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Cities of the fifth wave--the rise of the traditional-modern city: cities have always prospered and grown in parallel with long waves of economic development, and a new wave is just beginning, argues John Montgomery--one that will place demands on the wealth-generating capacity of individual cities and the extent to which they can innovate and adapt their built form to support emerging new economic sectors.

THE GLOOMY SCIENCE of economics, in the modern sense, began with the publication of The Wealth of Nations, in three parts, by Adam Smith in the 1770s. (1) Up until this point, no-one had any idea how wealth is generated and how economies grow. Smith proposed economics as the study of the production, distribution, exchange, and consumption of goods and services under a system of markets for those goods and services. He argued that it was this process that led to wealth creation and improvements in prosperity.

Smith saw that the more complex an economy's 'division of labour', the more wealth would tend to be created. He supported his arguments by examining not only this new concept of the division of labour, but also the pricing of commodities, the wages of labour, rent, the origins and uses of money, the accumulation of capital, interest, and the division of stocks and shares. This has come to be known as micro-economics. Businesses compete with each other to provide goods and services to satisfy consumer needs and aspirations, expressed as consumer demand. This set of relationships underpins capitalist economic development, the most dynamic economic system in history.

Smith's model is still applied today, although it tends to be considered within a framework that also contains macroeconomics (the largely ill-informed quest for equilibrium in the economy by balancing unemployment against inflation) and monetary policy (the control of the money supply to prevent governments printing paper money of declining value). Even so, micro-economics undoubtedly helps in our understanding of competition, industry sectors, and the ups and downs of commodity prices.

Where Smith was mistaken was to assume that the division of labour would of itself lead to greater wealth creation. As Jane Jacobs would point out, this is only the case if the labour so organised is producing 'new work' that has a value in exchange. (2)

Jacobs developed a model for city economies in which she demonstrated that cities achieve growth primarily through a process of exporting goods and services in order to earn surpluses with which to purchase imports. (3) As the economy develops, more and more exports generate greater surpluses, during which time the division of labour among local producers becomes more complex. Various supply chains develop, so that networks of businesses provide inputs to the final export product. As people become wealthier, they can afford new goods and services, consumed locally, for which there had previously been no demand. They can also begin to make things themselves, and so replace imports with new locally-based work. This results in economic specialisms, but also a build-up over time of networks of inter-trading businesses and 'clusters' of dynamic firms and whole industries.

Michael Porter would later argue (4) that successful industries tend to co-locate in dynamic clusters. A 'cluster' is a grouping of industries linked together through customer, supplier, and other relationships which enhance competitive advantage. These clusters are characterised by the presence of internationally competitive firms, which also continuously upgrade and innovate. However, what this model does not address is why some cities are simply much better at this than others, and why there should be periodic booms and slumps in the capitalist economy, during which a pattern of winners and losers emerges.

The long waves

For an explanation of why this happens, we must look to the long waves of capitalist economic development, as conceptualised by the Russian economist Nikolai Kondratieff. (5) This posits that capitalism is subject to a pattern of long business cycles or 'waves' where falling rates of profit generally produce periodic crises or changes. Using commodity prices, Kondratieff was able to show that periods of strong growth occur every 45-55 years, separated by periods of sharp decline. Kondratieff argued that this was because the economic 'exploitation' of existing technologies had been exhausted, so that new growth could only come from a new generation of technologies. Since the late 1780s, there have been four long waves. (6) Each cycle lasts for roughly 55-60 years, with peaks of economic growth at the mid-point.

The first of these long waves began in England and France in the 1780s, following a period of deep depression made all the worse by the South Sea Bubble in England and the Mississippi Bubble in France. The depression was characterised by a collapse in raw material prices, especially wheat, and bottomed out in around 1783. By 1789, prices were beginning to rise again, gaining rapidly from 1798. A further surge occurred in 1812, but within two years prices and economic activity had passed their peak. A sharp downturn occurred in 1812-15, followed by a short-lived period of 'secondary prosperity', known at the time as the 'Era of Good Feelings'.

By 1819, the economy was once again in recession, triggered by a collapse in wheat prices, and followed by a similar collapse in cotton a few years later. Land prices in the United States fell, and the long depression would last from the 1820s to the 1840s. Between 1814 and 1843, prices fell by 59 per cent.

The second wave dates from 1843, led by industrial production in the new industries of steel, railways, and steamships. This produced an upturn in exports and commodity prices, so that between 1852 and 1854 consumer prices leapt by 33 per cent. The peak came in 1864. In 1873, a series of financial panics in Germany signalled the onset of a deep depression. This would last until 1896, with a speculative property boom occurring in the 1880s.

Prices began to recover in the late 1890s, as the new industries of automobile production and electrical engineering prospered. Prices began to increase steadily until 1920, when the commodity market collapsed. This time the speculative bubble that burst was in Argentina. The recession lasted for two years and was followed by a period of secondary prosperity--the 'Roaring Twenties', during which time fortunes were made on the stock market. The crash came in 1929, followed by a severe depression that hit its lowest level in 1934. The recovery was led to a significant extent in re-arming for war, but also stemmed from the emergence of new technologies and, later, consumer products.

The fourth wave began in the late 1940s, and was evidently well under way by the mid-1950s. Britain was booming, as indeed was the United States, Germany, and later Japan. This time around the growth industries were civil aviation, plastics, pharmaceuticals, household goods, and consumer electronics. This lasted throughout the 1960s and early 1970s, peaking in 1974. In the UK, the 'Barber Boom' of 1970-74 preceded the short recession of 1973-75, and this in turn was followed by the 'consumer boom' of the mid-1970s, driven by rising house prices and the expansion of credit. The main secondary depression kicked in from the early 1980s, and was evidenced at the time by falling commodity and factory gate prices, falling oil prices, and falling property prices.

This much was evident when Robert Beckman wrote The Downwave in 1983. (6) Beckman went on to forecast the stock market collapse of 1987, the property boom of the late 1980s, and the long recession throughout much of the 1990s. The economy in the 1990s was characterised by very low growth as the depression bottomed out. This period of recent history witnessed a stagnant stock market and a switch of investment once more into property, producing the house price surge of the late 1990s and early 2000s. The stock market only began to make real gains in 2004, signalling the start of the fifth wave.

The Kondratieff waves have been the subject of much debate among economists and academics for over 60 years now. They continue to be referred to in works by other authors over the years, most notably by Joseph Schumpeter, (7) by Beckman, and in Peter Hall's Cities in Civilisation. (8) There does appear to be some reluctance among mainstream economists to accept the validity of the long waves, and yet economists are happy to accept the three-year business cycle, the nine-year cycle, and the product life cycle, all of which are characterised by phases, respectively, of growth, accumulation, stagnation, liquidation, and price falls.

The problem, of course, is that a 54-year cycle is a much longer period of time and, it has to be acknowledged, smacks a little of crystal-ball gazing. Nevertheless, a pattern across the waves can be seen. Peaks in commodity prices occur every 54 years --in 1920 and 1974, and in 1868 and 1814. These peaks are followed by a 'corrective' recession lasting for two years or so, in turn followed by a short recovery. There then follows a stock market collapse, as in 1929 and 1987, a fall in interest rates, a property boom, and a depression that lasts some 10-15 years. That is, until the next upwave begins.

The precise timing of this is difficult to predict, or even detect, as there is at first a gradual change from the rate of decline slowing down into a low-growth recovery. On this, it is a moot point whether the low levels of growth in the UK economy since 1993 signal a period of prosperity, or simply an end to the slump. In any event, the Kondratieff wave theory implies that the capitalist economy in the year 2005 is entering, or has recently entered, an upswing that will last for 25-30 years, that is until 2030 or thereabouts. As before, this will be based on the commercial application of technologies and new products and processes devised during the preceding down-wave, that is to say during the 1970s and 1980s.

City development

What does this mean for cities and their development?

Each of the waves to date is associated with the rise of particular industries: cotton in the first wave; steel, rail, and shipbuilding in the second; automobiles and electrical engineering in the third; civil aviation, plastics, and pharmaceuticals in the fourth. Cities that came to have a golden age of prosperity were those that were positioned to take advantage of the new industries, either because of their existing status as entrepots, because a new technology was invented there, because a new generation of entrepreneurs was at hand, or because a tradition of innovation and enterprise was maintained even during the preceding depression. Thus, Manchester and cotton, Glasgow and shipbuilding, Pittsburgh and steel, Detroit and automobiles, Bristol and Seattle and aerospace, Silicon Valley and semiconductors, Tokyo and consumer electronics, Helsinki and mobile phones, Seattle and software.

Some cities, however, lose their ascendant position as leaders in the new industries; others are the products of short-lived booms which never again materialised. In the 1920s, Buenos Aires was the fastest growing city in the world, but this was built on speculative fever rather than real wealth creation; cities such as Liverpool and Adelaide are struggling to rebuild their former positions as dynamic economic centres.

As Jane Jacobs has pointed out, (3) the cradle of the Industrial Revolution was not in fact Manchester at all, but Birmingham, with all its wonderfully inventive new entrepreneurs in the mid 18th century. It was in Birmingham that steam was first harnessed to industrial production, that the world's first iron bridge was built, and that the great pottery industry of the Midlands would grow. (9) Nevertheless, it was Manchester that would become the world's first industrial city, built on cotton.

During the second wave of the mid 19th century (until the 1890s), the centre of gravity of new wealth creation would shift to Glasgow, the Ruhr, and Pittsburgh. The third wave would see Detroit, Stuttgart, and Birmingham emerge as centres of car production. By the onset of the post-war fourth wave, the new centres of wealth creation--in addition to the stock exchanges--were Los Angeles, Tokyo, and Seattle.

During each of these various eras of capitalist economic development, the way in which production itself was organised also varied. Thus early capitalism was based on craft production organised by guilds and the merchant class; early industrial capitalism produced Blake's 'Dark Satanic Mills' and a more rapid urbanisation; industrial capitalism was based on factory production and was organised by industrial producers--the so-called Fordism; and late capitalism was/is characterised by flexible specialisation and the putting-out mode of production and is largely organised by service producers.

Different forms of production can survive and be carried over into a later age when the dominant mode of production is changing. Thus the bespoke tailoring of Savile Row and the jewellery industry of Hatton Gardens, both in London, still operate as craft guilds, more or less. Likewise, the film industry of the 1920s to the 1950s was essentially a form of factory production organised by the studio system, whereas Hollywood today is a hybrid of the studio system combined with a classic post-Fordist network of independent producers and sub-contracted specialists.

Industries such as the car industry in Japan or Korea are post-Fordist to the extent that production models are differentiated, but remain largely Fordist in that production occurs along assembly lines. Modern computers were invented in the 1940s and 1950s, and would later revolutionise electronics and consumer household goods; yet their biggest impact is only now being witnessed in the age of digitisation and the convergence of computer technology with all manner of manufacturing, design, and service industries.

These new industries take hold initially in particular places, so that the early pioneering cities are very often those who succeed the most in economic development and wealth creation. Software development occurred in Seattle, for example, largely because its early applications were in computers for military and civil aviation. Glasgow became the centre of ship-building because it was a port and a producer of sailing ships, because coal and iron ore were found locally, and because innovations in steel-pressing occurred in nearby Falkirk, just along the Union Canal.

Meanwhile, cities such as London, Paris, New York, and Tokyo are able to adapt from one wave to the next, either because they contain their own clusters of new economic activity or more usually because of their status as financial centres trading in stocks and shares and currencies (the same cannot be said of 'artificial' capital cities such as Washington and Canberra).

It is this phenomenon that gives rise to episodic periods of spectacular growth and city development. This explains why most cities tend to develop in periodic spurts. It also explains why, if they allow their main industries to die, they also can decline as places of wealth creation.

Fifth-wave cities

During the slump of the late 1970s and 1980s, established industries were forced to restructure, and new marketing strategies were adopted in attempts to promote sales. But the writing was on the wall. The time was ripe for new industries, based on new technologies, to appear. These would be a combination of pharmaceuticals (advances in science applied to human health), biotechnology and engineering (DNA, genetic modification, nano-robotics), software, mobile communications, and digital technologies. These are the industries of the fifth wave, and some of them at least are linked also to new forms of artistic expression and entertainment, notably in the convergence of the computer industry, digital media, and the internet.

Just as in previous waves, the ascendant city economies of the fifth wave will be those that compete successfully in the new industries. Some of these are already evident: Seattle and Portland for software and processors, Southern California for computer design and the internet, London and New York for design and publishing, Los Angeles for digitalised films, London for television production, Philadelphia for pharmaceuticals, Helsinki and Stockholm for mobile communications, Bangalore for software. Cities that manage to combine some representation of some of these industries with high levels of artistic creativity and design will also flourish. These are likely to be places such as Dublin, Manchester, Barcelona, Copenhagen, Berlin, Milan, and Melbourne.

This raises the interesting question of what these cities will be like, physically and culturally in the coming period; how will they develop? There is, unfortunately, not a great deal in the literature to help us here.

The most interesting recent contribution is by Eric Heikkila, (10) Professor of Planning at the University of Southern California. Heikkila sets out to demonstrate that cities are shaped by four forces: markets, culture, geography, and history. He argues that cultural values and purposes stand 'in opposition to those of markets'; while geography and history are, somewhat fancifully, represented in Marxist speak as 'being' and 'becoming'. Heikkila argues that these forces are themselves shaped by 'an even more fundamental dichotomy' between modernity and tradition. This allows Heikkila to construct 'a simple taxonomy of cities' in which market values compete with cultural values; temporal identity ('becoming') is juxtaposed with spatial identity ('being'); and modernity operates in opposition to tradition. Heikkila then proposes that there are four fundamental types of city:

* the traditional city, where cultural values dominate and 'where identity is strongly rooted in place' (the examples he gives are Jerusalem and Rome);

* the modern city, where market values dominate and where identity is temporal, that is to say subject to change (examples include Shenzhen, 'an instant city', and Phoenix);

* the bazaar city, where market values dominate but are also rooted in a sense of place (cities like Hong Kong and New York); and

* the transformational city, where cultural values dominate but in a context of placelessness (the example being Los Angeles).

Interesting although Heikkila's schema is, I fear it is flawed for the simple reason that commerce (markets) and culture are not binary opposites but in fact feed and reinforce each other. Thus, the Renaissance was both a cultural movement and an explosion in wealth creation; so too was the Enlightenment, the Victorian industrial age, and even modernism. To juxtapose culture against markets is a serious error, as pointed out by the British town planner Andy Farrell. (11)

Rather, cities should be assessed against their propensity to achieve dynamic economic growth, balanced against the need to maintain traditional cultural and urban forms, but also to remain open to modernity. Instead of seeing these as opposites or tensions, cities should actively seek out beneficial combinations of dynamic economic growth, artistic creativity, entrepreneurship, tradition and modernity, codes of behaviour (manners) and personal freedom, and high- and low-density places. This taxonomy of the 'modern-traditional city', also produces four broad city types:

* high-growth modern--the combination of a dynamic economy with modern cultural and built forms, as in Los Angeles or Singapore, for example, or Shanghai;

* high-growth traditional--the combination of a dynamic economy with traditional cultural and built forms, as in Dublin or Barcelona, or Helsinki or Riga;

* low-growth modern--the combination of low growth with modernity and modernist built forms, as in Detroit or Birmingham, or the former West Berlin; and

* low-growth traditional--the combination of low growth with old cultural forms and built forms, as in Edinburgh, Prague, or Adelaide.

It is likely that, in real life, most cities will combine some elements of high and low growth, tradition and modernity, place and placelessness, high-density centres, medium-density neighbourhoods, and low-density suburbs. This is already evident across city regions such as Milan or Greater London or Southern California. The important point is whether or not economic growth is present, and how this interplays with the culture and form of a city.

The cities that have most to fear are those with low levels of new wealth creation and who place too much emphasis on the past, to the detriment of the new. Many of these, especially in Europe, may well find themselves more reliant on older cultural forms and their attractiveness to tourists. These seem likely to include Madrid, Edinburgh, Prague, Dresden, New Orleans, Cracow, and Vienna. Others will remain associated with primary goods such as particular food-stuffs (Dijon, Modena) or wines (Lyon, Beaune, Adelaide). Cities that seem likely to struggle to gain a share of the new economy include Moscow, Belfast, Pittsburgh, Adelaide, and Athens. Meanwhile, the dominant world cities of London, New York, Los Angeles, Tokyo, and Paris will remain so, provided they continue to innovate and maintain strong clusters of finance and other economic activity. Of these, Paris is in the weakest position.

The successful cities of the next 50 years, then, will be those that achieve highly dynamic economies centred on the new industries. Closely related to this is the issue of innovation and creativity--'the creative milieux'--as opposed to creative thrombosis. Cities that innovate and therefore grow will also tend to embrace modernity in the arts, fashion, and architecture.

Yet it is also the case that the new economy tends to thrive in places that are more interesting (i.e. the traditional mixed-use city) or else offer, by way of climate (Brisbane, Atlanta), environment (Copenhagen), or 'lifestyle', a better living environment. Cities that offer this and engage with modernity and innovate will be successful. This group certainly includes Portland, Boston, Bristol, Dublin, Helsinki, and Copenhagen. It probably now includes Manchester, Melbourne, Barcelona, and Antwerp, and will no doubt soon encompass Berlin, and might in future extend to currently unfashionable places such as Brisbane or Toronto. Cities will also continue to exert an influence over their own city-regions, so that successful economic entities of the future will be cities plus networks of satellite towns, villages, and the countryside.

In addition to this, creative entrepreneurs especially will only remain in cities that are themselves artistic, have a healthy arts scene, and have access to good food and ambient restaurants, bars, and clubs. Without an appealing cafe culture and evening economy, cities will be lacking one of the factors for competitive advantage. This, in turn, will depend to a large extent on the attractiveness, conviviality, and sophistication of the city as a physical entity--that is to say its built form, scale, architecture, walkability, and the interest of its streets and squares.

The question of the city as a built form is therefore not incidental, and 'place identity' and urban design will continue to play an important--perhaps heightened--role. In keeping with the idiom of cities as places of design, developing new architecture will be essential, as in Barcelona or Prague or Berlin or Dublin. This should not be a return to 'high modernism' and the wholesale redevelopment of cities, for it is also essential to maintain traditional streetscapes, building types and heights. Architects should not be allowed to redesign cities, as they did under modernism, but they should be welcomed to design new buildings.

City dynamics

In the coming period, cities will need to master the art of city dynamics--the interplay between dynamic economic growth and wealth creation; the links between technology and new work, cultural life, applied creativity and innovation, the everyday functioning of places and city districts, the public realm, cafe culture, and the evening economy. It is this set of dynamics that will see the emergence of certain cities as economic and cultural leaders during the fifth wave.

Leading cities will be those that innovate and establish themselves as centres of the new industries. To innovate, such cities will need to be creative and technologically advanced, and able to apply new discoveries, inventions, and techniques to the ongoing process of wealth creation. For this to happen, cities will need a repository of advanced technological, artistic, and craft skills, or they will need to import and/or educate to provide these. Unless new businesses are more or less continually created and opportunities to pursue creative and technological careers are provided, this will result only in the city becoming a net exporter of skills and entrepreneurs as the brightest and the best leave for greener pastures.

The cities will also need to balance economic growth with the re-making of districts and neighbourhoods as places, and with the quality of education and the overall quality of life. As the next wave gains momentum, we shall once again need to consider how best to either expand and/or intensify existing settlements and/or build entire new towns and cities.

Similar choices were faced by the great city builders of the past--Edinburgh New Town in the 1770s, Nash's London, Haussmann's Paris, Cerda's Eixample in Barcelona, the expansions of Amsterdam and Copenhagen, the layout of Manhattan, or Hoddle's grid design of central Melbourne. Later, in the 1930s, 1950s, and 1960s some wrong decisions were made, and we have been living with some of the consequences ever since. Even so, the cities have recovered from the premature announcement of their death. The future holds a new wave of city-building. We can do better this time.


(1) A. Smith: The Wealth of Nations. 1776. Version published by Penguin Classics, London, 1986 2 J. Jacobs: Cities and the Wealth of Nations. Random House, New York, 1984

(3) J. Jacobs: The Economy of Cities. Jonathon Cape, London, 1969

(4) M. Porter: The Competitive Advantage of Nations. Collier Macmillan, London, 1989

(5) N. Kondratieff: The Long Wave Cycle. Richardson and Snyder, New York, 1964

(6) R. Beckman: The Downwave. Pan Books, London, 1963

(7) J. Schumpeter: Business Cycles: A Theoretical, Historical and Statistical Analysis of the Capitalist Process. McGraw Hill, New York, 1939

(8) P. Hall: Cities in Civilization. Weldenfeld & Nicolson, London, 1996

(9) This came about because of the inventiveness of people such as Erasmus Darwin and James Watt, Josiah Wedgewood, the preacher and chemist Joseph Priestley, and the great entrepreneur Matthew Boulton and his 'manufactory at Soho, just outside Birmingham. Others Involved at the time included the chemist James Kier and the clockmaker John Whitehurst. Known as the Lunar Society of Birmingham, because they met monthly on the Monday night nearest to the full moon (so they could ride home by the light of the moon), these were the amateur experimenters, inventors, and entrepreneurs that shaped the mode world--see J. Unglow: The Lunar Men: The Friends Who Made the Future. Faber & Faber, London, 2002. Many were either Scottish or had studied in Edinburgh and Glasgow in the preceding years. Between them they would alter the course of geology and chemistry, experiment with electricity, develop the bone china and glass Industries, build canals, develop steam power, experiment In mechanical engineering, and develop the science of botany

(10) E.J. Heikkila: 'What is the nature of the 21st century city?'. Planning Theory & Practice, 2004, 5 (3), pp.379-387

(11) A. Farrall: 'The nature of the city, Its resurgence and planners'. Planning Theory & Practice, 2004, 5 (3), pp.389-392

John Montgomery is an urban planner who has specialised for over 20 years in the economic development, culture, and design of cities. Based in New South Wales, he consults with his firm Urban Cultures Ltd across Australia, in New Zealand, Europe, and the UK (E: This article is an edited extract from John Montgomery's forthcoming book Cities of the Fifth Wave: The Rise of the Traditional-Modern City, to be published in 2006.
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Title Annotation:city futures
Author:Montgomery, John
Publication:Town and Country Planning
Article Type:Viewpoint essay
Geographic Code:4EUUK
Date:Jun 1, 2005
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