Section 6: Session Summary

New Entrepreneurial Growth Conference: Cities

Entrepreneurship is a hyper-local phenomenon. People generally start businesses in the places they are already located, and many of the barriers entrepreneurs face and resources they access are at the local or regional level. The spread of information technology has enhanced the importance of physical proximity, making cities the key geographic vehicle for entrepreneurial growth. In a series of discussions about entrepreneurial growth at the urban level, New Entrepreneurial Growth participants raised the ideas discussed below.

Location is important to economic output. One participant explained that there are a wide range of advantages to being in the best location for a chosen field, from reductions in shipping costs to abilities to capture more information and develop broader social networks. This phenomenon is evident in the differences in the average wage of labor in each U.S. state, which converged in the 1970s, but has diverged since then. As a result, firms and specialized workers tend to cluster. We see, for example, that certain streets are filled with specific types of establishments, like restaurants in many cities or the diamond district in New York City. The participant pointed out, however, that policymakers have systematically used public policy to spread people out and move people away from where they can be most productive.

Not all cities want growth. The majority of cities or metro areas are, one panelist explained, overtly or tacitly anti-growth. The participant identified three types of growth models based on the distinction between horizontal growth (characterized by increases in GDP and population) and vertical growth (characterized by an increase in equality). Horizontal Growth Cities (e.g., Raleigh, North Carolina, or Dallas, Texas) are not opposed to vertical growth and increased equality, but they don’t want to sacrifice any horizontal growth to achieve it. Vertical Growth Cities include those that lost jobs, but saw per capita GDP increase. The Bay Area, for example, does not want any more horizontal growth; citizens there are opposed to job growth and population growth, as more people in the area would only make the city more crowded and extend commute times. Environmental constituencies in these areas are also strongly opposed to growth. Finally, No-Growth Cities (e.g., Detroit, Michigan, Youngstown, Ohio, and other cities clustered in the Midwest and Rust Belt) are either poorly positioned for growth or held back by structural opposition to the growth they could achieve by petty, insular politics that is hostile to outsiders and opposed to any political or social disruption.

Planning has an enormous effect on the ebbs and flows of the economy; growth in cities is not only due to the whim of the overall economy. A panelist explained that cities have agency in achieving growth; they can take action to encourage growth through strong partnerships and getting people involved.

Local governments need to focus on the local regulatory environment. Local governments’ circles of concern must not be bigger than their circles of control. Local governments do not have the structural power to change many of the macro forces they face. Instead, they should focus on delivery of core public services, such as streets, schools, parks, and safety. Climate change, for example, is a global problem that requires a global solution; it is not a challenge that local government can solve. While the locality needs to have the right regulations on climate issues and align them with national regulations, there is no need to mandate more regulations. One participant noted that there is variation between states in their circles of control, and we need to consider the state’s specific situation when we give advice. Similarly, we need to use caution when taking ideas out of New York City or San Francisco because they are so different from other cities.

Convening stakeholders and facilitating dialogue is an important role for local government. The best way for policymakers to accomplish more is to bring in people—from biotech and unions, to corporate and university leaders. When a diverse group of people comes together to focus on these problems, the participant noted, they can be endlessly creative. Government can both be part of the conversation and create a bridge to bring everyone in and start talking about solutions and strategies, as long as there is room for all parties to take action.

Bringing tech/startup culture to underserved neighborhoods could revitalize the community. Partnerships between the tech community and existing nonprofits, schools, and vocational programs could bring skills to the tech community and a creative energy that could add value to neighborhoods. These efforts could create pathways out of poverty, bring more diverse backgrounds to the table, unleash community energy, and leverage local assets.

Reducing zoning and other restrictions will not necessarily lead to growth. The panelist suggested that the benefits of reducing zoning are exaggerated and that we need to find ways to align city priorities with development. While people believe that reducing residential and other land-use restrictions would increase the supply of housing, the panelist suggested that it is politically unfeasible and the net benefit is exaggerated.

Incentives for neighboring homeowners may make new housing construction more palatable. Homeowners’ interest in restricting new housing construction is understandable, as families’ assets are tied up in their houses, and land-use restrictions are their only ways of protecting them. Allowing neighbors to receive some of the taxes from developers for a specific period of time may make homeowners more receptive to development.

Principles of budgeting can be helpful for land use. A panelist suggested that we ask cities to target an amount of growth per year and not to restrict building until they hit this target. This method would force the government to focus on overall growth, rather than on specific projects one at a time. It would lead to fewer restrictions on housing projects. The contributor explained that we want cities to achieve population growth closer to the national average. Building as much housing as they would need to accommodate their share of population growth is a good goal.

Costs and benefits of small-scale entrepreneurship. One participant suggested that declines in small-scale entrepreneurship are not necessarily problematic and can, in fact, be beneficial in some sectors. In retail, for example, large national chains are more stable. And in developing economies, we see significant levels of small-scale entrepreneurship, but no companies that grow. He emphasized that we need to focus on high-growth entrepreneurs and find out how to promote high-growth entrepreneurship, specifically. Another contributor disagreed, suggesting that small-scale entrepreneurs create jobs for themselves, even if they don’t create many or any jobs for other individuals. The first participant responded, however, that these small-scale entrepreneurs would often receive higher salaries if they were employed.

Challenges for rural communities. A participant noted that cities have particular strengths, such as creating innovation, bringing people together, and turning ideas into products and services. Rural communities, however, don’t have the same access to loans and capital, and we need to consider bringing in other groups and developing systems for local communities if we want broader prosperity throughout our society. Another contributor suggested that we should let rural areas empty out instead of subsidizing them. Ultimately, he said, we want to get more people near the superstar firms.

Benefits of economically integrated communities. There was some discussion of the benefits for children and upward mobility more generally from economically integrated communities. A participant suggested that many people identify more strongly with those from the same economic class who live in different cities than with the low-income people who live ten minutes away. He suggested that we need a “new nationalism” that inspires shared local goals and collaboration from different groups within a community.

Regulation of consumer services in cities. Services comprise 87 percent of the United States economy. Inhabitants of urban areas comprise 82 percent of the population of the United States. Most economic exchange in the United States can be characterized, in one form or another, as the provision of services to consumers in urban areas. We need regulation that ensures safety while maximizing opportunity.

The papers in this section consider entrepreneurship at a local level, focusing primarily on cities and the work they can do to enhance entrepreneurial activity. In Reihan Salam’s paper, “The Housing Bottleneck,” he suggests that the housing sector offers an area for policymakers to promote economic mobility and growth. Housing policy, he argues, needs to be more opportunity-friendly, less costly, and more transparent—a tricky balancing act at the federal, state, and local levels. He recommends that America’s most productive places—which are also the highest-cost places—should reduce the stringency of their land use regulations to permit more housing, which would boost GDP by hundreds of billions of dollars.

David Schleicher articulates the cost of land use restrictions in cities and suburbs in his paper, “The Irony of Exclusionary Zoning.” These restrictions originate, understandably, in the political realities of local government and homeowners’ impulse to protect the value of their largest assets. However, Schleicher argues that these restrictions have constrained the growth prospects of America’s most productive places and, therefore, hurt the overall U.S. economy. Easing such restrictions would boost growth by facilitating worker mobility and idea exchange, but we also need to address the interests of homeowners and others who resist development, perhaps by changing the process by which land use rules are made. Schleicher suggests that local governments could, for example, pass periodic “zoning budgets” that balance growth and restriction.

In his paper, “Facilitating a Shift toward Entrepreneurial Activity in NYC,” Tokumbo Shobowale highlights the low-cost and effective ways that New York City facilitated the development of a vibrant entrepreneurial ecosystem. While New York has a history of entrepreneurship, he explains, it was dominated by big companies in manufacturing and then finance for a century. In 2009, the city launched several new initiatives to consult, convene, seed, and support local entrepreneurs. The lesson other cities can learn from New York is that a focus on understanding the challenges of entrepreneurs, building communities, and taking actions that influence public perception can be more effective than direct support of individual companies or subsidization of certain types of companies.

Paul Glastris focuses specifically on state capitals in his paper, “State Capitals as Boomtowns.” He argues that state capitals often are overlooked locations of growth and vibrancy and innovation, as they have an influx of public revenues, industry mix, downtown density, and inflows of federal funds through state government and universities. His examination of state capitals’ strengths also highlights the critical role federal spending plays in supporting entrepreneurship, innovations, and cities—through research funding, tax credits, education, grants, and other mechanisms.

David Bodde’s paper, “Entrepreneurship for Urban Infrastructure Systems: The Case of Intra-Urban Mobility,” argues that urban mobility systems offer opportunities for entrepreneurial growth, innovation, and economic and social benefits. We need, he says, a new innovation ecosystem and governance mechanism to transition and realize those opportunities, and he suggests an open architecture innovation platform to link entrepreneurs, established companies, and urban governance authorities. This kind of platform would encourage a learning-based strategy with case studies and experimentation to facilitate the creation of new urban mobility systems.

Aaron Renn offers recommendations to the political leadership of American cities in his paper, “Rethinking America’s Cities’ Success Strategy.” He explains that these leaders, in general, have limited power to promote city economies and that economic changes—especially the strength of national chains and market integration—have divorced the business and civic interests in many cities. While many cities, in hope of renewal, seek to mimic the purportedly successful attributes of other places, particularly large global cities, applying borrowed ideas isn’t often successful. Ultimately, he recommends that cities must focus on basic services and cultivating local entrepreneurs to achieve entrepreneurial growth.

Maryann Feldman offers a rural perspective on entrepreneurship in her essay, “Entrepreneurial Policy for Rural America.” She suggests that, with entrepreneurship rates down, a narrow focus on cities may be limiting our effectiveness in promoting entrepreneurship. Rural areas offer many advantages to entrepreneurs, and entrepreneurship can revive a community. To enhance rural entrepreneurship policy, she recommends that we ease capital access for rural entrepreneurs, assist veterans with business formation, use smart incentives to foster local business, and establish central public Wi-Fi locations.

Public Housing Policies: Change Could Prompt Economic Growth

By Reihan Salam Executive Editor of National Review and a National Review Institute Policy Fellow
Reihan Salam
Reihan Salam

Homeownership long has been at the heart of the American Dream. That’s why the housing bust of 2006-2007 felt like such a cruel blow.

The collapse of home prices that did so much to plunge the United States into the deepest economic downturn since the Great Depression might seem like a distant memory in America’s more prosperous communities, where home prices have appreciated substantially during recent years. But according to one survey, three in five Americans believe that the housing crisis has yet to end, including one in five who believe that the housing market will deteriorate further, a finding that speaks to a deep economic pessimism.1

The Path from Pessimism to Optimism

For families still struggling to regain control of their financial futures, pessimism is not entirely unwarranted. As recently as the first quarter of 2012, America’s negative equity rate—the share of all homeowners with underwater mortgages—stood at a shockingly high 31.4 percent. That number has since fallen to 15.4 percent, or less than half the peak rate.2 Taking a broader view and accounting for all homeowners with less than 20 percent equity in their homes, 33 percent of homeowners have “effective” negative equity, and find themselves in an exceedingly vulnerable position.

What do vulnerable homeowners have to do with efforts to revitalize America’s prospects for economic growth? The housing bust caused the median net wealth of U.S. households to plummet. This decline proved particularly pronounced among Latino and black households, which were, and which remain, far more likely to be burdened by underwater mortgages than their white counterparts.3 At the same time, policymakers largely have ignored the challenges faced by the growing population of renters, who are facing rent increases that greatly outstrip increases in household income.4

When people feel economically vulnerable, they are inclined to support candidates who speak to their vulnerability and pledge to do something about it. Policymakers forget this at their peril. To restore a sense of economic optimism, it is essential that policymakers closely examine America’s dysfunctional housing sector, understand the many ways it has become a barrier to upward mobility, and then devise a strategy for reform.

The Economic Importance of Housing

All told, private residential investment and housing-related services represent almost one-fifth of America’s GDP. But, if anything, that understates the importance of housing in our economic and social life.

Where you live can determine the employment and educational opportunities to which you have access. It can influence your life expectancy, and whether or not you’ll ever be the victim of a crime. Children raised in some cities and neighborhoods fare far better than very similar children raised in other cities and neighborhoods.

Throughout our history, regions have risen and fallen as Americans have moved in search of opportunity. Today, however, it is just as likely that Americans will move away from regions that offer a chance at higher wages as that they will move to them.5

There are many reasons this is true, some of which are entirely innocent. For example, some Americans might move in search of natural beauty or to be closer to their families, whether or not doing so offers them greater economic opportunity. Yet all too often, families move away from opportunity because opportunity-rich regions are, in effect, raising the drawbridge against low- and middle-income families looking to better their lives.

America’s housing market is shaped by federal, state and local policy in countless ways. If our goal is to lift artificial burdens from the backs of American families, housing policy is an excellent place to start.

To a very large extent, making federal housing policy more opportunity-friendly will involve making it less costly and more transparent, a relatively straightforward proposition. State and local policy is trickier. Market-oriented housing policies in right-of-center states such as Texas and Utah have proven enormously successful in fostering opportunity, and they ought to serve as models for states with dysfunctional housing markets, such as California and New York. Of course, the policies that have made the housing markets of California and New York so inhospitable to low-income families desperate to find affordable housing serve the interests of powerful insiders.

Getting housing policy right inevitably will mean making formidable enemies. That is a risk the political right will have to take. 

Sustainable Versus Unsustainable Homeownership

For decades, conservatives and liberals have joined together to promote widespread homeownership, even going so far as to relax credit standards to get low-income families on the property ladder.6 The goal of this strategy was a noble one. Because homeownership had long been a reliable way for middle-income families to build wealth, it was widely believed that making homeownership more accessible to low-income families would have the same effect.

Like all one-size-fits-all, top-down approaches, however, this homeownership agenda neglected important differences across regions and households. The housing bust proved a sobering experience for those who saw homeownership as a cure-all.

If the housing bust revealed anything, it was that it wasn’t homeownership per se that helped families build wealth. Rather, sustainable homeownership—undertaken by families that earned enough to make their monthly mortgage payments and that had accumulated enough savings to make a sizable down payment before purchasing a home—offered the greatest benefits.

In contrast, unsustainable homeownership—in which families take on mortgages with low or no down payments, and with monthly mortgage payments that stretch them to their financial limits— carries great risks. What these families need is not relaxed credit standards. They need access to employment opportunities that offer them higher wages over time, and to savings vehicles that give them a cushion against drops in income and, if they so choose, the ability to make a meaningful down payment on a home. Some, like the economist Raghuram Rajan in his 2010 book, Fault Lines, have provocatively argued that easy credit was an ill-conceived political response to weak wage growth and rising inequality, problems that ought to have been tackled through a broader economic reform agenda.7

As long as home prices rise and a family experiences no negative income shocks, unsustainable homeownership can work tolerably well. But when home prices fall, or when a homeowner loses a job or encounters some other financial emergency, all bets are off. During the bust, millions of families saw their savings wiped out as home values collapsed. Foreclosures scarred neighborhoods across the country, and though home values have by and large recovered, many Americans still are struggling to make up for lost ground.

Household Changes and Ceclining Homeownership

In the years since the bust, U.S. families, particularly young families, have grown more reluctant to buy their own homes. The U.S. homeownership rate now stands at 63.7 percent, far below its peak of 69.2 percent in June 2004. And there is good reason to believe that the homeownership rate will continue to drift down. Before policymakers rush to reverse this decline, we must first understand some of the larger social forces behind it.

For one thing, families have grown more fragile in recent years, and young adults are delaying marriage and childrearing. The share of households led by married couples with children younger than 18 fell from 40 percent to 20 percent from 1970 to 2012, and the share of households that consist of a single adult living alone increased from 17 percent to 27 percent over the same interval.

Families led by married couples tend to have higher incomes than single-parent families, which puts them in a better position to take on mortgage debt. Compared with couples, single adults often find it more challenging and more expensive to maintain their homes, which is part of the reason many of them choose to live in multi-family rather than single-family homes.

Something similar is true of aging adults. Older Americans have a homeownership rate more than twice that of younger Americans—80 percent for those older than 65 compared with 35 percent for those younger than 35. But as retirees enter their 70s and 80s, they often find it difficult to live independently.

Changes in family structure are not the only demographic shift affecting the housing market. America’s younger generations are more Hispanic, Asian, and black than America’s older generations, and households headed by Hispanics and blacks, in particular, tend to have lower incomes and lower levels of wealth than their non-Hispanic white counterparts.

Scholars at the Urban Institute estimate that, during the 2010s, three in four new households will be minority-led.8 By the 2020s, they expect the minority-led share of new households to reach seven out of eight. Suffice it to say, households with low levels of income and wealth find it more difficult to carry a mortgage than more affluent households.

Land-Use Regulations, Housing, and Restricted Opportunity

One consequence of these emerging patterns is that neighborhoods built to accommodate two-parent middle-income families with children often are ill-suited to meet the needs of single young adults, the elderly, and single-parent families. To put this in less abstract terms, chores such as mowing the lawn, cleaning gutters, and other routine maintenance work a detached, single-family home requires are far less burdensome for a couple than they are for a single adult. Outsourcing these tasks is an option, but that costs money, which low-income people can’t always spare.

While some cities and regions are adapting successfully by allowing aging housing stock to be retrofitted and replaced, and by allowing new housing development better suited to smaller families, others are remaining frozen in place, hemmed in by land-use regulations designed for an earlier era and by costly infrastructure that lower-income populations scarcely can afford. Just because an inner suburb that was once home to two-parent families is now home to single-parent families doesn’t mean that the cul-de-sacs no longer have to be resurfaced.

These larger trends have greatly increased demand for rental housing across the country. In some markets, rising demand has been met with rising supply, and housing has remained reasonably affordable. In many others, however, rising demand for rental housing has not met with rising supply.

Todd Sinai, an economist at the Wharton School of Business, observed that half of all renters paid more than 30 percent of their income in rent during 2011. More disturbing still, the same is true of 83 percent of households earning $20,000. Rent growth has surpassed inflation virtually everywhere in the country, and has exceeded inflation by more than 3 percent per year in many of America’s most desirable cities.

The aforementioned stringent land-use restrictions have contributed to sharp increases in rents, forcing low-income families to choose: either devote more of their limited resources to rent and less to everything else, including savings, or move to a lower-cost region. While moving might be the best, most sensible option for a given family, the migration of low-wage workers from higher-cost to lower-cost regions has its own consequences.

Since 1970, the United States has seen a sharp divergence between economic opportunities available in the country’s most well-educated and its least well-educated cities, a phenomenon Berkeley economist Enrico Moretti documents in his 2012 book, The New Geography of Jobs.9 Cities that had large college-educated populations in 1970 attracted more skilled workers during subsequent decades compared with cities that did not. Furthermore, regions with a higher proportion of college-educated workers have seen more substantial gains in productivity and wages than other regions. This is true not just for skilled workers living in these regions, but also for less-skilled workers. Moretti finds that, for any particular job, an individual with the same skills can earn two to three times as much in America’s most well-educated cities as they would in one of America’s least-educated cities.

You’d think that low-wage workers would be flocking to high-wage cities in large numbers. But they’re not. The reason is that well-educated regions tend to impose stringent land-use regulations. That is, the educated regions that offer low-wage workers the best opportunities for upgrading their skills and earning more over time are precisely the regions where rents have grown punishingly high, and where sustainable homeownership is increasingly limited to those who are already well-off.

To illustrate, consider coastal California. Recently, California’s Legislative Analyst’s Office (LAO) issued a report outlining the impact of excessive land-use regulation on America’s most populous state.10 In 1970, an average California home cost 30 percent more than the average U.S. home. Today, the average California home costs two-and-a-half times as much as the average U.S. home, a development the LAO report attributes to the fact that California’s housing stock has failed to keep pace with demand. As a result, Californians are four times as likely as Americans overall to live in crowded conditions, and low-income Californian households, in particular, spend a much larger share of their income on housing than is the case elsewhere in the U.S. This, in turn, makes low-income Californians more dependent on government, including federal rental subsidies financed by U.S. taxpayers.

What we have is a policy regime that enriches the wealthiest incumbent property owners at the expense not just of renters but of all Americans. The LAO estimates that tackling California’s severe housing shortage would require doubling the number of housing units built every year, with all of the increase focused on coastal communities. Yet these are precisely the communities that have proven most resistant to increasing their housing stock.

What would happen if high-productivity,high-cost regions in coastal California and elsewhere eased their land-use regulations? Recently, Moretti and Chang-Tai Hsieh found that if New York City, San Francisco, and San Jose lowered regulatory constraints on new housing to the level found in the median U.S. city—not to the level found in Houston, mind you—these cities would expand their workforce and economic output by enough to increase U.S. GDP by 9.5 percent.11

About the Author
Reihan Salam is executive editor of National Review and a National Review Institute Policy Fellow.


  1. MacArthur Foundation and Hart Research Associates. 2015. How Housing Matters (Chicago, IL).
  2. Gudell, Svenja. 2015. “Q1 Negative Equity Report: After Three Long Years, the Hard Work Begins Now,” Zillow Real Estate Research.
  3. Kocchar, Rakesh, and Richard Fry. 2014. “Wealth inequality has widened along racial, ethnic lines since the Great Recession,” Pew Research Center: Fact Tank, December.
  4. Joint Center for Housing Studies of Harvard University. 2013. America’s Rental Housing: Evolving Markets and Needs, (Cambridge, MA).
  5. Avent, Ryan. 2011. The Gated City (Seattle, WA: Amazon Digital Services, Inc.).
  6. Katz, Alyssa. 2010. Our Lot (New York: Bloomsbury USA).
  7. Rajan, Raghuram. 2010. Fault Lines (Chicago: University of Chicago Press).
  8. Goodman, Laurie, Rold Pendall, and Jun Zhou. 2015. “A lower homeownership rate is the new normal,” (Washington, D.C.: Urban Institute).
  9. Moretti, Enrico. 2012. The New Geography of Jobs (New York: Houghton Mifflin Harcourt).
  10. California Legislative Analyst’s Office. 2015. California’s High Housing Costs: Causes and Consequences, (Sacramento, CA). 
  11. Hsieh, Chang-Tai, and Enrico Moretti. 2015. “Why Do Cities Matter? Local Growth and Aggregate Growth” (working paper no. 21154, National Bureau of Economic Research, Cambridge, MA). 

The Irony of Exclusionary Zoning

By David Schleicher Associate Professor of Law Yale Law School
David Schleicher
David Schleicher

The last thirty years in the study of the economics of cities fairly can be described as ironic. Perhaps for the first time in the discipline’s history, studying cities became central to economic work on issues ranging from trade to growth. Both theory and empirics have pointed to the crucial role “agglomeration economies”—or the benefits workers and firms get from locating near one another—play in determining both how much the economy produces and how innovative it is.

But, over almost the exact same span, public policy has moved almost exactly in the opposite direction of scholars’ suggestions. By inhibiting new construction in the nation’s most productive metropolitan regions, land use laws have increased the price of housing and office space in, and thus restricted access to, the most productive locations for workers and firms. The normative side of modern agglomeration economics is the good advice we just can’t take. To solve the problem of America’s low growth rate, we will need to develop political tools to bring policy closer to the recommendations of economic theory about cities.

Starting in the 1980s, economists like Edward Glaeser, Paul Krugman, Robert Lucas, and Paul Romer engaged in path-breaking research that showed physical location is a crucial factor in determining both how much wealth any given rate of technology produces and the rate at which new ideas are generated.1 Locating in urban areas provides both firms and workers access to deep labor and consumption markets, allowing for specialization and providing insurance against firm- or employee-specific risk. Information spillovers between proximate workers can increase human capital and generate new ideas. And, firms that locate near suppliers face lower shipping costs. Agglomeration economies can increase both the rate at which new ideas are generated and the efficiency with which ideas, labor, and capital are exploited.

The central finding of this work is that capital, labor, and entrepreneurs will be more or less productive and creative depending on who and what else is nearby. An actress can be more productive in the labor market of Los Angeles than she is in the labor market of Phoenix. A firm might be more effective if it is nestled amid the dense set of similar (or usefully different) firms than it is if it is on its own. And individuals become more productive and produce more useful innovations by being near other people from whom they can learn.

But just as economic scholarship began focusing on how places can influence the productivity of labor and capital, legal restrictions began restricting access for new workers or firms to our most productive regions. Starting in the 1980s, demand to live in our most productive regions rose—particularly San Francisco, Silicon Valley, Los Angeles, New York, Boston, and Washington, D.C.—but new construction did not follow, resulting in increasing housing prices.

 Economists and legal scholars like Peter Ganong, Glaeser, Joseph Gyourko, Andrew Haughwout, Rick Hills, Enrico Moretti, Daniel Shoag, and me (among many, many others) have shown that these housing price increases are the result of land use law regimes that have restricted growth.2, I Traditionally, commentators believed that, while rich suburbs might be able to substantially restrict new supply, land use rules would only limit where in a metropolitan area housing would be located. Whether it was in big cities or in the exurbs, there always would be somewhere where new housing could be constructed easily.3

But this belief has been overtaken by events. Prices have increased across entire metropolitan areas as a result of both greater land use restrictions in suburbs and newly restrictive center cities. These productive, rich metropolitan areas have either lost population or barely grown, while poorer but more housing-growth-friendly places have seen massive inflows. Notably, Silicon Valley lost population during the first dot-com boom, 1995–2000, and has barely seen any increase since, while less-rich places like Atlanta, Houston, and Phoenix have seen huge population inflows over the same period.4

Land use laws have had a huge effect on static efficiency of the economy and, perhaps, on the long-run growth rate. The magnitudes are enormous. Moretti and Chiang Tai-Hsieh estimate that land use restrictions have stopped enough workers from moving to higher productivity and high-wage positions to cost the economy nearly 13.5 percent of GDP!5 And that is just the static cost, or the benefit we would see if housing restrictions were fixed overnight.II There may be even greater losses in dynamic efficiency, in terms of all of the ideas that would have been generated if people were interacting in denser areas. But, even if the only losses are static, Moretti and Hsieh’s finding suggests we could goose economic growth for a substantial period of time by progressively removing these barriers.

Not only have land use restrictions limited growth, but they also play a central role in problems of inequality. In his review of Thomas Piketty’s work, Matthew Rognile showed that almost all of the gains to capital over the last seventy years have accrued to house and land ownership.6 The holders of scarce assets that play such a big role Piketty’s work are not like the landed aristocracy of yore, but are, in fact, the landed rich. But, rather than choice farmland, they own access to rich labor and consumption markets in the form of houses and apartments.

Similarly, restrictive land use restrictions affect virtually all of the other subjects discussed in this book. The number of jobs created by superstar firms is limited when there is no housing growth in the metropolitan areas in which they reside. Access to elite K-12 schools is conditioned on being able to buy property in the towns where they exist. And so on.III

But, simply noting that land use rules—zoning, subdivision rules, parking requirements, exactions, and development impact fees, building codes, historical preservation, environmental laws, and so forth—restrict growth excessively is only a first step. These rules exist for reasons, both good, if not sufficient to justify their extent (e.g., restricting externalities associated with new development, encouraging “sorting” among local governments) and bad (“homeowner cartels” restricting supply).

More pressingly, these rules are quite politically entrenched, supported not by formal interest groups, but, instead, by something far more powerful: “home voters.” As William Fischel has shown, a home constitutes a large and undiversified investment for most homeowners.7 Homeowners thus frequently use land use politics to insure the value of their investments. As Brink Lindsey notes, the “low-hanging fruit” of gains from reducing land use restrictions are guarded by fearsome “dragons” in the form of scared, undiversified homeowners.8

Local governments determine most land use rules. And in local politics—which lack mass political parties organized on local issues—these “homevoters” are the dominant players. They show up to zoning board meetings, vote in primaries and off-cycle local elections, and build community groups that engage in both activism and litigation to constrain construction. Sometimes growth advocates, buoyed by an electoral triumph or a big-spending developer, are able to get one-time increases in housing production. But the long-run politics of land use are stacked against new construction.

To think productively about land use politics, one can neither wish away the desires of homeowners to protect their investments nor assume that they will be regularly defeated in local politics by sheer force of argument. Their incentives are too strong, and local politics provides too few mechanisms for bringing mass opinion to defeat them. Instead, reformers need to think about how the process of making land use policies can be changed such that other interests—the interests of renters, of residents of the broader metropolitan area—are taken into account as well, balancing the influence of nearby homeowners on land use decisions.

I’ll provide some examples below of the types of reforms that should be considered. But before doing so, it is worth reviewing exactly why they are so important.

I. A Brief Tour of Agglomeration Economics

Before the turn of the last century, Alfred Marshall famously discussed why people and firms move to cities.9 After all, cities are a bit of a puzzle for a microeconomist. The cost of land and labor is higher, so for firms to choose to move there, there must be offsetting gains. As Robert Lucas later noted, those gains must be from population size and density. “What can people be paying Manhattan or downtown Chicago rents for, if not for being near other people?”10 Marshall discussed three forms of gains: reduced shipping costs, the benefits of deep markets, and what we now call information spillovers, or learning from one’s neighbors. For many years, these lessons fell a bit into the background, even in the field of urban economics.

But, with the rise of mathematical tools inside economics and technological advances, it became increasingly possible for economists to create locational models that incorporated location decisions.IV Starting in the 1980s, the “New Economic Geography”—championed by scholars like Masahisa Fujita, Paul Krugman, and Anthony Venables—focused on how shipping costs and linkages between proximate firms could explain regional and national growth patterns. And, in fact, most of the history of urban development in the United States has been driven by such linkages—export firms locating along transportation lines and input providers locating near them.11 But, with the fall of transport costs (at least domestically) and rise of the service economy, less and less of modern urbanization can be explained by these linkages. Other factors must drive modern urbanization.

Metropolitan regions and cities provide residents and firms with the benefits of deep markets. As shown in work by economists like Glaeser, Moretti, and Darren Acemoglu, among others, deep markets for labor are very important for workers.12 Compare an actress who moves to L.A. versus one who locates in, say, Washington, D.C.13 An actress in L.A. can specialize, perhaps becoming an expert at playing a zombie, while an actress in D.C. has to take whatever role comes in. The LA.-based actress can take classes on acting like a zombie, investing in her human capital, confident that there will be work in this narrow field. An actress in L.A. can more easily match with a firm who wants her specific talents, while matching in D.C. will be more difficult. And an actress in L.A. also has insurance against firm-specific risk. If her employer goes under for some odd reason, she can likely find another acting job without having to move, something that may not be true in a less-deep market for actors like D.C.

While labor markets are regional, other markets are far more local.14 Restaurants and stores often co-locate on the same block to allow for specialization and insurance for consumers against all restaurant options being booked. Even non-pecuniary “markets” show gains from depth. Young people often move to cities from rural areas to access their dating “markets,” which provide major gains from specialization, returns to investing in human capital, and insurance against a single breakup barring the possibility of participating in the dating market.

Further, residents of cities have important opportunities for learning. Technologists learn from other technologists in Silicon Valley, combining new ideas over lattes. It turns out that patents are far more likely to cite the work of other proximate researchers.15 And, as Glaeser and David Mare showed, wage growth is far faster in cities than elsewhere, a sign that workers in cities develop human capital at a faster rate.16 Again, these spillovers are local and specific. A lobbyist chatting with another lobbyist about legislative procedure is a spillover that increases each of their productivities. A lobbyist talking with anyone else about legislative productivity is a ruined dinner party.17 Information spillovers do not only increase our wealth, making us more productive, but also can increase growth or the development of new ideas.

The benefits of cities are matched, however, by their costs. Concentration drives up the cost of land. Economists call this “congestion.”18 Further, as I have noted elsewhere, some things that are bad, like crime, feature the same gains from agglomeration as ordinary economic activity does.

 Over the last 30 thirty years, we have learned a great deal about how urban concentration can increase both the wealth of a society and its growth rate. Further, although agglomeration economies are, by their very nature, externalities, we have reasons to believe that private actors working on their own can coordinate to capture many of these gains. Letting people concentrate, and providing the infrastructure to allow them to do so (streets, water, transit) has been crucial to the growth of the American economy. As Glaeser argues, the city is one of the great inventions of mankind, and its growth is ever more essential to the growth of our economy.19

II. Excessively Restrictive Land Use Regimes: The Economic Costs of Local Politics

Just as research about the benefits of agglomerating at the regional and city levels was taking off, an ironic change happened in local and state policy. First, in California metropolitan areas and then in metropolitan areas on the east coast, land use restrictions began having an effect on region-wide prices and housing supply.20

This was contrary to scholars’ expectations.21 For decades, scholars had known that land use restrictions could limit entry into some rich suburbs. But they had assumed land use restrictions wouldn’t have a region-wide effect on housing supply or prices. There were several reasons for this. The ability to create unending sprawl and “edge cities,” like Tyson’s Corner outside of D.C., meant that there was always somewhere to build housing and office space. The sheer number of local governments, and sorting by population among them, meant that some towns were likely to be more pro-growth than others. And big cities, according to the dominant belief of political scientists, were understood to be dominated by “growth machine” coalitions of developers, businesses, and labor unions devoted to growth at all costs.

But these assumptions turned out to be wrong. As detailed by Glaeser, Gyourko, and Raven Saks, regional housing prices are substantially influenced by how strict land use policies are in the region.22 In the 1980s, big differences emerged between the price of housing and the cost of constructing housing in many regions. This “zoning tax” grew and grew, determining a large percentage of the cost of housing in tight markets. As a result, we have seen extremely high housing prices in regions from San Francisco to Boston. This has driven population away from these high-wage/high-productivity metropolitan areas and toward lower-wage but more-accommodating regions like Houston and Atlanta.

The rise of restrictive metropolitan areas has had a huge effect on the national economy. For most of American history through the 1980s, average state incomes converged, as population flowed from poor states to rich ones and investment flowed in the other direction. But something funny happened along the way. As Peter Ganong and Daniel Shoag have shown, this process stops in the 1970s and 1980s, at least for rich states with restrictive land use rules.23 While convergence has continued among states that do not use zoning restrictively, convergence slowed and then stopped for other states. Population does not flow from Mississippi to Connecticut anymore because you just can’t build enough housing in the rich parts of Connecticut.

For land use rules to have such a large effect, they have to be restrictive everywhere in a region. The big exceptions to this, traditionally, were the urban fringe, which saw increased sprawling construction, and the big cities, which were supposedly under the control of “growth machine” coalitions. But suburban communities have grown even more restrictive. Glaeser and Bryce Ward have shown that communities restrict even beyond the property value maximizing point, likely a result of limits put on the types of payments developers can make in return for the right to build.24 And, at some point, the development of exurban areas reaches a natural limit, and what were once edge communities end up looking like ordinary suburbs.

Big cities have also seen increased restrictions. Until the 1960s, when demand to live in Manhattan rose, new construction followed. But today, that is no longer the case.25 The higher demand to live in Manhattan following the fall in crime in the 1990s was not associated with increased housing construction. And housing construction in Manhattan and New York as a whole has lagged national population growth substantially, notwithstanding huge price increases.26 Other big cities like San Francisco and Boston have seen similar increased demand for housing, but little housing growth. The result is not hard to predict—very, very high prices.

But such restrictions do not only or even primarily work as they do in Manhattan, by limiting construction of big apartment towers. Most land in big cities is quite suburban in look and feel.27 The last thirty years have seen bans in neighborhoods on what has become known as the “missing middle” of the housing stock.28 Cities across the country used to allow all sorts of housing of middling density to be built—townhouses, dingbats, triple deckers, four-tops, and so on. These buildings, often built around streetcar stops, provided the heart of urban housing. But modern zoning restrictions have made building such housing nearly impossible in many major cities. Even detached homes built close together are frequently limited by minimum lot requirements. Below, I will discuss the political economy of why this has occurred, but, when one considers the restrictions of modern urban land use, the focus should be on incremental housing growth and not exclusively on limits on towers or major projects. Similarly, the density of suburbs has fallen dramatically, with post-war suburbs like Levittown having densities far beyond what we see built in suburbs today.

Finally, it is clear that these zoning restrictions are having a real effect on national economic growth. Moretti and Hsieh show that workers are more productive in some areas than in others.29 Allowing labor to flow freely would permit workers to move from low-productivity metropolitan areas to higher-productivity ones. The economy would increase as a result of labor becoming more productive. They find that this effect can be very, very large. If the only three richest regions—New York, San Francisco, and Silicon Valley—allowed sufficient housing to be constructed to permit an inflow of workers from other areas, the economy would be more than 10 percent larger. If all regions allowed entrants, the economy would be 13.5 percent larger.

Two things to note about this study: first, the numbers have to be offset by the gains we see from housing construction limits. Such policies surely produce benefits—new housing construction can harm views, generate noise, and create pressure on common-source resources. But economists like Glaeser and Haughwout have shown that these benefits are far, far outweighed by the cost of restrictions.30 A full accounting, however, also would include the environmental gains created by densification, particularly the reduction in greenhouse gas emissions.31

Second, Moretti and Hsieh’s estimate is very large, but it also excludes something important. Their finding is about the static costs of restricting housing construction. But surely it has dynamic costs, as well. If Silicon Valley’s population were larger, a greater percentage of “information spillovers” would be captured—people would learn from tech geniuses over lunch and create new businesses. Having universities in large cities has been shown to increase property values regionwide, as new businesses emerge from the interaction between people with ideas.32 Greater density in our urban areas would surely have some effects on the growth rate, as well as on the GDP level.

III. How to Spur Urban Growth: Structural Solutions to Political Problems

That zoning and other land use tools have become excessively strict in rich metropolitan areas is not much in dispute.V But there is also little reason to believe they are going anywhere. Zoning’s cleverest chronicler, Richard Babcock, once noted, that “[n]o one is enthusiastic about zoning except the people.”33 Homeowners are heavily invested in protecting the value of their homes and their sense of community.VI Land use restrictions allow existing homeowners to protect the value of their homes against increased supply, ensure semi-exclusive access to locally specific amenities (schools, parking spots, seats at popular restaurants), and reduce construction-related externalities (noise, lost views, etc.). Federal policies that contribute to the problem are similarly hard to see changing—e.g., the home mortgage interest deduction, the failure to treat as income the “imputed rent” paid to yourself when you own a home—also encourage local governments to zone for expensive housing.34 “Homeowner cartels” designed to dominate local land use politics have proven extremely stable and effective over time.35

Rather than simply arguing that such policies are unwise, reformers should think about how they might change the procedure for deciding land use rules. Today, most important land use decisions are made by individual towns. Even within cities, norms of “aldermanic privilege” means that such decisions about zoning amendments often are made by individual legislators or community groups at the neighborhood level. The result is that we end up with more restrictive land use rules than we might if different procedures were used. When people interested in allowing housing construction seize power, they should consider pushing procedural reform rather than trying to allow one-off new development projects.36

In this section, I will discuss two types of strategies: (1) changing the level of government at which land use decisions are made, and (2) changing the process or politics through which land use decisions are made inside cities.

a. Changing the level of government that makes the decision

While some important laws that limit housing construction are made by states—environmental review laws, for instance—the most consequential ones are made by localities. States have given localities substantial authority over zoning, building codes, historic preservation, subdivision requirements, parking minimums, and the like.

For decades, zoning critics have pointed to the possibility of moving zoning policy away from local governments and giving it to higher levels of government.37 Proposals to move land use policy-making authority to regional or state governments were originally a response to the problem of exclusive, rich suburbs.  But removing local authority may also work to reduce excessive zoning across a region. After all, a metropolitan layer of government (or the state government) would take into account a broader set of views about the merits of any specific development project—not just the views of nearby neighbors, but also all of the renters and employers around a metropolitan area.

In practice, moving aspects of land use to a higher level often has resulted in more restrictions, rather than fewer. State environmental laws, particularly, have substantially restricted new development in places like New York and California, even (or particularly) infill development that most environmentalists see as important to reducing greenhouse gas and other types of emissions. Many regional or state land use laws serve as a “double veto” in Fischel’s terminology, a second bite at the apple for opponents of new projects.38 Rather than replacing local land use restrictions, higher levels of government frequently supplement them.

But there are a number of examples where broadening the scope of government involved in zoning and land use matters has resulted in less-restrictive land use laws. Regions in the South and West that allow for liberal construction of housing frequently feature large cities with substantial power to annex nearby territory, creating quasi-regional zoning.39 Regions like Seattle, in which regional bodies play a larger role in land use, have seen substantial new housing construction.40 And, in Ontario, the Ontario Municipal Board, a provincial body, acts as an appeals board for local land use decisions, reviewing them de novo. Although it has the power to reject any type of local land use decision, it most frequently acts on behalf of development projects supported by city planners but rejected by the City Council.41 Both its influence and the shadow it casts over development politics in Toronto are likely large reasons why Toronto has seen its housing stock increase substantially.

While this type of reform is attractive, it has downsides, as well. First, locals have greater information about any given project, and moving planning authority away from them reduces the capacity of the system to incorporate that information.

Second, and more pressingly, in the United States we put a great deal of stock in inter-local competition creating better local governmental outcomes.42 The existence of many local governments allows for “sorting” by citizens choosing their preferred package of taxes and services. It also creates pressure on local politicians to deliver the goods, lest they cause exit (or the absence of demand for entry) and declining property values. But, as Bruce Hamilton has shown, in absence of land use controls, inter-local competition between property tax-funded local governments is unstable.43 Once a local government creates a high-quality set of services, property owners have incentives to subdivide their property, allowing new entrants to get the services on an equal basis with other residents but only paying a fraction of the taxes. Thus, removing locals’ ability to restrict subdivision or construction would remove some of the incentives local governments have to provide high-quality services. Further, the efficiency of the property tax regime turns on the capacity of local governments to reject development.44

One way around this is to give local governments the power to zone, but encourage inter-local contracting. As Clay Gillette has shown, inter-local contracting is very hard, as courts find it difficult to enforce the terms of deals between local governments.45 Gillette suggests policies designed to encourage trading. One such policy he highlights is an aspect of the New Jersey’s legislature’s response to the famous Mt. Laurel decisions.46 The legislature required each town to allow or build a certain amount of affordable housing, but also allowed for towns to buy and sell these requirements to some degree. While the institutional mechanisms would have to be developed substantially, this type of policy might provide a way to encourage inter-local contracting.

Another possibility is that we should simply pay the price. Local control is a value, but its costs now outweigh its benefits and it should be curtailed. As I’ve argued, the very existence of local governments and the capacity to sort between them limits agglomerative efficiency, because, when individuals or businesses move to capture government services, they will be moving away from whatever their economically best location decision is.47 Further, there are plenty of reasons to believe that sorting for services is somewhat overrated; local governmental policies are frequently quite similar, except for their wealth levels, suggesting sorting frequently has more to do with perpetuating wealth differences than with supporting different policy preferences. And as Zach Liscow has shown, court decisions forcing greater sharing of property tax revenues for schools have been an important driver of the modern “return to the city.”48 Living in cities meant sharing a tax base with poor people, which caused people to move away from their most efficient location. School tax equalization decisions allowed them to return. Moving zoning authority to a higher level of government may have costs, but paying those costs would probably be worth it.

b. Fixing Local Land Use Procedure and Politics

Even if we changed the level at which zoning policy is made, it would not necessarily result in fast housing growth. After all, New York City is itself bigger than most U.S. metropolitan regions, and it has seen slow housing growth.49 Further, removing authority from local governments is clearly outside of the hands of local politicians or residents of any one city.

But those seeking sustained housing growth at the level of an individual city need not throw up their hands. Instead, they can look to procedural reforms that will encourage their city to allow more production by considering a broader swath of preferences in land use decisions.50 The key is moving away from a zoning process that considers each project or zoning amendment, one by one, and toward a more comprehensive approach.

Local government experts once assumed that big cities inevitably would be run by “growth machine” coalitions of pro-growth forces: developers, unions, downtown businesses. But land use changes generally are made through geographically specific seriatim zoning amendments. This makes citywide coalitions hard to maintain.

Big-city local legislatures rarely are organized by party coalition—they are either non-partisan or completely dominated by one party. In the absence of coalitions that can or need to present a citywide platform, local legislatures frequently devolve into what scholars call “distributive politics” norms.51 The most famous version of this is pork spending. Legislators may prefer less taxing and spending, but most prefer spending in their districts. They will only agree to limit spending on projects in their districts if everyone else does, as well. Unless they care about preserving jurisdiction-wide party brands from the embarrassment of having to raise taxes, and unless there are party whip apparatuses to enforce deals, legislators will not have the capacity to make deals to limit spending everywhere. Instead, a bad equilibrium can emerge. Every legislator votes for every other legislator’s pork project, lest everyone gang up and harm her pork project.

In the realm of land use, this is called “aldermanic privilege.” City councils regularly defer on zoning amendments to the member from the district in which the project arises. Voters and legislators likely would allow more projects to go forward, but are worried that their districts will become dumping grounds for all new development. Just as legislators all vote for each other’s pork projects, they all vote against new development when the local legislator is against it, even if the project would provide citywide benefits. The result is that big cities end up looking like a bunch of divided suburbs, with each district blocking new development. Greenwich Village can end up looking like Scarsdale, equally capable of blocking development that provides regionwide benefits.

Further, seriatim decisions on zoning amendments make incremental housing growth very difficult. When legislatures consider “down-zonings” or reductions in the size of the zoning envelope to current uses (so there is less or no “as of right” development), they do so in advance of any developer having made an investment. As a result, there is no big, repeat player around to lobby against them. The field is left to nearby homeowners, who oppose new construction and get the down-zoning passed. Huge swathes of cities are now zoned at or below current uses. To build anything bigger (or even to rebuild the exact same-sized structure when zoning is beneath current use), a developer would have to convince the city council to pass a new zoning amendment.

Down-zonings are brutal on the “missing middle” type of housing construction, because it is rarely worth it for developers of this type of housing to go through the costly and politically fraught process of winning a zoning amendment. It takes hundreds of thousands of dollars and many months, at a minimum, to get projects through the zoning amendment process in big cities. It is just not worth it for small developers. Incremental housing growth is thus stunted.

This process results in the steady decrease in cities’ capacity to grow their housing stock. But elections have stochastic results and, sometimes, mayors and city councils that support housing growth are elected. What should pro-growth politicians do when and if they seize power? One option is to simply to approve new housing. This, however, does little to address the real problem. Some new housing will get built, but the basic politics of zoning will continue on unchanged long after the pro-growth coalition is out of office.

Drawing on reforms that moved international trade politics from a similar public-choice nightmare to our current, largely free, trade system, I have suggested several procedural reforms that a pro-growth coalition could adopt to create a new equilibrium—one that would produce steady housing growth—going forward.

The first is a requirement that the city council pass a “zoning budget” every few years. Under this procedural requirement, the city council would empower the mayor to propose a target for housing growth for a period of time. The council could reject that proposal, but we might expect the mayor to choose the most pro-growth number the council would accept (mayors generally are more pro-growth than city councils are).

The target could be any number (including zero or a negative number), but, under the proposed rule, the council could not consider any down-zonings until it approved enough zoning changes to hit the target. Once it did, if it wanted to approve a down-zoning, it also would have to approve a matched zoning amendment that allowed new construction. The result would be that consideration of individual projects would follow a broader discussion of housing needs.
Why would this help? If a single decision about housing growth were made, it would encourage cross-neighborhood deals. Rather than making each decision seriatim, a budget process would encourage a single deal and, thus, alleviate prisoner-dilemma-like problems that cause distributive politics. A budget process also would remove the bias against incremental housing growth. Big developers would have an incentive to lobby for big budgets before they were sure about whether their projects were included. Their influence would not only help their own projects, but would be used against down-zonings, as well. Further, the budget process would encourage consideration of broader goals outside of the specifics of any given project, focusing attention on broader concerns.

But, if a city council can create a budget process, it can unwind it, as well. If a councilmember realizes that the budget process results in a project her constituents don’t like, she might try to get an exception to the budget rules. The key in the setup of the procedure would be a rule that said that any exceptions require redoing the entire zoning budget process. This would mean that the whole council (and the mayor) would have an incentive to stop any effort by a councilmember to get around the budget process.

Introducing budgeting would be a major change to the zoning process. But you could imagine smaller changes that have a similar flavor. The process for passing entirely new city plans is, in fact, a pretty similar process, as long as those plans have some power to restrain future down-zonings.52 Even an ordinary zoning amendment that includes many neighborhoods would achieve something similar. For instance, a mayor could propose a series of rezonings in every neighborhood along a new bus line, train route, or new park. The mayor then could announce that the upgraded service would happen only if the council approves enough new housing to justify it, effectively creating a “zoning budget” target for the project.

Cities could enact other procedural changes to speed housing growth. We know NIMBYs aren’t going anywhere, but they can be bought off with big enough side payments. Traditional efforts to do this rely on money coming from a developer. Sometimes this is done formally through public policy, particularly requirements that developers pay impact fees to provide neighborhood services. Sometimes it is done informally, through community benefits agreements (CBA), which are, in effect, contracts developers sign with neighborhood groups.53 Under a CBA, the developer pledges to provide a package of benefits (often jobs, changes to the project, or money for services) and, in return, neighborhood groups agree to support the developer during the zoning process.

But requiring developers to pay is effectively a tax on new housing, driving up its price. Instead (or in addition), we could use part of the benefits the city gets from new development to pay off neighborhood groups. The city could give property owners near a new development a percentage of the “tax increment” created by a new project. (The tax increment is the new tax revenue created because of the zoning change—the increased value of the property times the property tax rate). This would make neighbors effectively partners in a new development project, rather than opponents. The payoffs would not tax housing construction and, thus, would not increase housing costs generally.

A completely different way to go would be to try to change local politics more broadly. Recall that one of the major reasons that zoning politics is so restrictive is the absence of city-specific political parties with incentives to promote citywide party brands. One could imagine attempting to create such “parties,” even in formally non-partisan cities.

Elsewhere, I have proposed some election law reforms that would encourage locally oriented party competition.54 But one need not wait for big-bang political changes. Private groups have supported groups of candidates using tools called “slating commissions.” In effect, these become citywide parties. The most effective version of this might be a major public figure in local politics—someone like, say, Michael Bloomberg—creating a policy platform and telling local candidates that they’d receive his endorsement (and campaign cash) if the candidate adopted and promoted her adherence to the platform.55 The creation of citywide parties would encourage proposals that were more sensitive to the broader citywide interest and less to specific neighborhoods.

Regardless of which direction they take, efforts to change public policy to allow for faster urban growth should focus on changing the process through which local decisions are made.

IV. Conclusion

Economic growth in the United States has slowed. There are few pieces of “low-hanging fruit,” or changes that can relatively easily bring growth back. Land use reform is one of them. But, to achieve it, we need to fix the process of local land use decision making. This will require sustained effort by pro-growth forces in unlikely places. Reformers will have to get their hands dirty in a type of politics that is both more intense and less rarified than they are used to: zoning board meetings, community group potlucks, city council primaries. Local politics has held back national economic growth, and we need to engage with local politics to cure its defects.

About the Author
Professor Schleicher is an Associate Professor of Law at Yale Law School and is an expert in election law, land use, local government law, and urban development. His work has been published widely in academic journals, including the Yale Law Journal and the University of Chicago Law Review, as well as in popular outlets like The Atlantic and Slate. Schleicher was previously at George Mason University School of Law. He is a 2004 magna cum laude graduate of Harvard Law School. He also holds an MSc in Economics from the London School of Economics and an AB in Economics and Government from Dartmouth College.


  1. It is perhaps fairer to say that work in this area blossomed in the 1980s with the rise of the New Economic Geography. It, of course, drew on earlier work, most famously Alfred Marshall’s discussion of the benefits of cities. And there was always some important work on urban economics being produced. For a history of this development, see Schleicher (2010); Krugman (1995).
  2. These costs far outweigh our best estimates of the benefits these policies create in terms of reduced externalities from property use. See Haughwout et al. (2014); Glaeser, Gyourko, and Saks (2005b).
  3. For the rest of the paper, I will focus on the implications for growth and not for these other issues, but it should be noted that the potential benefits from land use reform are broader than simply improving economic growth.
  4. Models of locational decisions need to incorporate increasing returns to scale and feature multiple equilibria, making them very messy and particularly difficult to work with before revolutions in computer technology. For a discussion, see Krugman (1995); Fujita et al. (1999).
  5. Even the economist who has done the most to justify modern zoning policy, William Fischel, agrees. “The problem is that local zoning allocates too little land for all uses, including housing. This withdrawal of land from available supply, and the difficulty of getting it back into play, causes housing prices everywhere to be too high and probably causes excessive metropolitan decentralization.” Fischel (2010).
  6. One type of policy not considered here is using tax and other types of policies to discourage homeownership (or at least subsidize it less). Two very prominent books—Fischel (2015) and Fennell (2009)—propose versions of this, suggesting a suite of policy ideas ranging from removing the mortgage income deduction, taxing as income the “imputed rent” homeowners charge themselves, reducing the subsidies for homeownership that run through the Federal Housing Administration and other government entities, and even changing background property law principles. These ideas are important and may work to reduce demand for excessive zoning. However, a cautionary note is worthwhile. Jurisdictions like New York City already have low homeownership rates, but still have increasingly strict zoning rules, as heavily invested homeowners (and rent-control protected renters) are the biggest players and less-invested residents pay less attention to land use politics. Reduced homeownership (or homeownership stakes) may simply empower those who remain heavily invested.


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Hsieh, Chiang-Tsai, and Enrico Moretti. 2015. Why Do Cities Matter? Local Growth and Aggregate Growth. NBER Working Paper No. 21154.

Hills, Jr., Roderick J., and David N. Schleicher. 2011. Balancing the “Zoning Budget.” 42 Case W. Res. L. Rev. 81, 112–118.

Hills, Jr., Roderick J., and David N. Schleicher. 2015. Planning the Affordable City. 101 Iowa L. Rev. 91 (2015)

Jaffe, Adam B., Manuel Trajtenberg, and Rebecca Henderson. 1993. Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations. 108 Q. J. Econ. 577, 577.

Kiewiet, D. Roderick, and Mathew D. McCubbins. 1991. The Logic of Delegation: Congressional Parties and the Appropriations Process.

Kolko, Jed. How Suburban Are Big American Cities? FiveThirtyEight, May 21, 2015.

Krugman, Paul. 1995. Development, Geography and Economic Theory.

Lindsey, Brink. 2015. Low-Hanging Fruit Guarded by Dragons: Reforming Regressive Regulation to Boost U.S. Economic Growth. Cato White Paper.

Liscow, Zachary D. 2015. Are Court Orders Responsible for the ‘Return to the Central City?’ The Consequence of School Finance Litigation, working paper.

Lucas, Jr., Robert E. 1988. On the Mechanics of Economic Development. 22 J. Monetary Econ. 3.

Marshall, Alfred. 1953. Principles of Economics (8th ed.).

Molotch, Harvey. 1976. The City as a Growth Machine: Toward a Political Economy of Place. 82 Am. J. Soc. 309, 309–310.

MissingMiddle, About. 2015. MissingMiddle.Com.

Moore, Aaron A. 2013. Planning Politics in Toronto: The Ontario Municipal Board and Urban Development.

Moretti, Enrico. 2013. The New Geography of Jobs.

Rodriguez, Daniel B., and David Schleicher. 2012. The Location Market. 19 Geo. Mason L. Rev., 637.

Rognile, Matthew. Deciphering the fall and rise in the net capital share. Brookings Papers on Economic Activity, March 19, 2015.

S. Burlington Cnty. NAACP v. Township of Mount Laurel (Mount Laurel I). 336 A.2d 713, 731–734 (N.J. 1975).

S. Burlington Cnty. NAACP v. Township of Mount Laurel (Mount Laurel II). 456 A.2d 390, 489–490 (N.J. 1983).

Romer, Paul. 1986. Increasing Returns and Long Run Growth. 94 J. Pol. Econ. 1002, 1006.

Schleicher, David. 2007. Why Is There No Partisan Competition in City Council Elections?: The Role of Election Law. 23 J.L. & Pol. 419, 419–422.

Schleicher, David. 2010. The City as a Law and Economic Subject. U. Ill. L. Rev. 1507.

Schleicher, David. 2013. City Unplanning. 122 Yale L. J. 1670.

Schleicher, David. Ain’t No Party Like a Bloomberg Party, Because a Bloomberg Party Don’t Stop. Prawfsblawg, May 7, 2012.

Smith, Stephen. Chart: Housing Growth in U.S. Cities, 2000–2010, From Detroit to Miami. NextCity, March 7, 2014. 

Tiebout, Charles M. 1956. A Pure Theory of Local Expenditures. 64 J. Pol. Econ. 416.

Weingast, Barry R. 1979. A Rational Choice Perspective on Congressional Norms. 23 Am. J. Pol. Sci. 245, 249–253.


  1. For just some classic works, see Romer (1986); Lucas (1988); Krugman (1995); Fujita et al. (1999); Glaeser (2008a); Moretti (2014). For a review of this literature, see Schleicher (2010).
  2. For a literature review, see Schleicher (2013). For some examples, see Ganong and Shoag (2012); see Glaeser (2008a); Glaeser and Gyourko, (2002); Glaeser and Gyourko (2003); Glaeser, Gyourko, and Saks (2005a); Glaeser, Gyourko, and Saks (2005b); Haughwout et al. (2015); Hills and Schleicher (2012); Hills and Schleicher (2015); Moretti (2014); Schleicher (2013).
  3. For a discussion of the literature making these assumptions, see Schleicher (2013).
  4. Avent (2011).
  5. Moretti and Hsieh (2015).
  6. Rognile (2015).
  7. Fischel (2001).
  8. Lindsey (2015).
  9. Marshall (1953). It was originally released in 1890.
  10. Lucas (1988).
  11. Glaeser and Kolhase (2004); Glaeser and Ponzetto (2010).
  12. Acemoglu (1996); Moretti (2014); Glaeser (2008a); Glaeser and Mare (2001).
  13. This example is taken from Rodriguez and Schleicher (2012), and it was used in several other places previously.
  14. For a review of the gains from non-labor market depth, see Schleicher (2010).
  15. See Jaffe et al. (1993).
  16. Glaeser and Mare (2001).
  17. This is taken from Rodriguez and Schleicher (2012).
  18. See Schleicher (2010) for a review of congestion and negative agglomeration costs.
  19. Glaeser (2011).
  20. Fischel (2010); Glaeser, Gyourko, and Saks (2005a); Glaeser, Gyourko, and Saks (2005b); Schleicher (2013).
  21. For a review of this literature, see Schleicher (2013). For an example, see Ellickson (1973).
  22. Glaeser, Gyourko, and Saks (2005a); Glaeser, Gyourko, and Saks (2005b).
  23. Ganong and Shoag (2012).
  24. Glaeser and Ward (2005).
  25. Glaeser, Gyourko, and Saks (2005b).
  26. Smith (2014).
  27. For a discussion of how generally suburban-feeling many neighborhoods inside American big cities are, see Kolko (2015)
  28. MissingMiddle.Com (2015).
  29. Moretti and Hsieh (2015).
  30. Moretti and Hsieh (2015); Glaeser, Gyourko, and Saks (2005b); Haughwout et al. (2014).
  31. See Glaeser (2011) for a discussion.
  32. Haughwout and Inman (2004).
  33. Babcock (1966).
  34. See Glaeser (2008b) for a very long discussion of why federal policy in this area is anti-urban.
  35. The evocative term “homeowner cartel” comes from Ellickson (1972). An important and hard-to-answer question is why homeowner cartels are stable, or, rather, why neighborhood groups opposing new housing don’t see defections (people who want to build while other people can’t) or collective action problems (just not showing up.) Some political institutions, like the community boards used as a formal part of New York City’s zoning process, can provide neighbors with some capacity to monitor each other’s participation and deviations. But this is a question worthy of substantial future study.
  36. For a long discussion of the political economy of this tradeoff, see Schleicher (2013); Hills and Schleicher (2011).
  37. See Frug (1999).
  38. Fischel (2015).
  39. For a review, see Schleicher (2013).
  40. See Hills and Schleicher (2015); Smith (2015).
  41. Moore (2013); Smith (2015).
  42. For a review of research on sorting, see Schleicher (2010). All discussion of sorting began with the classic work in the field, Tiebout (1956).
  43. Hamilton (1975).
  44. Fischel (2015).
  45. Gillette (2001); Gillette (2006).
  46. See Mt. Laurel I; Mt. Laurel II.
  47. Schleicher (2010).
  48. See Liscow (2015).
  49. Smith (2015).
  50. This whole section draws on Hills and Schleicher (2010); Schleicher (2013); and Hills and Schleicher (2015).
  51. Weingast (1979); Cox and McCubbins (2007); Kiewet and McCubbins (1991).
  52. See Hills and Schleicher (2015).
  53. See Been (2010).
  54. See Schleicher (2008).
  55. See Schleicher (2012).

Facilitating a Shift Toward Entrepreneurial Activity in New York City

By Tokumbo Shobowale Chief Operating Officer The New School
Tokumbo Shobowale
Tokumbo Shobowale

Efforts of New York City government and collaborating institutions to encourage additional entrepreneurial activity in the city have focused primarily on creating a supportive ecosystem rather than supporting individual companies. The city has:

  • Sought to understand the critical components of this ecosystem.
  • Promoted components that already exist.
  • Attempted to identify and ameliorate any deficiencies.

Notably, perhaps the most significant supporting condition has been the existing communities within given entrepreneurial subsectors—communities that the city has worked to support and publicize.

Community Consultation
A logical first step in the city-government-led process for identifying critical conditions has been consultation with various private sector communities, to the extent that they already existed when the initiative began. This approach began in earnest in 2008 with a focus on technology-enabled startups, but subsequently expanded to a range of sectors and types of businesses, especially those disrupted by technology.

In addition to general entrepreneurship support, the areas in which New York City provides more sector-specific support now include food manufacturing, other food-related businesses, fashion, media, small-scale manufacturing, mobile applications, art (i.e., artists as entrepreneurs), health and biotechnology, and clean technology.

In each sector, the city began not only by conducting individual interviews with entrepreneurs, funders, and other supporting players, but also by convening larger groups to collectively discuss challenges and opportunities identified by individuals within the group. Just as important as the knowledge generated through these meetings, the simple act of convening strengthened the communities in question— deepening connections, creating some first-time face-to-face relationships, and galvanizing actions by the individuals and businesses involved. Creating a sense of urgency and opportunity helped the various sectors “own the issue.”

Assessing Barriers

Convening was supplemented with rigorous, data-driven, competitive, global benchmarking to assess New York City’s advantages, macro industry trends, and barriers to growth.

Chief among barriers identified not only in the tech startup world, but also in other areas of entrepreneurship, were real estate and financing. The fact that affordable space was identified as an issue is not surprising—space affordability long has been an issue across almost all areas of the New York City economy.

Of particular issue for entrepreneurs, however, were the longer leases, underwriting/financing criteria, and larger blocks of space typical in New York real estate markets. For decades, the major players in New York City commercial real estate had responded primarily to demand from well-established and relatively mature companies for which long-term leases often were preferred, and which could provide a strong financial history.

For those seeking to launch new enterprises beginning with a small footprint but aspiring to grow rapidly, this rigidity of terms within traditional New York commercial real estate proved a significant impediment. To put it simply, blocks of office space suitable for companies of one-to-nine employees were few and far between. And spaces that did exist could not accommodate the same companies when they grew to fifteen or twenty employees and beyond. This situation long has been exacerbated by the relatively efficient use of residential space in the city. Unlike in other metro areas, it is often quite expensive and logistically complicated to incubate a startup out of one’s New York City home. The proverbial business started in a garage is harder to create in a city with few garages (or available basements).

Incubating in the City

Accordingly, one of the lead initiatives in the city’s effort was an incubator that would offer small, flexible workspaces to entrepreneurs starting small but hoping to grow rapidly.

Via a request for proposals, the New York City Economic Development Corporation (NYCEDC) initiated the first city-sponsored incubator on Varick Street in Lower Manhattan. Rather than run the incubator directly, the NYCEDC sought institutions that not only could provide physical space, but also could build community, and create an ecosystem to support entrepreneurs.

Ultimately, the city awarded a contract to New York University Polytechnic Institute (at the time, NYU and Polytechnic were separate collaborating institutions that subsequently merged) in collaboration with Trinity Real Estate, one of the largest owners of real estate downtown. Trinity provided the space at a heavily discounted rate as part of a broader plan to seed a new commercial district with emerging business, and create a creative, cutting-edge brand for the neighborhood.

NYU-Poly’s role encompasses much more than management of the space. Most importantly, they have created multiple channels for interaction both among the resident businesses of the incubator, and between those residents and key players in the supporting ecosystem.

The staff of the incubator has curated a series of seminars by those providing legal, financial and operational advice. They also help with matchmaking between resident firms, students seeking employment, and more seasoned entrepreneurs. The incubator management team has facilitated interactions among the tenants, ranging from happy hours to formal workshops and demo days. The director of the incubator also connects residents with key initial customers for businesses in certain sectors. The goal of these efforts is to assist emerging businesses in growth beyond the initial phase.

Expanding incubators

Given the initial success of the Varick Street incubator, the city further experimented with alternative space and incubator models, seeking to replicate the concept broadly, but not to duplicate the model exactly.

The first incubator was (a) tech focused, (b) Manhattan based, (c) office-work oriented, and (d) run by a university partner. Based on this initial model, NYCEDC has launched and continues to launch additional incubators (a) across a variety of sectors, (b) located throughout the city, (c) involving physical products and industrial production as well as services, and (d) using a range of organizational models, from nonprofit, to for-profit and membership-based.

What began as a single incubator expanded exponentially. The sixteen (and counting) incubators and coworking spaces are located in Brooklyn, Queens, the Bronx, and Staten Island. They target entrepreneurs in media, food manufacturing, other food-related businesses, biotech, health tech, art (i.e., artist entrepreneurs), small-scale manufacturing, and fashion, among other industries. To date, more than 1,000 startup businesses have benefited directly from the incubators, raising more than $180 million in venture funding.

More importantly, the private sector now has recognized the need for smaller and more flexible spaces for entrepreneurs. Since the inception of the initial Varick Street incubator, various operators have invested billions of dollars in a range of models providing space and other services to new businesses—at a scale and order of magnitude greater than that supported directly by the city. Jamestown Properties, Brownstoner and WeWorkTM, among others, have built business models predicated on the need for entrepreneurs to have the right environments in which to start and grow their businesses.

More broadly, these real estate and service providers are building business based on the reality that entrepreneurial activity now constitutes a significant portion of the New York economy, and is thus deserving of investment, (i.e., is an opportunity to make money). Most famously, WeWork which opened its first New York location in 2011— two years after the NYCEDC/NYU Poly incubator—now has ten sites in New York City, and is valued at $10 billion,1 with significant investments from JPMorgan Chase, Goldman Sachs, and Mort Zuckerman.

The mainstream acceptance of the significance of this entrepreneurial economy was further demonstrated by the recent announcement of Artie Minson, former chief financial officer of Time Warner Cable, as the new president and chief operating officer of WeWork. The new economy is being embraced not only by establishment investors, but also by establishment executives.

Creating Benefits through Communities

Although appropriate space was the most tangible benefit of the Varick Street and subsequent city-supported incubators, as well as of various private sector models, the most significant benefits probably have flowed from the communities the spaces have facilitated. For example, Brooklyn FoodWorks, scheduled to open this summer, will provide commercial kitchen space and business mentoring in a repurposed Pfizer manufacturing building.

FoodWorks president Drew Barrett describes the space: “We really see this as a community focal point around new food products, and innovation in and around the area.”2 Initiatives housed at the incubator will help connect entrepreneurs with mentors in the industry, and also will promote startup opportunities broadly, thus attracting additional chefs, and those with an interest in small-batch production.

In a similar vein, community building and community promotion have been prominent parts of private players’ business plans. In addition to either curating or brokering formal entrepreneurship training, many of the most active startup space providers have invested heavily in creating space—both literally and figuratively—where entrepreneurs come together to support each other. Just as in the city-supported spaces, this has manifested itself in the form of more open workspaces (whether offices, shared kitchen facilities, or making centers), which lead to frequent, spontaneous interactions across workstations or “at the water cooler.” But many of the private players have gone much farther, curating the provision of shared dining amenities (e.g., Jamestown Properties), sponsoring regular happy hours (e.g., WeWork), and building large common social spaces (almost every player in the space). As WeWork writes on its website:
“Our events are an integral part of the WeWork experience. They are a chance for you to learn, speak, network, and get inspired and reinvigorated for the challenging road ahead.”

Shifting the business world

With this development of broader communities supporting entrepreneurs has come an important cultural shift in the workforce and business world. Since its founding, New York City always has been home to a healthy population of entrepreneurs. For centuries, millions of New Yorkers created and supported themselves via a wide range of small businesses and other entrepreneurial activities.

During the late nineteenth and twentieth centuries, however, the dominant culture of the city’s workforce shifted. First large-scale manufacturing production came to dominate, with manufacturing and trade accounting for more than half of all jobs in the New York City economy of 1950.3 These jobs were heavily concentrated in large-scale production facilities, such as the two-million-square-foot Nabisco complex in Manhattan (around the site of the current High Line), the Domino Sugar factory on the Brooklyn waterfront— which once produced half of all domestically consumed sugar—and the large concentration of manufacturers in the midtown Manhattan garment district.

During the latter half of the twentieth century, the dominance shifted from industrial production to professional services, particularly financial services, insurance, and the service industries supporting them (e.g., law and accounting). In both the manufacturing and FIRE (finance, insurance and real estate) eras, large players dominated. For example, the American Sugar Company (which became Domino) was one of the original twelve companies included in the Dow Jones Index, and major banks and insurance companies have been among the largest employers in New York since the 1960s.

Thus, for the majority of recent history, large portions of the city workforce were employed in well-established, rather than entrepreneurial, firms. An industrial and professional workforce, across income levels, was attracted to and trained by these firms. Not surprisingly, the expectation for many New Yorkers was to be employed in these areas, and the image the city projected both internally and externally reinforced these expectations. Not only did young New Yorkers grow up expecting to follow in their parents’ footsteps as workers in large manufacturing operations (early twentieth century) or on Wall Street (late twentieth century), but immigrants from across the country and around the world came to the city to make their fortunes in these areas, as well.

The development of entrepreneurial communities has begun to change this. The clusters that have grown up in and around the incubators, shared workspaces and shared selling spaces have created a self-reinforcing network Not only do these communities support each other—providing guidance, training and other services—but they also have created a professional path that attracts others.

Although the financial investment the city government made in these spaces has been small relative to that made by the private sector, the attention the city drew to these spaces—and, more importantly, the communities they housed—helped shift public consciousness and popular perception of New York City. As Neil Blumenthal, cofounder of Warby Parker, put it:
“Mayor Bloomberg has been a great champion of the startup community. He used his bully pulpit to promote the New York startup scene nationally and internationally, helping us attract new talent and customers, the lifeblood of startups.”4

Breaching the financing barrier

As mentioned earlier, financing was the second primary barrier identified in the consultative process—a barrier faced by entrepreneurs in tech as well as low-tech businesses, such as small-scale food production. Absent sufficient resources, many founders simply cannot move from concept to implementation. Or if they do get that far, they struggle to subsequently take their businesses to scale. Unless launched by serial entrepreneurs with pre-existing, strong ties to sources of capital, startup businesses lack access to financing sources that typically are available to companies with established, stable track records, and credit histories.

In the case of the high-tech industry, the financing barrier was once again rooted in community, or lack thereof. Most of the key players engaged in the initial consultative process bemoaned the dearth of locally available venture and seed capital. Some serial entrepreneurs and more sophisticated players had access to California-based venture capitalists, but these funders often required that firms relocate to the West Coast. Those in what then was a more limited NYC tech community emphasized that most venture capital firms were populated and run by former tech entrepreneurs. In other words, the dearth of NYC-based venture capital firms was a direct result of the historically limited tech startup community in the city. As a result, there were fewer entrepreneurial alumni who had made their fortunes independently, and thus were comfortable with and knowledgeable about reinvesting their wealth in these enterprises.

Accordingly, the second initiative in the city’s suite of programs to support entrepreneurship was a subsidized angel-investing fund, the New York City Entrepreneurial Fund (NYCEF). The NYCEDC used a 2009 request for proposal to solicit a private firm that would invest in and operate an investment fund for NYC-based tech startups. The city invested on a pari passu basis, but as a silent investor. The only requirements were that the recipients be based in New York City, and that they not be engaged in illegal or morally undesirable enterprises (e.g., weapons manufacture or narcotics distribution). First Mark Capital, the venture capital firm awarded the contract, set aside an additional $19 million to invest alongside the NYCEDC’s $3 million in seed funding.

As was the case with incubators and provision of space, the city’s participation in venture capital financing was most important in terms of seeding private investment, and changing perceptions within the city’s entrepreneurial communities and in the broader public.

In the ensuing years, the participation of private players in local startup financing has become much more robust and, just as importantly, non-New York-based funders have become much more willing to invest in New York startups without requiring them to relocate out of the city. And as with the pattern of incubator development, the city has moved beyond seeding generic tech startup funds to more specialized and capital-intensive areas, including NYCEDC’s recent launch of a $150 million biotech fund, which includes partners such as Celgene, GE Ventures, and Eli Lilly.

Promoting talent

The third leg of the city-supported stool for entrepreneurship involves promotion of talent. As with the other two legs, the city’s role was one of facilitation.

The market for human capital in the city is enormous, is closely tied to that of the nation, and can take years—if not decades—to alter significantly. Thus, the city sought primarily to attract attention to the need for talent in key areas of the economy, and thus to influence both private institutional investment, and individual workers. The near-term goal was not to materially change the creation of key skills, but rather to change perceptions, thereby influencing reallocation of talent from other cities to New York, and also within industries in the city.

The timing of the city efforts in this regard was, ironically, aided immensely by the financial crisis of 2008. The silver lining of the job displacement and change in economic outlook that resulted from the crisis was an opportunity to dramatically change the perception of economic opportunity associated with entrepreneurial activity in New York.

As noted earlier, much of the city’s economy long has been centered on larger and more established companies and industries. There always have been entrepreneurs but, especially during the past several decades, the primary attraction for many workers and immigrants (domestic and international) to the city had been the high profile and highly remunerative finance, insurance, real estate, and professional services industries. The dramatic decline of these sectors in the great recession served as a perception shock to the labor market.

The city took advantage of this “opportunity” to launch several initiatives to redirect and retrain workers exiting traditional industries, and also to attract new talent to work in entrepreneurial activities. Early in 2009, NYCEDC, the city’s Department of Small Business Services, and the State University of New York kicked off this effort with FastTrac, a program sponsored by the Kauffman Foundation. The less-than-two-month-long crash courses guide entrepreneurs to either (a) determine the viability of their business concepts and develop startup strategies, or (b) evaluate and reshape the models for their existing small businesses to better meet current economic challenges.

NYCEDC marketed the first courses for new entrepreneurs to those displaced from financial services. Several of these early participants explicitly remarked that the financial crisis had “freed” them to pursue entrepreneurial dreams. The city’s marketing effort helped open their eyes to the growing tech and small business sectors in New York.

This concerted effort to change the perceptions of the current and prospective workforce was expanded through several tech-focused initiatives. Initially, the highest profile of these was the open data Big Apps competition, which launched in 2009 to raise the profile of the entrepreneurial sector. As Mayor Bloomberg announced, “We’re relying on the creativity and talent of New York City’s tech and entrepreneurial communities to come up with innovative and helpful ways to use [public information].” The program subsequently expanded significantly to involve a range of partners and sponsors, from BMW to eBay. It attracted significant local and national media attention in outlets serving both the tech/entrepreneurial communities and the general public.

These entrepreneurship training and competition initiatives now have been complemented by NYC Tech Talent, an effort focused specifically on graduates from universities across the East Coast. Through this program, NYCEDC uses on-campus recruiting, sponsored trips to New York City, and virtual connections to directly introduce the city’s tech scene to student audiences seeking entrepreneurial career opportunities. This collaborative effort provides resource-limited New York City startups with a convenient, effective means to recruit top computer science and engineering students.

Perhaps the highest-profile and longest-term initiative has been Applied Sciences NYC. This effort to grow tech talent within New York was launched in December 2010 by challenging top institutions from around the world to propose a new or expanded applied sciences and engineering campus in New York City. In exchange, the City offered land, a seed investment of $100 million in capital, and the full support of the city government to realize the developments.

In response, the city received eighteen proposals from twenty-seven outstanding institutions in six U.S. states and eight countries. Over time, the winning proposals will have a significant, direct impact on entrepreneurial activity in New York City. They include:

  • From Cornell-Technion, an entirely new $2 billion, two-million square-foot applied science and engineering campus on Roosevelt Island in New York City).
  • From an NYU-led consortium, the new Center for Science and Urban Progress in downtown Brooklyn.
  • From Columbia, a new Institute for Data Sciences and Engineering.
  • From Carnegie Mellon, a media-focused program at the Brooklyn Navy Yard.

But much more important in the near term has been the impact this global competition and associated media attention has had on the perception of companies, institutions and individuals. There is now a palpable sense that significant entrepreneurial activity is already under way, and that there is a critical supporting nexus of the civic, philanthropic, academic, and entrepreneurial worlds.

Conclusion: An Entrepreneurial Shift

New York City government’s role in facilitating a shift towards entrepreneurship has been as much about building community and changing perceptions as it has been about providing support or services in the three-legged stool of space, financing and talent. Ultimately, entrepreneurial activity is not something that results from direct governmental or bureaucratic intervention, but often happens in spite of it. The government’s primary role has been in convening private participants, understanding challenges and opportunities identified by these participants, and supporting the communities these participants create. So doing has resulted in direct support for hundreds of small businesses. Importantly, it also has changed public perceptions, and paved the way for thousands of additional entrepreneurs to launch business in New York, with support from a robust, supporting ecosystem in the broader New York City economy.

About the Author
Tokumbo Shobowale is chief operating officer of The New School, and previously served on the Bloomberg administration’s economic development team as chief business operations officer, chief of staff to the deputy mayor for economic development, and chief operating officer of the NYC Economic Development Corporation.


  1. Eliot Brown, Wall Street Journal, “WeWork’s Valuation Soars to $10 Billion,” June 24, 2015.
  2. Camille Bautista, DNAinfo, “City to Open Central Brooklyn’s First Culinary Incubator This Summer,” March 12, 2015.
  3. United States Bureau of Labor Statistics, “100 Years of Consumer Spending,” Report 991 (May 2006), 23.
  4. Harvard Business School, Entrepreneurship, profile of Michael Bloomberg.

State Capitals as Boomtowns

By Paul Glastris Senior Editor Washington Monthly
Paul Glastris
Paul Glastris

In late January 2015, Forbes published its annual list of America’s twenty fastest-growing cities. The magazine’s metrics include population, job, and gross production growth rates for metro areas, along with unemployment and salary data. Lists like these are of interest not just to Forbes’s target audience of companies and young professionals looking to relocate, but also to researchers and others trying to understand the role of cities and innovation in the American economy. Much is known about why so many American cities declined in the post-World War II years. A bigger mystery is why some of those cities have come roaring back while others have not.

The cities that made the Forbes list were not very surprising. They were more or less the same names you’ll find on similar “hot cities” lists published by other media outlets, such as Bloomberg and Money magazine: Houston, Raleigh, Denver, Phoenix, Salt Lake City, Nashville, and so on.

Like other publications, Forbes took a stab at trying to explain why certain cities made it onto their list. It noted that the fracking-based oil and gas boom helped put five Texas cities in the top twenty, while thriving tech sectors explained why Seattle and the three California cities made the cut.

TABLE 1: Forbes fastest-growing cities, 2015

  1. Houston, Texas
  2. Austin, Texas*
  3. Dallas, Texas
  4. Raleigh, N.C.*
  5. Seattle, Wash.
  6. Denver, Co.*
  7. San Francisco, Calif.
  8. Fort Worth, Texas
  9. Charlotte, N.C.
  10. San Antonio, Texas
  11. Phoenix, Ariz.*
  12. Salt Lake City, Utah*
  13. Orlando, Fla.
  14. Cambridge, Mass.~
  15. Oklahoma City, Okla.*
  16. San Diego, Calif.
  17. San Jose, Calif.
  18. Las Vegas, Nev.
  19. West Palm Beach, Fla.
  20. Nashville, Tenn.*
* = state capital

~ = While Cambridge is not a capital, it enjoys many of the same benefits, thanks to its proximity to Boston

One commonality, however, that the editors of Forbes apparently did not notice, is that more than a third of the cities on their list are state capitals (see Table 1). This was not a one-time lapse: cities that are home to their state’s governments have been overrepresented on Forbes and other media-generated lists for years, without, as far as I can tell, any of these publications ever mentioning the fact. The stories that accompany these lists typically include quotes from economists and economic development experts who try to make sense of the numbers. Factors such as tax rates, regulatory burdens, region, education levels, venture capital investment, housing prices, the existence of top-tier universities, proximity to seashores and mountains, and the percentage of workers who are in “creative” fields are usually discussed. But the idea that being home to a state’s politicians, lobbyists, bureaucrats, and tens of billions of dollars in tax revenues might give a city a significant advantage in garnering wider economic growth seems neither to be widely held, nor even considered.

Which is weird, when you think about it. After all, when Washington, D.C., makes it onto these kinds of lists, the first thing people say is, Well, of course it’s booming, thanks to all the government money flowing through it. State capitals don’t command as much tax revenue, obviously, as Washington does. But why shouldn’t the same basic connection—between being the seat of government and enjoying robust economic growth—apply?

In fact, it does apply, almost without fail. To be sure, not every city that is booming is a state capital. Nor is every city that is a state capital booming. Plenty of small capitals (Lansing, Michigan, and Jefferson City, Missouri, to name two) are in the doldrums. But as Table 2 shows, all but one of America’s eighteen medium-to-large state capitals—those with a municipal population greater than 250,000 (except for Boise, with 214,000) and a metro-wide population greater than 300,000—are flourishing economically. The only exception is Sacramento, which is in California’s Central Valley, the epicenter of the 2008 collapse of real estate prices (before that, it was booming). These seventeen cities are hubs not just, or even mostly, of government but also of entrepreneurial innovation in fields ranging from biotech to finance, aquiculture to health care.

Correlation, as they say, is not causality. I can’t prove that the presence of state governments is the reason these cities are doing well. But seventeen out of eighteen is a lot of correlation! So it’s certainly worth speculating what the causality might be. I can think of several reasons, many of them overlapping, none of them wholly satisfying.

The first I’ve alluded to. Cities that are state capitals exist, in part, to collect, process, and redistribute tax revenues. A percentage of that money goes to pay the salaries of elected officials, government employees, and contractors. Meanwhile, additional funds flow in from private entities (corporations, trade associations, unions) hoping to influence government decisions—money that supports the salaries of lobbyists, consultants, dry cleaners, steak house waiters, and so on.

But while this importation of other people’s money is certainly a factor, it’s not enough of an explanation. Otherwise, smaller state capitals, especially those in big, populous states like New York and Florida that are awash in tax and lobbying revenues, ought to be thriving too. In reality, places like Albany and Tallahassee are economic backwaters where (not to put too fine a point on it) almost nobody chooses to live if they don’t have to.

A second explanation is that state capitals never relied as heavily as many other cities did on manufacturing, and so weathered better the deindustrialization process. This certainly seems to be the case for many booming state capitals in Table 2—Raleigh, Denver, Austin, and so on. Still, several now-thriving state capitals, such as Boston, Columbus, and Indianapolis, were dependent on manufacturing into the 1950s and beyond, and suffered major declines in the 1960s through the 1980s before bouncing back.

A third explanation, a more nuanced version of the first two, was suggested to me by Governing magazine contributing editor and author Alan Ehrenhalt and has to do with downtowns. It’s a truism in economic development circles (David Rusk’s research best shows it) that metro areas with blighted, lifeless downtowns tend not to grow as robustly as those with downtowns that have retained or gained jobs and residents. In state capitals, the centers of government—the legislative buildings, the governor’s mansion, the major agencies, and the buildings where lobbyists and contracting companies have their offices—are almost always located in or near their downtowns. What may have happened is that during the second half of the twentieth century, when so many downtown areas were emptying out, downtowns in state capitals retained a certain amount of vitality. This had an effect not unlike what happens when an anchor retailer signs a long-term lease in a mall: the government sector brings enough predictable foot traffic and economic activity that other economic actors (large and small companies and real estate investors, for example) feel comfortable investing in or near the downtowns, too. It’s a plausible theory, and sounds true to me, but it’s worth noting that at least one city in Table 2 defies the theory: Phoenix, which, until recently, had no downtown to speak of.

This hardly exhausts the scope of possible explanations for why nearly every medium-to-large state capital in America is thriving. Maybe it has to do, in part, with a city’s political leaders being able to rub elbows with the state’s political leaders and using that clout to entice companies and secure advantageous policies. Perhaps it has to do with public transparency: until quite recently, newspapers in state capitals provided some of the best coverage of both state and municipal government. And there may be a connection between the knowledge-based skills and operations associated with state government and the information- and technology-based industries that have transformed the American urban landscape. There are certainly more possible explanations. Only serious research could determine which best explain the phenomenon.

If so many observers have missed the obvious-when-you-think-about-it connection between state capitals and economic growth, it may be because it’s not, at first glance, a terribly useful observation. It’s not as if struggling cities have the option of moving their state capitals there (though, on reflection, that may not be a bad idea).

But a perhaps more practical lesson to be drawn is suggested in the column in Table 2, labeled “% of state revenue from federal funds.” It shows that somewhere between a quarter and a third of the tax dollars that flow through state capitals comes from Washington. In other words, these hot, hip havens of high tech—the Austins and Denvers, Bostons and Boises—are being significantly propped up with federal funds. And that’s just the straight government part. As the column labeled “major universities” shows, these cities are also home to centers of higher learning, which receive billions of dollars in research grants and student aid from the federal government. One could add another column on hospitals to make the same point.

Whenever a discussion arises about federal money being used to help spur specific areas of economic growth, a cry goes up from politicians and commentators across the land that Washington shouldn’t be “picking winners and losers.” But, in effect, that’s what’s happening with our cities. Some, by virtue of being the seats of state government, have a pipeline to federal dollars that other cities can only dream of. And that pipeline may determine which American cities thrive and which don’t.

Should leveling the playing field be a goal of public policy? If so, how might that be achieved? The obvious conservative answer would be to cut federal spending across the board—though how that would lead to more thriving cities is hard to see. The obvious liberal answer would be to spend more federal money on the cities that are not state capitals. But spending for what? After all, expensive federal programs, like urban renewal, the building of the interstate highway system, and mortgage and infrastructure policies that favored suburban growth, helped destroy American cities in the first place.

While I can’t pretend to have the answers, some experiences I recently had in my hometown of St. Louis might at least suggest a way forward. I was there visiting a half dozen startup firms in the nascent, but growing, biotech and ag tech sectors of that city, which hitherto has not been known as a startup haven. One company was attempting, through genetic engineering, to transform a common weed with highly oily seeds into a crop that farmers could plant and harvest between rotations of soybeans and corn and thus produce environmentally friendly biofuels without displacing other food crops. Another had devised a way to regrow cartilage in human joints and was in Phase II trials with the FDA. Yet another was providing quick-turnaround genomic testing to pharmaceutical companies to speed the drug discovery and development process. I came away thinking that all of these companies have the potential not only to help mankind but also to grow into sizable enterprises employing hundreds of St. Louisans.

But another commonality I discovered is this: each of these firms would simply not exist without the federal government. I mean that not in the way Elizabeth Warren made famous—that they benefited historically from federally funded roads, police protection, and other common provisions of government. I mean that much of their startup money came in the form of federal grants—from the NIH, the NSF, and other agencies. The specific high-level training of the founders was paid for by the federal government. The nonprofit lab facilities they rented at far below cost were subsidized by federal grants. The equipment in their labs was paid for by federal tax credits that flowed through the city’s economic development office. The money they took in from clients and customers came, in part, from federal grants. It was unquestionably private enterprise, and yet the vast bulk of it was underwritten by the federal government.

These are anecdotal observations, and they may mean nothing. But I can’t shake the idea that I was glimpsing something important about the nature of innovation, entrepreneurship, and city revival in America right now: that all three are dependent, to a far greater extent than most of us appreciate and many don’t want to admit, on generous research and other funding from Washington. If we want struggling cities to have the same chance to thrive as state capitals do, a lot more such federal spending may be the only way to make it happen.

About the Author
Paul Glastris is an American journalist and political columnist. Glastris is the current senior editor of The Washington Monthly and was President Bill Clinton's chief speechwriter from September 1998 to the end of his presidency in early 2001. Before 1998, Glastris was a correspondent for U.S. News & World Report. Glastris has a B.A. in history and an radio from Northwestern University.

Entrepreneurship for Urban Infrastructure Systems:

The Case of Intrurban Mobility

By Dr. David L. Bodde Professor and Spiro Institute Fellow Clemson University International Center for Automotive Research.
Dr. David L. Bodde
Dr. David L. Bodde

Summary and Thesis

Open architecture innovation platforms that draw upon the distinct capabilities of system integrators, independent entrepreneurs, and political authorities could, in principle, apply the power of technology to complex social-technical problems. Such problems include urban mobility, renewal of the electric grid, and provision of urban water and sewage service. 

But the state of practice in creating such platforms—termed here innovation ecosystems —remains inadequate for widespread application. This paper proposes to create a learning-based process to advance the state of practice in innovation ecosystems through (a) experimentation and (b) the accumulation of operating experience.  Our case-in-point is urban mobility systems.

Rising urban populations, decades of deferred investment, and the changing locations of intraurban economic activity have diminished the service capacity of the traditional mobility platforms: mass transit, independently owned vehicles, and taxi fleets. The most evident consequences include:

  • Economic losses from traffic and parking congestion.
  • Pollution from inefficiently used vehicles.
  • Diminished access to jobs. 

These consequences reduce the capacity of the urban mobility infrastructure to sustain dynamic and opportunity-rich economic growth. 

Recent technology advances (electric vehicles, fully automated vehicles, and large-scale data management) can offer services that are cleaner, faster to deploy, and less costly. Numerous studies illustrate their benefits: For example, fleets of autonomous vehicles operating in ride-sharing mode in the urban core could reduce significantly the number of vehicles required to provide equivalent transportation services. Such optimized fleets could reduce carbon emissions, eliminate other combustion-related pollutants, lower urban heat deposition, reduce congestion, and open up public spaces previously reserved for parking.

But the simulation studies assume a mature, fully deployed system.  In contrast, little attention has been paid to the transition from the current infrastructures to the desired future state. This analysis concerns that transition.

Figure S-1, below, shows the transition of the vehicle from a system for which operator skill largely determined performance to the emerging world of fully automated vehicle systems.  Indeed, several vehicle makers have demonstrated prototype automated vehicles under limited street conditions.

But the transition from automated vehicles with individually optimized performance to the visionary world of optimized urban mobility services cannot be accomplished by the current innovation models alone. In addition, bringing to reality the visionary world so well documented in silico will require:

  • New models of innovation. Much evidence suggests that the pace of entrepreneurial innovation accelerates when an open-architecture business model combines the inventiveness of entrepreneurs with the financial and organizational strength of system integrators to build the complete innovation ecosystem. 
  • Acquiescence of the urban jurisdictions. In urban mobility, however, any innovation ecosystem will require the participation of local jurisdictions to a greater extent than in past infrastructure transitions, such as telecommunications. This is because:
    • Local jurisdictions set the rules that determine the feasibility and desirability of alternative mobility systems—access to high-occupancy vehicle (HOV) lanes for preferred vehicles, for example.
    • Local authorities either operate or franchise the incumbent systems, such as mass transit or taxi services.
    • Incumbent and alternative mobility systems cannot function independently of each other because the road network is a fixed resource. Instead, special rules must guide the interaction between old and new, including how pedestrians, and drivers of individually owned vehicles, taxis, and autonomous vehicles can share the road successfully.

A systematic learning process could advance the state of practice in innovation ecosystems by creating a pool of sharable knowledge regarding best practice in the urban mobility marketplace. This knowledge base could be acquired through:

  • Documentation of the operating experience of the pioneers in establishing urban mobility systems —with or without an innovation ecosystem.
  • Specially designed experiments with cooperating partners guided by mutually agreed operating principles.

Wide dissemination of the knowledge so gathered could establish a general view of best practice, thus leading to new opportunities for entrepreneurs, and releasing a fresh cycle of economic growth.

The Urban Mobility Challenge

Populations around the globe are concentrating in large mega-cities at increasing rates. At the same time, the urban infrastructures needed to support this concentration are becoming overmatched by the scope and complexity of the needed services.

    A. Urban population. The portion of persons living in the world’s largest cities has increased consistently for the past fifty years. During 1960, urban dwellers accounted for thirty-four percent of the world’s population. By 2014, this fraction had risen to fifty-four percent, and the urban growth trend will persist for the foreseeable future. In sixty-four countries, according to the Global Health Observatory, eighty percent or more of the population is concentrated in urban areas, and that concentration exceeds ninety percent in twenty-eight of those countries. UN-Habitat estimates that 863 million urban dwellers currently are living in slum conditions, in contrast to 760 million during 2000.1

    Road congestion has become one consequence of urban concentration, and this began in the developed countries.  In the United States, for example, a 2011 study of 498 cities estimated that road congestion cost 2.9 billion gallons of wasted fuel and 5.5 billion hours of wasted time, for a measured cost of $121 billion. In addition, pollutants from idling engines left 56 x 109 pounds of carbon dioxide.2 

    Congestion-related distress is thoroughly international.  During March 2014, French authorities banned the use of half the vehicles normally circulating in Paris after air pollutants, chiefly microparticles, exceeded even the levels experienced in Beijing.3  Congestion-related problems have grown even more severe in the developing world.  Bangkok, for example, hosts some 6.8 million motor vehicles, and has become known for its perpetual traffic jam. The light rail infrastructure, completed in 1999 at a cost of $1.3 billion, remains lightly used because it is expensive for customers to ride, and does not serve enough popular destinations.4

    B. Consumer Preference
    At the same time, consumer preference is growing for integrated, personal solutions distinct from standard, homogeneous products. This preference initially was observed among younger populations in the developed countries, who increasingly view the automobile more as a service and less as a status symbol. More recently, these preferences are emerging in newly prosperous developing countries such as China, Brazil, and India.  For these relatively affluent millennials, public transit offers an incomplete solution, trading more personal mobility services for the lower price that most transit systems can provide.5

Elements of the Solution

Mindful of this context, visionary thinkers contend that the urban mobility problem cannot be addressed by incremental improvements to the automobile or to public transit. 

For example, Mitchell, Borroni-Bird, and Burns set out four ideas in Reinventing the Automobile that combine to enable a revolutionary improvement in urban mobility:6

  • Transform the fundamental design principles of the vehicle from mechanically based to electronically based.
  • Enable such transformed vehicles to interact with one another and with the surrounding infrastructures through a “Mobility Internet.”
  • Replace propulsion systems derived from petroleum with those derived from electric or hydrogen energy.
  • Provide a cloud-enabled (my term, not theirs), dynamically priced marketplace for urban mobility services.

And in a recent Wall Street Journal article, Bill Ford, executive chairman of Ford Motor Company, argued that the auto companies must think of themselves as providers of mobility services, and not merely as car companies. They must design and build vehicles that integrate well with the larger transportation network.7

Many of the technology pathways that will be needed for such revolutionary improvements are now emerging into the marketplace:

  • Electric powertrain vehicles – for this discussion the battery electric (BEV).  The BEV has emerged into the urban marketplace chiefly as a limited-range, light-duty vehicle. Electrification alone can mitigate the resource waste and air-quality degradation that attend urban congestion, but by itself can have only a marginal impact on the other congestion costs.
  • Public charging infrastructure. Evidence shows the order of preferences held by consumers:
    1. Home charging, which is inexpensive and can replenish a battery during the extended times when the vehicle is out of service
    2. Public charging at destinations (workplace, shopping, and the like) where a partial refill can be gained in a few hours.
    3. Public charging for long trips, where faster is unambiguously better. The build out of this charging infrastructure remains incomplete.8
  • Smart electric grid and distributed electric generation. Consider the fast-charging station as an electric customer requiring high power (kW) for service, but consuming relatively less energy (kWh). This poses pricing challenges for both the customer and the electric provider. To mitigate these challenges, charging stations could become distributed electric generators, especially using technologies that emit no greenhouse gasses (solar and wind) or significantly less (combustion turbines or fuel cells). But this would require a matching smart grid capability, as the unpredictability of demand for charging service combines with the unpredictability of supply—for example, a cloud passing over the sun could reduce supply—would require a higher degree of grid adaptability.9
  • Autonomous vehicle technology. Though still in their infancy, autonomous vehicles (AV) offer a revolutionary prospect: The ability to offer the vehicle as a shared service, and not as an object that must be owned. The chief barriers to this advance are not technological, but social. Special rules will be needed for the transition period—the years when autonomous and human-operated vehicles must share limited urban roadways.
  • Large-scale data. Timely information enables the sum of the connected devices (often termed the Internet of Things) to offer service superior to any acting in isolation. Cloud computing will provide shared resources, software, and information as a service rather that a product, and will enable these services to rapidly assimilate technological advances. Especially important for road mobility will be the connectivity of autonomous electric vehicles to ancillary services such as charging, help, maintenance, and efficient routing.

The technologies that would enable this revolution in urban mobility are in their adolescence, but progress continues apace in the laboratories of entrepreneurs and established companies around the globe. The prize is attractive, and numerous simulation studies have shown the decisive benefits that could accrue from an established electric/autonomous vehicle economy.

For example, the International Transportation Forum (ITF) of the Organization for Economic Cooperation and Development (OECD) studied the case of Lisbon, a typical midsized European city.10 An econometric model simulated the ability of two self-driving concepts to substitute for the trips currently taken by personally owned vehicles, buses, and taxis:

  • Taxi-Bots would offer self-driving cars that can be shared by several passengers.
  • AutoVots would pick up and drop off single passengers sequentially. 

The results illustrate the potential of the above-listed technologies to combine into a highly value-added system. With the simulated system fully in place and linked with high-capacity public transport:

  • Nearly equivalent service can be delivered with ten to twenty percent of the current urban vehicle fleet.
  • During peak hours, sixty-five percent fewer vehicles would be on the roads.
  • Road and pedestrian safety would improve.
  • Additional room in the urban center would be created by eliminating the need for on-street parking, and reducing off-street parking by eighty percent.

Similarly, a recent study (again a simulation) by a team at Lawrence Berkeley National Laboratory, found significantly lower mobility cost and strong environmental benefits as fleets of shared autonomous vehicles (AV fueled by electricity or hydrogen fuel cells) replace individually driven, petroleum fueled vehicles.11

Alas, it is easier to simulate an urban mobility system than to build one.  This is because the issues arise not in the end state but during the transition. As the ITF authors noted in an understatement of epic proportion, “Managing the transition will be challenging.”12 

We can distinguish two sets of challenges:

  • Organizing the innovation process. The most manageable issues arise from the wide scope of the technologies that must combine harmoniously to create a well-functioning mobility system. We will address these below.  
  • Accommodating cultural and political realities. These are expressed through independent political and regulatory processes that originate in events that long pre-date any attempted transition. Yet these political and cultural realities do not adapt readily to change, and so some accommodation must be made—the most efficient system might not prove the most achievable. We also address these issues later.

Organizing the Innovation Process for Urban Mobility

The wide scope of candidate solutions makes it difficult for a single firm to include within its corporate boundaries all the pathways that attend revolutionary change. And the classic competitive-market solution—a large number of entrepreneurial rivals who self-organize in response to independently-perceived market signals—encounters difficulty delivering products and services that require systemwide knowledge, and that benefit from shared technical knowhow.13 

This circumstance holds implications for the organization of an innovation process for complex, tightly coupled infrastructure systems, such as urban mobility (and probably applies equally to others, such as the electric grid, water/sewage systems, and so forth):

  • First, the process must provide an open-architecture innovation platform, which means that entrepreneurs and innovators who meet system standards have open access to offer their services to that system. This promotes competition, and avoids the enfranchisement of incumbents.
  • Second, the process must include outreach to entrepreneurs, perhaps through venture forums14 or outreach to venture-capital investors. 
  • Third, the process must accommodate the systemwide investment needed to make a substantive difference in the large-scale infrastructure.

Thus, both the scope of the problem and the scale of the investment required call for the development of innovation ecosystems for urban road mobility—open architecture innovation platforms that fully integrate the system integrators and the independent entrepreneurs. The ecosystem model serves best as an innovation platform when the marketplace is characterized by:

  • A wide diversity of technologies, each advancing rapidly and each requiring distinct skills—for example, automobiles today offering battery electric, hydrogen fuel cell, internal combustion, or various hybrid powertrains.
  • Systemwide value that is greatest when disparate technologies combine to deliver the service—for example, electric powertrain vehicles, autonomous guidance, clean and distributed electric energy, and networks and interface protocols that enable full communication between vehicles and all relevant infrastructures.
  • New entrants from formerly unrelated fields—for example, Google in urban mobility, Tesla in distributed energy, or IBM in smart electric grids.
  • Network economies of scale, which can provide a first-mover advantage, especially by establishing standard interface protocols to allow information and service exchange by independent parties throughout the innovation ecosystem.
  • Network economies of scope that can accrue as interdependent members improve their contribution to the ecosystem, thereby strengthening its performance for all, or as new and diverse members join.

The term “innovation ecosystem” can apply to a wide range of processes for organizing change to accommodate such market characteristics. Many are open architecture in that they integrate singular innovations and the creative works of multiple, independent parties into a fully integrated system.

The innovation ecosystem Apple built around its iPhone and iPad products offers a prominent example. However, others seem to be closed-architecture, like the innovation ecosystem that Tesla has organized to support its electric vehicles, which is explained in the Appendix A.

There is no playbook for creating innovation ecosystems.  Nevertheless, experience with those that have emerged shows that the most successful are built around the insights and efforts of a lead firm or lead public institution. When the ecosystem leader is able to build standard interfaces among the participants, the network becomes stronger by establishing a unique marketplace for the exchange of innovation. Recent examples show a failure, a new beginning, and a success:15

  • The attempt by IBM to establish a computer operating system to replace MS DOS failed when the early collaboration with Microsoft dissolved. Left alone to compete with Windows 3.0, IBM OS/2 could not gain market traction because it was packaged only with IBM computers and allowed few interfaces with non-IBM peripherals.
  • Toyota and Panasonic have announced a joint initiative to connect smart vehicles with smart homes, thus offering the prospect for systemwide services that neither platform could provide separately.
  • IBM uses Internet of Things (IoT) technologies to anchor a global ecosystem for smart electric grids in partnership with electric utilities.

Private companies that choose to lead the development of an innovation ecosystem could draw several advantages from success:16

  • The lead firm can focus on its own core skills, and assemble complementary resources from those best equipped to provide those resources.
  • These complementary assets need not be acquired, but rather left to their providers as long as the lead firm also contributes distinctive capabilities.
  • More rapid learning becomes possible because all participants gain access to a wider pool of knowledge.

Under some circumstances, government initiatives, regulations or mandates can provide the business environment necessary to stimulate an innovation ecosystem. For example, the Internet ecosystem grew from the Advanced Research Projects Agency Network (ARPANET), which pioneered the use of packet-switching networks.

Research has identified the defining characteristics of successful innovation ecosystems.  These are global in scope and include:17

  • Senior leadership vision, engagement and sponsorship.
  • Program leadership that maintains its commitment over a long period.
  • Commitment of substantial financial resources.
  • Continuing innovation in programs.
  • An appropriate organizational infrastructure backed by commitment to building the extended enterprise and achieving critical mass.

Thus the limited evidence available directs us toward innovation ecosystems that link systems innovators with independent entrepreneurs, especially entrepreneurs whose business models do not mesh well with the investment criteria of financial venture capital.

But if the “what to do” answer is plain, the “how to do it” guidance remains obscure. Like the mice that decide to put a bell on the cat, the “how” questions overwhelm the “what” answers, so much unfinished business remains.

A period of learning and experimentation is needed during which an experience base can be built and best practices discerned. These experiments must be inexpensive and limited to a set of measurable objectives. Most importantly, they must involve more than just the private companies, the entrepreneurs and the systems integrators. They must be designed and executed with the full participation of the cultural and political gatekeepers in each community. 

Exogenous Challenges: Engaging the Gatekeepers

Each metro area would be served best by an ecosystem that supports its unique cultural, economic, political, and demographic circumstances. Mexico City will differ from Singapore, which will differ from Atlanta, and so forth. But each unique circumstance shares one common characteristic—the need for political authorities to accommodate the changes brought about by the innovation ecosystem and, in many cases, actually lead the development and implementation of such a system.

Such accommodation poses challenges that are exogenous to the innovation ecosystem, and thus beyond the control of the private sector participants. Some examples:

  • Resistance from incumbents, such as taxi drivers and retail auto dealerships, can be expressed through restrictive regulations.
  • Congestion could worsen during a transition, adding to the difficulties. Simulations also showed that a mixed fleet of fifty percent automated vehicles and fifty percent human-driven vehicles actually would increase total vehicle travel.18
  • The automated road vehicles must operate in consonance with the metro transit authorities, especially high-speed rail, to gain full benefit. The metro transit system also will have to adjust—by reducing bus schedules, for example.

The lessons from another infrastructure transition can inform our thinking—that of the telecommunications industry, which moved from a wires network controlled by private but franchised monopolies, to the Internet and cellular network of today. In that case, the possibilities afforded by technology and demonstrated in government use by the Department of Defense provided incentives for the private entrepreneurs who led the transition. Further, the incumbent infrastructure could operate in parallel with (and in competition with) the emerging technologies, whose proponents competed with one another on business models as well as technical achievement. Hence, the requirements for mutual accommodation were minimal.

    A. The Power of Jurisdiction in Urban Mobility Innovation. In contrast with the telecommunications transition, the institutions that govern urban mobility are largely political in character—either branches of municipal governments, or special entities chartered by these governments and accountable to them. They are funded by public monies, operated to serve local (at best, regional) interests, and staffed by civil servants.  They possess the authority to set rules that govern the success or failure of innovations, including access to HOV lanes for electric and fuel-cell vehicles, noted as a large motivation for their purchase,19 or the authority to issue medallions for taxi fleets.

    These municipal transit and road traffic authorities are motivated to avoid innovation risk because neither the institutions nor the individuals in them can benefit from successful risk-taking. But they surely can lose from failure, so their chief motivation is the approval of the incumbent stakeholders, not shareholder approval.

    Such conservatism is not without foundation. The new and old systems could operate in parallel in telecommunications, but such dualism often is impractical in urban mobility.  So the risk from innovation to all parties and to the public is higher for urban infrastructure than it was in the telecom transition. And even those with highest risk tolerance often lack in-house personnel with skills and experience that match the problem.

    Thus, we can conclude that local political jurisdictions are certainly necessary for the success of urban mobility innovation, but that they are not by themselves sufficient to manage the transition. Their central authority raises the risk for entrepreneurs and system integrators by adding political uncertainties to the customary risks of technology and the marketplace.

    B. Path Dependence and Accommodation. The way these accommodations are made will exert a strong influence on the configuration of the urban mobility system that ultimately emerges, a phenomenon known as the path dependence of technology.20 

    The core idea of path dependence is simple—the outcome of a transition from one technology paradigm to another depends in part (though not in whole) on the power of the conditions in place at the beginning of the transition.21 The power of the concept springs from its ability to mesh the social, political, and economic context with the progress of the relevant technologies. We can apply this concept to illustrate (but not predict) how the urban mobility futures envisioned in the modeling simulations might be realized. 

    Appendix B offers a scenario analysis of alternative pathways to the kind of urban mobility system envisioned by the simulation models. The analysis demonstrates that the full benefits to urban mobility, and the rich opportunities for entrepreneurs and innovators to contribute to economic growth cannot be achieved without active local accommodation. This accommodation cannot be gained absent the full engagement of local jurisdictions in planning and executing the needed experiments. Thus, the critical enablers of any innovation system for urban mobility are the local authorities within whose jurisdiction that ecosystem must reside.

Toward a Learning-Based Strategy for Mobility Innovation

If the state of the practice in innovation ecosystems does not fully support their application to large-scale social-technical problems, then the state of the practice must be improved. This section offers suggestions for such improvement—for creating a learning-based process to advance the state of the art through experimentation and the accumulation of operating experience. While urban mobility offers the case in point, this learning-based strategy would apply to any closely linked, complex social-technical system. The electric power grid and water/sanitation come readily to mind.

The strategic purpose of the learning process would be to create a pool of sharable knowledge regarding innovation for urban mobility. This knowledge base would be acquired through:

  • Documentation of the operating experience of the pioneers in establishing urban mobility systems—with or without an innovation ecosystem.
  • Specially designed experiments with cooperating partners guided by mutually agreed operating principles.

    A. Learning from Experience. In many metro areas around the globe, local authorities are responding to urgently felt needs by designing next-generation mobility systems. The city/state of Singapore seems well advanced among these. The island of Singapore contains about five and one-half million inhabitants within its 700 square kilometer area—for perspective, 700 square kilometers is less than half the area of London. Personal mobility through individually owned vehicles has become impractical for most of that population. So Singapore has launched a program to test shared autonomous vehicles, both in the bus fleet and for last-mile personal mobility.22

    To be sure, Singapore brings a unique culture and governance framework to its growing mobility challenges, and any case study must remain mindful of that context. Nevertheless, much could be learned from observing the outcomes of its initiatives. In this manner a diverse set of ongoing case studies could be built, each focused on the distinct ways that the entrepreneurship and innovation processes contributed (or failed to contribute) to the outcome.

    In most cases, we can expect the case studies to provide indicative, but not definitive, results. At the very least, we should expect them to yield hypotheses that could be tested with subsequent experimentation.

    B. Learning from Experiments. In addition to learning from the experience of others, specially designed “experiments” could be conducted to test the hypotheses generated.  These experiments would seek to develop a canonical literature about processes for using innovation ecosystems. These experiments need not be confined to the mobility sector, but could be usefully done anywhere that a closely coupled, complex system must continue to operate while undergoing revolutionary change.

    Several operating principles should be considered at the outset:

    1. Low cost.  This can be achieved by:
      1. Limiting the scope of the experiment to as few elements of uncertainty as possible.
      2. Staging the experiment so results can be analyzed at each milestone to guide the pathway to the next milestone.
    2. Measurable outcomes.
      1. Milestones should be set, and the goals for each made plain.
      2. Where quantitative measures are not possible, a qualitative assessment should be done.
    3. Geographic, economic, and political diversity of experiments. The intent is to build the applicability of the knowledge base to the widest audience of potential users.
    4. Protection of intellectual property. 
      1. Participants should be strongly encouraged to retain full control over their intellectual property (IP) during the course of any experiment.
      2. In limited cases where some disclosure of IP is essential to the success of the experiment, a strict need-to-know policy should be enforced, and the participants should sign appropriate nondisclosure agreements.
    5. Local ownership of the experiment.  Each experiment should be designed by, owned by, and operated by the cooperating partners.
    6. Private sector engagement. Without the large system integrators (Google, Ford, Apple, and the like), we will have nothing. Municipalities (perhaps except Singapore) cannot serve this function.
    7. Defining success and failure. The experiment should not be judged by the outcome of the project. Even if an attempted project fails, understanding why it failed (while minimizing both resources and time consumed), and disseminating the lessons learned will be an important contribution.

The choice of the first few experiments will be important to the success of the program. Some suggested criteria:

  • Local interest. Locations already expressing an interest (Nashville, Albuquerque, and Burlington) are the point of departure.
  • Private-sector interest. The large players might already have such things in mind, but need a good-faith intermediary to serve as a catalyst. They should be contacted early.
  • Strong motivation to solve a persistent local problem. Many college campuses, for example, have a parking problem that annoys all members of the community. An experiment might be conducted to discern the best pathway to an automated mobility system.
  • Entrepreneurial hub. A metro area that welcomes and nurtures an entrepreneurial economy would better support an innovation ecosystem.

Finally, there should be a pre-experiment phase of the project to specify and validate the many assumptions in the foregoing paragraphs.

About the Author
Dr. David L. Bodde is a professor and Spiro Institute Fellow at the Clemson University International Center for Automotive Research.

Author’s Acknowledgement
This paper has benefitted from critical comments by Dr. Joachim Taiber, research professor, and Jianan Sun, PhD candidate, at the Clemson University International Center for Automotive Research.  Its faults are mine alone.


  1. Global Health Observatory, World Health Organization, “Urban Health,” (accessed May 15, 2015).
  2. Schrank, D., B. Eisele, and T. Lomax. 2010. “TTI’s 2012 Urban Mobility Report,” Texas A&M Transportation Institute, The Texas A&M University System, December.
  3. Fouquet, H. 2014. “Paris lifts car limit imposed after pollution beat Beijing’s,” Bloomberg, March.
  4. Janofsky, A. 2012. “Thailand: the (real) cost of cars in Bangkok,” Pulitzer Center, August. (accessed June 1, 2015).
  5. Giffi, C. A., et al. 2014. “The changing nature of mobility,” Deloitte Review, Issue 15.
  6. Mitchell, W., C. Borroni-Bird,  and L. Burns. 2010. Reinventing the Automobile: Personal Urban Mobility for the 21st Century (MIT Press).
  7. Ford, B. 2014. “Bill Ford on the future of transportation: We can't simply sell more cars,” Wall Street Journal, July.
  8. Committee on Overcoming Barriers to Electric-Vehicle Deployment, U.S. National Research Council, Overcoming Barriers to Deployment of Plug-In Electric Vehicles (Washington, D.C., National Academies Press, April 22, 2015).
  9. Ravichandran, A., P. Malysz, S. Sirouspour, and A. Emadi. 2013. “The critical role of microgrids in transition to a smarter grid: a technical review.”
  10. OECD – International Transport Forum. 2015. Urban Mobility System Upgrade, (accessed July 13, 2015).
  11. Greenblatt, Jeffrey, and Samveg Saxena. “Autonomous taxis could greatly reduce greenhouse-gas emissions of U.S. light-duty vehicles,” Nature Climate Change. DOI: 10.1038/NCLIMATE2685.
  12. OECD-ITF. Op. cit. p. 5.
  13. Williamson, P., and A. De Meyer. 2012. “Ecosystem advantage: How to successfully harness the power of providers,” California Management Review.
  14. Bodde, D. L., J. Skardon, and E. Byler. 2011. “The AutoVenture Forum: Demonstrating a new process for managing automotive innovation.” Proceedings IEEE International Technology Management Conference 2011, San Jose 964.
  15. Williamson and De Meyer, op. cit.
  16. Williamson and De Meyer, op. cit.
  17. Fetters, M.L., P. Greene, M. Rice, and J.S. Butler. 2010. The Development of University-Based Entrepreneurship Ecosystems: Global Practices  (Edward Elgar Publishing, Northampton, Massachusetts).
  18. OECD-ITF. Op. cit. p. 6.
  19. Committee on Overcoming Barriers to Electric-Vehicle Deployment, U.S. National Research Council,  op. cit.
  20. The seminal pieces in the path dependence literature include: Liebowitz, S.J., and S.E. Margolis. 1995. “Path Dependence, Lock-In, and History,” Journal of Law, Economics, & Organization, Vol. 11, No. 1, pp. 205-226, April.
  21. See, for example:  David, P.A. 2007. “Path dependence: a foundational concept for historical social science,” Cliometrica, Springer-Verlag, April.
  22. Keong, P.K. 2015. Permanent Secretary for Transport, Singapore, Speech delivered at Create Future Mobility Symposium, National University of Singapore, July.
  23. Bowler, M. 2014.  “Battery second use: a framework for evaluating the combination of two value chains,“ Unpublished Doctoral Dissertation, Clemson University, May.
  24. This scenario matrix builds upon and extends: Jonas, A. 2015. “Shared Autonomy,” Morgan Stanley, Document MSNA 20150406221000, April.
  25. Flegenheimer, M., and E.G. Fitzsimmons. 2015.  “City Hall and Uber Clash in Struggle Over New York Streets,” New York Times, July.
  26. Schoettle, B., and M. Sivak. 2014. “Public Opinion about Self-Driving Vehicles in China, India, Japan, the U.S., the U.K., and Australia,“ University of Michigan Transportation Research Institute, UMTRI-2014-30, October.
  27. Schoettle, B., and M. Sivak. 2015. “Motorists’ Preferences for Different Levels of Vehicle Automation,“ University of Michigan Transportation Research Institute, UMTRI-2015-22, July.
  28. As one researcher in vehicle autonomy quipped, “People would rather be killed by a drunk than by a robot.”

Appendix A

Tesla Considered as Ecosystem Business Model

The innovation ecosystem that Tesla has organized to support its vehicle offerings, shown in the figure below, illustrates the characteristics of a successful business model.

As the designer and builder of all-electric automobiles, Tesla Motors itself forms the heart and brain of this ecosystem business model. In addition, Tesla has chosen to add the charging stations to its basic business model, no doubt recognizing that this infrastructure could not emerge from the marketplace rapidly enough to support the sales of its vehicles. These charging stations, in turn, drive much of the need for the other components of the ecosystem.

First, fast-charging Tesla vehicles require high-power stations, perhaps on the order of one or even two megawatts, depending on how many vehicles can be served at one time. That level of power requires the active accommodation of electric utilities that serve that load, especially if the charging station serves also as a distributed generator for the grid. Such accommodation would require a highly adaptable local grid, termed colloquially a “smart grid,” to increase the economic and environmental benefits, and to ensure system stability and reliability. Thus, the electric utility serves as an essential participant in the ecosystem.

In addition, Tesla is closely associated with a solar panel installation company, Solar City. The founder of Tesla is a cousin of the founders of Solar City and serves as chairman of the Solar City Board. Thus, the Tesla Superchargers have an incentive to install at least some degree of solar energy in the charging stations. However, the interruptability of solar power combined with the unpredictability of vehicle demand will require much flexibility in the design of both the charging station and its associated electric grid.

One way to provide the needed flexibility would be through battery storage of electric energy at the charging station. Early in the deployment of electric vehicles, these might have to be new batteries, which could explain the large scale of the Tesla-Panasonic “giga-factory” as an element of the ecosystem. As the electric-vehicle market reaches maturity, however, an increasing number of used vehicle batteries might become available. Though no longer suitable for mobile use, these batteries could be adapted for reuse in stationary application, provided that all components of the value chain coordinate their actions to allow this outcome.23 The likelihood of such coordination is improved in an innovation ecosystem.

The striking feature of this ecosystem business model is that improvements in any one part ramify through the system to improve the performance of all the components. Improved solar panels lower the cost and improve the reliability of the charging stations. And improved charging stations build the customer value proposition and boost vehicle sales. Other ecosystem components benefit similarly.

Appendix B

Path Dependence in Urban Mobility

Appendix B analyzes alternative pathways to an urban infrastructure of shared autonomous vehicles.

We begin with Figure 1, a scenario matrix of the sort beloved by consultants, economists and other malefactors.24 The horizontal axis displays preferences expressed in the marketplace and by political authorities for the dominant business model: shared vehicles or owned vehicles. The vertical axis displays the preferences of customers and political authorities for the technology model, in this case a choice between fully automated vehicles and those partially automated —limited to driver-assistance features much like those emerging in the marketplace today. Both axes of the matrix integrate customer preference with political preference because these must align well for any meaningful change in the technology paradigm to succeed. 

Figure 1.
Market and Political Scenarios for Personal Urban Mobility

Figure 1 combines the two dimensions of the urban mobility space (technology model and business model) to create four scenarios. In the southwest quadrant, we find the scenario labeled Point of Departure, which describes the current situation:

  • Driver assistance technologies entering the marketplace, chiefly in premium vehicles.
  • Most vehicles privately owned and driven.
  • New private models for shared vehicles entering the marketplace, including Zipcar, Uber, and Lyft.
  • Reluctance in some jurisdictions to allow shared-vehicle business models into the marketplace, independent of consumer demand.25
  • Apparent reluctance of some consumers to accept full automation of vehicles, whether owned or shared.26,27

Proceeding counter-clockwise around the matrix, the scenario in the southeast quadrant labeled Paradise Lite describes an urban mobility space in which customers prefer the economy and service offered by shared vehicles to the costs of owned vehicles with infrequent use cycles.  Further, regulatory authorities find ways to overcome the opposition of displaced groups, such as taxi drivers and some owners. However, either the customers or the jurisdictions (or both) remain averse to full vehicle automation.

The northeast quadrant, labeled Mobility Paradise, contains the scenario generally envisioned by the simulation studies—a benign world of efficient and affordable mobility services.

Finally, the northwest quadrant, Paradise Delayed, offers a scenario in which full automation is desired by vehicle owners, but shared vehicle models are blocked by interest groups or by lack of customer interest.

Two pathways lead from the Point of Departure to the Mobility Paradise, and their outcomes suggest very different consequences for shared autonomous mobility. These are shown in Figure 2.

In the first pathway, jurisdictions accept and, in some cases, expedite shared vehicle models, and customers find them attractive. However, full vehicle autonomy is delayed, either because the performance of the automated systems fails to meet expectations, because their cost fails to decline as expected, or because of customers’ antipathy.28 The urban mobility crisis would, of course, be mitigated, but the improvement will be “lite” (as in lite beer) in comparison with the benefits of full automation. The transition to full shared vehicle autonomy would advance in pace with the performance and cost improvements of the technology.

In the second pathway, automation technology improves apace. It is introduced into owned vehicles beginning with the premium market and then into more utilitarian markets as system costs fall. But the adoption of a shared vehicle business model is delayed, most likely by effective political action on the part of interest groups.

Absent special action by local jurisdictions, either pathway could place automated vehicles at a service disadvantage during a transition in which they encounter a majority of human-driven vehicles. We illustrate this disadvantage as the “Holland Tunnel Problem.”  To enter this New York City tunnel, motorists first queue up in eight lanes for the tollbooths. After paying, the traveled way reduces quickly to two lanes.  So, what are the rules by which drivers and robots assign lane priorities?

Figure 3
Holland Tunnel Traffic

This author’s personal experience with the Holland Tunnel suggests that a driver’s place in the queue is proportional to his or her predatory instincts. Aggression is rewarded. In contrast, an automated vehicle must be programmed to avoid close encounters with other vehicles. The product liability insurers, together with the torts bar, will ensure this programming. As a result, automated vehicles will yield to aggressive drivers at every threatened encounter, and so will advance painfully through the queue. The issue will not be that the automated vehicles are unsafe, but that they proceed with maddening slowness (if at all) through such traffic.

Of course, special accommodation for such situations could ensure turn-taking in the queue—for example, sequential stoplights in each lane, much like those used on the on-ramps of some expressways. But these would require the intervention of the local jurisdiction. Such intervention would be consistent with the accommodation given to shared vehicles in Pathway 1. It would be less consistent with the accommodation of the special interests in Pathway 2, and so we conclude the full benefits of electrical/automated vehicles are likely to arrive sooner on Pathway 1. The pathways to the transition matter.

And so we can conclude that the full benefits to urban mobility, and the rich opportunities for entrepreneurs and innovators to contribute to economic growth, cannot be achieved without active local accommodation.

Rethinking America’s Cities’ Success Strategy

By Aaron M. Renn Senior Fellow Manhattan Institute for Policy Research
Aaron M. Renn
Aaron M. Renn


Most cities are economically weak actors with limited ability to affect the critical forces driving their economies. Furthermore, changes in the structure of the economy often have changed the composition of urban leadership in ways that break the link between personal and community success and create an additional bias in favor of subsidized real estate development as a civic strategy. Less dependent on the local market, this local leadership increasingly identifies with a global community and its concerns in ways that have lowered the civic priority placed on inclusive economic development and entrepreneurship. To change these trends, local leadership should focus on inclusive local economic success first and make policies that reflect that priority and address areas where local government can make an impact. Creating an entrepreneur- and business-friendly local regulatory environment is a key piece of this effort, and the delivery of high-quality basic public services is vital.

Cities as economically weak actors

One of the most important preliminary steps to designing and implementing policies that promote entrepreneurial growth is understanding the economic and competitive context within which such policies are made. The STEEP (Social, Technological, Economic, Environmental, and Political) forces model is one method of inventorying and categorizing a business’s or community’s external context. The table below summarizes some of the key STEEP forces that create both challenges and opportunities for communities today.

This list includes quite an array of profound and powerful forces that are difficult to understand and even more challenging to address. They are also primarily large macro forces that cities are not in a position to influence in a significant way, leaving most cities in a weak market position. Generally, local governments are weak actors and are more often market takers than market makers; they typically have limited scope for fundamentally transformative actions. Local policymakers must undertake efforts that respond to the economic context where there is a possibility of making an impact with the tools available.

Ramsin Canon, a progressive political commentator in Chicago, describes this challenge and Chicago’s lack of pricing power in an article about his city, titled, “Entrepreneur-in-Chief: The New Model City:”1

Why not raise property or luxury taxes, or institute a city income tax, to make up the deficit? Why not divert money from the TIF districts? …. Chicago is no longer a political community, it is an economic entity that is in competition with other cities in the region, in the state, across the world. In that mental framework, tax is cost, or price. You raise prices, you drive away your clients. In the case of the neoliberal city, the client is the developer, the investor, the employer. The federal government and the state are not going to give the city any real money; they are not investing in infrastructure, or education, or social welfare in any real way, the way they did up through the late 1970s and 1980s. The name of the game is “growth” through enticement of capital.— Ramsin Canon

While one may not agree with Canon’s politics, his economic analysis insightfully illustrates how even many large cities today have become structurally weak players in the economic market.

Most of the STEEP forces above have been discussed extensively elsewhere, but there are two under-appreciated and related items that deserve more consideration because of the impact they’ve had on local leadership: (1) the change in composition of local leadership resulting from the nationalization of the industrial base, and (2) the elite identification with global rather than local concerns.

Changes in local leadership resulting from the nationalization of industry

While talk of globalization is ubiquitous, less appreciated is the intermediate nationalization of many industries. Up until the 1980s, most cities’ commercial activities were conducted by local entities across a wide range of industries. In banking, for example, local banks dominated each city because state laws heavily restricted expansion. These banks were all independently owned, restricted to their home markets by branch banking rules, and limited in their activities by the Glass-Steagall Act. Similarly, most electric and gas utilities were local concerns due to restrictions from the Public Utilities Holding Company Act. And local and regional retailers, particularly department stores, were prominent and, often, dominant.

This industrial structure produced a class of leaders whose business and personal successes were tied closely to the economic success of the local community. The only way to make more loans or sell more electricity, for example, was to grow the local market. There was, therefore, a high degree of alignment between business leadership and community interest.

Beginning in the 1980s and especially the 1990s, however, deregulation and a wave of industrial rollups created a very different landscape ruled in many places by national players. The four largest banks in the country now hold about 45 percent of total national banking assets.2 There also has been significant utility consolidation. And, in retail and other industries, we have seen consolidation into a de facto “two towers” model, in which there are two large, national, primary players (e.g., Wal-Mart and Target, Home Depot and Lowe’s, Walgreens and CVS, and AT&T and Verizon).

As a result, there is no longer local ownership over these key businesses in most markets, and the executives running local markets are effectively branch managers. Even where local firms survived, they did so largely by becoming larger national or global entities themselves. There is now, therefore, less overlap between the interests of business leadership and community economic growth; the nationalization of industry weakened the linkage between personal success and community success for local civic leadership.

This broken link is exacerbated by the imbalance it created in the mindset of local business leadership. In the past, the business leadership was made up of a significant number of executives of operational-type businesses, such as banks and utilities, whose successes were tied closely to the success of the local market. Today, however, the businesses that continue to operate at the local level are primarily transactional businesses, including law firms (which are currently in early-stage consolidation), construction firms, architects, developers, and the “business” of politics. There are significant differences between operational and transactional businesses and their relationships to the community. While banks make money on the spread between what they pay for funding and what they charge for loans, lawyers, by contrast, get paid by the hour for work on specific matters. Bankers are making money while they are playing golf in the afternoon. Lawyers are only making money on the golf course if they are closing deals. Transactional business leaders’ interests are less closely aligned with the success of their communities.

Lawyers and other local transactional business leaders always have been very influential, but there are no longer as many powerful bankers and other operating industry executives to balance their perspective. This imbalance has led to a transactional growth mindset among local leaders, which leads to a theory of change for the local economies that favors real estate development. The change from an operational to a transactional mindset, in other words, has introduced an additional bias in favor of publicly subsidized real estate projects as a strategy for growth. These projects satisfy the needs of a large segment of the transactional leadership class of the community, as well as the politicians who love cranes and ribbon cuttings. More broadly, real estate development is now seen as economic development.

To be sure, major downtown development-type real estate projects, such as stadiums, malls, and convention centers, long have been popular for cities and may even be seen as populist projects. Mayors are under pressure to be seen as taking action to create jobs and growth, and, as this type of land development is within local control, it always will retain some popularity. Increasingly, however, these projects appear to be more pure play cronyism, with enormous subsidies bringing dubious public benefit. Cincinnati’s NFL stadium deal, for example, was described by The Wall Street Journal in a news (not editorial) item as “one of the worst professional sports deals ever struck by a local government.”3

Identification of local elites with global, rather than local, interests

In addition to weakening the link between the success of business leaders and that of their broader communities, the consolidation and globalization we’ve seen in many industries has resulted in a new affinity between the local elite and those who hold similar positions throughout the world. As business leaders and other elites are no longer as invested in their communities and have fewer economic ties to them, they identify primarily with their global class and have more loyalty to their global brethren in other places than to those who live in the same local region.

Saskia Sassen, a pioneer in research on what are now called “global cities,” identified this trend in her description of the bifurcation of these regions. The global city, in this view, is a kind of city within a city. Richard Longworth at the Chicago Council on Global Affairs noted a similar trend: “Globalization is disconnecting a city from its hinterland.”4 The global city of the Chicago Loop and North Side, for example, exists in an almost parallel universe to those left behind in the South and West Sides.

The term “elite” may seem inherently pejorative, but all systems have a group of leaders and agenda setters. At the local level, the elite includes prominent business, political, civic, academic, religious, and philanthropic leadership, as well as members of the media and cultural communities. The most educated strata of the community, or, more broadly, the upper middle class, also may be included. This group has best adapted to new economic realities and represents roughly the top 10 percent to15 percent of most communities, though higher in the largest urban centers.

While this elite group is now more disconnected from the rest of a community, attracting and retaining this stratum is now often seen as critical to a region’s success. Richard Florida’s “creative class” theory maintains the importance of this group to local economic growth. Similarly, CEOs for Cities, an urbanist organization, released a report called “The Young and the Restless,” which suggests that the youth portion of this group is fickle, demanding, and highly mobile. A failure to cater to their desires, the report indicates, might harm a city’s economic future severely.5 This phenomenon is the human capital side of Canon’s description of the city as an economic entity.

In this worldview, servicing the needs of the community’s elite and attracting more people like them is paramount to a particularly desired form of economic success. This strategy is not necessarily rooted in elitism or snobbery. Rather, communities facing enormous pressure from the STEEP forces above are looking to replicate models of success and finding their models in places like New York and San Francisco. While gentrification has been criticized, one can point to plenty of places where it has happened successfully. Meanwhile, there is little track record of success turning around non-elite portions of post-industrial cities. No wonder, then, that cities look to strategies that appear to offer the prospect of success, with the added benefit of some glamour, instead of going against the grain and trying to tackle problems that are much harder and lack obvious solutions.

The consequence of this worldview, however, is that local leadership prefers to implement policies that show that their city belongs in the global club, rather than focusing on primarily local concerns. The priorities of the global community are set in the world’s major cities, including London, New York, San Francisco, Paris, and Hong Kong, among many others. These communities are very different from workaday American cities. It’s difficult to see how the same policies would suit such diverse places as Los Angeles, Buffalo, Oklahoma City, and Portland equally. While there is a clear need to spend more money on transit in New York City, for example, spending large sums to attempt to retrofit smaller and entirely auto-oriented cities to transit makes little sense.

Furthermore, these major cities have, to some extent, market-making power, at least to a far greater degree than smaller localities do. A place like New York, for example, can implement the tactics that Canon says even Chicago cannot. It is no surprise that New York has far higher taxes than Chicago does, since New York has more marketplace leverage.

Following a global, rather than a local, piper works well in many cases. For example, most local tech startups around the country are following the same script that appears to be effective, including open collaboration, co-working, meetups and events, angel investors, local venture capital funds, and local marketing groups. Similarly, aspirational locals opening top-quality coffee shops and microbreweries legitimately enhance their communities.

This strategy can cause problems, however, as smaller cities may see quite different results when they try to prove their global bona fides by implementing the policies and priorities of global cities, especially those related to economic regulation and those that do not align with local needs. For example, America’s coastal cities are adopting very high minimum wages, and local progressives in cities with far less leverage than San Francisco often want to implement the same policy. Furthermore, it should be noted that global cities themselves are not without challenges, including growing inequality, which is an enormous problem in these places. In Chicago, we saw the juxtaposition of the opening of a gorgeous Riverwalk downtown on a Memorial Day weekend in which fifty-six people were shot and twelve of them killed.6

Perhaps the greatest disconnect between the elites’ concerns and the localities’ needs is in the area of climate change. The quintessential global problem, climate change is particularly ill-suited to be addressed at the local level. No city alone could make a material impact on climate change, even if it eliminated all of its carbon emissions. Nonetheless, climate change is a core concern of the global class, and the fact that this issue drives policy and regulatory mandates in many cities is a powerful illustration of city elites’ global identification. These policies don’t align well with many smaller cities’ weak market power, and, more importantly, these smaller cities are poorly positioned to thrive under these policies.

Even the global cities, in fact, have very particular economic structures and participate in specific global networks. Although globalization has produced a type of surface homogeneity among cities, Sassen points out that each city is truly unique. Similarly, Berkeley economist Enrico Moretti has identified a “great divergence” between cities.7 America’s cities are said to all look basically the same, but there are many different typologies, and each place has its own particular characteristics.

Ultimately, the identification of community elites with global communities rather than local communities leads policymakers to imitate other localities’ efforts instead of thinking about the unique policy priorities for a particular city that are based on its own indigenous history, economy, culture, demographics, and geography. Civic policy at the local level is dominated by “school solutions” that promote the same characteristics everywhere, often as a way of signaling that a city belongs in the “club.” While companies try very hard to convince their audiences that they are different and better than other companies in their industries,8 most cities try to look exactly the same as other cities that are considered cool, including offering bike lanes, coffee shops, microbreweries, a creative class, a food scene, and a startup culture. Even most cluster analysis seems to produce primarily a collection of the same five basic focus areas in every region (high tech, life sciences, green industry, advanced manufacturing, and logistics). Instead, local thinking should play a critical role in policy setting. Copying some good attributes can be helpful, but it’s hard to be successful with a collection of borrowed ideas. Cities need locally tailored policies and unique, indigenous thinking based on the cities’ singular histories, economies, cultures, demographics, and geographies.

How to think about local entrepreneurship and economic growth

In light of all these factors, it is unsurprising that economic results have been meager in the aggregate, but good in select high-end sectors. To improve results throughout the country, I propose that local governments should apply the guidelines listed below to their economic development policies.

  1. Local civic priorities should favor building a successful and inclusive local economy, including entrepreneurship, over global concerns and real estate development.
  2. Policies should be made considering the totality of the environmental context (STEEP).
  3. Policies should be oriented toward areas in which local governments can have the most impact, given the contextual constraints that have been identified.
  4. Policies should be designed to fit each city’s unique situation.

Because cities are all distinct, there is no one-size-fits-all solution. Some focus areas, however, do appear to be broadly applicable. For example, local communities can’t do much to affect global trade policy, but they largely can control local regulations and zoning. Reducing red tape is frequently discussed, but seldom accomplished to any significant degree. Rather than solely focusing on cutting regulations, local governments should make sure the operations of the regulatory structure are clear, predictable, transparent in their operations (not politicized), and timely. The most important factor of production in almost any business is management time and attention; owners and managers want to be able to get through compliance quickly so that they can focus on—or even simply start—their businesses.

Local governments also are directly responsible for delivering an array of basic and critical services, including parks, libraries, policing, and streets, among many others. Getting these basics right throughout a city or region, rather than simply having a few select world-class districts, is important to inclusive success. These core services provide the basic platform on which businesses operate and are the actual business of local government. They must be performed well.

There may be other appropriate actions, depending on each city’s particular local needs and opportunities. The key is to determine what policies and actions to undertake with a high priority on inclusive economic success for the local community based on where the best opportunities are for local actors to make a difference.

The most important shift that needs to occur in cities is one of mindset. The civic elite and upper middle class of our cities need to see their communities as the places where they live, not see themselves primarily as part of a community of their peers in other cities and around the world. They must ask themselves the oldest questions: Who is my brother? Who is my neighbor? And, local leadership needs to see all of the people of their community, not just the upscale portion of them, as those to whom they owe first allegiance.

About the Author
Aaron M. Renn is a senior fellow at the Manhattan Institute, a contributing editor of City Journal, and an economic development columnist for Governing magazine. He focuses on ways to help America’s cities thrive in an ever more complex, competitive, globalized, and diverse twenty-first century. During Renn’s 15-year career in management and technology consulting, he was a partner at Accenture and held several technology strategy roles and directed multimillion-dollar global technology implementations. He has contributed to The Guardian,, and numerous other publications. Renn holds a B.S. from Indiana University, where he coauthored an early social-networking platform in 1991.


  1. Canon, Ramsin. “Entrepreneur-in-Chief: The New Model City.” Gapers Block. January 4, 2013.
  2. Federal Deposit Insurance Corporation. 2012. FDIC Community Banking Study.
  3. Albergotti, Reed, and Cameron McWhirter. “A Stadium’s Costly Legacy Throws Taxpayers for a Loss.” The Wall Street Journal, July 12, 2011.
  4. Longworth, Richard. Caught in the Middle: America’s Heartland in the Age of Globalism.
  5. Coletta, Carol, and Joseph Cortright. “Wanted: The Young and Restless.” The Washington Post, February 13, 2006.
  7. Moretti, Enrico. The New Geography of Jobs.
  8. Apple, for example, once had an ad campaign called “Think Different.”

Entrepreneurial Policy for Rural America

By Maryann Feldman, PhD Heninger Distinguished Professor in the Department of Public Policy University of North Carolina, Chapel Hil
Maryann Feldman, PhD
Maryann Feldman, PhD

During the past thirty years, entrepreneurship has gone from being an obscure academic, (and French) concept to becoming a widely accepted public-policy focus, academic pursuit, and career path. Yet despite this acceptance, rates of entrepreneurship and new-business formation are down.

Perhaps it is time to reconsider our focus. While it is almost heresy, especially to this author, I wonder if our focus on cities is limiting the effectiveness of our entrepreneurial efforts. It is well accepted that innovation concentrates in cities and that there are natural advantages to agglomerations of resources that create innovation-promoting conditions. Yet innovation is a decidedly different concept than the corollary concept of entrepreneurship. Moreover, innovation and entrepreneurship, once conceived as a means to promote economic development and secure economic growth, have become their own objectives with little consideration of the impact on the larger society.

Programs and policies implemented during the past thirty years typically have concentrated on technology-focused entrepreneurship. Changes in the law, such as Bayh-Dole and Stevenson Wilder, created a reorientation in our thinking, and resulted in an emphasis on a specific, albeit important, segment of innovation and entrepreneurship. Newer legislation, like America COMPETES, continues along this trajectory, and is more incremental in orientation. There are many indications that the myriad programs aimed at getting more individuals involved with entrepreneurism have achieved their objective. And yet, simultaneously, we observe that fewer and fewer people are participating in new-business formation. Other worrying indicators, discussed elsewhere in this volume, include:

  • Sluggish economic growth.
  • Increased income disparities and severe economic distress.
  • Unemployment throughout wide swatches of the United States

It always is interesting, and sometimes necessary, to challenge the conventional wisdom. We may tinker at the margins to increase financial capital to technology-intensive firms, address the growing prevalence of noncompete-clause enforcement by states, or strategically employ procurement policy that favors Small Business Innovation Research recipients and other new firms. These policies certainly are needed, but they will not solve the larger social and economic malaise that defines this moment in history.

In this short chapter, I will consider the potential for entrepreneurial policy for non-urban America, those places outside of the largest cities. I realize the difficulty in defining or naming the antithesis of “urban.” However, I would like to draw attention to the entrepreneurial potential of smaller places that are outside of our current preoccupation with cities. My analysis is hindered not only by a lack of definition but also by a lack of data. But in the interest of being provocative, I proceed.

Rural (or more generally, “non-urban”) economic development policies largely have been ignored for the past forty years. This is partially due to a general dislike of place-based policies (Overman and Einiö, 2012), and has been exacerbated by restructuring in the manufacturing and agriculture sectors due to increased international trade. International trade is justified by efficiency gains, with the idea that there are larger gains that compensate for the loss of noncompetitive industries. Economic theory establishes that it is more efficient to engage in trade and compensate the potential “losers” rather than subsidize inefficient industries. While this theoretically makes sense, in reality policies to facilitate the transfer of compensation to those places and workers adversely affected by trade has not been forthcoming. As a result, small cities, smaller towns and places outside of large cities have suffered disproportionately.

Rural issues never have received consistent and systematic attention. During the 1960s and 1970s, there were several economic-development programs and policies with strong rural emphasis (c.f. Bradshaw, 1992). However, by contrast, the past forty years are conspicuous for their limited attention to rural issues. Indeed, the emphasis has turned to cities or to even smaller clusters of high-technology industries. Many see the increased urbanization of the world’s population as inevitable, yet this is a constructed future that may be neither environmentally nor socially sustainable.

The tendency is for policy to favor urban areas and service sectors at the expense of rural-sector development (which involves both agriculture and manufacturing). There is an emphasis on economies of scale—urbanization economies at the expense of more balanced growth. Rural areas are left with tourism as their focus, which has not proven satisfactory.

To many, the concept of “rural entrepreneurship” may seem almost like an oxymoron or, at a minimum, an unfamiliar and overlooked concept.1 The purpose of this brief piece is to consider how to change the conversation. Not only have prices dropped in rural America, but new technologies—most notably, the Internet—have made previously remote places more readily accessible. New manufacturing technologies, such as 3D printing, have changed the traditional advantages to scale economies. The rural tradition of tinkering and craftsmanship, after all, was the original maker movement. Wojan et al. (2015) provide evidence of the prevalence of inventors in rural area and small and medium sized cities. Moreover, farmers always have been small business people, organizing for opportunity, managing risk and pivoting with market changes.

The value of rural entrepreneurship to local communities is compelling. Unemployment is higher, on average, in rural areas. A typical economic-development strategy has been to attract branch plants using incentives. These plants typically offer low-wage jobs, and are likely to close or relocate when incentives run out. Conversely, unlike branch plants that send their earnings back to corporate headquarters, home grown entrepreneurs are more likely to reinvest their wealth locally. In addition, earnings of self-employed entrepreneurs are higher than the earnings of comparable workers in positions in branch plants, thus entrepreneurship offers opportunities for local wealth accumulation. Lastly, small towns offer affordable living, with lower rents in interesting historic buildings, walkable places and a sense of community.

There is anecdotal evidence of a rural resurgence. For example, there are regional champions such as Fred Carl, the entrepreneur who started Viking Stove in Greenwood, Mississippi. Carl was able to achieve this author’s definition of success: employing more people than the local health center, educational institution or nearby prison, which are the normal employment leaders in many places around the United States. Regional champions such as Carl invest in places for extra-market motives, such as an emotional attachment to a place (Feldman, 2014).

There is further evidence of return rural diaspora as former residents return to their rural roots looking for different challenges and for opportunities to apply their enhanced human capital (von Reichert. et al., 2014). One example is Chef Vivian Howard and her husband, Ben Knight, who left New York to open a fine-dining restaurant in Kinston, a small town in eastern North Carolina. This venture has succeeded, in part due to a PBS-syndicated cooking show—“A Chef’s Life”—cookbooks, and investments in other local businesses. Other entrepreneurs simply like the slower pace of life in small towns. Jeff Kinney, author of the lucrative Diary of a Wimpy Kid franchise, opened a bookstore in Plainsville, Massachusetts, to add an amenity to the local community and was surprised by the positive reception. Prepared to lose money on the venture, the bookstore has been profitable and has created a new sense of community on the small town’s Main Street.

There also is evidence of rural technology-intensive activity that integrates manufacturing with research and development. One example I encountered is Flanders Air Filters, headquartered in Washington, North Carolina, which provides high-quality environmental filtrations systems that are used worldwide and even in NASA’s space program. There is also Nomacorc, headquartered in Zebulon, North Carolina. It is the world’s largest producer of synthetic wine-closure systems that replace cork, and also increase wine yield and quality. One attractive feature for both of these multinational companies was the availability of a skilled workforce with low rates of turnover and a culture of taking pride in their work. Workers are pleased to be able to find local employment and not to have to relocate to urban areas.

The conventional wisdom has been that people want to live in cities, yet we may be making false claims of causality. Individuals may move to cities simply because this is where jobs are located, and not necessarily because of a preference for urban living. Teaching at a large public flagship university, I encounter the best students from every high school across the state, many of them from small towns and rural areas. The students and their families believe that higher education is the key to a better future, but then quickly recognize that small towns can support only a few professionals, leaving them with limited opportunity to return home. To put their degrees to use, they end up relocating. Indeed, Research Triangle Park (RTP) initially was galvanized with wide political support as a means for providing jobs to students who studied at the three Triangle universities. This economic-development strategy realized its objective, and many graduates from local universities now find employment in the RTP region. However, the economic benefits have not extended across the state, calling for new economic-development initiatives.

As another example, consider the evolution of space utilization within small cities. Vibrant Main Streets were once a hallmark of America’s small towns. Changes in retail patterns—notably the diffusion of Walmart and other big-box retailers—brought “everyday low prices” that small, local establishments could not match. This phenomenon began in rural, small towns of America. Many of these large retail establishments were built more than fifty years ago, and have become outdated and unattractive. This allows for an opportunity for retail competition from a Main Street revival, an activity often supported by the local community, which would like to see its downtown revitalized. Data are difficult to find, but there are some surprising small towns with interesting and historic city centers that offer significant investment opportunity.

Another phenomenon is the recycling of antiquated Walmart stores into community spaces. In the absence of data, I only have more stories. McAllen, Texas, transformed an abandoned Walmart into a 123,000-square-foot, award-winning library and community center. Such an undertaking in a Republican-dominated state was financed with a combination of state and federal funding. Opened during 2012, the new library has become a focal point for the community, offering performance space, free Internet access, and meeting space that creates opportunities for the exchange of ideas. The response from the local community has been positive at a time when libraries are struggling to stay relevant.

Not only are economic conditions favorable for rural entrepreneurship, political representation and leadership are strongest in states with significant rural populations —the political representation that typically does not favor government intervention. The remainder of this brief paper will discuss three policy topics—actionable items that could create conditions to support small cities and rural areas. The primary idea is that there is opportunity in places “off the beaten path.” Increased entrepreneurship creates local wealth, employs more people and begins mutually reinforcing cycles of economic development. Despite these few glimmers of hope, financing rural business is difficult because it is perceived as risky. The policies described below are intended to start a discussion about supporting rural entrepreneurship. In brief, they include:

  • Increased availability of capital.
  • Publicly provided broadband in small- and medium- sized cities.
  • Programs to assist veterans in transitioning to entrepreneurship.

Access to capital is a perennial problem for entrepreneurs but is particularly bad outside of urban areas. The 2008 financial crisis adversely affected rural areas, where bank closures and restructuring further reduced access to capital. Additionally, banks have become more conservative in lending practices. The story is told that Ben Bernanke could not refinance his Georgetown mansion after he stepped down as Federal Reserve Chairman because he lacked a full-time job. This is a story many budding entrepreneurs and even farmers tell—they are told they need to be employed full time to qualify for a loan, which then reduces the time they have available to commit to starting something new.

Young people living in the most sparsely populated ZIP codes are 22 percent more likely to join the U.S. Army. Regionally, most enlistees come from the South (40 percent) and West (24 percent).2 Returning veterans face high unemployment, especially if they return to their home regions. In response to this fact, there is a program at the Small Business Administration3 and other programs at universities4 to assist veterans. Another potential policy alternative could be a concerted effort to provide veterans with business financing (perhaps as an alternative, or supplement, to educational loans).

Tax incentives for small-town revitalization also are worth considering. As an example, some of the most interesting restaurants near the University of North Carolina (UNC) are in Carrboro, adjacent to Chapel Hill. Just beyond walking distance from the UNC campus, there is a vibrant group of restaurants, small shops and service firms. It’s a clear demonstration of a border effect. When faced with vacant storefronts, the Carrboro City Council adopted a strategy to make its Main Street more interesting. The city was able to provide loan guarantees for small businesses, offer property-tax relief, and increase the availability of parking. It also actively encourages street fairs and concerts. While there are t-shirt shops and chain restaurants on North Main Street in Chapel Hill, Main Street in Carrboro hosts a diverse array of thriving businesses started by local entrepreneurs, including interesting restaurants, independent coffee shops, and home-decor boutiques. These activities are more self-employment than large, scalable activities, partially because the owners are happy to have sustainable businesses and be part of their local community. Even more interestingly, over time, small Internet startups have begun gravitating to the Carrboro area because it is such an interesting place.

Access to the Internet tends to be less prevalent in rural areas. While providing Internet access to every last mile may seem daunting, central access points with public Wi-Fi at public libraries, city halls or government buildings also could increase Internet usage. Moreover, this type of central gathering point could help further build community.

Reflective Conclusions

While urban agglomerations advance ideation, creativity and knoweldge transfer, entrepreneurs seek lower-cost locations when scaling up operations, look for niche markets to test their ideas, and sometime benefit from a slower pace that allows for reflection and refinement. Pursing the same policies—doing more of the same—will not produce change. The objective of this simple article is to raise new possibilities and change the conversation to consider opportunities outside of urban areas.

About the Author
Maryann Feldman, PhD, is the Heninger Distinguished Professor in the Department of Public Policy at the University of North Carolina, Chapel Hill.


Bradshaw, Michael. 1992. The Appalachian Regional Commission: Twenty-five Years of Government Policy (Lexington: The University Press of Kentucky).

Einiö, Elias, and Henry Overman. 2012. “The Effects of Spatially Targeted Enterprise Initiatives: Evidence from UK LEGI”.

Feldman, Maryann. 2014. “The character of innovative places: entrepreneurial strategy, economic development, and prosperity,” Small Business Economics, 43(1), 9-20.

von Reichert, Christiane, John B. Cromartie, and Ryan O. Arthun. 2014. “Impacts of Return Migration on Rural U.S. Communities“ Rural Sociology, 79 (2), 200-26.

Wojan, Timothy R., Kathryn R. Dotzel, and Sarah A. Low. 2015. “Decomposing regional patenting rates: how the composition factor confounds the rate factor,” Regional Studies Regional Science, 2 (1), 534-550.


  1. Georgetown University’s McDonough School of Business and the American Farm Bureau Federation aims to harness the creativity of small-business owners to build stronger rural communities. Their 2015 Rural Entrepreneurship Challenge, billed as the first national competition of its kind, received more than 200 applications from thirty-six states.