Urban Renaissance Institute

Lawrence Solomon
National Post
May 30, 2002

This is the fourth in a five-part series on what should be done about our cities. Part Four: The less the feds help, the better cities fare.

America’s federal government is investing massively in its municipalities, leading to resurging U.S. cities that now outcompete their Canadian counterparts.

Or so the Federation of Canadian Municipalities told Parliament’s finance committee last week. "I always used to say, thank God we’re not like those American cities," admitted Jack Layton, the federation’s president. "I’m now having to say look at the facts. The Americans are investing in their cities . . . Either we learn from their history and catch up to them, or they will simply beat us in the competition as they’re doing now."

Mr. Layton’s facts, and his understanding of history, lead him to the assessment that Canada’s federal government should do as the U.S. government does. His view is echoed among officials in Canadian cities from coast to coast, and in the editorial pages of their daily newspapers. It has become the conventional wisdom, held by business leaders such as TD Bank CEO Charles Baillie and by prominent organizations such as the Conference Board of Canada.

Yet this conventional view is fundamentally wrong. Yes, many U.S. cities are making an impressive comeback, but that comeback comes despite – not because of – the U.S. federal government. Contrary to widespread anxiety over impending doom – "our cities are on the precipice of a financial crisis," in Mr. Layton’s words – Canadian cities are performing exceptionally well. By many measures, much better than their competitors south of the border.

The difference between federal government funding of municipalities in the United States and Canada is the difference between tiny and tinier. According to a recent study by Mr. Layton’s own Federation of Canadian Municipalities, the U.S. government provides but 3.3% of municipal government budgets, compared to the 1.3% met by Canada’s federal budget. That marginal difference is made all the more irrelevant by the nature of much of the city funding: showcase projects, far removed from the cities’ many unglamorous needs, that provide ribbon-cutting photo-ops for politicians.

While Canada’s urban lobby loudly speaks to the injustice of our federal government providing them with a tad less support, it will not even whisper about the much bigger gap in funding that comes from state and provincial governments – and for obvious reasons. Here are facts that Mr. Layton et al. don’t want Canada’s parliamentarians, or the public, to hear. Fact #1: Our provinces meet 17.3% of municipal needs, compared to the 4.5% that U.S. state governments provide. Fact #2: Combined, Canadian governments provide almost two-and-a-half times as much funding to municipalities as do U.S. governments.

If Mr. Layton and other scrutineers of municipal budgets really believe that Canadian municipalities should follow the lead of those to the south, they should call for Canada’s municipalities to try harder in the one area in which U.S. municipalities obtain markedly better funding – user fees. Fact #3: While U.S. municipalities obtain one-third of their revenues in user fees, Canada’s obtain one-fifth, and some municipalities, like Winnipeg, less than one-tenth. While he’s at it, Mr. Layton could call for widespread privatization of water and waste-water utilities, to help our municipalities meet the stellar water quality standards and cost savings that exist south of the border.

U.S. municipalities do lead ours in private utility and user pay systems – operations which help them maintain their independence – and here Canada should emulate the U.S. approach. But not when it comes to federal infrastructure programs. At the same time that they provide high-profile funding to U.S. cities’ competitiveness by undermining city economies.

The largest federal infrastructure program in the United States, and the one that Canada’s urban lobby most envies, is called the Transportation Equity Act for the 21st Century, a six-year, $US218-billion fund passed in 1998. TEA-21 does fund some urban roads and public transit projects that city governments might otherwise be unable to afford. But the small good that this might do for some cities is more than undone by its immense harm. The vast majority of TEA-21 funds are destined to towns and sparsely populated areas that do not have the industry or the people to economically justify major transportation infrastructure – these include revamping the interstate highway system and aiding underdeveloped regions such as rural Appalachia and Alaska.

Mr. Layton asks us to be mindful of history. TEA-21 continues the 50-year-long practice of heavily subsidizing megaproject highway building. Designed to encourage people and industries to leave cities, these programs undermined the urban advantage of locating industries near markets and led to the great decline of major U.S. cities after the Second World War – the so-called "hollowing out" that occurred when Boston, Chicago and other major cities lost one-third to one-half their populations. Similarly, federal housing programs encouraged people to move from city to suburb, as they continue to do to this day: By one estimate, U.S. federal aid to suburban development averages US$15,000 per house, helping to make the United States the most suburbanized society on earth.

Mr. Layton well understands that the U.S. government – heavily weighted to rural states that have voting strength out of all proportion to their populations – have historically favoured the United States’ low-population areas over its cities. Mr. Layton also understands that Canada’s electoral system, and federal government policies, have similarly been skewed against cities. But Canada’s have been less so, in part because Canada’s federal government is less activist than the United States, leading it to do less harm. Unlike U.S. cities, ours suffered relatively little, and sometimes not at all, from urban expressways that tore through the heart of city neighbourhoods, from abandoned downtowns, from devastating crime rates, and from severe decline. As a result, Canadian cities often excel relative to U.S. cities.

Evidence of our continuing success comes from all manner of sources, many of them independent foreign assessors who make their living comparing cities for the benefit of individuals and companies whose welfare depends on impartial, accurate information.

New York-based William M. Mercer, the world’s largest human resource consultancy, placed Vancouver as the world’s second best city in which to live in its 2002 Quality of Life Survey. Last year Vancouver ranked first. No U.S. city ranked in the top 10 in either year. In Mercer’s survey of the world’s cleanest cities, Calgary ranked first and Ottawa fifth. New York’s Robb Report, designed for globe-trotting American executives and socialites, placed Toronto’s Forest Hill neighbourhood in the world’s top 10 on the strength of its convenient access to shops, public transit, restaurants, and vibrant downtown. London-based Wallpaper, the ultra-trendy magazine, placed Montreal fourth in its list of the best places in the world to call home. KPMG’s 2002 report on the competitiveness of Western cities, sponsored by 45 economic development agencies in eight countries, ranked Canadian cities higher than U.S. cities in all five of its North American regions.

Canadian cities compete well against cities in the United States and other countries, in part because they must in our increasingly globalized world. As U.S. cities make their comeback, our cities will need to progress further, to remain competitive, and U.S. cities will then need to work harder still, to keep up. Even though, history teaches us, our federal governments will inevitably pursue policies that tend to drag our cities down, competition among cities, in this way, will help to pull them up on both sides of the border.

Other articles in this series:
Lawrence Solomon’s Next City Part One:
Globalization equals urbanization
Lawrence Solomon’s Next City Part Two:
Don’t tax, toll
Lawrence Solomon’s Next City Part Three:
One million more Torontonians
Lawrence Solomon’s Next City Part Five:
Advice to cities: take control of your province

Lawrence Solomon
National Post
May 23, 2002

This is the third in a five-part series on what should be done about our cities. Part Three: Deregulate planning and let demand dictate development.

How many people should Toronto’s government let into the city, to live as residents? This question will become a hot issue next week, when Toronto’s chief planner will formally propose liberalizing the city’s current housing quotas, which have effectively curtailed growth in the city’s population to its current level of about 2.5 million. If he gets his way, up to 1 million more people will be allowed to make Toronto their home.

Toronto is hardly unique as a place to which large numbers of Canadians yearn to move. If they weren’t held back through similar quota systems, Canadians would also be flocking to Vancouver, Calgary, and other cities in much larger numbers. But no metropolitan region in Canada attracts more newcomers than Toronto every year – at current growth rates, Toronto’s metropolitan area will soon pass Chicago to become the fourth largest on the continent, after Mexico City, New York and Los Angeles. And no city at the heart of a metropolitan area is more prepared than Toronto to dramatically dismantle the wall of laws that impede newcomers from entering the city and making it their home.

Toronto’s current "official plan" is an incoherent morass of 112 different land use designations, more than 120 secondary plans, and 1,300 site specific exemptions. By controlling where housing can be built, the number of housing units permitted to be built there, and their size, the city’s population became a matter for politicians and bureaucrats to determine, rather than the laws of supply and demand operating in a free market for real estate. Under the radical planning proposals to be presented next week, this hodgepodge – whose main purpose was to preserve the status quo for those leery of change – will be swept away by a new, simplified official plan with just six land use designations. Through their more flexible, deregulated approach, Toronto’s planners hope to clear away roadblocks to the more intensive development that the Toronto marketplace demands.

Although the new official plan is a sensible retreat from planning excess, the retreat is modest. Property owners will still be barred from subdividing their land in most of the city, for example, and punitive taxes on apartment buildings will continue to discourage the higher density living that would naturally result from less government interference in people’s living decisions. With full deregulation, Toronto’s population would increase by several million, not by just one, before reaching a happy equilibrium.

But even an increase of 1 million people spread out over 30 years, as the new official plan contemplates, will draw the ire of local ratepayers, community activists and the politicians who will seek to profit from fear of change. They will argue that the city will become less livable if its neighbourhoods are swamped with people, and that their property values will be harmed. They will argue that traffic congestion will become unmanageable and that the environment will be compromised. And they will be wrong.

Affluent city neighbourhoods, including those without high-rises, tend to have high population densities. Their critical mass of people allows local bakeries and other neighbourhood shops to be viable, and their taxes make possible a choice in the local parks, schools and community centres available to their families. High population density also creates a sense of neighbourhood and the social cohesion that marks high density communities, making them especially desirable places that command high property values.

More importantly for the rest of society, high density urban communities help solve one of the most vexing problems facing cities: traffic congestion, and the environmental and economic waste it brings. People who live in central city communities have transportation choices unavailable to those who live in low-density suburbs, let alone small towns and rural areas. Only in the big city do affluent people forgo automobile ownership, because only the big city offers a richness of choice, including in transportation options.

Let me walk you through two Toronto districts: King-Parliament just east, and King-Spadina, just west, of Toronto’s downtown core. Residents of these districts – which were themselves recently deregulated to allow their factories and office buildings to be converted to housing – live in everything from modern lofts to 19th-century row houses, most within a 15-minute walk, or a 10-minute public transit ride, of some 400,000 jobs. They also enjoy nearby shopping, eating and entertainment facilities unmatched in most of the country. Because the car is dispensable, 38% don’t own or lease one. Those who do own cars often leave them at home: Only one-third of the commutes from these two districts, and less than half of other trips, occur by automobile.

Less time lost in traffic. Less pollution. Less money tied up in transportation. For the real estate marketplace, all this adds up to more efficient living arrangements and a higher quality of life that also explain the higher property values. These factors apply to Toronto and every other major Canadian city, to New York and London and major cities in every other major Western country.

Toronto’s planners, who are well ahead of the public and the politicians on this one, understand that housing in downtown residential districts is pricey because its demand outstrips its supply. They know what cities looked like before the era of planners – they resembled the dense, gentrified neighbourhoods that planners now work so hard to protect – and they know that the old city districts, in many respects, functioned much better than the modern low-density districts, planned around the automobile in a utopian belief that freedom of the road would not come with countervailing costs.

Because the marketplace isn’t allowed to operate freely, to bring modern supply in line with modern demand, the planners are attempting the next best thing. Using history as their guide, they are simulating the ideal work and living arrangements that might otherwise have resulted, had people been left to their own devices.

Other articles in this series:
Lawrence Solomon’s Next City Part One:
Globalization equals urbanization
Lawrence Solomon’s Next City Part Two:
Don’t tax, toll
Lawrence Solomon’s Next City Part Four:
Learning the wrong lessons from U.S. cities
Lawrence Solomon’s Next City Part Five:
Advice to cities: take control of your province

Lawrence Solomon
National Post
May 9, 2002

This is the first in a five-part series on what should be done about our cities. Part One: How free market forces overwhelmingly favour urban economies.

British Columbia’s mining industry eked out a profit last year, its first in four years. The reason for the turnaround? Instead of wasting precious electricity producing metal worth vanishingly little, Teck Cominco cut back production at its Trail, B.C., smelter and instead sold the power to urban customers. In 2001, Teck’s power sales provided it with over $300-million in net revenue. Compare that to the mere $60-million in profit earned by the entire B.C. mining industry, according to PricewaterhouseCoopers’ annual survey of the province’s major operations.

Teck Cominco’s power bonanza aside, the news in PwC’s mining survey, released last week, was all bleak. Three more mines ceased operations in 2001, including the legendary Sullivan mine at Kimberley, B.C., once among the world’s largest zinc and lead producers. With those shutdowns, more mining jobs disappeared, part of the rural decline that has proceeded, almost uninterrupted, for decades. No reversal of fortunes is in sight, either. Last year, B.C.’s mining giants invested all of $10-million – or next to nothing – into new mine exploration. "Without further exploration," the PwC report warned darkly, "it is unlikely that there will be another Sullivan mine."

Many fingers can be pointed to explain the demise of what was once a major industry. Some blame government regulations or the threat of Indian land claims for discouraging investment; others blame the high wages – over $81,000 on average – that the unionized industry pays. PwC’s John Bowles, a lead author of the report, astutely attributes the industry’s state of affairs to a far larger force – globalization. "We are totally, totally subject to worldwide metal prices," he says, explaining that the mining industry epitomizes the dominance of global markets. The B.C. government can try to buck the globalizing trend – and Lord knows, it has done its best to heap one subsidy after another on this troubled industry – but in the end these subsidies do little good for mining and much harm elsewhere in the economy. Quite simply, says Mr. Bowles, global factors "reduce the ability of local industry to compete." He might have added that when an industry produces a raw commodity – whether metal, wheat, lumber, or any other product that has nothing distinctive about it – price becomes its sole selling feature. No local producer in a modern, high-wage economy such as Canada’s can expect to remain competitive for long producing low-tech products widely available throughout the world, including in poor, backward countries and in countries closer to major markets. Globalization will quickly kill off any local commodity industry that can’t compete, and it will bring down any regional or national economy that tries too hard, or for too long, to support its uneconomic commodity producers. The hope that metals and other commodities will soon make a comeback is just that: Commodity prices have been in general decline for 100 years.

That globalization, and not peculiar factors associated with British Columbia, has spurred its mining industry’s demise can be seen by looking south of the border. In the U.S. Northwest, 10 aluminum smelters shut down more than a year ago in order to sell the subsidized electricity into the power-short California market. Now that California’s power shortage has disappeared, two smelters have partially reopened and three others intend to start up. Five may stay shut permanently, wiping out half the 10,000 small-town smelting jobs that once propped up the Northwest’s rural areas, as investors place their bets where they’re likely to fetch higher returns.

More and more, those higher returns can be found in the cities. While the resource-dependent rural economy shrinks to irrelevance – farming, fishing, logging, mining and the rest of Canada’s resource sector now accounts for just 6% of GDP – urban industries are booming. Montreal’s economy equals that of the rest of Quebec, Winnipeg’s is larger than that of the rest of Manitoba, Vancouver’s than the rest of British Columbia. Cities are thriving, partly because they’re able to draw the best and the brightest from rural areas, and mostly because they represent the flip side of the rural economy. Rather than providing raw commodities of ever-diminishing value, cities provide added-value products that are ever appreciating. These include the products of a vast media and cultural industry, and they include the medical products and services that can only be found in large centres. They include financial services, and they include the retailing colossus. Each of these predominantly urban industries exceeds any Canadian resource sector in size, and each relies on raw commodities for a small fraction of the final product that customers purchase. Urban added value – in the form of new financial instruments that extend the value of capital, or in the form of new styles that define a new era – transforms cheap commodities into precious property. As globalization relentlessly removes the supports that our uncompetitive rural industries need to survive, the trend to urbanization will continue.

Resource industries, pumped up by subsidies and protected from competition by government policies, are usually worth less than the sum of their parts. The mining industry is able to capitalize on some of the power surplus to its real needs by making it available to urban customers, who prize it more highly than the metal it would otherwise produce. In the same way, a right-sized farm sector will someday recognize that the water it now uses to irrigate many low-value crops is worth more to urban customers than the crops. And the forestry industry will recognize that its forests are worth more intact, as recreational lands for urbanites, than as fodder for a pulp or saw mill.

Much of this realization is already happening. Kimberley, B.C., home to the just-retired Sullivan mine, is reinventing itself as a tourist town, as is Tumbler Ridge, B.C., a former coal-mining town. In other cases, the last, best use for a remote community will be a fiery end: Kemano, a money-losing Alcan-owned resource town in northern B.C., was carefully shut down in 2000 and, for the good of the country, deliberately burned down in 2001 – school, community centre, houses and all. The fires provided invaluable experience for more than 700 firefighters in fighting major fires, and also helped fire investigators, police, insurance crime prevention specialists and the National Research Council of Canada.

Other articles in this series:
Lawrence Solomon’s Next City Part Two:
Don’t tax, toll
Lawrence Solomon’s Next City Part Three:
One million more Torontonians
Lawrence Solomon’s Next City Part Four:
Learning the wrong lessons from U.S. cities
Lawrence Solomon’s Next City Part Five:
Advice to cities: take control of your province

Carl Whicher
National Post
May 21, 2002

Letter to the Editor:

Re: Globalization Equals Urbanization, Lawrence Solomon, May 9.

Mr. Solomon’s comments on commodity prices declining are bang on, but metal prices have historically always been priced globally. However, this does not mean that we must give up their production. Thirty years ago, Canadian technologies in mining and forestry were world class. Today they are nowhere. This has nothing to do with urbanization, but is a symptom of a Canadian malaise in R&D.

Kemano, B.C., was burned down because remote control technologies today allow it, and because Alcan expected savings of $8-million a year, the risks of remote operation notwithstanding. The same communication technologies that allow remote operation of Kemano allow service outsourcing outside Toronto, be that in Colpoy’s Bay, Kitimat or even India. The gradual proliferation of government bureaucracies and Crown corporations in a very few centers has certainly caused the demise of a few mining towns, and it is no longer necessary. The reason is not globalization, but (bad) government policy.

We need to do what is in Canadians’ best interests. We need urban renewal in the four centres housing 52% of Canadians, and we need rural renewal too. I say "vive la difference"!

Carl Whicher, Kitimat, B.C.

To read Larry’s article, "Don’t tax, toll," please see: http://www.urban.probeinternational.org