Wednesday, June 13, 2007

De-Industrialization Has Greened Big Cities

Summer is the right time to be an academic. During summer, academics have few excuses for why they can't referee papers or revise their own papers. Last week, I made the mistake of trying to draft something short for a well known monthly business publication. A past leader of this magazine has run for president. His signature issue was reforming the tax code. Can you guess who I'm referring to?

I was just notified by an editor there that my submission was "yesterday's news" and they aren't interested in publishing it. They may be right about this but I'm not sure. If you read on, you can judge for yourself. Perhaps the American Idol way of determining what is "great" should be adopted by the popular media and take the power away from sinecured editors? I'm not advocating this for the AER, JPE or QJE! I'm talking about the popular media!

De-Industrialization Has Greened Big Cities
Matthew E. Kahn

In 1969, 23% of the New York metropolitan area work force worked in manufacturing. By the year 2000, manufacturing’s share of the metro area’s total employment had shrunk to 8%. Over these years, the New York metropolitan area’s total job count grew by over 2 million but manufacturing employment shrunk by over 1 million jobs. New York is not alone. Similar patterns are observed in older cities such as Chicago, Philadelphia, and Pittsburgh. These three metropolitan areas lost 890,000 manufacturing jobs between 1969 and 2000. New York, Pennsylvania, Illinois, New Jersey and Ohio experienced a reduction of 2.9 million manufacturing jobs over this time period.

The deindustrialization of big Northeast and Rust Belt cities stands in contrast to the nation as a whole. Total employment in manufacturing barely changed between 1969 and 2000. In 1969, there were 20.5 million manufacturing jobs and in the year 2000 there were 19.1 million national manufacturing jobs.

If manufacturing continues to employ many people but it is rapidly declining in older big cities, where is it going? Between 1969 and 2000, there has been a net manufacturing job growth of 1.2 million jobs in Texas, Arizona, Minnesota, Georgia, Colorado, Arkansas, Washington, Utah, Kentucky and Oregon. These facts highlight that manufacturing is moving away from older, densely populated cities to newer, sprawled, cheaper areas. Economists have argued that manufacturing firms seek out locations featuring cheaper land, lower wages, and more lax labor and environmental standards. While some companies move abroad, the data highlight that firms are finding profitable domestic locations that are far from traditional manufacturing hubs.

Labor unions and displaced workers have stressed the costs of this long run trend. Unions lose members and displaced workers often suffer a $10 per hour drop in wages as they transition to low skill service sector jobs. Despite these costs, big city deindustrialization offers significant quality of life benefits for millions of urbanites.

Manufacturing activity increases local ambient air pollution, water pollution and increases the stock of toxic emissions released into the land. By degrading the local environment, such activity reduces local quality of life. Manufacturing plants often are major electricity consumers. Due to line losses, such plants purchase their power from nearby power plants. States such as Ohio feature some of the dirtiest electric power plants. A reduction in manufacturing activity in such areas reduces the utilization of such dirty power plants.

As Northeast and Rust Belt cities transition away from manufacturing, they must seek out their new competitive market niche. In the modern skills economy, a city that can attract footloose skilled workers, who want to live and work in the city, is more likely to grow in the future. Many older cities are reinventing themselves as “consumer cities”. At the same time as Clean Air Act regulation and de-industrialization have improved local environmental quality, crime has also been sharply declining in major cities (starting in the early 1990s). These synergistic trends encourage people to spend more time outside. Cities such as Boston are rediscovering their waterfronts. These areas are centers of new economic activity featuring new hotels, restaurants and shopping areas (i.e. Faneuil Hall in Boston or the South Street Seaport in New York City). Local governments are making large public investments in infrastructure such as the Boston Big Dig to enhance green space.

A critic might ask whether the growing manufacturing places, such as Texas, are domestic “pollution havens” experiencing a degradation of their environmental quality? Fortunately there are two reasons to discount this. Manufacturing migration is not a “zero sum” game. First, manufacturing plants cannot migrate across country. When a steel plant closes in Pittsburgh, that technology is no longer used. The Rust Belt featured many dirty industrial facilities such as steel factories that were built long ago. Many of these factories were “grandfathered” and thus did not face the stringent New Source Performance Standards (under the Clean Air Act) that new factories must adhere to. If steel production activity moves to the South, a new steel plant regulated under the New Source Performance Standards is built. This new plant will have much lower emissions than the older plant. In addition, manufacturing is migrating to lower population density areas where fewer “victims” are exposed to the pollution in the destination area relative to the millions of people who live in the densely populated North East and Rust Belt.

There is a certain irony here that “employment sprawl” offers substantial public health benefits for urbanites living in high density older U.S cities. Environmentalists often celebrate Manhattan’s compact urban form as it allows its residents to have a relatively small per-capita greenhouse gas impact as people use public transit, walk and avoid vehicle use. But the downside of compactness is too much physical proximity to public health threats. In a sense, manufacturing sprawl and improvements in transportation technology have created a “moat” allowing urbanites to gain the benefits of consuming finished manufacturing products without bearing the pollution costs that significantly degraded their quality of life in the past.

Matthew E. Kahn is a Professor at the Institute of the Environment at UCLA. He is the author of : Green Cities: Urban Growth and the Environment (Brookings Institution Press 2006).