve made for pedestrian and bike access—like an underground tunnel to its other campus across the highway!—but only glancingly mention the subterranean lake of parking, with 1504 spots for a projected 2800 employees (that’s a really high ratio, even for a suburban office). The horizontal layout might comport with Mark Zuckerberg’s conception of a social universe in which relationships exist independently of any physical reality. But from a practical standpoint, it ignores one of the most important qualities of a creative place: Density, activity, and exposure to the ferment of ideas.

Arieff notes that the designer and the client both want to foster the kind of interaction and proximity that comes naturally in cities – taking note of the fact that Facebook has no offices for anyone, regardless of rank – but something is still missing:

But so very unlike a city, the New Urban-ish campus is populated not by folks from different walks of life but solely by Facebook employees. For all the talk in startup circles of “serendipitous interaction,” it’s not the sort celebrated by Jane Jacobs. There may be a place to get a latte there but there is no Third Place, those accessible anchors of community life like bars, farmer’s markets or barber shops that help foster civic engagement and interaction with both regulars and new faces. Yes, it’s stating the obvious, but Facebook workers interact with other Facebook workers. There’s next to nil outside influence to be found on a corporate campus. Indeed, many tech employees (Facebook’s and others) have observed that many of their most meaningful encounters occur not at work but while waiting on city streets for the now-ubiquitous corporate shuttles from San Francisco that take them south to Silicon Valley.

Now, it’s tricky to separate some of the urban planning issues (transportation access, urban design) from the interior design ones (office layouts, use of internal space) from the economic geography issues (Silicon Valley is dense, even if filled with stereotypical office parks).  That said, the themes are interesting to track.  Add in the region-wide issues of housing costs and other drags on the local economy, and things can get murky quickly.

It’s not like the denizens of Silicon Valley are happy with the built environment…

Two pieces in San Jose’s MetroActive (the intro, the full piece) lament the lack of urbanism and the impact it has on innovation in San Jose.  The author, Michael Malone, talks about San Jose’s inability to embrace the values of Silicon Valley while similarly stumbling in creating a big, authentic city:

And there is one more thing I would expect our elected leaders to know something about: Entrepreneurship. Entrepreneurship built Silicon Valley; entrepreneurship is the source of this valley’s economic power; entrepreneurship is this valley’s only hope of a prosperous future. San Jose claims to be the capital of Silicon Valley—and Silicon Valley is the world’s capital of entrepreneurship . . . so why is it that the leaders of this city appear to have no real understanding of entrepreneurship?: Who does it. How it happens. And what it needs to survive.

I know they don’t understand because their actions tell me so. Here are three truths about Silicon Valley entrepreneurs:

1. The big fancy buildings and famous company names don’t matter. The future is in the hands of men and women working on business plans in Denny’s and Starbucks.

2. Entrepreneurs don’t need support. They need benign neglect.

3. You can’t pick winners in advance. There are too many variables. Winners pick themselves.

Compare that with the approaches debated in New York.

Instead, you give the start-ups cheap office or warehouse space, tax breaks and the fastest broadband you can deliver. Then you get the hell out of the way and trust them to do the rest. Ninety percent of them will fail, but that last 10 percent will change the world—and the fortunes of the city of San Jose.

“Giving” cheap office space might not need an actual subsidy – and it likely speaks to a broader policy change that follows on the work of the Econourbanists.

More links: iPhones and airports

CC image from caribb

Following up on yesterday’s link post regarding airports, air freight, supply chains, and manufacturing jobs: two posts from Ryan Avent at The Economist.

First, on industrial agglomerations, the impacts on jobs, and how we got to this point:

Unquestionably, Asian governments aggressively pursued manufacturing and subsidised it heavily, both directly and through advantageous exchange rates. As the story points out, Asia has capitalised on other advantages, as well. Cheap labour is one. More flexible land-use, labour, and environmental rules are another; China can erect a massive operation in no time at all, staffed with compliant labour and with little concern about the impact of the factory on watersheds, air quality, and traffic. Skill supply seems to matter as well. China is churning out engineers with basic technical competence (but less, it appears, than a bachelor’s degree) by the hundreds of thousands. It would be incorrect to point to any one of these characteristics as the driving force behind the global shift. Rather, these are self-reinforcing factors within a global economy that has multiple stable equilibria. After some level of Asian development and integration, it became more attractive for manufacturers to locate there as more manufacturers located there.

Clearly, this manufacturing agglomeration is an impressive part of the global trade network.  But it’s not the only agglomeration involved in the creation of the iPhone – the design, software, and other high-value elements of the product come from Silicon Valley.  More Avent:

What actually seems to have occurred is a bit more interesting. Supply chains have indeed continued fracturing, but distance has reasserted itself in two important ways. First, in the advanced world, agglomerations of the talented individuals who design these products have become increasingly important. And secondly, information technology, which allows for better coordination of production processes, has once again made proximity a relevant concern in manufacturing. It’s possible to coordinate a supply chain that’s draped across an archpelago of Asian economies. To maximise the return to this chain, however, it’s still necessary to keep plants reasonably close together. A plant located in America is too distant from Asia to make much economic sense; transit time to the rest of the supply chain in Asia is sufficiently long, in most cases, as to erode the gains to just-in-time production, or unexpected changes in designs or orders. Changing transportation and communication technologies facilitated a shift in manufacturing to Asia, then reinforced its presence there.

“Agglomerations of the talented individuals” are cities, more or less. At least, they are cities at the labor market level. As to employment, the different parts of the manufacture of the iPhone involve different value propositions, and require different levels of labor to scale up production:

Apple, it’s worth pointing out, continues to capture most of the value added in its products. The most valuable aspects of an iPhone, for instance, are its initial design and engineering, which are done in America. Now, one problem with this dynamic is that as one scales up production of Apple products, there are vastly different employment needs across the supply chain. So, it doesn’t take lots more designers and programmers to sell 50m iPhones than it does to sell 10m. You have roughly the same number of brains involved, and much more profit per brain. On the manufacturing side, by contrast, employment soars as scale grows. So as the iPhone becomes more popular, you get huge returns to the ideas produced in Cupertino, and small returns but hundreds of thousands of jobs in China.

Second, Avent looks at trade and the value of time.  Distance still matters, and time is precious, as seen in the increasing usage of air cargo for shipping high value goods. Avent concludes:

The lesson, I think, is simply that there is a limit to which one can or should want to raise manufacturing employment. Having lots of well-paid manufacturing workers isn’t the way one grows rich; replacing lots of those workers with massively productivity enhancing machines is.

This is more or less the same conclusion that Greg Lindsay notes in Aerotropolis – that this agglomeration, while impressive, still isn’t the true engine of creativity and value.  Nevertheless, each is an example of agglomeration shaping urban form and urban economies.

 

Density, productivity, and housing prices

Ryan Avent recently spoke at the Kauffman Foundation‘s conference for economic bloggers. His short presentation touches on a number of economic issues as they relate to urban economies and their role in our national economy.

The presentation tackles Tyler Cowen’s Great Stagnation thesis.  Avent specifically looks at the benefits of density on productivity and innovation, and how the dispersal of the American population has had a disparate impact on American productivity.

The implications for cities are clear – the dense areas (owing to the benefits of agglomeration and economies of scale) are extremely productive, but they’ve not been the areas seeing growth in recent decades.  Instead, the less-dense places in the sun belt have grown.  Avent attributes this to the sun belt’s ability to expand supply and keep housing costs low (citing Ed Glaeser).  The implication is that the low cost of living is attracting people to areas that are less productive than the dense but hard-to-expand coastal cities.

Agglomeration, continued

Nike Agglomeration crop

More items of note on agglomeration:

From City Journal, the “Seven Pillars of Agglomeration.”

  1. Economies of scale in production
  2. Economies of scale in trade and transportation
  3. Falling transportation and communication costs
  4. Proximity with other firms in the same industry
  5. Advantages of diversity
  6. The quest for the center (of the industry)
  7. Buzz and bright lights

And, from The New Republic‘s Avenue blog, a visualization of those principles in action, looking at the athletic and outerwear industry in Portland, OR – from Pendleton (1889) to Nike (1978).

But the A&O cluster is also an interesting case study in cluster morphology and dynamics. Check out this cool genealogy map developed by sometime Metro Program author Heike Mayer of the University of Bern, for example. Meyer’s info-graphic shows well how the A&O cluster has grown over time and now epitomizes the frequent structure of highly dynamic clusters, which often find a small number of large foundation firms (in this case Nike, Adidas, and Columbia Sportswear) surrounded by a cloud of scores of smaller, more entrepreneurial firms. In Portland, hundreds of these small and sometimes tiny firms are now proliferating–driving growth, developing their own niches, and providing services to the bigs and larger new firms.

The accompanying infographic (full size image – PDF file) shows this phenomenon in action, and through time.  As noted, building on these existing clusters, taking advantage of these agglomerations is the smart approach to economic development:

All together, it’s a great example of how the best sort of economic development eschews chasing after firm relocations and other silver bullets and instead concentrates on “organic” growth that arises from local distinctiveness.

Agglomeration is about letting cities be cities.