How do cities grow? Why do cities fail? With Detroit filing the largest municipal bankruptcy in the nation’s history last week, these questions gained new importance. Set aside for the moment the partisan politics at the root of the Motor City’s situation. One of the best examples of American industrialization in the twentieth century has become a symbol of deindustrialization and political mismanagement.
Some attribute the bankruptcy to nineteenth-century economic theories, emphasizing the changes in the relationship between supply and demand for automobiles and the subsequent impact on areas reliant on auto factories. Others, like Governor Rick Snyder, have suggested a neoclassical approach by citing the city’s intensive regulatory climate (union rules, sustainable wages, pension plans for public employees) as a discouragement to new investment by private capital. A global group of researchers suggest a third possibility by focusing on metropolitan asset accumulation over the last two centuries.
The new theory – called ‘informatic economics’ – argues that overreliance on any single form of capital investment (natural resources, physical infrastructure, or human skills) creates a stagnant local, national, or world economy. In Detroit’s case, physical infrastructure became the main pillar of economic growth, and the constant neglect of human capital since 1970 ultimately caused last week’s collapse. In 2012, researchers from Great Britain, the Philippines, Argentina, Brazil, and the United States showed that the largest, early ancient world economy (from Kush to Mesopotamia, c. 3500 BCE) was worth approximately 21 billion USD, mostly in natural resources (adjusted for inflation). Their estimate for the 2010 world economy was approximately 423 trillion USD, mostly in human skills.
New York City’s emergence as the current center of the global information economy since 1980 made it an important case study to test the underlying principles behind this approach to economics. Hun Eui Lee (Chile), Dominique Minars (U.S.), Anita Obasohan (Nigeria), Stewart Hug (Switzerland), Evan Gilbert-Katz (U.S.), Anna Filonenko (Russia), Laura Green (Australia), Lucy Mower (Australia), and Andrew Choo (Singapore) will present their findings about the effects of slavery, manufacturing, and high-tech services on New York from 1850 to 2010 with a series of online research products this coming week. The preliminary headline from their work is that New York was a 2 trillion USD metropolitan region in 2007.
Using imperial, national, and regional assets as the basis for economic analysis more accurately places gross domestic product and institutional debt in historical context. Sources as diverse as Walter Johnson’s newest book, River of Dark Dreams; Thomas Piketty and Gabriel Zucman’s recent article on the capital value of enslaved African Americans; and Samuel Worth and Louis Cain’s website “Measuring Worth” all contribute valuable insights to this process. However, all attempts to advance this inquiry must remember to avoid reading present capital definitions too literally into the past. African Americans were not a form of human capital in the early nineteenth century – as laborers, they counted as tools or infrastructure in the production of agricultural goods; as livestock, they counted as a natural resource in both commercial trade and breeding plantations. These horrific distinctions carry important weight in considering the different economic approaches to urban and national growth, especially because such “double-counting” inflated the Southern economy before the Civil War and made global recovery more difficult for the last four decades of the nineteenth century. For both maintaining New York’s leadership and rebuilding Detroit’s excellence, the informatic economic approach holds significant promise by revealing hidden truths of economic history from every corner of the globe.
Dr. Walter Greason is the Chief Executive Officer of the International Center for Metropolitan Growth and author of Suburban Erasure: How the Suburbs Ended the Civil Rights Movement in New Jersey. Questions and comments are welcome on Twitter, Facebook, and by email (email@example.com).