Commercial and residential buildings stand in the financial district of Manhattan in this aerial photograph taken over New York, U.S., on Saturday, Oct. 2, 2010
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Yet the U.S. has been slow to recognize and build on the power of its metropolitan economic engines. A powerful segment of our popular culture and political leadership still paints us into the corner of quaint small towns rather than embracing a network of dominant metro economies. A closer look shows that prosperous small towns are most often suburbs of major cities, and metros generate the majority of GDP in 47 of the 50 states, including such "rural" states as Nebraska, Iowa, Kansas and Arkansas.
For decades, however, the federal government has treated cities like disaster zones, pursuing urban policies devoted to subsidized housing and tax incentives to revitalize inner-city neighborhoods rather than creating policies that, for example, support powerful and promising industry clusters. There has been major improvement under the Obama Administration, but old habits die hard, and legacy interventions still get more support than new approaches.
If the federal government is outmoded in its approach, states are often openly hostile to their major cities. Greater Chicago contains 67% of the residents of Illinois and generates 78% of the state's economic output. But Illinois has pursued transportation and infrastructure policies that divert tax revenue from Chicago to subsidize inefficient investments in the rest of the state. By contrast, our competitors understand that prosperity in this century will come via the distinct assets and attributes of their metro engines. Germany, China and Brazil are investing in wholesale change through advanced research, renewable energy, modern ports, high-speed rail and urban transit in Munich, Shanghai and São Paulo — the metros that drive their economies. We must do the same. Here's how:
First, we should stop refueling the old economy's bad habits. Why, for example, provide huge tax subsidies for consuming more and more expensive housing? Incredibly, the amount of revenue the government forgoes because of the mortgage-interest deduction is projected to grow from $79 billion in the 2009 fiscal year to $150 billion in 2015. What if we capped these write-offs at the current level and directed half the recaptured revenue to reducing the federal deficit and the other half — roughly $25 billion a year — to efforts that grow exports?
Second, we should start investing to help American businesses innovate and have access to a world-class infrastructure that connects them with global markets. For example, the federal government can invest in new-energy-discovery institutes to develop breakthrough technologies that will be in demand in a low-carbon world, like solar power that's cheaper to generate and deliver than fossil fuels. Washington should also create a national-infrastructure bank to help finance projects that are too complex to be paid for in conventional ways and too important to defer. Think port infrastructure in global-trade gateways like Los Angeles or freight corridors in and around Chicago.
Finally, let's challenge every metro area to meet and exceed the national goal of doubling exports. Instead of subsidizing businesses to move across municipal lines — a complete waste of taxpayer dollars — cities and suburbs need to team up with businesses to devise export initiatives that build on their metro's distinctive position in the market. We can't as a nation double exports unless our metros and their businesses (both large and small) do.
America's cities are its centers for talent, capital and innovation. They are our hubs for trade, commerce and migration. With market-based incentives and the proper business climate, they can be unparalleled engines for the next spurt of American growth and prosperity. If our political leaders can put aside rancor, habit and outdated ideas about what kind of nation we are and should be, we can find success not over the rainbow but in our very own metros.
Katz is the founding director of the Metropolitan Policy Program at the Brookings Institution. TIME, in partnership with the Brookings Institution, the London School of Economics, and the Alfred Herrhausen Society, will hold the Global Metro Summit in Chicago on Dec. 8. For more information, visit brookings.edu/metro.