City Success

Theories of Urban Success (For CEOs for Cities) October 2008.

City leaders face a wide range of choices about what to do to improve their economies. They often find themselves buffeted by the latest economic development fad and are pushed to adopt so-called best practices to keep up with their competitors. The objective of this report is to sort through all of the different theories that underlie alternative approaches to economic development and give policymakers a firm footing for deciding what to do. Our focus on theories may seem academic. But to paraphrase John Maynard Keynes, many policymakers who believe themselves utterly practical in their outlook may unwittingly be the slaves of some defunct urban theorist. Whether acknowledged or not, all tactics aimed at improving urban prosperity imply some theory of what makes cities successful. In our view, policymakers ought to be explicit about what theory they believe and be aware of the strengths and limitations of that theory, including knowing when and where it has worked, and more importantly, where and why it has failed. The objective of this work is to develop an outline of the principal theories of urban success guiding efforts to revitalize U.S. metro areas today, describe their basic implications for policy, and analyze the underlying argument and evidence for each theory. The report begins with some general observations and advice to policymakers about how to be good consumers of alternative theories. The body of the report surveys the broad scope of theories that have been offered about cities, dividing them into three principal groups: theories about firms, theories about people and theories about place. Our focus is on urban economies, and we use the term cities throughout this paper to refer to entire metropolitan areas, not merely the central political jurisdiction. Our objective is to explain how entire metropolitan areas prosper or stagnate. As a result, we don’t directly touch on issues of the distribution of economic activity within metropolitan economies (although many of these theories bear on that question as well).