The Great Recession or the Great American Opportunity?

By: on June 22, 2010 | Economy, Municipal

The Great Recession or the Great American Opportunity?
The Great Reset by Richard Florida. Random House, 2010. 240 pp. $32.00
Reviewed by Steve Lafleur

Richard Florida is a pariah of both conservatives and the old left, but the type of public intellectual who is almost universally adored by everyone else. Florida, Director of the Martin Prosperity Institute at the University of Toronto, is well known for his work on the ‘creative class.’ His basic premise is that for cities to succeed, they must attract young creative workers. He believes that cities must provide cultural amenities to entice these people, while being tolerant of diverse lifestyles. For a guy that opposes bailing out old industries (a favourite of the political left) as well as subsidizing mortgages and car ownership, he manages to ruffles plenty of conservative feathers.

In The Great Reset, Florida examines the roots of our current economic crisis. Unlike most observers, Florida argues the crisis is not merely a temporary emergency in government policy. It is a fundamental shift in our economic system—a “great reset.” Florida claims that times of major economic crisis necessitate the resets. Every reset involves a spatial fix, a change in where we live and work. The first reset involved a movement from farms to cities. The second involved suburbanization. Our current reset is a move towards mega regions, dominated by major urban centers.

The first two resets mentioned above are the Long Depression of the 1870s, and the Great Depression of the 1930s. As with the current crisis, both of these periods began with a crisis in the banking system. The banking troubles undermined the entire economic system, leading to high unemployment and economic decline. In both cases, there was a silver lining: huge spikes in innovation. During recessions, there are large amounts of unused labor and capital. These unused resources are fodder for entrepreneurs to experiment with new technologies, and new ways of doing business. Old companies are rendered obsolete by more efficient operations. This is the phenomena that Joseph Schumpeter referred to as ‘creative destruction.’

Florida claims that the Long Depression was the most analogous crisis to our own. Beginning with a banking crisis in 1873, the crisis quickly spread to the housing sector, and the broader economy. Interestingly, this period lead to major innovations in transportation and energy technology. There was also a major increase in educational investments. These factors gave rise to the age of massive industrial cities. This new economic system lead to rapid industrialization, and an increase in the standard of living. This also led to urbanization. Between 1870 and 1900, the percentage of Americans living in urban areas rose to 40% from 25% and the first spatial fix was the factory town.

The 1930s are viewed as a period of stagnation. Despite the chronic unemployment, and declines in productivity, it was actually a period of rapid technological progress. In fact, technology was increasing more rapidly than during the tech boom of the 1990s. In fact, productivity increased at three times the pace during the former period. Modern assembly lines and investments in research and development helped to fuel the eventual recovery. That also led to another major spatial fix: suburbanization.

Florida claims the current reset is more challenging than its predecessors. Whereas the first two involved changes to how labour was used, we are now shifting from a world dominated by labour to a world dominated by knowledge. While this works out easily for those who work in the knowledge sector, it will be a difficult task to make this work for blue collar employees and service workers. He points to several companies, such as Trader Joe’s, that do a great job of integrating ground level employees into management decision making. Though he lauds these efforts, he is concerned that few companies are moving in this direction.

Florida’s most interesting contribution is his speculation on how cities will evolve in response to the current reset. His fundamental point is that the culture of home and car ownership will inevitably decline. This is because young people today are more mobile than ever before. He points out how home ownership is negatively correlated with income, since young people need mobility to take advantage of scattered employment opportunities.

Florida claims that home ownership ties people down, preventing them from taking advantage of job opportunities outside of their commuting range and thus car ownership is also not part of the new lifestyle. The average American family spends 25% of its income on transportation. Those who live in walkable neighbourhoods spend just 10%. Florida sees the decline of car and home ownership as an opportunity to free up large amounts of capital for savings and new investment. In an age that necessitates austerity, the decline of home and car ownership could be just what we need to rein in personal debt.

Though Florida’s work is insightful, there are times when he seems to contradict himself. As an adherent to the philosophy of Jane Jacobs, he claims to be opposed to major government programs. He sees them as incongruent with community decision-making. However, he also believes that the need for economic stimulus spending is beyond question. The most prominent example is his call for a major investment in high speed rail. This smacks of the type of government mega project that he derides. He points out that the cost of expanding high speed rail would be on par with the cost of the rapid highway expansions during the 1950s. While this doesn’t necessarily justify the expenditure, it does point out a fundamental hypocrisy among many conservatives. For some reason it is just fine to subsidize roads, but subsidizing transit is taboo. Though the arguments for building high speed rail in North America rely on questionable assumptions, subsidizing mass transit should not be automatically dismissed if subsidies aren’t off the table. A subsidy is a subsidy.

The biggest geographical challenge that Florida anticipates is revitalization of second-tier cities, particularly those like Detroit that matured during the second reset While Florida does not envision a complete collapse of small urban centers and towns, he believes their role will diminish. Unlike Thomas Friedman, Florida does not believe the world is flat. Instead, he views it as ‘spikey.’ Though information technology makes it easier for people to live and work outside of major centers, there are still major advantages to living in major cities. This is largely to do with network externalities. Because urban centers attract what he refers to as the ‘creative class,’ they become hubs of innovation. This is because there is a higher velocity of ideas. Large groups of diverse people bunched together exchange ideas at a higher rate than dispersed groups of individuals. This is why Jane Jacobs, his intellectual mentor, argued that most economic progress comes from the city and spreads outside—not vice versa. Florida argues that it could take decades to repair hollowed out cities like Detroit and Buffalo. He’s probably right.

The big question I took away from the book was whether suburbanization was ever an adequate spatial fix. Given that most of the U.S. highway system was paid for by the federal government, one could argue that it was a massive misdirection of capital. Florida pointed out that the massive overexpansion of highways which has caused severe urban flight in cities such as Detroit, Newark, and Buffalo. Similar to the government fueled housing booms that Florida ridicules, the boom spurred by suburbanization seems artificial. Now we are paying the price for it. Perhaps urbanization isn’t simply the next solution. Perhaps it was the solution all along.

In some ways, Florida’s credibility is undermined by his popularity. Many politicians take his advice uncritically, and critics point to the ensuing failure as evidence that his theories are flawed. It is important to realize that Florida’s advice is only applicable to major urban centers. There is no use in a small upstate New York town adopting the type of policies he advocates for New York City.

To be fair, he has brought some criticism on himself. Not only has he written about the creative class ad nauseum, but he is known for his extremely lucrative speaking engagements, which often take place in towns like Elmira, New York, a place unlikely to benefit from the advice of an urban guru. That said, the fact Richard Florida has become his own cottage industry does not discredit his theories.

While he’s not always right, Florida provides valuable insight into how cities succeed. Perhaps his arguments for facilitating urbanization are flawed, but his arguments against subsidizing sprawl are dead on. Rather than focusing on their differences with academics like Mr. Florida, conservatives would do well to build on the common ground they share with them. A failure to engage in meaningful debate with prominent urbanists only serves to perpetuate the myths that conservatives don’t care about cities. Worse still, it allows the left to continue defining the conservative position on urban issues.


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About Steve Lafleur