THE METROPOLIS : Why Urban Leaders Must Set National Agenda: No Cities, No Economic Progress

David Friedman is an urban economist who frequently writes on development issues

Amid the disorder of post-election Washington, social-policy battles, the falling dollar and Wall Street whipsaws, America's new urban leaders, among them Mayors Richard Riordan and Rudolph W. Giuliani of New York, have the best opportunity in decades to re-establish cities as the true center of the nation's economic and social progress. To do this, they must debunk a damaging myth--the metropolis as "Dystopia"--and champion a new national agenda for enhancing urban vitality.

At first glance, the Dystopian myth has never seemed stronger. Throughout the postwar period, academics, mostly Democratic politicians and the media relentlessly portrayed cities as environmental and economic basket cases, places where the oppression of minorities was concentrated. Since the '94 elections, these sentiments have resurfaced in efforts to thwart proposed federal cutbacks affecting "helpless" urban regions.

Joining in this chorus are members of the "sagebrush confederacy"--the Southern and Intermountain West politicians now dominating U.S. politics--who represent constituencies antagonistic to metropolitan communities and multiethnic states like California. They blame the cities' problems on wasteful spending or welfare fraud and relish the opportunity to cut budgets and force urban residents to "get a job."

All this fed the now deeply entrenched notion that lightly populated, culturally homogenous regions like Nevada, Utah or Georgia are the new engines of U.S. society. The huge metropolitan regions in the Northeast, Midwest and heavily urbanized California are, by contrast, decaying monuments of the nation's past.

Such ideas are dangerously misguided. In the modern economy, high wages, growing industries and upward social mobility depend on thousands of companies and workers learning to specialize and combine their highly refined skills to create niche products and earn premium prices in world markets. Only major urban centers such as Tokyo, Taipei, Singapore, Paris or Turin can combine the critical mass of people, companies and communications to achieve this goal.

That's why America's most advanced sectors--computers, aerospace, multimedia, entertainment, biomedical, software, business services, engineering and environmental products--thrive in California, the most heavily urbanized state. It also explains the state's unparalleled history of high productivity and prosperity, and why the millions of people drawn to California over the last decades, especially Latinos and Asians, have seen their average household incomes rise at some of the highest rates in the world.

By comparison, the "dynamic" Intermountain West and South remain heavily dependent upon the very metropolitan regions they love to smear for their markets, technology, capital and social mobility. A recent Salomon Bros. report, for example, showed that as much as 60% of the "growth" in several Western states was due simply to population migration from California. If the nation's high-skill, high- wage urban economies stagnate, overall U.S. living standards will decline, even if shuffling people and assets from the cities creates the appearance of progress in the hinterland.

Distrust of an economy expanding in precisely this manner is an important reason why most Americans remain unenthusiastic about the current economic recovery, and why savvy international investors are shunning the dollar. It also explains why the trade deficit is growing as the dollar falls: The United States is forced to import, regardless of the exchange rate, key products and components from other countries that more effectively nurture their high-end urban economies.

As Washington struggles for direction in light of such developments, America's urban leaders can step in and guide the national debate, offering strategies to foster their cities' latent strengths for the benefit of the country as a whole. Three issues are critical:

* Taxes . Urban areas are routinely attacked for their "addiction" to federal funds, but, in truth, they contribute far more to Washington than they receive. People have to earn more money to maintain the same standard of living in big cities as in less costly regions. Federal tax levies are not adjusted to account for differences in the cost of living, however, so a family in Los Angeles making $100,000 will pay more than twice as much taxes as a household earning $50,000 in Little Rock, even though both families may have the same pre-tax standard of living.

Accordingly, the first priority of urban leaders should be indexing federal taxes against the cost of living so that all areas of the country bear the same real-tax burdens and compete on an equal footing.

* Urban regulatory and resource policies. Urban regions are frequently--and with considerable justification--criticized for the regulatory burdens they impose. Far more damaging, however, are federal policies that disproportionately punish cities for their environmental consequences and the raw materials they consume. Nationwide air, water and land-use controls are much more burdensome in metropolitan areas than in less populated, though more sensitive rural areas. Antiquated federal laws lock resources like water into low-value uses and backwater regions, even though a gallon of water consumed in major U.S. cities generates incomparably more wealth.

Among the consequences of such policies is the diversion of development and industry into some of the most pristine, unspoiled parts of the country; the dispersion of highly specialized urban industries into isolated, lower-skill regions, and untold billions lost to inefficient resource allocation. If urban industries are to flourish, federal policies must at least equalize urban and rural regulatory requirements and natural-resource access.

* Business relocation wars . The United States is engaged in a ruthless interregional struggle to lure and retain businesses. Peripheral areas trumpet the Dystopian myth in countless mailings, media advertisements or "relocation fairs" in hopes of attracting entrepreneurs from the urban core. As a result, the country's most competitive urban industries are systematically fragmented, wages are bid down and public resources for essential services like education are used to pay for business-relocation subsidies.

Almost nothing has been done to limit this economic civil war. To defend and enhance their regions, it is vitally important for urban leaders to press for national guidelines and enforceable laws that restrict at least the more irrational "business-development" efforts and instead promote real industrial and wealth creation throughout the country.

If they can advance a detailed, specific metropolitan-development agenda, urban leaders can parlay the nation's political ferment into a more productive urban-federal relationship, and a healthier national economy. The key is perceiving metropolises like Los Angeles not as pathetic Dystopias, nor the capitals of the Third World, but as the centers of the New World. Unless we firmly embrace such a vision, as urban areas decline, so, too, will the country's wealth and social vitality.

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