Economic flexibility or urban blight?

Having questioned the flexibility of the British economy in my last post, I came across an article which made me wonder the same about America:

...the city took a marked turn for the worse. We passed vacant lots surrounded by listing barbed-wire fences, the shells of abandoned mini-malls and the cement outlines of what might once have been petrol stations, now being reclaimed by bushes and grass. There were lots of these ‘urban fields’, where buildings had been torn down and nothing built in their place, and it was curiously unsettling to see how easily sizable chunks of a city could be erased and swallowed up once humans left.

...the neighbourhood reached its nadir – no small feat – with boarded-up houses, a couple of burned-out shops being used as squats, a low, forbidding bar called ‘Club Rolex’ and, saddest of all, the brick skeleton of what had been George Rogers Clark Junior High School. It stood like the shell of a dissolved monastery behind a high wire fence in an asphalt yard grown into a meadow of waist-high weeds, its roof gone, every window smashed and its walls slowly collapsing.

This - on the face of it - sad-sounding story provokes a question: if demand for services and facilities changes over time, what should happen? In a flexible economy, presumably the old infrastructure may well shut down. Presumably the kids who would have gone to that school are now attending some other school instead. People are buying their groceries from another store in another neighbourhood.

But this example does show the downside of flexibility. Resources that could have been adapted for a different use are lying idle instead. The people who do still live on those broken-down blocks have fewer local services and may not be able to participate meaningfully - either as employees or as consumers - in a local economy any more, due to the challenge of physically travelling to where the businesses are.

Presumably the benefits to the businesses - and to their present customers, if not those from their past - of locating in a different place outweigh the savings they'd have achieved by reusing the old buildings and land. Probably, it's economically efficient for these places to be abandoned. But the empty shops also show that there's a certain lack of flexibility in the local economy.

This is called granularity - the fact that economic activity can't, in practice, be divided up into arbitrarily small units. High thresholds need to be achieved before some activities can take place. For instance, to start a business using one of those shops, someone probably needs to be able to sign a medium or long-term commercial lease. A certain critical mass is required to occupy a full time employee running a shop, a hairdresser or a pool hall. Security and other concerns make it difficult for someone to come up with a casual, small-scale, experimental use for the old school building.

The outcome: there are probably some people living in this neighbourhood with no work to do, and others who can't find things they can afford to buy, or leisure activities they can afford to participate in - and all the while, buildings and capital sit idle. This is the very definition of a market failure, and it shows, on a smaller scale, why a Keynesian high-unemployment equilibrium can exist.

So one kind of flexibility - the dynamic American economy which shifts people and commerce out of one region and into another - exposes the lack of another kind. What's missing from this loop of East St. Louis is the stable community that would allow small-scale entrepreneurship to pop up in the gaps between large organisations. In other places - the island or village communities of rural Britain, for instance - it's easier for small-scale activities to sustain themselves, when the spare time of the milkman combines with the early evenings when the village school is empty, and the pensioners who want to contest a game of bridge.

Is one system better than the other? Not obviously. Economic production as measured by money is higher in the American system, but perhaps quality of life is better in the country village. Both systems work in their own way, and humanity - with the help of niche-promoting technology like the Internet - is gradually pulling itself up the hill to a better combination of the two.