The Future of Old Fashioned Downtowns: the Economics of the Situation

While I was travelling over the past couple of weeks, I found myself strangely sucked into writing this…I don’t know what it is yet…. about rethinking the economic role of traditional downtowns and other commercial districts.  This is Part 3 of the segments that I have more or less complete at this point.  And since I’m not on an airplane anymore and actually have to work on everything else now, it’s still a work-in-progress.

This section builds on the parts I published here and here and tries to tease out the economic implications of the fairly limited roles that we’ve often applied to downtowns.  Again, I don’t know exactly where it’s going yet, and I know it’s not going there fast.  So your comments are most welcome.

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The Economics of the Situation

At its core, the kind of downtown I have been describing has an existence whose purpose is to capture disposable income.  It’s a place where the value that the place offers is dependent on its ability to offer novelty, to provide something that appeals to the consumer’s changing tastes and trends.  It’s a place marked by adependence on a narrow consumer niche, a narrow range of goods and services.  To borrow Nassim Taleb’s terminology, it’s fragile — lacking in options, short on Plan B strategies in the face of a Black Swan disruption. Easily broken. Lose your edge in that competition to Somewhere Else, for whatever reason, and you have nothing to fall back on.  There’s no other ecnomic game in that neighborhood.

 

We already went through this in many cities with the nightlife districts of the 1980s, such as the Flats in Cleveland or the Inner Harbor in Baltimore.  We can see now how that one-note tune doesn’t always age very well.

 

Don’t get me wrong. I love independent shops. Virtually every piece of jewelry I own (If you have met me, you know I have a vicious addiction) has come from an independent shop in some downtown in the US or elsewhere. Almost every painting or print or art glass or piece of ceramics in my house (same disease), plus a good deal of the furniture, same thing.  That dining and shopping for entertainment downtown thing I just disparaged? I do that All.The.Time. Did it this morning. It’s probably my only hobby. It’s the absolute only type of shopping that I will choose do.

 

But….

 

We have been leaning on our ability to grow a larger and larger collection of People Like Me.  And while the boutique economy definitely has a place in downtowns (and a place that’s I personally, selfishly want to have in downtown…)

 

I am getting the uneasy feeling that it’s not enough.

 

Needs versus wants

We have struggled for a couple of generations now with what downtowns mean, why they matter, why they are worth our investment and our attention in an auto-oriented, thousands of shopping options, buy it on the internet world.

 

The cold fact of the matter: while we may like downtown retailers, or restaurants, we don’t need them.  If our favorite coffee shop or craft store or high end shoe retailer closes up, we are not going to starve or go barefoot.  We’ll get what we need or want somewhere else–and if we don’t have that choice downtown, we have lots of other places today where we can meet those same basic needs.  We may not like them as much, relate emotionally as much, but we’re not going to starve or go barefoot.

 

This is the core economic shift, one that started with shopping malls and continues with Amazon, and it’s one that we have not yet fully figured out how to navigate.

 

Traditional downtowns were designed to be the place where we met both wants and basic needs. All those buildings stuck right next to each other grew up because we needed food, and shoes, and lodging, and entertainment, and places to talk with other people. Our great grandparents went downtown not because it was novel or interesting, but because that was where you got the stuff that you needed.  And if the shoe store didn’t have your size, or the dry goods store only carried a kind of soap that made you itch, you were more or less out of luck.  You had few other options.

 

As we discovered that we didn’t need those downtowns anymore — as our cities developed other options for selling people the goods and services that they needed– people had the ability to access new choices And most of them did exactly that.

 

Some of us like to tsk tsk and shake our heads and point our fingers at how foolish and short -sighted those people were, who gave up on their downtowns and moved to those tract houses and shopped in those souless shopping malls. But we can only do so because we weren’t there, or because time fuzzes up our memories. Our great grandparents wanted choices, more choices than they could have in their downtowns, with their one or two options. And especially after living through the privations of the Depression and World War II, with the country suddenly having choices again, we have to admit that we can empathize with how they felt.  And we as consumers have been enjoying ever-increasing choices ever since.

 

If a traditional commercial district’s primary economic niche today, is to provide a diversion, an escape, a mini-vacation for people in a certain segmente of the economy, the place may look good and generate good publicity for the community, and it will certainly generate some jobs and some revenue and some taxes.

 

But because it caters to a subset, and because it’s desirable to that subset but not essential to that subset (or anyone else), the traditional business district that fits that profile runs the risk of finding itself, sooner or later, back in the old fight for relevance that many of them thought they had won in the ‘90s.  When public budgets are shrinking, and demands on the nonprofit sector are exploding, and the very nature of what and how we buy everything from toothpaste to fine art is being subsumed into the Grand Shopping Mall of the World on the Internet…

 

Then making the public policy and state or municipal budget case for a part of the city that dominated by boutiques and interesting restaurants is not going to get any easier.

 

An interesting side element here: tax incentives for historic building rehabilitation and public or nonprofit funding of downtown programs were typically sold to politicians and the public,at least initially, as a way to fill a market gap, a way to get downtowns back to making substantial contributions to the community’s overall economy.  The promise was that filling the gap between what it costs to rehab a building and the value that an anti-downtown market would attach to it would give downtown businesses and building owners a chance to rebuild their piece of the local economy, to find a new economically-viable purpose and get back on their feet.

 

As I’ve written elsewhere, economic development incentives are typically assumed, at least in theory, to serve as a catalyst, a kick-start, a way to get over the initial market roadblocks facing a new idea and get on to fulfilling a place’s market potential. And as I’ll say below, I think there can be legitimate reasons for an incentive or public support to continue in perpetuity.  But the fact that we still need downtown programs, still need investment incentives, could be argued to indicate that we haven’t really made a dent in realizing most downtowns’ market potential.

 

The Economics of the Situation

At its core, the kind of downtown I have been describing has an existence whose purpose is to capture disposable income.  It’s a place where the value that the place offers is dependent on its ability to offer novelty, to provide something that appeals to the consumer’s changing tastes and trends.  It’s a place marked by adependence on a narrow consumer niche, a narrow range of goods and services.  To borrow Nassim Taleb’s terminology, it’s fragile — lacking in options, short on Plan B strategies in the face of a Black Swan disruption. Easily broken. Lose your edge in that competition to Somewhere Else, for whatever reason, and you have nothing to fall back on.  There’s no other ecnomic game in that neighborhood.

 

We already went through this in many cities with the nightlife districts of the 1980s, such as the Flats in Cleveland or the Inner Harbor in Baltimore.  We can see now how that one-note tune doesn’t always age very well.

 

Don’t get me wrong. I love independent shops. Virtually every piece of jewelry I own (If you have met me, you know I have a vicious addiction) has come from an independent shop in some downtown in the US or elsewhere. Almost every painting or print or art glass or piece of ceramics in my house (same disease), plus a good deal of the furniture, same thing.  That dining and shopping for entertainment downtown thing I just disparaged? I do that All.The.Time. Did it this morning. It’s probably my only hobby. It’s the absolute only type of shopping that I will choose do.

 

But….

 

We have been leaning on our ability to grow a larger and larger collection of People Like Me.  And while the boutique economy definitely has a place in downtowns (and a place that’s I personally, selfishly want to have in downtown…)

 

I am getting the uneasy feeling that it’s not enough.

 

Needs versus wants

We have struggled for a couple of generations now with what downtowns mean, why they matter, why they are worth our investment and our attention in an auto-oriented, thousands of shopping options, buy it on the internet world.

 

The cold fact of the matter: while we may like downtown retailers, or restaurants, we don’t need them.  If our favorite coffee shop or craft store or high end shoe retailer closes up, we are not going to starve or go barefoot.  We’ll get what we need or want somewhere else–and if we don’t have that choice downtown, we have lots of other places today where we can meet those same basic needs.  We may not like them as much, relate emotionally as much, but we’re not going to starve or go barefoot.

 

This is the core economic shift, one that started with shopping malls and continues with Amazon, and it’s one that we have not yet fully figured out how to navigate.

 

Traditional downtowns were designed to be the place where we met both wants and basic needs. All those buildings stuck right next to each other grew up because we needed food, and shoes, and lodging, and entertainment, and places to talk with other people. Our great grandparents went downtown not because it was novel or interesting, but because that was where you got the stuff that you needed.  And if the shoe store didn’t have your size, or the dry goods store only carried a kind of soap that made you itch, you were more or less out of luck.  You had few other options.

 

As we discovered that we didn’t need those downtowns anymore — as our cities developed other options for selling people the goods and services that they needed– people had the ability to access new choices And most of them did exactly that.

 

Some of us like to tsk tsk and shake our heads and point our fingers at how foolish and short -sighted those people were, who gave up on their downtowns and moved to those tract houses and shopped in those souless shopping malls. But we can only do so because we weren’t there, or because time fuzzes up our memories. Our great grandparents wanted choices, more choices than they could have in their downtowns, with their one or two options. And especially after living through the privations of the Depression and World War II, with the country suddenly having choices again, we have to admit that we can empathize with how they felt.  And we as consumers have been enjoying ever-increasing choices ever since.

 

If a traditional commercial district’s primary economic niche today, is to provide a diversion, an escape, a mini-vacation for people in a certain segmente of the economy, the place may look good and generate good publicity for the community, and it will certainly generate some jobs and some revenue and some taxes.

 

But because it caters to a subset, and because it’s desirable to that subset but not essential to that subset (or anyone else), the traditional business district that fits that profile runs the risk of finding itself, sooner or later, back in the old fight for relevance that many of them thought they had won in the ‘90s.  When public budgets are shrinking, and demands on the nonprofit sector are exploding, and the very nature of what and how we buy everything from toothpaste to fine art is being subsumed into the Grand Shopping Mall of the World on the Internet…

 

Then making the public policy and state or municipal budget case for a part of the city that dominated by boutiques and interesting restaurants is not going to get any easier.

 

An interesting side element here: tax incentives for historic building rehabilitation and public or nonprofit funding of downtown programs were typically sold to politicians and the public,at least initially, as a way to fill a market gap, a way to get downtowns back to making substantial contributions to the community’s overall economy.  The promise was that filling the gap between what it costs to rehab a building and the value that an anti-downtown market would attach to it would give downtown businesses and building owners a chance to rebuild their piece of the local economy, to find a new economically-viable purpose and get back on their feet.

 

As I’ve written elsewhere, economic development incentives are typically assumed, at least in theory, to serve as a catalyst, a kick-start, a way to get over the initial market roadblocks facing a new idea and get on to fulfilling a place’s market potential. And as I’ll say below, I think there can be legitimate reasons for an incentive or public support to continue in perpetuity.  But the fact that we still need downtown programs, still need investment incentives, could be argued to indicate that we haven’t really made a dent in realizing most downtowns’ market potential.

 

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