Why corporations die and cities survive

Don · Dec 21, 2010

Plot Device has already brought our attention to this article, in a very interesting discussion of the energy use of cities. However, back on page 5 and 6 of the article, it turns to a comparison between cities and corporations. Reading the first 5 pages to get to this point is highly recommended.

But it turns out that cities and companies differ in a very fundamental regard: cities almost never die, while companies are extremely ephemeral. As West notes, Hurricane Katrina couldn’t wipe out New Orleans, and a nuclear bomb did not erase Hiroshima from the map. In contrast, where are Pan Am and Enron today? The modern corporation has an average life span of 40 to 50 years.

Why do cities survive for generations, and corporations die in decades?

This raises the obvious question: Why are corporations so fleeting? After buying data on more than 23,000 publicly traded companies, Bettencourt and West discovered that corporate productivity, unlike urban productivity, was entirely sublinear.

As the number of employees grows, the amount of profit per employee shrinks. West gets giddy when he shows me the linear regression charts. “Look at this bloody plot,” he says. “It’s ridiculous how well the points line up.” The graph reflects the bleak reality of corporate growth, in which efficiencies of scale are almost always outweighed by the burdens of bureaucracy.

“When a company starts out, it’s all about the new idea,” West says. “And then, if the company gets lucky, the idea takes off. Everybody is happy and rich. But then management starts worrying about the bottom line, and so all these people are hired to keep track of the paper clips. This is the beginning of the end.”

So what conclusion can be drawn from this? West offers an interesting one:

For West, the impermanence of the corporation illuminates the real strength of the metropolis. Unlike companies, which are managed in a top-down fashion by a team of highly paid executives, cities are unruly places, largely immune to the desires of politicians and planners. “Think about how powerless a mayor is,” West says. “They can’t tell people where to live or what to do or who to talk to. Cities can’t be managed, and that’s what keeps them so vibrant. They’re just these insane masses of people, bumping into each other and maybe sharing an idea or two. It’s the freedom of the city that keeps it alive.”

Bolding mine.

A thought experiment: What cities are most tightly controlled by their political machines? What cities are suffering most? Is there correlation?

To me, Detroit is the poster child of a rigidly bureacratized city, and it seems to support the thesis extremely well. Can anybody point to a city on the other end of the spectrum?

Blacbird's right about me: I see everything through the lens of freedom, and its impact on quality of life. From that viewpoint, this research is another proof that freedom of choice and quality of life are directly related.

It explains why corporations that empower their employees are more successful than corporations that make every decision from the top down -- and why governments that micromanage their citizens and their economy are less succcessful than those that strive instead to maximize freedom of choice.

It also explains why I'd rather live in America than in Cuba, North Korea, or the now-defunct Soviet Union.

We're getting closer to a "Unified Field Theory" of freedom.

So what's your thoughts? Good research, or so much hot air?

Hallen · Dec 21, 2010

Cities survive because there is a purpose for them being there. No matter all the idiotic political decision, disasters and war, there is a reason for that city to be there. It's generally an economic reason. City government doesn't hold the city together, economics do. City government, like most governments, become the impediment in most cases, just like corporate bureaucracy. Cities are organic, to an extent. But City government is far from powerless.

Show me a corporation that "empowers" employees, and I'll show you a shell game. Corporations become like governments when the corporation gets big enough. Nothing can happen without your TPS Report Cover Page and sanctification by the appropriate Czars. Decisions don't get made, contingencies are enacted. It's pretty frustrating. Anyway, corporations don't come and go as much as you think, they simply merge and reorganize. If there is an economic need, that corporation is still there, just under a different name or organization. I can pretty much guarantee that it's mostly the same people doing the work as before. It's the way things work.

Diana_Rajchel · Dec 21, 2010

Corporations are also built on a "growth no matter what" ideology. If they do not grow, and in fact shrink, they're often cut down completely. Cities, on the other hand, can shrink and because they exist for reasons other than profit, can adjust to the size changes.

clintl · Dec 21, 2010

Corporations are also focused on a particular industry. Usually, there are only a few big players that can exist at the same time, although a lot of smaller corporations can fill niches. But a lot of the time, these smaller corporations die precisely because they are very successful - they die by being bought by a larger corporation.

None of that happens with cities.

Don · Dec 21, 2010

clintl said:
Corporations are also focused on a particular industry. Usually, there are only a few big players that can exist at the same time, although a lot of smaller corporations can fill niches. But a lot of the time, these smaller corporations die precisely because they are very successful - they die by being bought by a larger corporation.

None of that happens with cities.

Cities get "bought out" by larger cities all the time. I saw lots of small cities annexed into Louisville, Kentucky over the decades I lived there, for example -- and it wasn't the slums they were interested in taking over, it was the growing areas with a rapidly expanding tax base. Mostly it resulted in the same homogenization, loss of accountability, and decrease in diversity I've seen in corporate takeovers.

Kitty Pryde · Dec 21, 2010

But cities are composed of people who want to survive at any cost, and corporations are composed of people who need to make the corporation money at any cost. The need to survive is far, far stronger. The other day I watched a news report about people in Haiti who were displaced in the earthquake and now live in a narrow line of tents on a median strip in the center of a busy road. They live on the median because the road was cleared of rubble early on and didn't belong to any private party. These people are having kids and raising kids and trying to survive in a ten foot wide strip literally inches from speeding traffic. In other places people live and work inside garbage dumps.

These are the sorts of things that nobody will do for the good of the corporate bottom line. In Maslow's hierarchy of needs, "make the company a buttload of money" is at best in the final level (the things people need the least). The need for things like food and clean water and family and community will always be much stronger and those are the sorts of things that contribute to city survival.

thothguard51 · Dec 21, 2010

Lots of towns went bust during the gold rush and other types of temporary economic booms.

Graphs and charts are great at understanding a company or cities place in economics, but they do not take into account the human spirit.

Plot Device · Dec 21, 2010

Don, thanks for the mention.

Meanwhile, the article focuses upon MONSTER HUGE cities, and then it draws a comparison with MONSTER HUGE corporations. So, for the purposes of this thread of yours AS IT RELATED TO THE TRUE CONTEXT AND OVERALL SPIRIT OF THE NYT ARTICLE I POSTED, I want to focus upon when "the economy of scale" starts to reach a point of diminishing returns.

The article compares biological entities (i.e. animals in nature) to human cities. When things in the eco-system for those animals are going great (plenty of food and water for all the creatures in that environment), medium-sized animals do well and the larger ones do even better. But the larger creatures have always been saddled with one very serious shortcoming that the smaller ones never faced, which was their disproportionately excessive need of far more energy (caloric intake) than the smaller creatures. This is a liability ONLY when things start getting rough. Specifically, when push comes to shove and a global calamity presents itself, the fossil record tells us again and again that the majority of the larger creatures from the many periods of life on this planet all tended to die more readilly, while many of the tinier ones scampered off and survived. Therefore, whenever any creature (at least as found on THIS planet) starts to reach the farthest end of the bell-curve as far as its physical size, that's when the creature's size begins to work against it. And thus creatures (on our planet, at least) eventually reach an upper-limit to just how big they can get.

His overall thesis is that if biological entities "know" when to stop growing (or else maybe they don't so much "know" as much as they are pre-programmed to stop, or else if Darwinism puts in its two cents) then perhaps cities should do the same.

The bigger they are, the harder they fall.

Now as for your spin-off hypothesis about burocracy, I suppose you could stretch the analogy by saying that that the larger the city --and thus the larger the burocracy -- then the more "energy" that the larger city will suck up as far as manpower, taxes, etc. And so when push come to shove and a calamity strikes, the bigger cities will suffer and possibly die while the smaller ones will be nimble enough to change and move on.

In the end, Don, you're simply re-packaging the same underlying argument about ANY complex system (be it an organism or a city or a governmental machine) reaching the tipping point of over-complexity, and then suffering from the resulting diminishing returns, especially as seen in enegry waste.

But I'm not too keen on the whole "freedom" thing getting tossed in to your take on it all. I feel like "freedom" is a term that has no business in a scientific discussion and is best left for theology class, philosophy class, and poly-sci majors.

Don · Dec 21, 2010

Plot Device said:
But I'm not too keen on the whole "freedom" thing getting tossed in to your take on it all. I feel like "freedom" is a term that has no business in a scientific discussion and is best left for theology class, philosophy class, and poly-sci majors.

I agree with what you say about size and complexity, PD.

As for the freedom issue, take it up with Geoffrey West. He's very specific in his finding, as quoted in the OP.

Unlike companies, which are managed in a top-down fashion by a team of highly paid executives, cities are unruly places, largely immune to the desires of politicians and planners. “Think about how powerless a mayor is,” West says. “They can’t tell people where to live or what to do or who to talk to. Cities can’t be managed, and that’s what keeps them so vibrant. They’re just these insane masses of people, bumping into each other and maybe sharing an idea or two. It’s the freedom of the city that keeps it alive.”

From that, I think it's fair to project that information across the power spectrum. Not all corporate chief executives are tyrants, not all mayors are powerless milquitoasts. The common point is the amount of control exercised over the underlings, or, in the inverse, the amount of self-determination the underlings have. The author of the article makes that same point in the first sentence I quoted above.

Freedom of the actors in the marketplace certainly has a place in any discussion of economics, whether you consider economics a science or not.

Plot Device · Dec 21, 2010

Don said:
I agree with what you say about size and complexity, PD.

As for the freedom issue, take it up with Geoffrey West. He's very specific in his finding, as quoted in the OP.

From that, I think it's fair to project that information across the power spectrum. Not all corporate chief executives are tyrants, not all mayors are powerless milquitoasts. The common point is the amount of control exercised over the underlings, or, in the inverse, the amount of self-determination the underlings have. The author of the article makes that same point in the first sentence I quoted above.

Freedom of the actors in the marketplace certainly has a place in any discussion of economics, whether you consider economics a science or not.

I think by "freedom" he means the generous wiggle room it has to adapt to a changing environment. So I think he's more launching a scientific argument than a socio-political one.

Don · Dec 21, 2010

Plot Device said:
I think by "freedom" he means the generous wiggle room it has to adapt to a changing environment. So I think he's more launching a scientific argument than a socio-political one.

"it" being a non-entity representing the social and economic activities of the people who make up the population, "wiggle room" translates into the social and marketplace freedom of the actors. The more tightly constrained the society, whether by custom or by law, the less wiggling can go on. The entity "the city" only exists as an abstraction of those activities. If the actors can't wiggle, neither can the city as a whole.

When you're dealing with the actors in a society, the arguments are naturally socio-political.

Plot Device · Dec 21, 2010

Don said:
"it" being a non-entity representing the social and economic activities of the people who make up the population, "wiggle room" translates into the social and marketplace freedom of the actors. The more tightly constrained the society, whether by custom or by law, the less wiggling can go on. The entity "the city" only exists as an abstraction of those activities. If the actors can't wiggle, neither can the city as a whole.

When you're dealing with the actors in a society, the arguments are naturally socio-political.

Okay, so in the end of the article is he pushing for more or for less legislation? More or less government presense?

Don · Dec 21, 2010

Plot Device said:
Okay, so in the end of the article is he pushing for more or for less legislation? More or less government presense?

Neither, really. He's arguing that "It’s the freedom of the city that keeps it alive.” That translates into the social and marketplace freedom of the actors. That's why I argued in the OP that "this research is another proof that freedom of choice and quality of life are directly related." That's my interpretation.

His analysis, however, is free of that distinction. I guess some people might argue that more legislation and more government presence is necessary for increased freedom.

Plot Device · Dec 21, 2010

Okay, Don.

Josef VonQuestenberg · Dec 21, 2010

Corporations and Cities are two different things. Do people live in a corporation? No. Corporations themselves even reside in cities. And in cities, there's a populace. People. And they have to live there. Some can't leave, and some don't want to leave. Corporations; everyone in one has an investment. When the investment fails, they leave. Cities aren't the same; a price for property goes down, and someone buys it, and it eventually gets poorer as land value drops, it's down, but never out because cities near-always keep expanding.

blacbird · Dec 21, 2010

Don said:
Why do cities survive for generations, and corporations die in decades?

This is a mystery?

Corporations die because they can, easily. The structure can be dissolved, the employees dismissed, and the shareholders become reimbursed at whatever level the dissolving board feels appropriate. No city can do such a thing. The analogy between a city and a corporation is about as close as that between a beehive and a bicycle.

benbradley · Dec 21, 2010

Hallen said:
...
But I'm not too keen on the whole "freedom" thing getting tossed in to your take on it all. I feel like "freedom" is a term that has no business in a scientific discussion and is best left for theology class, philosophy class, and poly-sci majors.

so poly-sci isn't a science?

Albedo · Dec 21, 2010

Don said:
A thought experiment: What cities are most tightly controlled by their political machines? What cities are suffering most? Is there correlation?

To me, Detroit is the poster child of a rigidly bureacratized city, and it seems to support the thesis extremely well. Can anybody point to a city on the other end of the spectrum?

For this hypothesis to hold, you would expect Detroit to be relatively vibrant compared to, say, Shanghai. Which it plainly isn't. I doubt any American city is more bound in red tape than any Chinese city. Though maybe the Chinese are just more adept at skirting bureaucracy through unofficial channels.

blacbird · Dec 21, 2010

Among the U.S. major cities that are currently considered to "work" best are both Houston, with a long history of hands-off government structure, and Minneapolis, with a long history of hands-on government structure. Atlanta and Seattle are two other similar polar examples.

Detroit isn't hurting particularly because of its governmental history, so much as it is because its economic underpinnings have moved elsewhere. A half-century ago, Detroit was a desired destination for a lot of people, particularly impoverished Southerners, because it had a demand for industrial labor in the auto industry.

clintl · Dec 21, 2010

Yes. Basically, the cities that are in trouble have economies that are tied too closely to industries that are in trouble, and haven't adapted yet.

rugcat · Dec 21, 2010

Don said:
To me, Detroit is the poster child of a rigidly bureacratized city, and it seems to support the thesis extremely well. Can anybody point to a city on the other end of the spectrum?

San Francisco, one of the great and vibrant cities in the US, with a long tradition of poets, music, restaurants, coffee shops, bars, cutting edge business, great sports teams, etc., is a highly controlled city -- a bit much, actually, imo, but there's no arguing with results.

Blacbird's right about me: I see everything through the lens of freedom, and its impact on quality of life. From that viewpoint, this research is another proof that freedom of choice and quality of life are directly related.

See, that's the problem, Don. Some people have a specific world view, and search not so much for information as only for examples that reinforce their personal ideology.

The scientific method, a great contribution of the Western world, takes data and attempts to find a unifying theory that explains and makes sense of it. When data emerges that contradicts a particular theory, that theory is eventually modified or abandoned.

The exact opposite of scientific exploration is to posit a theory and then search out only data which supports it, ignoring or dismissing anything that does not fit. It's comforting, because by doing so no amount of facts can ever shake such an individuals belief system, but it promotes a sterile, narrow, and ultimately erroneous view of the world.

Don · Dec 22, 2010

rugcat said:
See, that's the problem, Don. Some people have a specific world view, and search not so much for information as only for examples that reinforce their personal ideology.

The scientific method, a great contribution of the Western world, takes data and attempts to find a unifying theory that explains and makes sense of it. When data emerges that contradicts a particular theory, that theory is eventually modified or abandoned.

The exact opposite of scientific exploration is to posit a theory and then search out only data which supports it, ignoring or dismissing anything that does not fit. It's comforting, because by doing so no amount of facts can ever shake such an individuals belief system, but it promotes a sterile, narrow, and ultimately erroneous view of the world.

You've confused viewpoint and methodology, rugcat. AAMOF, data collection is one of the prime reasons I hang out here. Thanks for the example of San Francisco.

I'm generally not one to accuse those with a different viewpoint of ignorance of the scientific method.

YMMV.

Apparently.

Oh, and my "erroneous" world view was what told me to get out of the rat race before the collapse, so I'll hang onto my particular unifying theory.

Good luck with yours.

Norman D Gutter · Dec 22, 2010

Don:

You ask for a city on the other end of the spectrum. At one time Houston Texas had no zoning. I don't believe that's true today, but zoning is a new thing there. I think Houston would probably qualify as a vibrant city.

backslashbaby · Dec 22, 2010

Even in corporations, it's not so much the amount of regulations it uses as where it gets the info about what to do. Too many get it from the top when the top has little technical (or hands-on) experience, while the good ones will even ask the janitor what he thinks could be bettered about janitoring

Particularly in industies where quality control is crucial -- sterile environment manufacturing, for example -- a lot of 'regulation' is crucial to sucessful manufacturing. But it has to be quality (and necesary) regulation.

I think the same kinds of things apply to bureaucracy, in general, definitely. So I'd agree with the city-company thing to an extent. But they aren't similar enough to get much more than that out of it, imho.

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