High-density big cities are not going away

David Oshinsky in his book Bellevue quotes Thomas Jefferson’s reaction to the 1793 yellow fever epidemic in Philadelphia, then the nation’s capitol:

By November the streets were deserted, and more than 10 percent of the city’s fifty thousand residents were dead. Most of Congress was gone, along with President George Washington and Secretary of State Thomas Jefferson. For Jefferson, a defender of rural values, the epidemic was a mixed blessing, with a powerful lesson attached. “The yellow fever will discourage the growth of great cities in our nation,” he confidently wrote a friend, “& I view great cities as pestilential to the morals, the health and the liberties of man.”

Obviously Jefferson was wrong. As has been all the other myriad predictors of the coming demise of high-density big cities throughout American history. There are two main reasons why.

First concentrated talent working face to face significantly boosts productivity. And second, people––particularly young professionals––want to live in high-density, high-amenity urban neighborhoods where you do not have to own a car. It is almost certain the current pandemic will not alter those realities long term any more than the 18th Century yellow fever epidemic did.

This post is focused on the productivity advantage of high-density big cities. In a future post we will look at talent wanting to live in those cities.

Evidence of the enduring value of big cities is present today in the midst of our current pandemic. In an article entitled Facebook Bets Big on Future of N.Y.C., and Offices, With New Lease, the New York Times reported:

Facebook on Monday (August 3) agreed to lease all the office space in the mammoth 107-year-old James A. Farley Building in Midtown Manhattan, cementing New York City as a growing global technology hub and reaffirming a major corporation’s commitment to an office-centric urban culture despite the pandemic.

With the 730,000-square-foot lease, Facebook has acquired more than 2.2 million square feet of office space in the city for thousands of employees in less than a year, all of it on Manhattan’s West Side between Pennsylvania Station and the Hudson River.

… “Facebook first joined New York’s vibrant business and tech community in 2007,” the company’s spokeswoman, Jamila Reeves, said. “Since that time, we’ve continuously grown and expanded our presence throughout the city. The Farley Building will further anchor our New York footprint and create a dedicated hub for our tech and engineering teams.”

Facebook decision to go big on high-density big city offices is consistent with the lessons employers learned the last time they tried to let employees work from home. In a New York Times article entitled The Long, Unhappy History of Working From Home, David Streitfeld writes:

Companies large and small have been trying for decades to make working from home work. As long ago as 1985, the mainstream media was using phrases like “the growing telecommuting movement.” Peter Drucker, the management guru, declared in 1989 that “commuting to office work is obsolete.”

Telecommuting was a technology-driven innovation that seemed to offer benefits to both employees and executives. The former could eliminate ever-lengthening commutes and work the hours that suited them best. Management would save on high-priced real estate and could hire applicants who lived far from the office, deepening the talent pool.

And yet many of the ventures were eventually downsized or abandoned. Apart from IBM, companies that publicly pulled back on telecommuting over the past decade include Aetna, Best Buy, Bank of America, Yahoo, AT&T and Reddit. Remote employees often felt marginalized, which made them less loyal. Creativity, innovation and serendipity seemed to suffer.

Marissa Mayer, the chief executive of Yahoo, created a furor when she forced employees back into offices in 2013. “Some of the best decisions and insights come from hallway and cafeteria discussions, meeting new people and impromptu team meetings,” a company memo explained.

Tech companies proceeded to spend billions on ever more lavish campuses that employees need never leave. Facebook announced plans in 2018 for what were essentially dormitories. Amazon redeveloped an entire Seattle neighborhood. When Patrick Pichette, the former chief financial officer at Google, was asked, “How many people telecommute at Google?” he said he liked to answer, “As few as possible.”

Edward Glaeser in Triumph of the City explains the enduring value of concentrated talent working face to face this way:

Within the United States, workers in metropolitan areas with big cities earn 30 percent more than workers who aren’t in metropolitan areas. These high wages offset the higher costs of living, but that doesn’t changes that fact that the high wages reflect high productivity.

The only reason why companies put up with the high labor costs and land costs of being in a city is that the city creates productivity advantages that offset those costs. Americans who live in metropolitan areas with more than a million residents are 50 percent more productive than American who live in smaller metropolitan areas.

… Cities enable the collaboration that makes humanity shine most brightly. Because humans learn so much from other humans, we learn more when there are more people around us. Urban density creates a constant flow of new information that comes from observing others‘ success and failures. … Cities make it easier to watch and listen and learn.

Since Glaeser wrote Triumph of the City in 2011, the big city/concentrated talent advantage has grown. Glaeser poses and then answers the essential question about why cities can be the engines of growth despite being the most expensive places to live and do business:

Once you can learn from Wikipedia in Anchorage why pay New York prices? But a few decades of high technology can’t trump millions of years of evolution. Connecting in cyber-space will never be the same as sharing a meal or smile or kiss. … The most important communications still take place in person, and electronic access is no substitute for being in the geographic center of an intellectual movement. The declining cost of connecting over the long distances has only increased the returns of clustering close together. … The death of distance may have been hell on the goods producers in Detroit, who lost out to Japanese competitors, but it has been heaven for the idea producers of New York and San Francisco and Los Angeles who have made billions on innovations in technology and entertainment and finance.

As Facebook’s new Farley Building lease demonstrates, employers understand that lesson. That the way to build and maintain culture and to enhance innovation and productivity is through face to face interaction of concentrated and diverse talent. And those talent concentrations are most prevalent in high-density big cities.

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