Sunday, April 18, 2010

Is Portland becoming a "shadow city"?

Over at The Urbanophile, Aaron M. Renn proposes a distinction between "true cities" and "shadow cities"; the latter being those, essentially, which have no stable economic vitality on their own.  In his essay, he divides the goods and services produced with a community into three types:
  1. Local goods and services. These are things like banks, grocery stores, dry cleaners, coffee shops, plumbers, etc. that exist in order to provide goods and services to the people who live in a place.
  2. Branch plant or departmental export. These are things like raising wheat, building brake components for cars, certain types of laboratory work, or any other type of specialized product that exists as a captive service or commodity to satisfy particularized demand from elsewhere. They are often specialized and routinized.
  3. Indigenous exports/industry. These are pieces of the production puzzle, often creative or innovative, that either serve a broad and diverse market or create markets. This could be anything from a biotech firm to a hedge fund to a specialty bike manufacturer to an internet company to a specialty manufacturing concern to a Fortune 500 headquarters. These types of businesses constitute the independent economic life force in a city.
If I may refactor a bit, the two questions he's asking concerning a given enterprise are:

  1. Does the enterprise produce income for the community (either by producing goods and services which are sold externally, resulting in revenue; or which otherwise attract outside revenue or investment?)
  2. How stable is the arrangement?  Renn's analysis of stability focuses on the location of a business in the value chain, and its need for human capital--a corporate headquarters is, in his analysis, more stable then a factory or branch office; a R&D facility is more stable than a factory or a distribution center.  Another key criteria for stability is tie to the area's physical location (geography or climate)--the agricultural production of Oregon can't be moved to Arizona, for instance; nor could the Port of Tacoma be towed to Spokane.  Nor can the tourists who flock to Hawaii be persuaded to surf the sunny beaches of British Columbia.   
Obviously, a community--over the long haul--must attract sufficient revenue to sustain itself, or else it will deteriorate and die.  Some communities (suburban bedroom communities) have almost no income-producing economic activity, and depend on residents having jobs elsewhere for their vitality.  My hometown of Oregon City, OR; once a thriving mill town, now mainly exists as a residential suburb of Portland, for instance.  

Another important factor is a city's capital base--essentially, the collective wealth of its residents.  Those cities with a large capital base will have an easier time responding to shocks.  Some places, such as retirement communities, depend entirely on attracting well-to-do residents (and depleting their savings and pensions) for economic vitality, as opposed to the export of goods and services).  
Cities with small capital bases, like businesses with cash flow problems, are more likely to be devastated by short-term economic downturns.

Turning back to Renn--he defines those cities which have adequate stable income producing enterprises as "true cities"; and those without as "shadow cities".  His categories 2 and 3 differ from each other on the question of stability--enterprises in category 2 are more likely to be closed or relocated on a whim; those in category 3 are more likely to have staying power.  Renn uses Flint, MI as an example of what can happen to a "shadow city"--though as a de facto company town (Flint wasn't merely tied to Detroit, it was tied to General Motors, and to the whims of company executives), Flint is an extreme example.

Whither Portland?

But what about the city I call home--Portland?

Over the past thirty years, we've seen the demise of one "indigenous export industry" here--the wood products industry.  Thirty years ago, Oregon's forests and mills supplied much of the world with timber, lumber, paper, and other things that come from trees; today, the wood products industry is a shadow of its former self (focusing on specialty wood products and paper).  Georgia-Pacific and Louisiana-Pacific are long gone.  Willamette Industries was bought out by Weyerhauser, which promptly closed many of its Oregon operations.   There's far more sawmills which have been torn down or abandoned in the state, than those still running.

Over the past twenty years, we've witnessed a wave of corporate consolidations, resulting many large Oregon corporations being bought out by larger, out-of-state entities.  Weyerhauser was mentioned above.  US Bancorp (bought up by larger banks twice, both of whom took the US Bancorp name).  Fred Meyer.  Freightliner.  Tektronix.  Meier and Frank.  The list goes on and on.  At the present time, the state of Oregon has only two Fortune 500 companies (Nike and Precision Castparts)--that's it.  When a company gets bought out, it produces a drop in local corporate philanthropy, and the prior headquarters gets relegated to a branch office--if it remains open at all.  (A major justification for corporate mergers, after all, is the opportunity to downsize the administrative staff in the combined entity--and the acquired company usually bears the brunt of the layoffs).

Over the past decades, we've seen the international shipping business focusing on container shipping, and moving to larger and larger ships--many of whom are unwilling (or unable) to endure the hassle of navigating the Columbia to reach Portland, when there are so many other deepwater ports on the West Coast which are easier to call on.  Portland's terminals still thrive in a few niche areas--bulk commodities and imports of automobiles--but the Port of Portland is a second-tier player in West Coast shipping.

Over the past few decades, we've seen boom and bust in the local high-tech industry.  Intel (a California company) maintains a significant presence in Oregon, and Oregon's cheap water and electricity make the state an attractive place for semiconductor fabrication.  On the other hand, the local high-tech economy is stagnant, and the "godfather" firm of the Silicon Forest--Tektronix--is now owned by an out-of-state entity (Danaher) which didn't take long to announce plans to move most production to China.  There's no top-tier research university in Portland (and even Oregon State University, the state's flagship tech institution, is widely regarded as second-class); and a rather small venture capital community.  Attempts to improve or expand the city's public universities (particularly Portland State) are frequently opposed by the downstate universities jealously guarding their turf. 

It's interesting to compare Portland to Seattle, 300km to the north.  Both have seen significant declines in their "original" industries--the aerospace industry in Seattle has been hit with numerous body blows over the years, culminating with the decision by Boeing to relocate its headquarters to Chicago.  (Cynics suggest that Boeing, long-term, plans to pull out of Seattle altogether, and move all its production to states with less union presence--a story which sounds a lot like that of Freightliner here, but with far more ramifications).  Yet Seattle has seen the rise of iconic firms such as Microsoft, Starbucks,, and Costco--the only comparable success story in Portland is that of Nike.

The good news

So, what's the good news?

The high-tech industry, despite the problems, is still productive.  Intel remains committed to the area, and much of what Intel designs and builds here cannot (for legal reasons) be outsourced outside the US.  Lots of smaller niche firms provide valuable goods and services, and Portland has become a de-facto center of "open source" software development, highlighted by the decision by Linux creator Linus Torvalds to relocate here. 

Agriculture is still a major component of the local economy.  The Willamette Valley wine industry has developed world-class status, and despite the departure of mid-label producer Henry Weinhard, Portland's brewing industry is also thriving.  The Willamette Valley remains a prime growing region, and the area's crop exports are in important segment of the economy.  (The state is also a prime producer of marijuana--despite that crop's less-than-legal status, it too benefits the local economy).  Portland has also developed a critical mass of quality restaurants, enough to bring about the emergence of a "food tourism" industry.

In addition to Nike, several other Portland-area apparel firms are doing well, most notably Columbia Sportswear.  Portland firms als do well in creative fields such as advertising, animation, and comic production.  The Portland music scene, long ignored by the major labels, is thriving in the area of Internet music distribution.

I could go on more.

The bottom line

So--what is the bottom line?  Is Portland a "shadow city", as Renn would put it?

Not yet.

The chances of Portland turning into another Flint are exceedingly remote; even considering the outsized impact of Intel on the local economy, Portland is in no way a "company town".  The economy here is far too broad-based for one firm to be able to devastate the city with an executive memo. 

That said, there are numerous danger signs, and a couple structural issues of grave concern.  As highlighted above, quite a few indigenous industries have left, and of those which remain, far too many are headquartered elsewhere.  For its size, Portland has a relatively small "capital base", (and likewise, a smaller and less prestigious set of cultural institutions) especially compared to other cities (such as New York or San Francisco) which have a liberal or pro-labor political consensus.  The former makes it harder to grow indigenous industry, the latter makes it harder to attract outside investment.   The second-tier status of Oregon's higher education system also remains an issue.

Of course, and I'm certain Renn would agree, that the question of being a "real city" vs a "shadow city" is not a binary one--there are many different degrees of economic independence between the great world cities such as New York, Paris, Tokyo, or Hong Kong; and dying former company towns such as Flint.  And while Portland is nowhere near Flint, nor even close to other beleaguered industrial cities such as Buffalo--there exists a good case that over the past decade or two, it has moved in that direction.


  1. Jane Jacobs in The Economy of Cities and also Cities and the Wealth of Nations covered this concept in depth. If I recall in that later book she stated that only Seattle in the northwest was a 'true city'. My perception is that over that last few decades Portland has moved more in the direction of independence and true citydom than away towards shadowhood. In fact on the transit front Portland has been far ahead of Seattle. On the other hand I live in Eugene; now there is a shadow of a city.

  2. While transit is important, transit--like all spending on infrastructure--is a "category 1" activity (local service) in Renn's reckoning. It doesn't produce revenue for the community.

    Actually, that's not entirely true under the funding regime in the US, where localities go begging the Feds for money--and the amount of money received has little connection to the amount of tax dollars harvested by Washington. In that sense, I suppose, federally-funded transit projects are revenue-producing, as they allow a city to receive targeted funding it wouldn't otherwise get. Of course, suckling at the federal teat in this manner is not a sustainable source of support for a community--unless you have a very powerful congressional delegation, which Oregon currently lacks.


Keep it clean, please