Anheuser-Busch Briefing Center, U.S. Chamber of Commerce
1615 H St NW, Washington, D.C.
Registration and Breakfast: 8:00 a.m.-8:30 a.m.
October 17, 2012
Printer-friendly versionCities, Regulations, and Growth: The Economist Takes on the Urban Jungle
Voices:
The Economist has a new article out arguing that much of the difference in wealth and productivity between Europe and America comes down to cities. That is, that we are more prosperous because we have more people living in urban areas than Europe does. This facilitates knowledge spillovers that in turn lead to productivity growth, as my piece in the latest Business Horizon Quarterly explains. Roughly three-quarters of the difference in per person GDP between America and Western Europe can be explained by Europe’s smaller urban areas.
And why do we have more people living in cities? It comes down to regulations. European regulations ultimately limit the size of their cities and thus constrict growth and prosperity. Here’s a key quote [emphasis mine]:
This “regulatory tax” amounts to over 300% in the office markets in Frankfurt, Paris and Milan, according to a 2008 study by Paul Cheshire and Christian Hilber of the London School of Economics, but is just 50% in Manhattan and, in effect, zeroin fast-growing places like Houston.
Though the article gives America credit for having fewer regulatory burdens than Europe, we still clearly see a difference in levels of regulation between American cities that has a serious and substantial impact on growth. Streamlining the business environment in America’s cities will undoubtedly increase the entire country’s long-term growth prospects.