Competitive Advantages of Cities

Why do some cities seem to grow and thrive and other cities seem to decline in population and importance?  This is a complicated question, but the answer should be related to a city’s competitive advantage.  A competitive advantage is a feature of an urban area that is attractive to residents and businesses. 

The US is a mobile society.  Citizens have great freedom and flexibility to move to a neighboring city or state.  This is a important benefit to our economy as workers and employers can relocate to find each other.

This mobility is not as apparent in other parts of the world.  In Western Europe, for example, citizens have political freedom to move but nationalism, employment permits, and language barriers usually prevent an unemployed German worker from relocating to France to fill a job opportunity, and vice versa.

With the US population mobility, cities need a reason to attract and keep residents and businesses.  The reason people and businesses migrate to and remain in a particular city is the city’s competitive advantage.  Competitive advantages fall into a wide range of categories.  We will review several typical competitive advantages.

Skilled and educated workforce  A good labor force can certainly attract potential employers to an area.  In the 1990s, Mack Truck moved some production operations from its headquarters in Pennsylvania to South Carolina.  South Carolina offered a skilled and non-unionized labor force, and also relatively cheap land prices for its new facilities.

In today’s information-based economy, an educated labor force is important to many service and technology driven companies.  These companies might choose to locate near universities for the access to prospective knowledge workers and academic research.  This was certainly a factor in Michael Dell’s decision to locate Dell Computer in Austin, Texas, home to the University of Texas.  Bill Gates selected Seattle, Washington as Microsoft’s headquarters in part because of the concentration of knowledge and technology workers in this region.

Natural resources  Proximity to natural resources was an important competitive advantage when the US was primarily an industrial based economy.  Cities like Pittsburgh, Pennsylvania were very important because of their proximity to coal.  Coal fueled the blast furnaces used in steal production.  As our economy transitioned from a manufacturing to an information-based economy, Pittsburgh had a difficult transition.  Pittsburgh’s competitive advantage in steal production was no longer important and the city lost many factories and citizens.  However, Pittsburgh was able to eventually transform its competitive advantage to education, medical, cultural, and entertainment activities, and Pittsburgh is doing well today.

Climate  A warm, snow-less climate can be very appealing.  Particularly with so many Americans, specifically the Baby Boomers, currently retiring, climate can be an important competitive advantage.  In fact, there has been a general population trend for several decades of people moving from the northeast and the Rust Belt region to the south and the southwest, called the Sunbelt region.  States like North and South Carolina, Georgia, Florida, Texas, Arizona, Nevada, and California have experienced population growth due to net migration.

Let’s also give some credit to a technological innovation for this trend too.  This southern migration would not be possible without the invention and economical, widespread use of air conditioning.  The Sunbelt cities definitely owe a thank-you to air conditioning.  Imagine how popular Las Vegas and Phoenix would be without A/C.

Transportation  Some cities have important transportation advantages.  Our earliest colonial villages were settled because of their ports.  On the East Coast, New York City, Baltimore, and Charleston still enjoy competitive advantages in shipping.  The West Coast has important port cities San Diego, San Francisco, and Seattle.

Atlanta and Chicago are important terminuses for rail distribution.  Today, these cities also have advantages in air transportations.  (In fact, Florida retirees say you can’t go to heaven without passing through Atlanta’s Hartsfield International Airport.)  Although Chicago or Atlanta airports usually hold the record for the busiest airports in terms of passengers, airports of Denver and Dallas Fort-Worth are close rivals in terms of traffic. 

Denver and Dallas airports are located near the geographic center (good hub locations for National carriers) of the US and have plenty of room for expansion.  These are the two largest airports in the country in terms of land area.  Both of these airports will be become airport cities, cities within the airport itself, over the next 15-years.  

Attitude and leadership  Some cities encourage development and business growth where other cities are not aggressive in attracting new residents and may even put up barriers, such as high property taxes, to new residential and business relocation.  Municipal leadership and a good chamber of commerce can be an important factor in attracting new residents and businesses in a competitive and mobile environment.

Once the competitive advantage of an area is identified, it is important to understand the future competitiveness of this current advantage.  Will the competitive advantage persist?  Will the nature of the general economy change?  Some cities that thrived during the decades of the manufacturing-based economy have had difficult transitions into our newer information and service-based economy.  To help address these questions, we need to define and discuss the concept of an economic base.