The Gambler’s Ruin of Small Cities (Wonkish)

I’m on vacation, keeping vague track of the news but basically taking a break and spending a lot of time communing with nature. But I’ve also been thinking a bit about economics, taking advantage of psychological distance to ruminate on stuff that isn’t closely connected to the news. And one of the areas I’ve been chewing over goes back to my old stomping ground of economic geography.

In particular, I’ve been trying to clarify my thoughts after reading Emily Badger’s stimulating piece on how megacities seem to have less and less need for smaller cities. I found myself asking what might seem like an odd question: what, in the modern economy, are small cities even for? What purpose do they serve? And this question leads me to a chain of thought that’s a bit different from Badger’s, although not necessarily contradictory.

Once upon a time, it was obvious what towns and small cities did: they served as central places serving a mainly rural population engaged in agriculture and other natural resource-based activities. The rural population was dispersed because arable land and other resources were dispersed, and so you had lots of small cities dotting the landscape.

Over time, however, agriculture has become ever less important as a share of the economy, and the rural population has correspondingly declined as a determinant of urban location. Nonetheless, many small cities survived and grew by becoming industrial centers, generally specialized in some cluster of industries held together by the Marshallian trinity of information exchange, specialized suppliers, and a pool of labor with specialized skills.

What determined which industries a small city developed? In some cases particular features of the location and nearby resources were important, but often it was more or less random chance at first, then a sequence in which one industry created conditions that favored another.

Take the (fairly celebrated) example of Rochester, New York. It started as a flour milling center, benefitting from the Erie Canal, then as a center for nurseries and seeds. So it was a resource-based center. Then, in 1853, John Jacob Bausch, a German immigrant, started a company making monocles, which became a major producer of glasses, microscopes, and all things lens related.

So Rochester became a place where people knew about optics, presumably creating the preconditions for the rise of Eastman Kodak, and much later Xerox. This was typical of small industrial cities: even if what a city was doing in, say, 1970 seemed very different from what it was doing in 1880, there was usually a sort of chain of external economies creating the conditions that allowed the city to take advantage of particular new technological and market opportunities when they arose.

Obviously, this was a chancy process. Some localized industries created fertile ground for new industries to replace them; others presumably became dead ends. And while a big, diversified city can afford a lot of dead ends, a smaller city can’t. Some small cities got lucky repeatedly, and grew big. Others didn’t; and when a city starts out fairly small and specialized, over a long period there will be a substantial chance that it will lose enough coin flips that it effectively loses any reason to exist.



Notice, by the way, that globalization and all that isn’t central to this story. If I’m right, the conditions for small-city decline and fall have been building for a very long time, and we’d be seeing much the same story – maybe more slowly – even without the growth of world trade.

Are there policy implications from this diagnosis? Maybe. There are arguably social costs involved in letting small cities implode, so that there’s a case for regional development policies that try to preserve their viability. But it’s going to be an uphill struggle. In the modern economy, which has cut loose from the land, any particular small city exists only because of historical contingency that sooner or later loses its relevance.

