Special Report: Creative City

The Four Efficiencies of Cities

Cities leverage density, scale, association and extension to realize efficiencies and generate wealth. So why aren't we planning our cities to take better advantage of this?

By Ryan McGreal
Published July 28, 2009

I've just started reading Jeb Brugman's recent book Welcome To The Urban Revolution: How Cities Are Changing The World (Viking Canada, 2009), and it's already shaping up itself to be a revolutionary transformation in how we view and understand cities - and how we can leverage that understanding to make our cities work better.

Specifically, he argues that it makes sense to think of the world's many cities in toto as a human-made ecosystem - a more or less continuous complex pattern of land use that organizes, directs and amplifies global economic, social, political and organizational trends we normally imagine taking place at the national level.

I'm planning a proper review once I've finished it, but in the meantime I wanted to share Brugman's description of what he calls "the four basic elements of urban advantage, which make cities everywhere magnets for every kind of ambition: what I call their economies of density, scale, association, and extension." [all emphases in original]

Economies of Density

Brugman defines economies of density this way:

The first thing that anyone notices on entering a city is the concentration of people and their activities. Simple as it is, this density has been little understood, adn its benefits are too often squandered through the low-density development of cities today.

The density of cities is their most basic advantage over any other kind of settlement. Without density of settlement, most of what we learn, produce, construct, organize, consume, and provide as a service in the world would simply be too expensive. Density increases the sheer efficiency by which we can pursue an economic opportunity.

The first economy, economy of density, will be familiar to most RTH readers. In previous article, I've noted research (compiled by Richard Florida in his recent book Who's Your City?) finding that density increases the efficiency and productivity of city infrastructure.

Unfortunately, as Brugman notes later, "in my city [Toronto], a person living in a low-density neighourhood pays the same rate for water as the people in my [urban] neighbourhood." The result is that urban residents end up subsidizing suburban residents, artificially inflating demand for more low-density development.

Here in Hamilton, studies have demonstrated that new, low-density suburban developments ultimately increase the city's net liabilities.

Economies of Scale

This is a more commonly-cited economy, but it's interesting how Brugman ties it into the overall advantage of cities:

The scale of cities is the second building block of urban advantage. It increases the sheer volume of any particular opportunity, producing what we call economies of scale. Scale permits the splitting of fixed costs and known risks over a large enough group of users to make an activity attractive or service profitable in a big way. In this way, the scale of cities increases the range of opportunities and level of ambition that can be viable pursued in them and thereby the scale of the impacts that urban pursuits can have on the world.

In effect, the size of cities increases the potential market for a good, service or idea to the point that the risk of capital investment falls to acceptable levels.

Economies of Association

Combine density and scale, and together they produce a third economy:

The scale and density of interactions among people with different interests, expertise, and objectives then combine to create the third basic economy of cities. Together they exponentially increase the variety of ways, and the efficiency with which people can organize, work together, invent solutions, and launch joint strategies for urban advantage.

I call this collaborative efficiency economies of association. Like-minded people have only so much time and opportunity to happen upon the people and organizations with whom they can invent, plan, and launch their strategies for advantage in the world.

Again, this parallels Florida's argument that cities increase the rate of innovation even at the same time as they increase the productivity of infrastructure. By attracting large numbers of creative, skilled people and bringing them into close proximity, cities act as de facto idea machines.

Economies of Extension

The suite of advantages that a city provides to innovators serves also as a launch pad:

Finally, economies of density, scale and association together provide the cost efficiencies and user communities to extend their organized strategies to other cities through infrastructure investments and technology applications. Shipping ports, airports, telephone, cable, television, and fibre-optic networks depend on the combined economies of density, scale and association in cities.

We accurately call these systems urban infrastructure because their economic viability is uncertain without the supply efficiencies created by density and scale and the demand efficiencies created by association. The net result is a new kind of advantage: economies of extension. Extension is the ability to link the unique economic advantage of one city with those of other cities to create whole new strategies for advantage in the world.

This echoes Jane Jacobs' book Cities and the Wealth of Nations in its insistence that it is principally cities, not countries, that are engines of economic growth and development.

How astonishing, then, that we generally relegate city governments to the margins in setting policy and managing investment flows. In Canada, cities aren't even real governments - they're merely "creatures" of the provinces, existing under provincial legislation.

Our city councils are at best a stepping-stone for ambitious politicians looking to move "up" to levels of government with "real" powers. Yet if actual economic growth happens in cities, could the decision to separate city governments from real power be crippling our national ability to realize efficiencies, generate wealth and solve our problems?

More specifically, how much potential innovation and wealth have we forgone over our half-century exercise in redirecting urban capital to artificially subsidize low-density living?

Ryan McGreal, the editor of Raise the Hammer, lives in Hamilton with his family and works as a programmer, writer and consultant. Ryan volunteers with Hamilton Light Rail, a citizen group dedicated to bringing light rail transit to Hamilton. Ryan writes a city affairs column in Hamilton Magazine, and several of his articles have been published in the Hamilton Spectator. He also maintains a personal website and has been known to post passing thoughts on Twitter @RyanMcGreal. Recently, he took the plunge and finally joined Facebook.

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By density alright (anonymous) | Posted July 28, 2009 at 15:38:41

In Hamilton we let our developers cannibalize the city to make a fast buck scraping farmland and throwing up prefab houses that cost the city more than they bring in in new property tax. We even foot the bill for new highways so it's easier for the developers to sell their 'dream' houses - their dream, our nightmare. When you're finished with that book can you send a copy to Council, Tim McCabe, Chris Murray etc?

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By nobrainer (registered) | Posted July 28, 2009 at 16:31:46

Great analysis from Brugman and good find! I've been following RTH for years, but this special report looks to be taking the study of how to make Hamilton successful to the next level. Look forward to seeing how you integrate these insights into your analysis!

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By Dave Kuruc (anonymous) | Posted July 28, 2009 at 17:24:01


Tim McCabe and City Staff and our "trusted" developers are all reading 1991's Edge City By Joel Garreau.

Another fantastic read is Moshe Safdie's "The City after the Automobile". Just finishing that one.

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By jason (registered) | Posted July 28, 2009 at 18:24:08

Does he offer any hope to cities that are nothing more than parking lots and throughways???
Any. hope. at all???

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By A Smith (anonymous) | Posted July 30, 2009 at 22:44:00

The period of time between 1946 and 1979 was the period of time when the middle class was born and the economy grew much faster than today. It was also a period of time when suburbia was the dominant form of housing. Mix these two facts together and lefties come up with the conclusion that suburbs are destructive to the economy. Huh?

In fact, Canada has more people today than it did thirty years ago (scale) and yet the economy grows much slower today than it did then. Same goes for the U.S. and Europe. Anti-private sector China had over 500 million people 30-40 years ago, high population density and yet there was mass starvation due to economic central planning. Now that it has allowed greedy business people to keep and invest what they earn, it's unleashing the human potential for wealth creation.

If Hamilton embraced the private sector and limited government spending to the rate of inflation plus population growth, this city's economy would boom. By allowing the smart people who earn the profits to reinvest that money in their own operations, these wealth creating businesses could expand faster, increasing demand for labour and driving up real wages for workers.

If anyone thinks that population density is the key to wealth, explain why Mumbai, India has such massive levels of poverty? It wouldn't have anything to do with India's long love affair with central planning would it?

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By Brandon (registered) | Posted July 31, 2009 at 11:57:07

Remarkable how a simple mind associates correlation with causation. Sound-bite answers are rarely effective.

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By jason (registered) | Posted July 31, 2009 at 14:04:26

yes, because as we all know there is absolutely no difference between Mumbai and New York City when it comes to demographics, weath, poverty, crime etc..... I guess the only difference is the central planning.

ahem Paris ahem.

Oops. Didn't mean to slip that in there......

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By Ryan (registered) - website | Posted July 31, 2009 at 14:53:27

Speaking of simple correlations, the period of time between 1946 and 1979 was ALSO the period of time when marginal tax rates were the highest.

So much for the lower tax rates == stronger growth mantra.

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By Ryan (registered) - website | Posted July 31, 2009 at 14:59:20

Incidentally, Mumbai (Bombay) is a powerhouse of economic growth. The absolute wealth per capita is still quite small by Western standards, but the rate of wealth generation is quite impressive. Its size and density are absolutely significant contributing factors in this growth.

The population is growing at five percent a year because people with entrepreneurial spirits are rushing in from more rural areas to find gainful employment, build equity, send some money back to their families, arrange for better education for their children, and ultimately provide a launch point for still more family and community members to migrate into the city and join the economy.

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By grassroots are the way forward (registered) | Posted July 31, 2009 at 20:48:34

A Smith writes: The period of time between 1946 and 1979 was the period of time when the middle class was born and the economy grew much faster than today.

The middle class grew because of the labour movement, better wages, benefits and so on down the line. Since the 1980's, there has been a concerted effort to attack this model, labour laws have changed so workers cannot organize as easily, the growth of the precarious job market has also affect that marked decreases for many workers across the board in terms of wages, benefits, lack of access to pensions.

In your reference to China, well because of globization, many of our jobs that produced products have gone over there, and that those workers over there do not have any protection or labour standards.

These are words that someone elsewrote, but they ring so true:

"Then there is consolidation by vertical integration and its heavyweight champion is Wal-Mart, the world's largest corporation. Wal-Mart has made a partner of the Chinese government. Working together, the partners have turned China into a vast subsistence-wage labor camp. China supplies Wal-Mart so it has no need of domestic vendors like the now destroyed Rubbermaid. Armed with the lowest production costs, Wal-Mart's rise up on every other street corner selling every commodity imaginable and every service the corporation can get its hooks into. Wal-Mart lays waste to local economies and then picks up the pieces to become the only butcher, baker and candlestick maker in town. The corporation recently moved to provide banking services in its stores"

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By C. Erl (registered) - website | Posted August 03, 2009 at 18:17:23

We definitely do need to look into giving our cities more power. When councils are handcuffed by 19th century laws that place them between asylums and saloons in the constitution, we can't expect any real change to occur. What we need is a combination of ambitious politicians who understand the importance of a strong municipal system enough to pressure the federal and provincial government to look into changing this.

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By jason (registered) | Posted August 04, 2009 at 22:23:32

well said C Erl.

It's pretty bad when it's illegal to build a new house or building in downtown Hamilton in the same manner as all the ones that were built 100 years ago.

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By A Smith (anonymous) | Posted August 05, 2009 at 06:53:00

Ryan >> Speaking of simple correlations, the period of time between 1946 and 1979 was ALSO the period of time when marginal tax rates were the highest. So much for the lower tax rates == stronger growth mantra.

Top U.S.Income Tax rates 1946-1957 - 91%
Tax revenue as % of GDP 1946-57 - 23%
Non Military Spending as % of GDP 1946-57 - 12%

Top Tax rates 2009 (Highest combined rate, California) - 45.3%
Tax revenue as % of GDP 2008 (pre recession) - 29%
Non Military Spending as % of GDP - 29.9%

As you can see, even though tax rates were 91% after WWII, tax revenues to the government were limited to 23% of the economy. Furthermore, non military spending, on things like health, education and welfare, was less than half the level it is today. As the welfare state has grown and private sector spending has been crowded out, the overall growth rate of the economy has slowed down.

As for property tax rates, I don't think you would see the inverse relationship between lower tax rates and higher revenue as a share of the economy. This has been the result of fewer tax avoidance schemes, which are harder to utilize with real estate.

Ryan >> Mumbai (Bombay) is a powerhouse of economic growth. The absolute wealth per capita is still quite small by Western standards, but the rate of wealth generation is quite impressive.

If population scale and density are the keys to wealth creation, why are Canada (45k), Australia (47k), Iceland (55k) and Ireland (61k) vastly richer than India (1k)? Just for comparison, Mumbai has 14 million residents and has a population density of 29,875/km2. Metro Dublin has 1.6 million people, and has a population density of 238/km2.

Dublin has far fewer people, with far less density and yet is 60x wealthier than Mumbai.

The true creator of wealth is a strong and open economy that is controlled by the private sector. It's the reason why the "government planned" Indian economy of the post WWII years was a disaster and it also best explains India's recent success. As more economic decisions have come to be made from the "for profit" areas of the economy, lo and behold, India has produced more profits.

Wealth comes from profits, profits come from the private sector. If you want a wealthy city, you need to let the private sector keep most of the money and make most of the decisions, if not all. Otherwise, you have politicians making spending decisions based not on creating wealth (profits), but on what suits them politically. This experiment has played itself out in many nations and the result is always the same, poverty and a very unhappy population.

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By Yeahbut (anonymous) | Posted August 12, 2009 at 12:24:29

If A Smith can be accused of jumping to over-familiar, partisan generics in his responses to articles, so too can his critics. The irony this time is that both he and Ryan point to similar problems in different terms.

A Smith talks about the limitations of central planning while Ryan suggests that one impediment to achieving the creative community might be that the real power in municipalities is concentrated in the provinces. The difference is one of degree, to the extent that it exists at all.

It's evident from continually reading RTH that, in Brugman terms, there are problems achieving stage three, the economy of association, in realizing the urban revolution, at least in Hamilton. Many creative ideas come forward that excite the imagination but how to entice even local governments into creative thinking and to rely less on the tried and true? Put in government's position, which theoretically at least is to be held responsible when things don't work (think the recent sewer fiasco) I'd be inclined to look to solutions that have been proven to work in the past. Hence residents wait until the system can be expanded, and can it expand faster than the city?

That's neither a reasonable or responsible response to those whose basements have flooded several times in recent years, however. Neither is it reasonable or responsible to decorate and furnish flood-prone basements as living space. A more creative response might be to disconnect the sewer line and install a sump pump and one of the new generation of dry chemical toilets, the product from which can be used to fertilize a small garden. No more pouring toxic chemicals down the drain, however. Given the way sewer fees are locally connected to water consumption, homeowners might have to turn off the taps too, using municipal water or bottled water only for drinking and collecting and rainwater for other purposes, the savings paying for the new equipment.

This might work, could even reduce many of the problems associated with centralized systems, but it would require many individuals to change the way they live, some more easily than others. You can imagine voters' response if city counsellors told constituents with flooded basements to simply disconnect the sewers. The city has already suggested homeowners disconnect evestrough downspouts from their sewers, however.

If individual homeowners tried to do this, though, would they run afoul of municipal bylaws? Probably. I think A Smith points out, whether it is his intention or not, that individuals, collectives and co-ops could sometimes make significant contributions to achieving creative collective action if they were not constrained by governments. And if RTH contributors do not agree, they would not be complaining about local government as they do.

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