Are all small cities doomed?

Megacities have less and less need for smaller cities. And smaller cities are often dependent on declining agricultural or inherently temporary natural resource activity.

Their lucky ‘coin flips’ in economic diversification will eventually run out, unless exceptional amenity is sufficient to maintain not just tourism but also the broader pre-existing economic base.

Whether demise or just transition, government economic development strategy and support will be needed.

THE GAMBLER’S RUIN OF SMALL CITIES

While working with Census data on various projects, sometimes I get the time to think more broadly about what the data is telling us about Australia. For instance, in 2006, 25% of the country’s population lived in towns with fewer than 100,000 residents. In 2016, it was 22%[1]. Only urban areas of over 100,000 increased their share of the national population from 75-78% (those over a million from 55-58%). Twenty cities and towns in Australia accommodated almost 80% of the nation’s population in 2016.

This made a recent blog post by Nobel Prize-winning economist Paul Krugman in the New York Times particularly poignant. He discussed the idea that all cities and towns, except the largest metropolises, are inevitably doomed to oblivion. In other words, “megacities seem to have less and less need for smaller cities”. And it’s only luck that certain towns and cities have been able to survive so long.

The idea is that once upon a time, regional towns and cities were a crucial means of supporting surrounding agricultural land and other natural resource-based activities. Given the wide dispersion of such land, an equally wide distribution of cities and towns was needed. And these smaller cities actually fed the rise of major cities.

But as agriculture automated and its share of the economy shrank, many of these towns subsequently declined and even disappeared. Populations moved to increasingly urban environments, which increasingly rely on other (often international) megacities, not smaller local ones. In the US, this trend of regional decline has arguably accelerated in the last 30 years. Highly skilled workers migrated to large cities to create higher wage knowledge and service clusters, and regional manufacturing was outsourced internationally.

There were some successes – towns and cities that managed to diversify into, for example, industrial production, and remain sustainable. But this was merely the luck of the draw. These towns were fortunate enough to possess the critical mass of people and skills required by another activity in which they were lucky enough to attempt to diversify. And today, there remains no reason beyond this historical chance why such industrial activity must occur outside the largest metropolises. And when all natural resources that support such towns and cities disappears (or are no longer needed), and the only reason for their continued existence is the fact that they already exist, isn’t it likely that these lucky ‘coin flips’ will eventually run out? That these towns and cities will begin their inevitable downward spiral?

“… when a city starts out fairly small and specialized, over a long period there will be a substantial chance that it will lose enough coin flips that it effectively loses any reason to exist … if you back up enough, it makes sense to think of urban destinies as a random process of wins and losses in which small cities face a relatively high likelihood of experiencing gambler’s ruin.” Paul Krugman

AUSTRALIA’S EXPERIENCE

Australia too experienced regional decline over the last century, with a proportionate decline in regional populations. This was especially associated with the loss of wheat-sheep belt towns in the wake of agricultural mechanisation. Even industrial towns felt the pressure. Instead of industry and small towns supporting each other, technological advances, productivity gains, the globalisation of supply chains and other structural changes meant local industry started needing small towns a lot less than small towns needed local industry. And even having large local industries didn’t necessarily mean a large local workforce (given the increasing use of automation and FIFO/DIDO workforces).

The attraction of the coastal lifestyle also generated some of the country’s largest urban areas.

And even though larger regional cities have increased their share of the national population too[2], many of them continue to be supported largely by inherently temporary mining and natural resource activities.

But does this mean regional towns and cities are always doomed to failure? That they will either grow to compete with the capital cities, or just disappear? Are there not permanent advantages that could keep smaller cities and towns in place?

RESEARCH SUGGESTS OTHERWISE

Krugman acknowledges that we are talking about very long-term horizons here. Furthermore, there are plenty of economic development initiatives that towns and cities can (and do) employ to stave off the supposedly inevitable decline for a very long time, or at least until the population has a reasonable chance of adjusting/relocating without major rapid upheaval.

Even Adam Smith, the father of free market economics, spoke of the wisdom of only slowly allowing artificially-supported non-sustainable activities to disappear once they have come to “employ a great multitude of hands”, so as to avoid the considerable disorder of mass unemployment.

Furthermore, in three separate projects Geografia has undertaken over the last few years, they’ve researched over 60 small coastal towns around Australia, over 50 remote and rural mining towns and 30 small towns (<1,000 residents) in rural Victoria. They found features common to successful small towns, based on a mix of:

·        History – what brought people there initially? Was it an appropriate location for agriculture or mining? Was the geography amenable to transport links? Are the skills generated from the towns’ agricultural or mining heritage transferrable into some other competitive advantage?

·        Amenity – what services (e.g. health, retail) and physical attributes exist? How is the quality of life? What are the economic drivers? How well is environmental value preserved?

·        Governance – what marketing and planning strategies (including tourism and even retirement living[3]) exist? What is the state of housing, infrastructure and servicing (government and community)? How well is the development of entrepreneurialism and social capital supported?

·        Proximity/accessibility – do modern transport infrastructure and options exist? Does the town rely on FIFO/DIDO work arrangements? Does telecommunications infrastructure allow more and more people to live further away from major employment centres, even establish home businesses[4]?

I also wrote an article with Geografia for Economic Development Australia about Australian towns that have transitioned successfully from natural resource-based towns to tourism-based towns:

·        Margaret River (WA) transitioned from former forestry and struggling dairy industries to a world-renowned wine and food tourism destination.

·        Walhalla (VIC) went from gold mining to heritage and ski tourism. Walhalla specifically has a population of just 20 permanent residents. But with the opening of South Face Road in 2008, allowing vehicles to pass through Walhalla and supporting an alternative accommodation destination for Baw Baw skiers and hikers, the town was able to remain.

·        Queenstown (TAS) went from gold and copper mining into heritage and nature-based tourism, enjoying proximity to Cradle Mountain.

Importantly, amenity and tourism can sustain a town[5]. And major investments by government and/or industry do have the potential to drastically change the future fortunes of a town.

THERE IS HOPE

So not only are there indeed numerous interventions that can drastically change prospects for smaller regional towns, some of them could be maintained indefinitely, particularly through environmental preservation of the location and amenity-based advantages that can’t be replicated easily elsewhere.

As for the larger regional cities, whether they can find a large enough scale and/or number of permanent advantages to support their indefinite existence alongside megacities, is anyone’s guess. Bendigo for example, is often quoted as the poster child of sustainable large regional cities, with a diverse economic base that has come to be known especially for its arts scene and creative industries. Maybe exceptional amenity is sufficient to support not just tourism and retirement living, but also an existing significant economic base indefinitely, even if not to grow to the scale of a large metropolis, and even if it is only there in the first place by historical chance.

But even if their eventual demise is set, there is still scope for action. Government support and strategic thinking will be required to help those displaced by these trends. Regional disenfranchisement was arguably a big factor behind the Brexit saga, and the election of Donald Trump. If these trends are to continue, many more lives will be disrupted, and the political implications could be drastic. But with appropriate economic development and transition strategies, the worst can be absorbed, and the long-term gains can be fairly distributed amongst everyone, not just in the largest cities.

Seeking to reverse these trends is like trying to get a river to flow upstream. But that doesn’t mean we can’t instead build bridges, dams and storm surge protectors to manage the inevitable and often destructive flow.

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[1] There were also declines for towns in each sub-category of “under 1,000”, “1,000-10,000” and “10,000-100,000”

[2] Given their critical mass/economies of scale advantages over small towns in attracting investment. In the past, rapid improvements in transport options also allowed people to pool their purchases into ‘one big shopping trip’. This resulted in competition between towns, causing some to expand into larger regional centres and others to decline.

[3] In the wake of increasing life expectancy, more and more people are able to make living decisions independently of employment considerations, thereby supporting smaller more remote towns.

[4] Although such transport options arguably damaged small towns in the past (see footnote 2), and could again if there are any new sudden innovations in transport.

[5] This is especially true given that small isolated towns have lower population thresholds for key services than metropolitan areas (more isolated means less competition), e.g. 600 people can sustain a regional main street, where 2,500 would be required in a metropolitan area.