Opinion abounds that the central business districts of our metropolitan cities will do it tough in the post-pandemic, work from home (WFH), era.

The theory is that it will no longer be in the interests of either workers or their employers to maintain businesses in expensive central city accommodation which can only be reached by choked roads and crammed public transport.  Now that we know most office work can be successfully transacted from home or other dispersed locations, why bother with the hassles of the central city?

This all makes intuitive sense, but does it really portend the demise of CBDs and the inner city as engines of our State and national economies?

Throughout the long post war period, up till the mid-1980s, our CBDs played a prominent but by no means dominant role in their metropolitan, State and wider economies.  Mainly for accessibility reasons, they housed the HQs of major corporations, the full array of government departments, specialized hospitals and flagship cultural institutions.  But the suburbs hosted fast growing stocks of well paid jobs, especially in those metro areas with strong manufacturing bases.

The centripetal hegemony of the inner city took hold with the liberalization of the Australian economy under the auspices of the Hawke-Keating Labor governments (1983 – 1996) and carried forward by John Howard’s conservative governments (1996 – 2007).

The embrace of free trade and globalization ultimately saw an ‘unbundling’ of the value chain so that the ‘thinking,’ ‘making’ and ‘distribution’ parts of production became atomized and held together by intricate networks of logistics and transnational contracts.  Products might still be designed in, say, Melbourne’s Flinders Lane, but manufacturing no longer occurred in places like Preston, Clayton and Dandenong.  These functions most likely would have been contracted to manufacturers in China and other (then) low-wage countries.

This liberalization and globalization apparently produced a win-win result entirely in line with classical economic theory.  Australian cities focussed on – for want of a better term – the ‘thinking’ part of the value chain including functions like design, brokerage, finance and research or so called ‘knowledge industries.’  Meanwhile, our trading partners focussed on what they could do best, becoming the workshop to the world.

Australia’s dramatic shift towards the knowledge economy put CBDs and the inner cities in pole position.  These places offered unbeatable competitive advantages to firms enmeshed in the ‘thinking’ part of global value chains.  What these businesses needed more than anything else was specialized and highly skilled labour in commerce, engineering, law, and design and strategy.  The central city gave them best possible command over the metropolitan area’s stocks of these workers.

The central city also allowed firms to deepen their expert capabilities and, on the back of this, team up with other specialized companies to provide high value strategies and solutions to their joint clients in manufacturing, logistics, government, retail, health care and so on.  Merely participating in these formal and informal partnerships meant that knowledge based firms could pick up further insights and techniques of commercial value.  The churn of skilled staff across this network of inner city enterprises also propagated and amplified productivity boosting knowledge.

So, over the past 4 decades up till the pandemic, our CBDs went from sedate and stately command and control centres to heaving concentrations of highly strategic economic activity.  Rents soared and congestion became barely tolerable.  But these were signs of success.  The competitive gains from ‘agglomeration economies’ offered by CBDs and the inner city far outweighed any locational and transport costs.

Has the pandemic and WFH smashed this dynamic?

Certainly, we have seen some slowing in the pace of globalization as nations like the US revisit the structural and equity consequences of unbridled free trade.  There is also lots of talk about sovereign manufacturing capability in key sectors, like medical equipment and componentry for green power.  But a return to the protectionist 1950s or anything like is not on the cards.

The more likely impact will relate to knowledge work once tethered to the central city by the forces of agglomeration.  To get a grip on this, it is worth revisiting Robert Reich’s 1991 typology of work which, famously, called out ‘symbolic analysts’ as the emergent privileged class of employees.  These are the knowledge workers, people who deal in abstract concepts and creativity rather than the physicality of value production and transaction, but whose insights power growing productivity.

In a post pandemic environment, further segmentation of the symbolic analyst group is warranted.  Some of these workers, especially in engineering and commercial disciplines, deal in largely fixed or relatively slowly evolving systems such as those in e-commerce or path dependent design of software, structures, roads, mines and the like.  Immense knowledge and insight are brought to bear in these occupations, but face to face or studio style collaboration may be less crucial.  WFH could well liberate these functions from the central city’s agglomerative tractor force.

One might imagine that organisations with this transactional rather than bespoke focus, such as banks, super funds, telcos, many government departments and some legal services could find a less costly and equally productive setting in suburban hubs or networks of home based work.

On the other hand, those symbolic analysts and their host enterprises engaged in collaborative and highly customized client solutions are likely to find central city agglomeration economies as compelling as ever.  These businesses may be variously involved in management consulting, strategic planning, customized data analytics, architecture, design, team based research, lobbying and personalised business development, high stakes legal litigation, venture capital and merchant banking.

Ironically, these are the sectors that were likely more involved in WFH ‘before it became a thing.’  However, they are also more likely to require staff to regularly get together for face to face team building, knowledge sharing, innovation and problem solving by design.  If, for this sub-group of symbolic analysts, offices are required to support collaborative activities, there is no better place for them than the CBD.  These locations still offer superior access to the metro area’s pool of specialized skills, and they continue to provide greater opportunities to strike the formal and informal partnerships which underpin commercial innovation.

A recent report by Infrastructure Victoria found, perhaps counter-intuitively, that central Melbourne is likely to host slightly more jobs post pandemic compared to pre-pandemic projections.  The main reason is that the central city’s overall accessibility advantage is enhanced when workers become more geographically dispersed under WFH conditions (https://www.infrastructurevictoria.com.au/2021/11/23/working-from-home-will-spur-city-jobs-and-longer-commutes/).

Interestingly, the decanting of transactional enterprises and government agencies from the CBD associated with WFH may facilitate the growth of ‘second tier,’ nascent and start-up firms engaged in bespoke and collaborative work, but currently located in suburban and regional areas.  Debarred from the central city by prohibitive costs up till now, there will be an opportunity for these firms, at least for a time, to avail themselves of the competitive edge which CBD agglomeration can provide.

Contrary to expectations, the pandemic may well strengthen the strategic role of central cities while providing a much needed jobs boost to suburban and regional areas.