Saturday, January 27, 2018

The return of suburban growth?

I had blogged earlier about the existential challenges faced by smaller cities as larger ones benefit from the dynamics of the modern economy.

John Mauldin has an interesting article pointing to the work of Karen Harris and Co at Bain's Macro Trends Group. Their core idea is that the declining cost of distance lowers the advantages of densified urban areas and enhances that of rural areas. They estimate that abut 6% of the population per decade could shift out of urban centres in the US over 2010-25, or upto 24 million people in total.
They also point to how automation, by lowering the cost of operations, can change business models and make smaller scale activity commercially viable.
Mauldin offers an interesting illustration of how trends like automation coupled with the declining cost of distance can play itself out,
On the surface, automation is bad for jobs. For example, Macro Trends estimate that by employing service robots, casual dining outlets could reduce staff from 25 to 8 people. However, as automation will enable businesses to operate at a smaller scale and scope, it may create jobs net-net... While automation will reduce the number of people working at each location, by lowering operating costs, automation will make smaller scale and scope locations economically viable. In effect, the volume of stores would increase, while the number of people working at each location would fall. For the first time ever, large retailers and dining chains will be able to operate in smaller, less dense markets. The large retail stores and restaurant chains that I have the pick of here in Dallas, may open locations in the much smaller neighboring cities of Allen and Katy... a mass exodus to rural areas could create a boom in the construction industry, akin to what took place in the 1950s... Would millions of Americans switching from urban to rural living ignite a baby boom and cure our demographic problems? It’s certainly not out of the question. After all, birthrates are substantially higher in rural areas. Plus, families could dramatically reduce their cost of living by moving out of cities, allowing them to feed more mouths. 
It is never easy to predict these as there are too many moving parts. But it is here that public policy may be able to play a role with opportunistic interventions to steer the course as well as expedite favourable forces. 

1 comment:

Chandni said...

Thanks for the post - I found it particularly interesting in the context of recent work on automation presented at the AEA meetings this month modeling the effects of productivity growth from automation on growth of new jobs. The trends pointed out here fit in well with the theoretical work that was presented. For more info, I wrote a blog post on it at chandniraja.blogspot.com.