Joel Kotkin: Expect Second and Third Tier Cities to Grow

"Blame 9-11, technology or geographic shifts in the national economy or a combination of all three, but the nation's urban hierarchy is flattening out. A host of smaller players are chopping off chunks of what was once the big boys' exclusive domain. What used to take place almost entirely in New York, Los Angeles, Chicago or San Francisco, whether in high finance, advertising or marketing, is now happening more and more in unlikely locales such as Omaha, Des Moines, Fargo, N.D., and Columbus, Ohio." That's the message that Joel Kotkin, a researcher from Pepperdine University, has been broadcasting for the past couple years.

According to Kotkin, the events of 9-11 have accelerated this de-clustering trend. Since the attacks, many major securities companies have moved out of Manhattan in search of cheaper and more secure suburban locations.

But the fundamentals for this shift were already well in place before 9-11. Take the retail sector, one of the linchpins of the U.S. economy. Locating in New York was once critical for major retailers. Today, not one of the nation's top 20 retail firms is headquartered there. J.C. Penney moved to Plano, Texas. Other retail capitals include Cincinnati (Federated Stores), Minneapolis (Target), St. Louis (May Company) and Bentonville, Ark., home of, yes, Wal-Mart. Other types of corporations also see little reason to locate in New York or competing urban centers, with their high cost of doing business and astronomical housing prices. The number of Fortune 500 firms in New York was down to 39 in 2002, from 42 in 1999, 77 in 1979 and 140 in 1955.

The greatest beneficiaries of the demographic shift have been the cities of the South and West, such as Phoenix and San Antonio. But a surprising development has been the gradual slowing, and even reversal, of flight from the Midwest, which was a virtual torrent several decades ago. Today, more Americans are moving into cities in the heartland, such as Fargo, Des Moines, Columbus and Indianapolis, than are moving out. Even cities like St. Louis, which people have been leaving in massive numbers since the 1960s, are now approaching an equilibrium among domestic migrants. These "Bridgeports" are doing far better attracting domestic migrants than New York, Chicago, Seattle or Los Angeles. And they are also attracting a growing proportion of the nation's immigrants.

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