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Invest in Human Capital, Not in Building Projects

April 18, 2008

By Edward L. Glaeser

Can Buffalo come back? I cannot imagine that Buffalo will once again be an industrial powerhouse with 573,000 inhabitants. But the city can become more economically vibrant and socially supportive, which is far more important.

For Buffalo to continue moving toward this type of success, political leaders should focus more on human capital and less on physical structures. The job of government is to enrich and empower the lives of people, not to make places look glossier. Yet politicians regularly sell bad development projects with the promise that they will turn a city around. Vast sums of taxpayer money went into Ellicott District renewal, the Marine Midland Center and light rail. This spending was justified as a means of revitalizing Buffalo, yet none of these projects has had any discernible impact on city population, income or poverty.

Indeed, the very idea of spending billions on infrastructure to increase the population of declining areas is wrongheaded. Declining areas already have plenty of buildings relative to people.

Perhaps the myth that infrastructure can revitalize Buffalo reflects the role that a government infrastructure project, the Erie Canal, once played in the city’s growth. At the start of the 19th century, the great wealth of America’s hinterland — rich soil, iron ore, coal mines — was inaccessible because it cost more to move goods 30 miles overland than across the Atlantic.

Buffalo was a linchpin of the water and rail networks that connected America. The city and its innovators, like Joseph Dart, helped make America rich.

Over the course of the 20th century, the cost of moving goods plummeted by more than 90 percent, and Buffalo’s transport-based advantages disappeared. All of the older, colder cities in the United States suffered for the same reason. In 1975, the prospects of Buffalo and Boston looked pretty similar. Yet since then, some places have been much more successful.

The distinguishing mark of thriving older, colder cities is human capital. The share of an area’s population with a college degree in 1970 does a remarkable job of explaining population and income growth since then. The success of skilled places is not the result of top-down government policies, but rather bottom-up entrepreneurship that found new ways to make old cities more productive. Skilled cities managed to reinvent themselves.

Buffalo’s success requires the city to focus more on education and less on building. Better school systems produce smarter students and attract smarter parents. A good strategy for local economic success is to attract smart people and get out of their way. Investing in people rather than buildings ensures that the benefits of spending will go to the children of Buffalo, not well-connected businesses. Good local leadership should focus more on the future of the city’s children and less on downtown development.

 

 
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