Krugman’s blog, 8/2/16

There was one post yesterday, “The Unbundled City:”

I want to indulge myself a bit, talking about today’s interesting article in the Times about corporate headquarters moving back to cities and how it relates to an old discussion in one of my home fields, economic geography.

Nelson Schwartz’s piece offers a menu of reasons why firms are moving back from suburban campuses to center cities, but this passage, I think, gets at the essence:

“Part of it is that cities are more attractive places to live than they were 30 years ago and are more willing to provide tax incentives, and young people want to be there,” said David J. Collis, who teaches corporate strategy at Harvard Business School.

“But the trend also represents the deconstruction and disaggregation of the traditional corporate headquarters,” he explained. “The executive suite might be downtown, but you could have the back office and administrative functions in Colorado, the finance guys in Switzerland and the tax team in the U.K.”

OK, this goes back to a discussion identified with Ed Glaeser, way back: how would the rise of the Internet affect urbanization?

At the time (20 years ago), many people were suggesting that big urban centers would decline even further, because anyone with a modem could now do white-collar work from the middle of the Texas panhandle, or something. But Glaeser and Gaspar argued that the effect could work the other way, that online contact would increase the demand for meetings in meatspace, and enhance cities.

I think I also argued – though I don’t know if I ever wrote it down! – that information technology would make it easier for people in dense metro centers to provide services to people in remote locations, also enhancing urban centers.

What we’re seeing here, I’d argue, is a special case of or at least a close relative to that latter argument. In today’s world, core headquarters functions – the stuff done by top executives and highly paid experts – can be unbundled from the more mundane operations of a company. These high-end functions are also the ones that benefit most from the agglomeration economies of a big city; not to mention the amenities such a city offers to people whose salaries are enough to let them afford decent housing despite high prices.

Meanwhile, it’s no longer necessary to have all the back-office operations in the same place, requiring that a lot of less-well-paid workers deal with high rents even as they suffer on the long subway ride in from Queens.

So what we’re getting is remote servicing of “customers” who in this case are the other pieces of what was formerly a physically united headquarters.

This is good for urban economies, although it does reinforce the tendency of urban centers to become playgrounds for the very affluent.

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