August 20, 2006
Global Cities
Posted by Gordon Smith

Bill Henderson is posting about global cities over on ELS Blog. (Here and here.) Global cities are "centers of international commerce that are defined by concentrations of advanced producer services--i.e., bankers, accountants, consultants, advertising executives, and, of course, lawyers." Fascinating stuff, especially for lawyers. Bill argues:

Because of the complexity, scale, and stakes of most global ventures, hiring outside counsel is increasingly a matter of expertise (and value) rather than per-hour billing cost.  This expertise can only be acquired through exposure to a large volume of high-end matters. Hence, a disproportionate amount of the most sophisticated U.S. legal work is performed in a handful of global cities.  And to access this human capital, firms (and ultimately clients) are willing to absorb labor and real estate costs that rapidly outpace inflation.   Although many Fortune 500 have exited these same high cost markets, agglomeration provides significant synergies for advanced producer services. (emphasis added)

Two big questions for agglomeration studies: (1) Why agglomeration? (2) Why there?

Bill has a theory about the value of agglomeration, though I would be interested to hear more than his assertion that "agglomeration provides significant synergies for advanced producer services." What is the source of those synergies? Why can't a law firm in Boulder or Madison obtain enough business to develop sufficiently sophisticated lawyers? Is geographic proximity to other law firms important? Or is it the geographic proximity to other service providers ("bankers, accountants, consultants, advertising executives," etc.) that matters? Obviously, it is not geographic proximity to corporate headquarters.

Even if agglomeration were valuable to lawyers, why have they agglomerated in New York, DC, San Francisco, Los Angeles, and Chicago? Why not so much in Boston, Atlanta, Dallas, Houston, or Philadelphia? Is it a legacy effect from reputational capital or non-legal infrastructure, such as capital markets, that draw other service providers? I would be interested to hear Bill's thoughts.

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