Size Matters: Global Urban Angst

To help frame the ongoing debate of the role of the city in global economics and politics, read three articles on the state of the future city, all of which come from Foreign Policy: “Swoons Over Miami” – interview of Saskia Sassen by Christina Larson “Beyond City Limits” – by Parag Khanna “Urban Legends” – by Joel Kotkin

None are particularly new information, but reading all at once provides interesting insight from a range of perspectives all reaching the same conclusion – agglomerations of people are what will drive the economy and will continue to be the shape of civilization in the future. Although one argues that size does matter, all seem to agree that concentrations of activity are the answer to a range of economic, social and built environment woes. But, where does the global seat, or seats, of influence reside?

Christina Larson’s interview of Saskia Sassen focuses on global cities, her own term and a recurring theme of her work first brought to the forefront of public discourse with her 1991 book, The Global City. In Sassen’s discussion, she notes that global cities create “new norms,” brought about by the underlying requirements of complexity and diversity.

Sassen identifies Miami as the prototypical global city rising not from old world norms, but from “that mix of cultures – in such a concentrated space, and covering so many different sectors – [that creates] remarkable diversity and complexity.” She further identifies Istanbul, Dubai and Singapore as following similar trends, also singling out Beirut as having missed a grand opportunity to do the same, although not yet to be forgotten.

Parag Khanna similarly delves in to the collective psyches of global cities, even citing Sassen at times. Identifying cities as the “real magnets of economies, the innovators of politics, and, increasingly, the drivers of diplomacy,” he channels Sassen by making the argument that government and private enterprise can not be artificially divided. Khanna plainly states that either government and the private sector work together “or the city doesn’t work at all.”

This then leads us mainly to Asia. Citing “Asianization,” Khanna identifies the flooding of money from around the globe in to Asian capitals (he identifies Hong Kong, Seoul, Shanghai, Sydney and Tokyo as Asia-Pacific financial hubs), but notes that this money stays within Asia. As Khanna writes:

“For these emerging global hubs, modernization does not equal Westernization. Asia’s rising powers sell the West toys and oil and purchase world-class architecture and engineering in return. Western values like freedom of speech and religion are not part of the bargain.”

New global pairings, identified both by actual agreements and representations of less official agreements through airline city pairings, represent new global alliances: Hamburg and Dubai, Abu Dhabi and Singapore, Doha and Sao Paulo and Dubai and Toronto. The new global world order is being disrupted, and all the while, “no one is waiting for permission from Washington to make deals.”

While Khanna correctly identifies cities as “the world’s experimental laboratories and thus a metaphor for an uncertain age,” could he be right as to the extent of the decline in America’s global influence? Khanna believes that, “if these new five-star [Asian and Middle Eastern] hubs play it right, they could convince Westerners to give up their citizenship for permanent homes in a friendlier, tax-free environment.”

But, there is a counterpoint to the inevitably and desirability of global cities’ unrelenting growth. Citing an overlap between megacities and global cities (Sassen argues the two are not the same – megacities refer only to size and global cities refer to complexity and diversity), Joel Kotkin raises issues of “unparalleled human congestion and gross inequality” in the further coming of megacities. Is this a pattern worth celebrating? Says Kotkin: “Instead of overcrowded cities rimmed by hellish new slums, imagine a world filled with vibrant smaller cities, suburbs, and towns: Which do you think is likelier to produce a higher quality of life, a cleaner environment, and a lifestyle conducive to creative thinking?”

Kotkin agrees with the relative advantages of urban centers. But, rather than using words such as megacities and global cities, he prefers human-scaled and posits healthy growth may be best achieved through dispersion, as opposed to Sassen’s and Khanna’s theories of concentration. In fact, Kotkin rebuts many of the “urban legends” that discredit the suburbs, including the historic and current desirability of the “urban core,” environmental sustainability and inequality.

Citing reasonable success in second- and third-tier American cities, Kotkin still challenges “grandiose theorists” to provide practical answers to the real problems of places like Mumbai, Cairo or Jakarta; that is, “rampant crime, crushing poverty, choking pollution.” He calls for a “completely different approach, one that abandons the long-held assumption that scale and growth go hand in hand.”

Real world examples exist, even historically. Citing a countercurrent in the 2009 World Bank report on megacities, Kotkin identifies that report’s acknowledgement that “as societies become wealthier, they inevitably begin to deconcentrate, with the middle classes moving to the periphery.” The evolution of the urban and suburban realm is tied to wealth creation, choice and access.

Referring to strategies employed by the Mumbai Environmental Social Network, Kotkin identifies “the most practical strategy for relieving Mumbai’s relentless poverty” as slowing migration to the urban slums. The idea is to support and bolster smaller local industries outside of city centers, thereby limiting the flow of those looking for employment to those centers. In practice, the Netherlands has done just that, according to Kotkin. By maintaining low density areas between its core and its corporate centers, Amsterdam has maintained both its livability and competitiveness.

The prevailing theme is one of right-sizing, a recurring goal in today’s age of extreme economic and social uncertainty. There is common agreement that people together is a viable precursor to innovation, growth, advancement and other requisite byproducts of such agglomerations. How much is too much, though? Is there a tipping point in terms of sheer numbers of people at which disequilibrium takes hold and the negative byproducts of density – such as congestion, inequality and poverty – take hold and overcome the positive influences of density?

New York at one point was an unpleasant place (some may argue it still is) and the further-out hinterlands less hospitable in terms of access and economic opportunity. Nonetheless, economic growth in the hub (Manhattan) eventually provided opportunities outside of the city.

So, as with many debates, the answer here remains, “it depends.” Cities have varying carrying capacities – financially, politically and environmentally – and differing social norms. Individuals have personal preferences and levels of comfort. Developing countries may not have the infrastructural capacity to support many different “human-scaled urban centers.” Perhaps, then, the megacity is an evolutionary step towards dispersion – grow bigger and more economically diverse, then provide the options for dispersal.

Modifying Loans and the Decision-Makers

A weekend editorial in The New York Times lamented the latest housing market woes, this time resulting from various banks’ disregard for, or inattentiveness to, a legal foreclosure process. As the article correctly states, “It is hard to be shocked.” Further fueling uncertainty is of immediate concern, adding another layer of doubt to what may end up proving to be a formerly nascent recovery. While President Obama is calling for more thorough analysis to determine if foreclosure or modification is more prudent, and a provision in the Dodd-Frank bill authorizes government aid for troubled homeowners to assist with legal services, neither gets to the heart of the problem.

Homeownership is not an inalienable right, and should be reserved for those who are in the financial position to shoulder the burdens that come with the supposed pride. The banks reviewing loan applications should be the final bastion of culpability in assessing prospective buyers’ financial wherewithal.

This creates a moral conflict in many cases, as banks make money by lending money. In the interest of financial stamina, however, the banks have overlooked the simple fact that they only make money by lending money if the borrowers can pay them back. While there will always be some percentage of borrowers that fail to pay back their loans, it is all too well documented now that those levels are excessively high in today’s economic environment.

Most troubling is the realization that many bank REO departments (for “real estate owned,” the class of property that goes back to lenders upon unsuccessful foreclosure auctions) are not staffed by real estate minds. While it is not fair to make a wholesale categorization of REO departments nationwide as real estate deficient, there are multiple cases where simple real estate fundamentals are unknown.

Examples here include law firms, architecture firms and real estate advisory firms being engaged to teach real estate 101 to national banks’ REO departments. There have been cases where those making the decisions between lending or not lending, or foreclosure or modification, are unable to effectively comprehend sale and purchase agreements, site plans and floor plans, inspection reports or market analysis documents. This is not to suggest that these are bad people. But, as clerks, statisticians and analysts who are not educated or trained in the intricacies, or even general principles, of real estate, they simply do not get it. How can such fragile issues with widespread economic and social ramifications be addressed by anything less than experts?

In other words, these last bastions of culpability are unable to perform the simple tasks that even a reasonably responsible borrower should comprehend. Banks are in the business of making money, and that, in and of itself, is not a crime in a capitalist economy. But, they should at the very least properly train those who are making decisions on lending millions upon millions of dollars to aspiring, whether ready or not, homeowners.

Peak Too Soon

Current management practices focusing on the bottom line and short-term profits are misguided and short-sighted. Such a premise has been brought to the forefront as we collectively struggle through an economic recession, resulting malaise and conflicting reports of the timing, speed and efficacy of a recovery. These are current events, but it was not very long ago that the dot com boom and bust roiled the economy. Peak: How Great Companies Get Their Mojo from Maslow was conceived of by Chip Conley in the post-dot com bubble, in the midst of a real estate trough that hit hospitality especially hard, especially in the San Francisco Bay area. Published several years later, the book is now three years old. But, the applicability to the current real estate downturn is, unfortunately, as timely as ever. Specifically, the premise of Peak is about our potential as humans and taking the desire for individual self-actualization and applying it to business, which is really just a collection of individuals.

The author, Chip Conley, is the founder and CEO of Joie de Vivre Hospitality, California’s largest boutique hotel company, consisting of over forty hotels, restaurants and spas. He is also the author of The Rebel Rules and Marketing That Matters. Conley’s core philosophies are based on noted psychologist Abraham Maslow’s theories of “the Hierarchy of Needs, self-actualization, [and] peak experiences.” Conley adapts Maslow’s Hierarchy of Needs pyramid to describe a base condition of survival, a middle ground of success and a pinnacle of transformation.

According to Conley, Maslow said “that with humans, there’s a qualitative difference between not being sick and feeling healthy or truly alive. This idea could be applied to companies, most of which fall into the middle ground of not sick but not truly alive.” Conley expands Maslow’s view by stating that Maslow “found that the business world was the most efficient and profound place to reach the greatest number of people.” Conley believes that employees, customers and investors must be placed on equal footing to promote success and foster loyalty, which, quoting Bain & Company consultant Fred Reichheld, is “quite likely the only possible source of sustainable competitive advantage in the new economy.” In other words “companies that cultivate an environment that allows for peak individual performance are rewarded with peak company performance.”

Conley supplements his writing with recommended reading at the end of each chapter. Again, some of the recommendations are several years old, yet still relevant. Others are timeless, like Maslow’s books themselves. There is little doubt that the world has gone through a behavioral change-inducing crisis through this downturn. What is less certain, however, is how long this possible lurch towards Maslow’s self-actualization pinnacle will continue.

Real estate is cyclical and memories are short, but psychological dogmas can hold true for eons. Unfortunately, the recent past tells us that we are likely to return to behavioral practices. That being said, however, the Great Depression changed consumer behavior for several generations, and the Great Recession may yet do the same.