Or: What kinds of economic activities are we planning for?

This is obviously an important question in planning, and one to which the answer has been changing rapidly as urban economies transform in response to a globalizing economy. While it’s relatively straightforward to forecast residential housing demand, projecting demand for non-residential development is much trickier, given a diverse mix of industries and an increasingly global economy. However, that global economic context, and the intensified competition that accompanies it, make it even more imperative that we try to understand the dynamics at work and the shifting economic landscape of our cities.

Why is understanding economic transformation important for planning?

The most obvious answer to this is of course: so that our plans provide for the right kinds of development opportunities, in the right locations, with the right urban environments to support businesses, jobs and the broader economic development of the region.

Second, to check that our plans in general are well grounded in economic reality – in this case, in the reality of an ongoing transformation of urban economies. We need to make sure our core planning concepts and policies still hold up. For example, many city plans are based on multi-nodal or poly-centric structures, that implicitly assume dense employment 1) will materialize, and 2) can be attracted to emerging suburban locations. But are urban economies transforming in a way that will deliver this kind of employment to these locations? What are the implications of an evolving geography of employment for transportation and transit investments? We need to try to get a handle on these and other key questions in this time of rapid economic change.

Third, less obvious but equally important, the economic context is changing in such a way that cities and urban environments play increasingly central roles in supporting the competitiveness of businesses. Plans and planning policy based on this understanding can play a proactive role in supporting the competitiveness of businesses, cities and urban regions.

In short, we need to understand the dynamic of economic change as best we can, so we can make sure that our plans are grounded in the reality of rapidly transforming urban economies.

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Dynamics of globalization and economic restructuring

So let’s take a stab at it then. The key drivers propelling change are globalization and technological change (as described in my post of May 5th). (When I say “globalization” hereafter, its technological underpinnings are meant to be implicit.)

Globalization means bigger markets, which means growth opportunities for local firms, but also more, and more intense competition.

Global markets put pressure on local businesses, and in response they must find ways to be more competitive. In general, there is limited scope in advanced economies like Canada’s for firms to compete on the basis of low wages, with countries like Mexico, China, India or Vietnam, where wage levels are a fraction of ours.

Instead,  companies adopt different competitive strategies, for example:

  • specialising, i.e. specialising in a particular product or product line at which they can be globally competitive
  • improving efficiency and cost containment
  • innovating, i.e. creating new or improved products or production processes
  • increasing productivity, for example, by adopting new technologies or machinery
  • being more responsive to market demand, e.g. offering more customized products, or getting new products to market faster than competitors.
Competitive pressures and contraction

In general, increased competition has put extreme pressure on sectors and economic activities that are relatively low value-added, labour intensive or involve routine production tasks.

Economic activities that rely to a significant extent on low wage labour have tended to be “offshored” or relocated to other countries or low wage locations.

So while not long ago, the centres of major Canadian cities were filled with clothing and textile workshops, clothing manufacturing has by and large been relocated to low wage countries like Bangladesh.

In the auto industry, the now routine work of assembly plants has for many years been relocating from southern Ontario to lower wage locations in the southern U.S. or Mexico. This has resulted in closure of auto assembly plants and the parts factories that serve them, a process still ongoing. Most recently GM announced it will move production of Camaros from its Oshawa plant to Michigan at the end of 2016, with as yet no announcement of a model to takes its place.

In other cases, such as smaller, single establishment companies, the response has been to simply shut down operations altogether.

These closures and relocations have been a major contributor to the loss of 200,000 manufacturing jobs in the Toronto Region (the “Greater Golden Horseshoe”), 300,000 losses in Ontario, and 600,000 in Canada since 2001.

+ Global opportunities and growth

At the same time, global markets and emerging technologies create opportunities for domestic companies, providing the possibility of new or better products, new or better ways of producing, or in some cases, whole new industries. For example: new products and industries have emerged around apps, computers and communications technologies, software, or bio-tech. We have also seen new financial products (not always a good thing, to wit sub-prime mortgage-backed securities) and products being enhanced by adding intelligence capabilities, to goods like cars, fridges or kettles.

The sectors of the economy that are growing do not rely on low wages. Instead, they are based on high value-added goods and services, are knowledge-intensive and export-oriented. In fact, these are the sectors that must grow if we are to sustain higher wages and our quality of life in Canada.

And we have seen this dynamic underway. Some of the fastest growing industries in Ontario, for example, include computer systems design, financial investment services, software developers, engineering services, and telecoms.

= Economic restructuring

Put these two dynamics together – contraction of some types of economic activity, and growth of other types – and the result is a dynamic restructuring of the economy. This is occurring at all scales: from national economies to regional, to the economies of individual cities.

Not just a shift from manufacturing to services, but …

This restructuring is often described as a shift from manufacturing to services. But this characterization only describes the symptoms, not the underlying dynamic.

The underlying dynamic is a shift from routine, low value-added, lower skilled economic activities to high value-added, skilled, knowledge-intensive activities.

Evidence of this shift can be found in both manufacturing and the services sector. In the GGH for example, employment data shows that assembly-line workers, machine operators, secretaries, and clerical functions have seen absolute job losses since 2001. The kinds of jobs that experienced significant growth include financial and investment analysts, computer and information systems analysts, and engineers.

Further evidence is presented in the chart below, which shows, for the GGH, the percent change in employment by skill type. Type A represents the highest skill levels, requiring a university degree – to Skill Type D, the lowest skill level, requiring no special education, and including jobs such as labourers or cashiers. (All senior and middle managers across all industries are considered Skill Level A, and are shown as a separate category.)

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The chart makes the dynamic very clear. It reveals strong growth in the highest skill Level A jobs.  This includes professionals in finance and information systems, researchers, engineers, and teachers.

Skill Level C jobs, which tend to include the more routine types of activities in production and services (including assembly line workers, machine operators, payroll clerks, data entry clerks, secretaries, etc.) have shown almost no growth since 2001. These are the jobs that are more vulnerable to being relocated, offshored or automated.

Skill Level D jobs have also shown strong growth. Though low skilled, these jobs are more resistant to offshoring and automation. They have to be performed locally – e.g. construction labourers, cleaners, nannies, or food service workers, and are not easily automated (at least for the moment!).

So, what does this mean for planning?

There are many important implications. Here we just touch on a few. For starters, planners need to pay a lot more attention to the non-residential side than we tend to do now, and endeavour to understand the nature of changes underway in city economies and potential planning implications.

If we do not, plans and planning policies risk, at minimum, missing the mark. For example, this more nuanced approach can better inform projections of future employment growth and non-residential land supply requirements. It can allow us to be better at planning to create the right kinds of urban environments, in the right locations. It can help us avoid planning for development that is not likely to materialize.  It can help us to create planning policy that is more effective because it is in tune with our changing economic landscape.

Or, we risk missing important opportunities for jointly supporting both planning objectives and economic development that arise when processes of economic restructuring align with planning objectives (as they do when, for example, restructuring favours economic activities that benefit from dense urban environments).

It also suggests that planning integrate a more dynamic model of urban change – one based on the reality that transformation is a constant. More important is the need to integrate the understanding that change involves not only growth, but transformation and decline, often at the same time within a given city. And, to acknowledge that this dynamic encompasses the entirety of urban areas. In planning we often tend to focus on providing development opportunities for growth, especially on greenfields land, and focus less on transformation and decline within existing urban areas. We need to broaden the focus, to anticipate and plan to also proactively address decline and change within existing areas, in the same we currently plan proactively to address growth at the edge.

Third, the competitive pressures are, well, global, but the way they intersect with any given city’s economy will be unique, based on that city’s particular economic structure, and particular strengths and weaknesses in relation to the dynamic. So the resulting economic transformation will be unique in each city, shaking out very differently in the City of Toronto than it will in Welland or Kingston, for example.

Globalization and technological change are restructuring urban economies and therefore reshaping our cities. This not only affects the mix of economic activities our plans and planning policies must address, but it also has a specific geography to it – the urban geography of growth, change and decline (a topic to be addressed in upcoming posts…. ).