institute view · millennium’s end, there were no new soaring high-rise projects gracing the skyline; specu-lative excess has been kept to a minimum. Most growth now is lower to

commercial construction boom Wes

Christian, a real estate developer, made his fortune, and ultimately lost it, speculating

in office parks, retail development and housing tracts on Houston’s periphery. Today,

a greatly humbled Christian is seeking to rebuild his nest egg not out among freshly

minted developments at the fringes, but in the older, long neglected sections around

downtown Houston’s aging core.

In the last great

“Back then, we were buying raw land andthe income flows seemed unbelievable. Youbuilt without even having tenants,” Christianrecalls of the boom years while standing in arestored, completely leased 1950s low-riseoffice building that he owns in Midtown, afive-minute drive from the Texas city’s largestmodern towers. “Now we are seeking to dothings differently and more conservatively inareas like this, where the infrastructurealready exists.”

Wes Christian’s sense that central Houstonrepresents the new opportunity reflects aunique movement in American history – acounterpoint to the out-to-the-fringes men-tality that has dominated urban settlementsince the end of World War II. In Houston,long an archetype of sprawl, hundreds of mil-lions of dollars is being spent on constructionof downtown stadiums and arts centers, therestoration of old hotels and office buildings,and, most remarkably, apartments and lofts

for several thousand middle-class residents.This trend follows decades of rapid depop-

ulation in the city’s historic core. At the end ofthe 1980s, following a catastrophic period forthe city’s economy, the population of theMidtown area fell to less than 1,000 people,most of them destitute. Only 9 of its 325homes were owner-occupied.

The return to Midtown represents part ofa broader shift toward Houston's inner core.Housing starts inside the loop of Interstate610, the highway that surrounds centralHouston, rose tenfold during the decade, withover 6,500 multi-family units built between1996 and 1998 alone. Residential growth clos-er to the city has, for the first time in genera-tions, surpassed that outside the I-610 loop,an area with twice the population.

On first glance, central Houston seems anunlikely place for a back-to-the-city move-ment. The city’s core lacks concentratedstretches of attractive vintage buildings likethose found in Baltimore, Boston and Seattle.Yet it is not aesthetics, but economics anddemographics, that are driving the recoveryof downtown Houston. Growth and diversifi-

J O E L KOT K I N is a senior fellow at the Milken Instituteand the author of The Digital Economy (Random House),on which this piece is based.

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cation of what was until recently an oil-dom-inated economy has created a whole new classof business-service professionals – mediaworkers, Web designers, venture capitalists.

From this base, downtown draws its newcustomers and residents. Surveys conductedlast year showed an expanding popular mar-ket for the inner city; residents of as many as137,000 households in the metropolitan eraexpressed a desire to live close to downtown,a 40 percent increase from five years earlier.Most of them were young or middle-aged,decidedly middle class and well educated.Predominately single or divorced, and with-out children, they are looking for a lifestylewith shorter commutes, a more varied urbanlandscape, and proximity to the city’s largestconcentration of theaters and art museums.

Immigrants have provided another sparkfor the resurgence of Midtown. Throughoutthe 1990s newcomers from Asia, Latin Amer-ica and the Middle East brought a new com-mercial dynamism to the area. Within walk-ing distance of Wes Christian’s buildings,Vietnamese-owned textile stores, groceriesand nightspots abound. Noodle companies,restaurants and other retail stores line thebroad boulevards.

Christian tries to restrain his enthusiasmabout his investments, though it is difficult toremain calm after rents increased fivefold injust two years. It helps that he sees a funda-mental difference between the current marketand the go-go market of the decade betweenthe mid-’70s and mid-’80s, when office spaceand the number of office towers doubled. Atmillennium’s end, there were no new soaringhigh-rise projects gracing the skyline; specu-lative excess has been kept to a minimum.Most growth now is lower to the ground –residential, retail, entertainment or the arts.In the ultimate land of more-is-better, the

shift is to the development of a qualitativeexperience that only a central core can pro-vide – restaurants, jazz clubs, the sense forpeople out on a hot, humid Texas night thatthey are in a real city.

“The appeal of an area like this is mysti-cal,” Christian said over a beer at a local hang-out in the nearby Bayou Place entertainmentdistrict. “This is about things that can’t beduplicated further out. What’s left of our his-tory, our classic architecture is here. This isabout a new kind of Houston that’s boomingnot just because of oil prices, but because weprovide additional kinds of services, thingsthat downtowns are best suited to provide.”

reinventing the coreThe downtown recovery in Houston andother cities does not imply that downtownsare, “marching again to grandeur” as an over-wrought media report put it. Rather thanrecovering their place as geographic centers ofthe entire economy, city centers are adjustingto the more modest, but sustainable tasks thathave been performed by the core from thebeginnings of civilization. Today, the hope forcentral business districts – from Houston andLos Angeles to Baltimore and Boston – liesnot in the Industrial Age paradigm of high-rises or massive factories, but in rediscoveringtheir preindustrial role as centers for the arts,entertainment, and the creation of specializedgoods and services.

This notion represents a quiet revolutionin perspective. Traditional boosters of down-towns based their strategy on maintaining themanufacturing, corporate, bureaucratic andsupport bases that adhered to the center cityfor most of this century. When those func-tions began to disintegrate in many cities,some political leaders and academics as-sumed downtowns were destined to serve aswhat one commentator called “the preserve of


the homeless, the so-called underclass and thepersistently poor.”

Yet in the digital era, it is the pre-20th century characteristics of cities that havebequeathed a future for the center. Writing ofBerlin at the dawn of the 20thcentury, the sociologist GeorgSimmel touched on the essentialappeal of the dense urban dis-trict: “With each crossing of thestreet, with the tempo and mul-tiplicity of economic, occupa-tional and social life, the citysets up a deep contrast withsmall-town and rural life withreference to the sensory founda-tions of psychic life.”

Seizing on this contraststands at the heart of center-citydevelopment strategies not onlyin older downtowns likeBaltimore or New York, but alsoin more dispersed cities likeDenver, San Diego and Wichita.Most critical has been thegrowth of demographic nichegroups – gays, empty-nesters,divorced and never-marriedpeople – groups traditionallyattracted to the inner cores, inpart because they wish to haveactive social lives. This depen-dent-free population has dou-bled in size over the past quartercentury. Single buyers of homeshave been among the fastest-growing segments in residentialreal estate nationally; in San Francisco, theyaccount for a majority of sales.

Andrew Segal, a 31-year-old wannabe realestate mogul who has purchased and retrofit-ted less desirable office space in Houston,Dallas, Baltimore and Hartford, observes that

“sex is what sells the city. It’s where the singlepeople are, where you go to a bar to meetthem. That’s what makes it work. In Houston,there are few places for people to walk aroundand promenade – downtown is the exception.”

Still, center cities are unlikely to become anew geographic center for middle-class fami-lies. Even the most optimistic predictions fordowntown population growth over the nextdecade project a net increase of less than200,000 new residents for all the major down-


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towns in the nation combined. This is lessthan the total growth in the suburbs of onemid-sized city, Seattle, during the 1990s. In2010, downtown’s share of the metropolitanpopulation will indeed rise, but only from 1.5percent to slightly over 2 percent.

Similarly, the center city will not recoverthe economic role it enjoyed in the 20th cen-tury. The decline in the vitality of office cul-ture, brought about by the downsizing ofmajor corporations and by the march of theircorporate headquarters to the suburbs, hasreduced the demand for huge blocks of officespace. That is one reason why, despite a stron-ger economy, most major downtowns haveseen relatively little office construction. Infact, some downtowns long dependent oncorporate headquarters – like St. Louis andCleveland – have continued to depopulateand decline relative to their regions.

Some urban theorists, notably SusanFainstein of Rutgers and Saskia Sassen of theUniversity of Chicago, maintain that someurban cores – particularly in global cities likeNew York and London – can resist the down-scaling trend. They have argued that the ris-ing importance of transnational informationand financial flows increased the need forcentralized command and control centers forsupermanagers and strategists whose essen-tial role is to coordinate the activities of oth-ers in less rarified locations. They point par-ticularly to the growth of producer servicesthat facilitate the development and sales ofgoods (as opposed to their manufacture anddistribution) which grew from 29 to 36 per-cent of gross domestic product in the UnitedStates between 1947 and 1977. This sector hasbeen widely seen as crucial to the permanentascendency of cities that possess sufficientdepth in fields like law, advertising and inter-national trade.

Yet recent experience and the technologi-cal revolution make such assumptions dubi-ous. Indeed, throughout the 1990s, employ-ment in high-end producer services, particu-larly finance, has continued to shift towardthe periphery. Traditional financial centerslike Chicago’s Mercantile Exchange, Board ofTrade and Options Exchange employ some50,000 people, many of them key punchers,runners and clerks. But in the new century,many of these jobs are likely to be automated.“Where it has taken hold, [the computer] hasdriven the open-outcry market out of busi-ness,” notes pension fund manager GaryKnapp of GM Investment Management Corp.“That would be a huge loss for Chicago.”

As financial bulletin boards on theInternet increasingly replace human experts,even New York City’s expensive decision tospend $900 million on a new stock-tradingcomplex will not guarantee its long-termdomination of the financial-service industry.By century’s end, major Wall Street playerslike Merrill Lynch were shifting their empha-sis to online trading in order to stay abreast ofsuch innovative out-of-town rivals as CharlesSchwab and E-Trade. Although Merrill Lynchcould well recover from the shift, its employ-ment base will surely shrink with time.

In the process, the long unassailable cen-trality of Wall Street as a physical center ofthe financial industry could become pro-foundly assailable, becoming less the descrip-tion of a place than of a virtual community.Al Berkeley, the president of Nasdaq, observesthat “the Wall Street that matters will be moreand more electronic. The value is going to bein the risk-taking judgment of investors andthe knowledge conveyed by broker-dealers.”

a purely personal matterFor New York and other core cities, surely theprime economic imperative is to hang onto



skilled workers, not to preserve physical insti-tutions like the stock exchange. In many ways,then, the post-industrial city resembles noth-ing so much as the pre-industrial city – par-ticularly, the Renaissance city-state orAmsterdam. One historian has called theRenaissance “the age of cities,” an age inwhich urbanites often differed dramaticallyfrom their hinterland cousins.

Foreigners, including religious minoritieslike Jews and Huguenots, found havens in thecity for the same reasons it was attractive tothose who lived unconventional lives – actors,artists, homosexuals, educated women andthe childless. At the height of the Renaissance,half of Venice’s“men of good birth”never mar-ried. From the 14th century, the rise of thecity corresponded to the weakening of exten-ded families and the growth of individualism.

As another historian, John Hale, says,“those who were reasonably well-off feltthemselves to be separate units. Increased ur-ban prosperity led to greater mobility – fromcountry to town and country to country –which drew the ambitious individual awayfrom the settled kinship group into a house ofhis own and a self-sufficient way of life.

This individualism expressed itself ineveryday life, just as it does today in myriadurban districts. The residents of Florence, sayshistorian Jacob Burkhardt, regarded suchthings as dress as “a purely personal matter,and every man set fashion for himself.”

By the 16th and 17th centuries, the indi-vidualism and diversity characteristic of the

Renaissance cities could be found as well inLondon, Paris and Amsterdam. Changes intechnology, science and theology were rip-ping away the bonds of the older society andlaying the foundation for a new freedom ofthought that housed itself most comfortablyin the urban core. Freed from medievalrestraints, sophisticated urbanites embracedthe idea that nothing human was foreign.

This openness to the exotic could be seen ineverything from dress to architecture to theplays of Shakespeare and writings ofMontaigne. Urbanity also produced a newcore of liberated women who in 17th centuryAmsterdam could conduct business and con-verse with men unchaperoned. Higher levelsof public safety and the advent of street light-ing further bolstered this development. Byremoving the dark corners, streetlightsallowed Amsterdamers, male and female, toexpand the hours of both commerce andpleasure. Lighting, incidentally, also reducedthe incidence of drunks drowning in thecanals. On every level – social, technological,economic, artistic – Holland was, as theFrench priest Pierre Sartre observed in 1719,a country where all is new.

In Amsterdam, and later in London, whichgrew fourfold in the 16th century alone, theurban core evolved into an increasinglysophisticated provider of cultural goods andservices. Cities became more conspicuouslythe stages of urban spectacle and provider ofthe arts to an ever-more-literate populace.Modern information-based industries –


The post-industrial city resembles nothing so

much as the pre-industrial city – particularly,

the Renaissance city-state.

finance, publishing and insurance – can tracetheir origins to this time and to specific areasof London, like St. Paul’s, Fleet Street, theLloyd’s coffee shop and the City itself.

Today many of these information indus-tries can conduct their business electronicallyand at great distance, yet the essential natureof these linchpins of urban commerce remaindependent on the sorts of people who preferto live in cities. As long as the urban popula-tions possess the necessary skills, employerswho rely on creative workers will still conductbusiness in cities.

And although new technology can spuroutward movement, technology itself, partic-ularly the Internet, allows workers to “tele-cottage” comfortably in the urban setting, forthose who choose to do so. This avails themaccess to the privileged information onlyavailable by networking personally in a placelike Wall Street or the Chicago Loop. Indeed,this person-to-person contact becomes one ofthe best economic reasons for living close tothe central core.

But there is a limit to the degree that citiescan be pigeon-holed. A vast decentralized citylike Los Angeles simply does not fit into thetraditional, highly compact city pattern; it isso huge that it could encompass the entireland mass of Manhattan, San Francisco, Bos-ton, Minneapolis, Cleveland, St. Louis andMilwaukee, with room to spare. In Los Ange-les, the Renaissance functions of the core cityare being reinvented, not so much downtownbut in dynamic, smaller centers like BeverlyHills, Santa Monica, Pasadena, Glendale, andeven what Johnny Carson used to call “beau-tiful downtown Burbank.”

In some of the stronger central cores –Boston, Manhattan, San Francisco and Chi-cago – gentrification and tourism could cre-ate a new kind of city dominated by demand

for the services provided by the new urbaniteprofessionals and creatives. Even as theyretain the look of 20th- or even late 19th-century center cities, these areas will no lon-ger serve as headquarters towns for largecompanies, but will become more like bou-tique malls that cater to diverse needs.

Less favored traditional downtowns, eventhose with attractive natural features like har-bors and riverfronts, could experience a simi-lar downtown revival, but on a less grandscale. To be sure, pockets of vitality exist inareas like Philadelphia’s Rittenhouse Squareand Baltimore’s Inner Harbor. Yet for themost part these downtowns have declinedprecipitously from their once-central roles,and there’s no going back. As recently as 1988,downtown Baltimore accounted for one-fourth of its region’s office-leasing activity; adecade later that figure is less than 10 percent.Two out of every five of Baltimore’s jobs arein the public sector, while the vast majority ofnew investment is concentrated not in thehistoric downtown, but in a small entertain-ment area around the Inner Harbor and theCamden Yards baseball stadium.

Attempts to revive cities around casinos,football stadiums and arenas at best create akind of Potemkin village that provided a pati-na of prosperity against a backdrop of per-haps irreversible decline. Downtown Cleve-land boasts an impressive array of symboliccenters: the heavily subsidized Gateway pro-ject, which includes Jacobs Field for major-league baseball and Gundy Arena for profes-sional basketball, the Rock and Roll Hall ofFame and several other retail-oriented devel-opments. But the results have been negligiblefor most Clevelanders. The city’s overall shareof employment and income has continued todecline, while its portion of households belowthe poverty line has increased.

At best, these efforts have prevented cities



like Cleveland from becoming modern-dayCarthages, dead husks giving mute witness topast glories. Suburbanites, who have takenmost of the new jobs created by Cleveland’sdowntown recovery, may feel better aboutworking in the core, but thebulk of the job creation continues to move to theperiphery. “We didn’t createa booming economy,” ex-plains Richard Shatten, aleader in the comeback effortwho now teaches at CaseWestern Reserve University.“We found a reason [fordowntown] to exist.”

But perhaps the mosttragic fate awaits those cities– usually cities built aroundthe mass-industrial base –that lack even the basicattractions of a Baltimore ora Cleveland. Without anysustainable appeal for thenew urbanites, cities like St.Louis and Detroit couldbecome deserted relics of abygone era. For one thing,suggests William Frey, ademographer at the MilkenInstitute, there may not be“enough affluent yuppies togo around.” New urbanitesmay well revitalize somewell-placed cores, he ack-nowledges, but, “how manyof these people want to moveto downtown Detroit?”

In such areas, it is doubtful that even thenew casinos and stadiums will arrest the pre-cipitous decline. Both St. Louis and Detroit,for example, have lost roughly half their pop-ulation since the 1950s, and they continued to

lose population throughout the 1990s, despitenearly three decades of civic efforts to turnthemselves around.

Inevitability, even if modest improvementsare made possible, those cities are likely to

remain mere shadows of their past greatness.One can still admire the magnificent infra-structure – the train depots, Art Deco officetowers, old department store buildings, deco-rative streetlights and clocks. Yet those trea-sures remain derelict or at best underused,


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much like an old man’s clothes now severalsizes too large.

the magnificent anachronismsAt the millennium’s start, most downtownsno longer function as anything close to the

dominant centers of their regions. The centraldistricts of vital regions like Los Angeles,Dallas, Atlanta and Phoenix have not bur-geoned even as their surrounding economieshave expanded enormously.

That is not the case with the magnificentanachronisms of Chicago and New York.Despite the exodus of major firms and ofmuch of their middle class, those two citiesretain the vast majority of their region’s com-mercial office space within their central dis-tricts. They have become unique in their successful resettling of their urban core;indeed, those two cities account for nearlyone-third of the nation’s downtown residentpopulation.

With their hard-wired centrally oriented

transit systems, stunning skylines and well-developed cultural institutions, the anachro-nisms succeed because they provide the infra-structure critical for the face time needed intrading, communications and culture-basedservices. Although it is highly unlikely thattheir form of urbanization will ever be

repeated under mod-ern conditions – inthis auto-dominatedage of sprawl onerarely hears about acity becoming anotherManhattan or Chi-cago – these quintes-sential early 20th century cities could,in part because oftheir uniqueness, se-cure important rolesin the 21st century.

To understand thedurability of NewYork and Chicago, onemust understand howthey evolved. New

York, the first of the truly great Americancities, was from its origins primarily a com-mercial town, not an industrial one. Like itsoriginal namesake, Amsterdam, Manhattanwas always a city “infatuated with trade,” asone early observer commented. In contrast toPuritan Boston and Quaker Philadelphia, thecolony’s social system was dominated early onby a relatively free-spirited, high-spendingand pleasure-minded elite, one given toindulgence in theater, dance and materialaccumulation.

New York’s other great endowment was itsmagnificent waterfront. No other eastern city,save Baltimore, had anything remotely assuited for commerce. Gotham also abuttedthe Hudson River, connecting it to the



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expanding agricultural region to its northand, after 1825, through the Erie Canal to thewider American hinterland. The port becamethe nation’s largest in 1800 and consolidatedits domination of trade throughout the nexthalf century. It accounted for two-thirds of allU.S. imports by 1860.

Trade quickly transformed New York intothe nation’s commercial capital and, by 1803,its largest city. As in earlier urban agglomera-tions, the city’s merchant class congregatedclose to the wharves, particularly in the areaaround Wall Street. Traders, financiers andinsurers all clustered together in the packedstreets to arbitrage not only goods, but alsoinformation. These 19th century entrepre-neurs, like their equivalents a century earlierin London, provided the seed bed for thecity’s later development into the nation’s bur-geoning information, financial and tradingcenter, as well as its window on the world.

As transportation and communicationsimproved, particularly with the building ofthe subway system, white-collar workersmoved northward to work in the office buildings being erected in the middle of theisland. With the construction of the first sky-scraper in 1895, New York epitomized theemergence of a new kind of vertical metropo-lis dominated by service industries and cor-porate bureaucracies.

Despite its Midwest location in the indus-trial heartland, Chicago also developed pri-marily as a commercial city. Compared witheastern cities like Philadelphia, Boston,Newark and even its Midwestern rival,Cincinnati, Chicago in 1860 employed a farsmaller part of its population in manufactur-ing. Although it lacked the unique geograph-ic gifts of New York, its commercial culture –particularly in comparison with more conser-vative rivals like St. Louis – and its early will-ingness to embrace new technologies, like

railroads, helped push Chicago towards pre-eminence. The Chicago Daily Journal cap-tured the scene of a mid-19th century com-mercial center convulsed by manic activity:

Our streets provide an animated picture.

thronged with laden wagons, filled with

busy people, vocal with rattling of wheels,

the rush of steam, the clank of machinery

and many voices, good gaily flaunting from

awning posts and store doors, docks piled

with boxes, bales and bundles of merchan-

dise, warehouses like so many heart ventri-

cles receiving grain on one side, and with a

single pulsation, pouring it out on the other

into waiting vessels and steamers to be

borne away on the general circulation…

By 1871, Chicago had passed St. Louis inpopulation and emerged unchallenged asAmerica’s second center for the clustering ofoffice workers and the towers to accommo-date them. Like New York, Chicago’s businesselites celebrated their success not so much by building huge factories, but by erectingoffice buildings of steel, stone and glass –monuments to the vitality of commercialcapitalism.

This predominately commercial culturehas helped New York and Chicago to adaptmore successfully than their counterparts.Although both cities developed manufactur-ing economies, their economic soul remainedconcentrated on commerce and information.The two great cities have lost many jobs in thelast half century, yet they enter the millenni-um dominating many economic sectors, likefinancial services and law.

Manhattan, for example, is still home to 4of the top 6 accounting firms, 6 of the 10biggest consulting companies and all 10 of thelargest securities firms. The center’s domina-tion is also palpable in expanding fields likenew media, where Manhattan accounts for


roughly half the companies in the region.Chicago ranked second in securities andcommodities trading, and boasts the second-highest percentage of workers in informa-tion-oriented industries among the nation’sfive largest cities.

Such pockets of expertise have helpedthese cities adapt to a new role as unique ag-glomerations of high-end service providers.By the millennium’s end, eight of Chicago’s10 largest public companies were headed else-where. Yet the city was enjoying its strongesteconomy in decades – a boom built largely onfirms specializing in legal, financial, advertis-ing and trade. In professional services, bothcities enjoy the largest concentrations ofmajor firms – two to three times more thanthe San Francisco Bay area or Atlanta.

The unique concentration of such servicesexplains why Sol Dutka, the founder of mar-ket research firm Audits and Surveys, chose toremain in Manhattan even as many of hisclients moved away. Dutka explains his deci-sion to stay in New York as driven largely byhis company’s need to tap the city’s denseconcentration of specialists and its highly cos-mopolitan workforce.

This essential workforce, Dutka suggests,does not have the characteristics that wouldappeal to heartland industries. “I have a lot ofresident geniuses here who would be unac-ceptable in a place like Charlotte. They’re juststrange people,” Dutka says, pointing towardsthe hallway outside his office. “Here theyknow that they are welcome, that the door iswide open to them.”

It’s the city’s concentration of such peoplethat provides its unique competitive edge.New York’s density of service providers, acad-emics, think tanks and artists has long pro-vided a powerful strategic advantage. Close-in physical proximity remains, in Dutka’s

view, critically important, particularly whenaddressing the needs of clients with tightdeadlines. “I can get 24-hour service for any-thing in New York, whether it’s in graphics,getting extra time on someone’s computer, orgetting something photographed. It’s terriblyimportant. You want a consultant or techni-cian, you can get them at a minute’s notice. Ihave access to services and people I wouldnever had if I had moved.”

cities without childrenThis geographic reinvention of the centralcity – so marked in Manhattan and alongChicago’s lakeshore – rests upon a new andradically different demography. Even as thetraditional middle class family has continuedto decamp from the center, the city is beingrevived by the arrival of singles, gays, “cre-atives” and other educated, childless, adults.

This demographic and economic restruc-turing suggests a return to the center’sreliance on a divergent and, by some notions,deviant, population. In the Industrial Age, bycontrast, many inner urban neighborhoodsserved not only an economic function but asa place where middle- and working-classfamilies raised their children amidst the oftendiscordant rhythms of urban life. Today manyof these same places – Boston’s North End,New York’s Greenwich Village, Seattle’sBallard – have increasingly become domicilesfor the affluent and childless.

Manhattan has one of the highest per capi-ta incomes in the nation and one of the low-est percentages of residents from 5 to 17 yearsold. A 1998 survey of residents in New York’snow fashionable downtown area near WallStreet – where some 2,400 housing units havebeen converted from office space – found that88 percent were under age 45, 60 percent weresingle and a similar percentage had house-hold incomes in excess of $120,000 annually.



A similar process is transforming part ofChicago, where desirable close-in neighbor-hoods like Lincoln Park and Bucktown havebecome both child-scarce and expensive.Here, housing prices rose as much as 40 per-cent annually by the late 1990s.

In the 1950s the average residence inChicago’s Lincoln Park neighborhood hadmore than four occupants; by 1998 that num-ber had dropped to less than two. RobertBruegmann, an urban scholar at the Univer-sity of Illinois at Chicago and a Lincoln Parkresident, notes that the area was once madeup of working-class families and was sur-rounded by poorer areas. As he candidly putsit, “Gentrification takes on the character of aninvasion pattern. It goes to the center and dri-ves poverty out. My neighborhood is nicebecause a lot of people left. The poor people

left – that’s why we like it.”As in the Renaissance cities, these have re-

vived on a base of highly individualistic cul-tural attitudes defined by freedom from tradi-tional values. For example, gay couples havebeen about twice as likely to move into thecity as the general population. As in the Ren-aissance cities, toleration plays a key role inattracting these newcomers to the core.

In a city like New York, being single, child-less or gay is no longer exceptional. “We liketo walk in public without getting strangeglances, or whispers behind our backs, whichis what happened down South or on LongIsland,” explains Chris Kohler, a public healthcounselor who moved from Virginia with hispartner in the early 1990s.

Perhaps nowhere is this shift from tradi-tional families more evident – and less


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expected – than in Seattle. When he firstarrived in 1955, Richard Morrill, a Universityof Washington demographer, encountered acity that was “very middle class, union bluecollar, homeowning.” But in the last census,he notes, the city had the lowest percentage of residents between the ages of 5 and 17 ofany major American city. Boston, Manhattan,

Denver and San Francisco followed closely.As in these other cities, Seattle’s demo-

graphic transformation has been powered byits attraction to upwardly mobile profession-als, many of whom have postponed child-bearing or intend to remain childless. Today,notes Morrill, once family-oriented Seattleneighborhoods like Fremont, Queen Anneand Capitol Hill have become simultaneouslyfashionable and almost child-free, with 5- to17-year-olds as low as 5 percent of the popu-lation. Overall, the number of schoolchildrenin the Seattle public schools dropped by halfbetween 1962 and 1990.

At the same time, couples with childrenare driven to leave the city, both by poor edu-cation and by high real estate prices. Indeed,fully one-third of all children born in Seattlemove out within five years. “Even the peoplewho want to stay and keep the urban lifestylehave to move. You can’t buy a decent househere for less than $240,000,” notes DavidSucjer, a Seattle developer. “And even if youcan pay that, in the end, the schools force theissue for almost everybody. You have kids, youmove to suburbs.”

In the process, Seattle’s once strong repu-tation as a blue-collar, white ethnic town hasfaded into an image more akin to its mostfamous chain, Starbucks, the quintessentialmeeting place of upwardly mobile singles.Neighborhoods like Pioneer Square andBelltown have been quietly transformed fromdumping grounds for the homeless to condoheaven for Microsoft millionaires. A city that

gave the country its first general strike andwhose working-class politics once ledPostmaster James Farley to refer to Seattle ascenter of the “Soviet of Washington” has lostvirtually every trace of its proletarian culture.

Much the same has happened to its ethnicidentity. Even the Ballard neighborhoodseems to have changed irrevocably. “Thereused to be a strong sense of Scandanavian-ness in places like Ballard, but now it’s justbecome another yuppie neighborhood,”observes Eric Scigiliano, a columnist for thelocal alternative paper Seattle Weekly. “Youcan’t even get a decent smorgasbord there.”

the city as boutiqueThese demographic changes also parallel ashift in the economic functions of core areas.In Seattle, demographic change has been has-tened by a shift of both manufacturing andwarehousing to cheaper areas. “It’s an era ofland inflation in the city and it’s becomingtoo expensive for small industrial and ware-housing companies,” observes Paul Sommers,executive director of the Seattle-based North-west Policy Center. “Retail, housing and head-



As in the Renaissance cities, the urban habit

of toleration plays a key role in attracting

newcomers to the core.

quarters of companies like Starbucks aremoving in. The industrial zones increasinglydon’t even look industrial.”

Sommers sees Seattle as a kind of yuppieurban village that represents an increasinglysmall proportion of theregion’s population. In1970, for example, Seattleaccounted for half the pop-ulation of King County andover one quarter of theregion’s total; by 1998, itspopulation representedbarely a third of KingCounty and just one in sixresidents in the greatermetropolitan area.

This new economic rolefor center cities can be bestdescribed as that of a bou-tique. Central cities arebecome highly specializedplaces almost totally depen-dent on the informationindustries, high-end ser-vices and tourism. Themost successful of these are smaller, attrac-tive, single-friendly, deindustrialized cities.Boutique cities – like Denver, Boston, Seattleand San Francisco – are generally those thathave always had relatively small working-classpopulations or have lost much of those pop-ulations over the past two decades. GeraldGlick, a prominent developer in Denver’s“Lodo,” or Lower Downtown, notes that“Denver was never an industrial city. Thepeople make their choices for lifestyle pur-poses and for some of people who choose tolive here, this is a way to be part of a boomingregion but enjoy an urban way of life.”

Lacking working-class and poor residents,these cities long ago developed a strongwhite-collar orientation and boast among the

highest percentages of college graduates ofthe largest American metropolitan areas. As aresult, the recent shift to high-technology andinformation industries has disproportionate-ly aided these regions, which are now home to

the highest concentrations of technology-ori-ented companies in the country.

Although most of this growth has takenplace in the periphery, the boutiques thrive byproviding financial and other high-end ser-vices, as well as restaurants, art galleries andother entertainment for the well-heeled tech-nological elite. This helped the central coresof San Francisco Boston, Denver and Seattleto thrive in the 1990s.

Arguably the most complete adaptation tothe boutique model can be found in SanFrancisco. Once the unquestioned center ofthe Bay Area economy, San Francisco nowsimply is one node – and arguably not themost important node – among a series scat-tered through the region. It’s a culture, busi-


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ness-services, media and tourism Mecca, buthardly the vital heart. Nearly 30 percent of theregion’s population lived in San Francisco in1950; today, the figure is 13 percent.

In 1980, San Francisco was the largest em-

ployment center in the Bay Area. Today thecity has about the same number of jobs as itdid then, but the outlying areas – notablySilicon Valley and the East Bay – employ twiceas many people as they did in 1980. In 1990,San Jose, the capital of the Valley, with nearly900,000 residents, emerged as the Bay Area’slargest city. And by 1998, roughly half the BayArea’s 500 largest public companies werelocated in Santa Clara County – five timesmore than in San Francisco. Lynn Sedway, aneconomist whose office is in the city’s finan-cial district, notes that “ever since the 1980s,the real growth in the Bay Area has been SanJose and the other peripheral areas. Everyonerealized that San Francisco had to become asubsidiary of Silicon Valley.”

This transition to boutique status was notplanned; indeed, it occurred over the objec-tions of the city’s traditional business elite.Just 50 years ago, San Francisco was a brawl-ing, ambitious town run by corporate vision-aries like Bank of America founder A.P.

Giannini and a host offirms deeply rooted inthe city – food-productcompanies like Folgersand MJB, manufacturerslike Stauffer Chemicals,Levi Strauss and SchlageLock, as well as a host ofshipping firms, includingthe Matson Lines and the American HawaiianSteamship Company.

Even as the city beganto lose its industrial anddemographic primacy toLos Angeles, the city’sleaders hoped to regainthe initiative by makingSan Francisco the pre-ferred corporate head-

quarters for West Coast financial and otherservice firms. Their dream was to create ahighly compact West Coast alternative to NewYork and Chicago, complete with its owntransit-centered high-rise complex, luxuryapartments and elite shopping.

Yet this drive floundered, largely due to thedetermined opposition of neighborhoodsand the thousands of counterculture activistswho had flocked to the city since the hippiedays. But it was also a matter of civic identity.For one thing, San Franciscans have alwaystended to love their city for reasons that aremore aesthetic than economic; it is a city lessenamored with power and cultural dyna-mism than with spectacular views, a mild cli-mate and charming architecture.



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By the late 1980s, such attitudes spurred acoalition of activists and neighborhoods toimpose strict limits on high-rise develop-ment. To some on the left, the success of thismovement suggested the rise of what RichardDeLeon of San Francisco State Universitycalled “post-materialist populism,” marryinglocal anti-growth sentiments with more tra-ditional 60s-style progressive cultural viewsembracing environmental, minority, neigh-borhood and labor concerns. Business lea-ders, on the other hand, were horrified. “Wewere becoming the laughingstock of thecountry,” says Art Cimento, principal atMcKinsey & Company’s San Francisco office.

But post-materialist populism proved tohave anything but populist impacts. For onething, growth controls inadvertently prevent-ed the overbuilding that led its rival cities –Los Angeles, New York and Chicago – into areal estate crash. It also pushed developmentinto other areas, notably South of Market,where multimedia companies and dot-comsultimately would cluster. Between 1996 and1999, the area experienced a doubling of rents,driving out many industrial firms, along withthe remnants of blue-collar jobs.

With office, commercial and housingspace severely limited, San Francisco rapidlybecame one of the nation’s most successfulcities at the expense of economic diversity.Blue-collar industries, like apparel, have lostground and scores of smaller manufacturingfirms have departed for other locales or sim-ply gone out of business. The result has beenan urban economy that has precious littleroom for middle-income residents or theworking class. Says McKinsey’s Cimento:“The biggest concern I have is a dividebetween the investment banker who’s making$1 million a year and the person who can’tstay here making $60,000. You need people torun the dry cleaners and work in the restau-

rants, but they can’t afford to be here.”What now remains of the poor, not only in

San Francisco but also in other boutiquecities like Seattle, is a largely dysfunctionalunderclass. Unlike the working- or middle-class population, or the local artists who firstgentrified those areas and can no longerafford to live in them, the lumpenproleteriatrely on public subsidies or subsist on the citystreets. Indeed, this street scene is so bizarrethat one prominent historian characterized itas “a cross between Carmel and Calcutta.”

This leads to the odd phenomena – seen inplaces like San Francisco’s South of Marketand Seattle’s Belltown – of rapidly gentrifyingareas alongside some of the most intense con-centrations of the homeless. These cities mayhave to cope with the continuing presence ofa seemingly permanent underclass. San Fran-cisco, the nation’s 13th largest city, has thedubious distinction of having the third largestnumber of homeless.

These social dichotomies are less obviousin the financial district or in the tourist hang-outs along Union Square and Fisherman’sWharf than in other parts of the city. In therapidly changing districts south of Market,one can dine in elegant restaurants whilehomeless people seek shelter in the doorwaysof adjacent office buildings. Even as the newrich drive prices to record levels in fashion-able neighborhoods like Pacific Heights andthe Marina, other areas – notably parts ofRichmond, North Beach and Haight-Ashbury– appear more bedraggled, dirtier and lessprosperous than they did a decade ago.

“You have a wide divide we see every day,”notes Brian Gaines, who owns a Ben & Jerry’son the corner of Haight and Ashbury. “Forthe more affluent people, the city represents agiant playground. But every day people in thisneighborhood are confronted with the peopleon the street.”


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Documents

institute view · millennium’s end, there were no new soaring high-rise projects gracing the skyline; specu-lative excess has been kept to a minimum. Most growth now is lower to