Think Papers - Digital Infrastructure Report

Interactions Between Information Technology
and Metropolitan Growth
Edwin S. Mills
Kellogg School of Management, Northwestern University
December 1997

This brief paper analyzes the effects of modern information technology on metropolitan growth.
About 75 percent of U.S. residents and jobs are located in metropolitan areas. The period of rapid metropolitan growth was between about 1840 and 1970. The quarter century since 1970 has seen moderate but steady increases in the percentages of people and jobs in metropolitan areas. U.S. and other historical trends lead to the prediction that the U.S. metropolitan percentages will continue slow growth to not much more than 80 during the next couple of decades.
Since the earliest post-World War II years, most metropolitan jobs have been concentrated in centers that mostly contain office, retail and non-profit jobs. Manufacturing is mostly located in small distant suburban centers or outside metropolitan areas. The largest center in most metropolitan areas is the central business district (CBD), but, especially in large metropolitan areas, suburban sub-centers (O'Hare, Schaumberg, Naperville, etc.) have constituted increasing fractions of employment during the last three decades or so.
Recently, futurists, led by Toffler, but most recently Knoke, have challenged the urban specialists' extrapolations of metropolitan growth curves. The futurists' basic argument is that information technology is making face-to-face communication obsolete and that the future will be characterized by highly dispersed workers' residences who will communicate with other workers within and among firms by electronic means.
There is no doubt among informed urban specialists that the basic justification for metropolitan areas is that they permit large scale production of goods and services and economical exchanges of goods, people and messages because of the proximity metropolitan areas make possible. CBDs and sub-centers exist because they permit face-to-face communication among people engaged in related activities. If information technology removes the benefits of face-to-face communication, it will also remove the justification for metropolitan employment centers. During the last 150 or so years, technology and other trends have dramatically increased specialization among workers both within and among firms. Specialization has mostly increased the amount of communication required to produce, market, finance, contract and litigate market activity related to both goods and services. At the same time, technology has also increased the complexity of information that must be exchanged and negotiated. No one doubts that these trends will continue.
*This paper relies heavily on "Information Technology and the Future of Cities", by Jess Gasper and Edward Glaeser, National Bureau of Economic Research Working Paper 5562, May 1996. Also relevant is "Inner Cities", by Edwin S. Mills and Luan Lubuele, Journal of Economic Literature, June 1997, pp. 727-756.
I use the term information technology to include the telephone, the fax machine, photocopiers, computers and of course the production, storage, dissemination and analysis of information that computers make possible. It is axiomatic that information technology has dramatically reduced the costs of all the above communications-related activities and that the costs hardly depend on the distance over which communication occurs. More than that, many kinds of analysis and communication that are now routine were simply not possible 20 or 30 years ago. Just to take one example, routine techniques of pricing futures, options and other derivative securities and of analyzing their places in financial portfolios were not known and/or could not be computed 20 or 30 years ago. Now most of the data can be gotten at any location and the results can be cheaply communicated to any other location. Yet, nearly all such analysis remains in major centers in very large metropolitan areas.
In summary, information and other technology has reduced the cost and increased the need for massive amounts of communication. It is patent that there has been and will continue to be dramatic increases in non-face-to-face communication. But it is also virtually certain that the amount of face-to-face communication has increased during the last 10 or 20 years and it is likely that at least some increases will continue into the foreseeable future. That will be the result of the overall growth in the amount of communication unless electronic communication is an almost perfect substitute for face-to-face communication. The more likely scenario is that electronic communication is appropriate for some kinds of communication and face-to-face for other kinds. For example, in much civil litigation, large amounts of material are transmitted electronically at certain stages of the process, but depositions, settlement negotiations and trials are normally conducted face-to-face.
No careful empirical analysis of the above issues is yet available, but the following suggest continuing growth of face-to-face communication.
1. The telephone was certainly among the most important electronic innovations and has the unique advantage of having been in widespread use for about a century. If anything, the telephone probably accelerated metropolitan development by making possible and economical many kinds of urban activities. There is some evidence that many business calls are between very close locations, suggesting that telephone usage is complementary with face-to-face meetings.
2. Business travel increased rapidly during the 1980s and probably also in the 1990s. Since business travel is for the purpose of face-to-face communication, the indication is again of complementarity between burgeoning electronic and face-to-face communication during the last two decades. Additional evidence is provided by the rapid recent increases in faxes and photo copiers in hotel business centers and even in hotel rooms. Faxes, in addition to telephones, are beginning to appear in commercial airplanes.
3. Teleconferencing has been technically feasible for some time but has not caught on. Some studies by organization specialists suggest dissatisfaction with teleconferencing. Managers find it difficult to control meetings and to curtail set speeches by subordinates, and interaction is at a lower level than in face-to-face conferences.
4. Finally, metropolitan growth has continued at a substantial pace during the prosperous 1990s even as electronic communication has become extremely widespread. Metropolitan growth has continued to be much faster in suburbs than in central cities, but most office and retail growth continues to be in CBDs and in suburban subcenters. Nothing is conclusive on this complex subject. My forecast is of continued rapid growth of electronic communication, but of enough complementarity with face-to-face communication that most business growth will be in dispersed centers within metropolitan areas.