Bringing DC up to its economic potential

While D.C. is the seat of power for one of the most influential countries in the world, when compared to places like Los Angeles or New York, it’s clear that it’s not the strongest economically. To find ways to elevate the region, and to see what might be holding it back, we spoke to Erran Carmel, Professor at the Kogod School of Business. Along with Jason Miller, CEO of the Greater Washington Partnership, Carmel recently completed a study comparing D.C. to a swath of the world’s largest cities.

ABERMAN: Tell me why you decided to do this particular study.

CARMEL: The question is this: how can the capital of the world’s most powerful country be a second tier business city? That’s the research question that drove me here.

ABERMAN: So, you say capital city, set the stage. I mean, what does that exactly mean?

CARMEL: We looked at the capital cities of the 125 largest nations in the world. What we found is that they’re divided up into 4 groups. There’s the hegemonic cities, those are the capital cities that come to mind. It’s Paris and London, and Tokyo, and Mexico City, and Moscow, and so on. These are political capitals, and they are also the business capitals of their respective countries. So there’s the hegemonic capitals. And then, there’s two or three other groups which are important, and Washington falls into the other groups. And they are the minority.

The hegemonic cities, the Paris and Londons of the world, they are 74 percent of the world capitals. The other groups are the pure cities. That’s where the political capital and the business capital are roughly equal in influence and power. And then, there’s the secondary capital cities, and that’s where Washington is. There’s 15 of those. We’re in a group with Ottawa, Wellington in New Zealand, Canberra in Australia, and now, what’s interesting is that all four of those are Anglo Federated nations. We’re in the same group with Brazilia, and Ankara, and Jerusalem, and Rabat.

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ABERMAN: Interesting. So, these secondary capital cities. What is it about them that makes them interesting?

CARMEL: Two strong lessons came out of this when we looked at these cities. One is, when we we looked at Washington D.C., as compared to a few of the important big capital cities that are either pure cities in their nations. And when we looked at secondary capital cities, we found two important lessons. One is the expansion of the footprint of the capital city, and the second is education and tech savviness. So, let me talk about the first one, because I think it’s a little bit less obvious. If you look at China for example, Beijing, the capital city, is in rivalry, for at least a century, with Shanghai, the first-tier business city in China.

And it is now building a super Capital Region, which is called Jingjinji, which has a staggering 200,000 square kilometers in size. Delhi, The National Capital Region, which competes as a business city with Mumbai, has 58,000 square kilometers, and then the District of Columbia has 177 square kilometers. So, greater Beijing, the Super City that the Chinese are now building, will be in size, 1000 times larger than the capital of the most powerful nation.

ABERMAN: Do you think that’s one of the reasons why the Greater Washington Partnership has been trying really hard to redefine the capital region as going from Richmond up to Baltimore?

CARMEL: Yeah. That’s key to understanding the Partnership’s perspective, and the lessons that we collectively drew from this study. Greater Washington, and the region, in order to be competitive as a global city, and in order to be competitive with our first tier business cities, New York City and Los Angeles, we have to expand our footprint geographically.

ABERMAN: So, we’re going to expand our footprint geographically. What are some of the other things that your data is showing us, that we should try to do if we want to become more a pure city of a New York City or Los Angeles?

CARMEL: Yeah. The other commonality that we found in second tier capital cities is that they have a more educated population than their respective business cities, and they are more tech savvy, in general, than the business cities in those situations. We see that here in Washington, that the listeners of your program well know that the greater Washington region is a very tech savvy area. The Internet wasn’t born here, but it grew up here. Satellites, AWS and so on. This is a story that’s familiar to many of our listeners. Another key lesson is dynamics. So, we wanted to see if there’s any breakout potential for Washington D.C.. Okay so, can it rise to be at the same level of New York and Los Angeles? And so, I think that there’s four cities that are interesting examples here. Two that have gone up, and two that have gone down. So, let’s start with the ones that have gone up. Delhi, capital of India, has risen to become a peer city with Mumbai.

And that’s partially because of the expansion of geographic footprints. Mumbai cannot expand because it’s limited by the sea. And the other one is Berlin, in Germany. Berlin, of course, we know has a very complex and complicated 20th century history. And now that it’s unified, it is still a second tier business city, relative to the big business cities in Germany, Frankfurt, Munich, and Hamburg. But it is rising quickly. Berlin is now considered the number one startup city in Europe. And we also have to be careful about the reverse dynamic. We see some capital cities that have fallen in their business importance. And that’s in New Zealand, Wellington has fallen, its influence as a business city in the post-World War 2 era, and in Bolivia, La Paz has become a less important business city, and now Santa Cruz is the important one.

ABERMAN: Excellent. I encourage all of you to check it out and as always, Erran Carmel, it’s terrific having you here.

CARMEL: Good to be here.

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