The Aerotropolis as the hub of global economic growth

There are three main lessons that I learned from reading Aerotropolis: The Way We’ll Live Next:

1. Logistics and speed are unstoppable forces that will define the next several generations of economic development globally;
2. The United States has already lost most any chance of keeping pace; and,
3. The global economy may never actually cash in on the investments it is making.

The first of these observations is not particularly surprising and the conclusions there are pretty reasonable. The second and third scare me to no end. Indeed, reading a couple steps down the line in the global economic environment laid bare in Aerotropolis, it is quite easy to see the whole system collapsing on itself in a matter of years, assuming we make it that far. That small bits have already experienced such a decline is of little comfort.

The premise of the areotropolis is rather simple. Rather than try to explain it myself I’ll let you understand it in the words of its greatest proponent, John Kasarda through the lens of author Greg Lindsay:

…[R]ather than banish airports to the edge of town and then do our best to avoid them, we will build this century’s cities around them. Why? Because people once chose to live in cities for the wealth of connections they offered socially, financially, intellectually, and so forth. But in the era of globalization we choose cities drawing closer together themselves, linked by fiber-optic cables and jet aircraft.

…

In essence, the aerotropolis of [Kasarda’s]imagination isn’t necessarily a city but a superconductor, a piece of infrastructure promising zero resistance to anyone wanting to set up shop there. Examine [Kasarda’s] initial sketches for one – with the carefully arranged waves of white boxes and office cubes – and you’ll find a city expressly planned on behalf of the companies expected to populate it. An aerotropolis isn’t an airport either, and building one isn’t a matter of having the longest runways or the largest landmass. Frictionlessness is the product of a whole host of attributes, many of which are invisible: tariff-free trade zones, faster customs clearance, fewer and faster permits, and a right-to-work workforce that knows what it’s doing. ‘It’s the way you reduce time, the way you reduce costs, the way you reduce space,’ Kasarda says. ‘The aerotropolis is where the elastic mile, the friction of space, community without propinquity, and trade routes all come together.’

…

[A] third of the value of all the goods made in the world, three trillions dollars’ worth, travels by air while composing barely 1 percent of their weight. Air cargo’s growth outpaced world trade’s by a factor of four-to-one over the last thirty-five years, and blew past global GDP growth by nine-to-one, meaning more and more of what’s worth making and moving (including half of American exports) is aloft. In the Instant age, Kasarda says, ‘The price of oil matters less than the price of speed.’

Building an aerotropolis is a relatively easy thing to do, assuming no political or environmental concerns. Find a plot of land, clear it out and build a world-class airport in the middle. From there, add on industrial, commercial and residential bits in the appropriate ratios and then watch as industry beats down the doors to show up and open shop inside your free-trade zone. Free of tariffs and , in many cases, free of local laws, these aerotropolii represent the free market economy at its most basic level.

The problems that arise are, of course, plentiful. Starting with the political and environmental concerns, there are plenty of reasons for many in the western world to object to such developments. Still, looking at the present evidence, there is no doubt that such developments have been successful. Louisville and Memphis are essentially subsidiaries of UPS and FedEx, respectively. The area surrounding Amsterdam’s Schipol airport is a testimony to the efficacy of global trade and just-in-time delivery of flowers on a scale that is yet to be matched, though Addis Abba is one of several hoping to edge in on that market.

Dulles, Denver and Dallas-Fort Worth are all representative of this not-so-new approach to urban planning. Centralize around a transportation hub, just like ports in the days of yore and train terminals in the not quite so distant past. Today that hub is the airport large enough to easily handle frequent service from Boeing 747F freighters laden with cargo inbound from manufacturing hubs in southeast Asia or agricultural hubs in South America. It is not at all difficult to see how this progression has been made and Lindsay does a phenomenal job of explaining in detail some specific examples of why certain areas have succeeded and other have failed in developing these aerotropolii.

The concept of what makes an aerotropolis is just half the story, however. The economic impact that they can bring to the developing world is the other half, and it scares the hell out of me.

Asia, Africa and the Middle East are the main development targets today. China is in the midst of an unprecedented infrastructure build that is dedicating a tremendous portion of their GDP to highways, high-speed trains and airports. Many of those airports are destined to be aerotropolii. Thailand started a similar effort with Suvarnabhumi, the new international airport in Bangkok. Ho Chi Minh City is doing the same with their new international airport.

In China the development is easy. The local, provincial or national government decrees that an airport will be built on a specific plot of land and that’s the end of the story. It happens – quickly – and those currently there are relocated. In Thailand, however, a similar set of plans resulted in relatives of ministers suddenly operating real estate and logistics operations. When word got out of the coming aerotropolis everyone tried to get in on the deal and real estate prices shot through the roof. The recent coups can be related, in part, to the failure of these plans to get off the ground or the revolt of the people against the abuse of that power.

So there is the risk of political upheaval as the working class feels they’ve been wronged. This potential is more pronounced as those same workers start to profit from the business that the aerotropolii bring in now have the means to afford to protest, rather than to accept whatever they are told to do. And now that the protesters know that the airports are the life-blood of their economies (e.g. the recent Bangkok protests that saw both sides seize airport terminals at various points to stymie the ruling party) the risk is that much more real.

But that isn’t the part that worries me the most. What scares me is the potential for all this investment to be a very efficient and expedient means to spend billions of dollars of someone else’s money in hopes of a return that is impossible to realize. And Lindsay outlines exactly how that will come to pass as the aerotropolii develop and multiply.

There are currently scores of such projects in various stages of development. Can they all possibly be successful? Dubai already almost collapsed once as the highly leveraged construction efforts there saw money and credit dry up in the recent financial crisis.

In effect, Dubai was a giant arbitrage play, a pure experiment in funneling and funding globalization. A tiny city-state with literally nothing – no oil, few people, and little education – sought to become a global capital in a single generation…. That’s why everything was so oversize, including Dubai’s ambitions.

Bangkok failed to move swiftly enough and to avoid corruption, leading to the failure of the aerotropolis there, though not to the collapse of the economy. FedEx has been wooed by China to move their Pacific sort hub from Subic Bay to Baiyun International Airport near Ghangzhou.

First, [the Chinese] drained the pond covering the site – the only reason urban scrubland hasn’t subsumed it already. Then they diverted a river, paved over its marshes, and pumped concrete into caves underneath. FedEx had sought equally drastic changed to China’s legal code, rewriting customs and aviation statutes to grant itself an unlimited number of flights…. True to form, doing so required a year of tortuous negotiations with more than a hundred agencies and bureaucracies. Once given the green light, construction of the six-lane highway linking the hub to the Delta’s factories had taken all of six months.

But what does such a shift mean to Subic Bay? Or to the other local facilities that have been operating as regional cargo hubs? For now, they are struggling to fight back, to find tenants for the space and to keep their economies alive. Why have similar projects in Hanoi or Saigon failed (or not been as rapidly successful)? They can offer cheaper labor, but the total pool of raw materials and labor is still larger in China. So the Vietnamese versions strain to get sufficient traction and businesses in their aerotropolii. But the cost of developing them is already sunk.

But even the shift of FedEx into the airport is no guarantee. There are still other areas desperate for similar growth and they are somewhat ruthless in their pursuit of the business.

As the Hong Kong economist Steven Cheung once explained their attitude, ‘You want a business license? The locality will assign someone to do the walking and talking for you. Want a building permit? They will give you one with money-back guarantees. Unhappy about that dirty creek passing through the site? They may offer to build a small lake for you…. They sell their cheap electricity, sell their parks and entertainment, sell their easy transportation, sell their water supply, sell their glorious history and even sell how good looking their girls are – no exaggeration!’

There are hospitals operating in India that see themselves as the far end of a long-haul commuter healthcare road. Just like the Polish doctors who commute to England to work the weekend shift and are home Monday morning on a cheap flight, these hospitals are luring in patients from abroad with the promise of top-quality healthcare at bargain prices. Infrastructure is being built but there is no guarantee that the Ray Kinsella-styled plan will come through. What if they build it and no one comes?

The danger is that someone else will siphon [patients] away with lower costs and better connectivity in the form of nonstop flights; layovers are not an option when you’ve just come out of traction.

Indeed, Hyderabad is already trying to steal the market from Mumbai and Bangalore. The brand new airport in Hyderabad was built with an eye towards being a Healthport, among other things.

The book highlights tells several other stories, from a man-made city built literally in the middle of the ocean in Korea to the amazing fresh flowers market that is centered in Amsterdam, though showing signs of sprouting in Africa and China. And in each example precious little attention is paid to what happens to the legacy locations as the new sites go up. No book can cover everything, but at least mentioning the potential for billions of dollars of invested funds to end up with no return is a worthwhile acknowledgement to make in my book.

And that’s what ultimately has me scared. Not all of these aerotropolii will be successful. There are simply too many competing to offer the same services in concentrated regional centers. Some will almost certainly succeed and it will provide a boon to the local economy of the winners. Right up until the competitor down the road offers up cheaper, faster and better services a couple years later. Moving the factories is an expensive undertaking, with short-term effects on to the balance sheet of the company in question and with potentially devastating long-term repercussions to the aerotropolis that loses the business.

The book is an interesting read and definitely worth checking out, both from a global economics and a aerophile perspective. And I actually believe that most of the predictions of growth are likely to come true; all current evidence certainly supports them. I just fear for the fallout that comes with those developments and its impact on the global economy. For someone to win big in these efforts someone else is likely to lose badly.