This is an exact statement made to me recently by a business owner in a small town. It is conventional wisdom, especially amongst the small town business community. And it is a belief based on observation. Indeed, when you look generally across the landscape, towns that are not growing are dying.
This points out the fragility of our current model of growth and development: Cities that don't grow, die.
Today I would like you to ponder two things about that statement. First, why is that a reality for so many places? And second, what does this say about the future of America's cities and towns?
Growth as we know it today is driven primarily by four mechanisms, which we have discussed in detail on this blog but which I will mention briefly again. They are:
- Transfer payments between governments.
- Demand-driven transportation spending.
- Debt, both public and private.
- The Growth Ponzi Scheme.
The impact that all of these mechanisms share is that they create short-term financial benefits for a community, but almost always generate even greater long-term financial shortfalls. The long-term imbalance is due to the inefficiency of the development pattern. When the true cost of development is masked, there is little incentive to be efficient. And an inefficient development pattern is a very expensive thing to maintain.
But the short-term benefits are real and, in our pattern of development, necessary. You see, if you are not growing, you are dying precisely because a short-term financial gain is necessary to make up for the long-term financial shortfall of the prior investment.
Our pattern of development is one big Ponzi scheme. We must grow or die the same way Bernie Madoff needed to grow his portfolio of new investors to pay off older investors. Or the same way interest-only mortgage holders needed housing prices to continue to climb so they could cover their debts. The gains here are not real in the sense that they foretell some new age of prosperity. The growing simply allows you to not be dying for a little bit longer.
So long as a community can continue, in ever increasing amounts, to get grants, direct aid, low interest loans and other subsidies from the state and/or federal governments, to create new development opportunities through state and federal transportation investments, to borrow money to finance infrastructure or to induce outside developers to build new infrastructure, it can enjoy a faux-prosperity. It can avoid dying. That is the reality for most American cities and towns.
What does this mean for our future? Clearly, it means some very difficult times ahead. Like Madoff and the interest-only mortgage holder, our cities rely on growth. And not just growth, but ever compounding rates of growth. The more you have to maintain at a loss, the more new growth you need to have to cover that spread. Even without a financial slowdown and the looming end of the four mechanisms of growth, this way of doing business will run its course. We cannot continue to invest at a loss forever.
There is only one real answer to this problem: change the way we grow and develop. We cannot continue to sink money into this Ponzi scheme. We need a Strong Towns approach that generates a higher return on our public investments. Our towns and neighborhoods need to become more financially viable.
We can't wait around for the state and federal governments to do this. Our leaders at the local government level need to face the reality of the Ponzi scheme they operate in, stop digging their hole deeper and then start putting strategies in place to transform their towns. The ones that do this will be the success stories of the next generation. Those that don't will not only not be growing, as was reiterated to me last week, they will be dying.