Thanks to the whynationsfail blog (not read the book yet) and its several case studies, one has some clarity over role of institutions in development. Though, am not sure whether institutions is alone what matters to development despite the Acemoglu/Robinson duo arguing forcefully that instis is what matters.
So, am not arguing that only instis matter, But one sees common threads in nations failing (and rising) in cities as well.
Anyways, here is a nice interview of Kim Zeuli of Richmond Fed. She mentions two cities in US, both into textiles.
By the 1920s North Carolina had become a major center for the textile industry. At the peak of the textile manufacturing in the U.S., which was in the 1940s, almost 10 percent of textile jobs were located in North Carolina, and they were located mostly in small rural towns. In fact, the textile industry was one of the two largest employers in small rural towns in North Carolina. In North Carolina the textile industry peaked around the 1970s, at which point it contributed to almost 20 percent of the state’s total employment.
So we studied two communities in North Carolina. Eden is a community in rural Rockingham County, which borders Virginia and the central part of North Carolina. It has a long history in textile manufacturing and is a typical southern mill town. Two major rivers flow through Eden and provide access to what is essentially an unlimited supply of water. This makes it an attractive location for industries that rely heavily on water such as textiles, other types of manufacturing, and brewing. Textile mills have existed in Rockingham County, which is Eden’s county, as early as 1764. In 1912 Marshall Field (that Marshall Field from Chicago) purchased six large textile mills. He renamed the facility Fieldcrest Mills and established company headquarters in what is now Eden.
Concord is another historic mill town and is located in Cabarrus County, just 25 miles from downtown Charlotte. It was the home of the textile legend James Cannon. Cannon built his first textile mill in the town in 1887, and in 1928 Cannon’s Mills was formed from the consolidation of Cannon Manufacturing with several other manufacturing companies and mills. Despite the fact that Concord did not have unrestricted access to water supplies, the proximity to a railroad just west of town contributed to the growth of the textile industry.
This is much like the examples A/R duo cites for nation wise differences…
As textiles industry declined, Concord manages to survive but Eden declines. Why?
In the 1970s at the peak of the textile manufacturing industry in the state, Concord and Eden were very similar in the sense that they shared equivalent social and economic positions, and they had a similar level of economic dependence on textile manufacturing. During the decline of the textile industry, especially from 1970 to 1990, both communities experienced a gradual loss of their textile base.
City leadership in Concord and Eden responded differently to the shift in their local economy. The most significant difference seems to be in the timing of their response. Concord’s leaders anticipated the decline of the textile industry in the mid-1980s, and the town experienced a significant period of growth during the mid-1980s and 1990s largely due to annexation, which meant that they consolidated other local towns and other economic opportunities with them. Newly elected council members and new city managers realized that they needed to diversify the local economy. As the mayor of Concord reminisced, “They had the courage to go against conventional wisdom at the time and had the common sense to know that you don’t put all of your eggs in one basket.”
The city leadership of Eden didn’t seem to respond with the same sense of urgency as in Concord. Some residents we interviewed shared that they felt the city waited too long to react to the declining textile industry. Their development activity should have started in the early 1990s and actually happened about a decade later. As one person we interviewed stated, “They were waiting for the next ‘white horse’—another company or industry to take care of us. They thought that surely someone would come save us.” So, as a result, Concord was able to remain on the same growth path even after the decline of the textile industry, whereas Eden has not yet been able to regain its same economic footing that it had when it was so dependent on textiles.
Again similar to what A/R have been saying. It is quality of political institutions which matter. Concord seemed to have had it, Eden did not. Eden also had better natural resource base, but seemed to suffer from the natural curse as well:
Recent studies on resiliency have identified a wide variety of factors contributing to resiliency. They include a mix of economic and socioeconomic variables such as household income, poverty rates, unemployment, industry structure and industrial diversity, the level of education of the population, and the share of the working-age population. But industry diversification is perhaps one of the most important determinants of resiliency. This factor has been cited in numerous studies and it has been found to be a strong contributing factor to resiliency. The more dependent a community is on a single industry, the less resilient it is going to be in withstanding the shocks affecting that particular industry.
In Eden and Concord we also found that local leadership is another important determinant of resiliency. So, as I mentioned before, they responded in much different manners (the local leaders) and as a result they responded to the shock in different ways.
Other determinants of resiliency are endowments and natural resources, the quality of the labor force, population diversity, and community cohesion. For example, a big difference between Concord and Eden is access to water. As I mentioned earlier, two rivers flow through Eden, giving it an unlimited supply to water, which makes it an attractive location for industries that rely on water. However, what appeared to be a comparative advantage for Eden also made it more dependent on these industries, thus making it less resilient. In contrast, the limited access to water in Concord was a constraint that forced the community to diversify away from nonwater-dependent industries such as textiles. For example, Concord has now developed a tourism industry, building on its early investments in a regional airport and the Charlotte Speedway, which hosts major NASCAR races. The major employers in Concord now represent a diverse set of industries ranging from medical to retail organizations.
Nothing can be taken for granted. There are some concerns in Concorde lately:
I think our case studies highlight the importance of considering resiliency versus just growth in local planning. Some shocks can be anticipated early on, such as the decline of the textile industry, while others may be really unanticipated, such as a sudden plant closure or a natural disaster. Also, resiliency shifts over time. For example, in Concord now, they fear that they have now become overly dependent on the tourism industry and NASCAR. Eden, on the other hand, has really diversified its main base. While they are still focused on manufacturing, they are looking at advanced manufacturing and other options, such as tourism and potentially a new prison.
So the two different outcomes in what were originally two very similar cities show that community resiliency can be fostered and built over time by strategically leveraging both natural and human capital resources.