I haven’t posted much about what I teach on this blog, but I figure I should as teaching is what I do practically every day. This semester I’m teaching several exciting courses, one of which is Economic Geography. This junior-level course gives me the opportunity to delve into urban geography issues–material very dear to me though Al Akhawayn University does not offer a course in that subject.
This week, while covering the cyclical and boom-and-bust nature of capitalism (principally Kuznets and Kondratieff cycles) I presented students with the “skyscraper index.” The skyscraper index correlates the construction of “the world’s tallest building” with significant stock market crashes or major economic recessions. Simply put, any time someone builds the world’s tallest building (this is always a much publicized event), the economy heads south in a hurry. As a “pop economics” indicator, this theory has been around for almost as long as skyscrapers have. It was first seriously investigated though by Andrew Laurence, a British financial researcher working in Hong Kong who was able to observe close up the simultaneous crash of Asia-Pacific stock markets (triggered when a real-estate bubble in Bangkok burst) and the completion of the Petronas Towers in Kuala Lumpur.
Skyscrapers take at least a year or two to build. Between the time the intention to put one up is announced and financing is secured and the time it opens for occupancy and rent can start to be collected the economic situation may have changed–and the profitability of the venture with it. Construction of skyscrapers, whatever the era, will require major financing. The decision to build the world’s tallest building will always be taken in “good times,” when financing is relatively easily obtained and prospects for profit look terrific. Though the investors and property developers don’t know it yet (or don’t want to know it), the construction of such a building always seems to signal that the good times are effectively coming to an end.
The skyscraper index has been empirically tested. This is what it looks like when I plotted the construction of the world’s tallest building against stock market crashes and major recessions:
While it is quite amusing to observe how the repeated instances of corporate architectural hubris coincide with repeated excesses of capitalist booms and bubbles, there is a deeper economic explanation of the phenomenon. The construction of these financial and steel-and-concrete-and-glass behemoths is a good indication that there is in fact too much cheap money sloshing about with nowhere better to go, and that the particular economy involved, whether local, national or global, is really already in trouble, even when all “serious” indicators (GDP, trade balances, FDI) still look good. This becomes even clearer when not just the singular “tallest building ever” is plotted but when the cluster of other super-tall buildings built around the same time are also included.
The world’s tallest building rarely rises alone. There are often several comparable structures being put up nearly simultaneously, sometimes in the same city. When factored into the regular boom-and-bust cycles of the real-estate and construction markets, these periods of excessive-compulsive building can be read as signifying that a given cycle has truly run its course, and that whichever “bubble” is responsible is about ready to burst.
This is what the skyscraper index looks like on the skyline. The photos below, which I projected in class as part of the presentation, were gratuitously downloaded from websites (mainly from Wikipedia commons). While skyscrapers and the technologies that enable their construction were first developed in Chicago in the 1880s, most of the “tallest building ever” story unfolds in New York City. Newspapers began the race to the top because “the tallest building ever” was great publicity, but insurance firms and banks soon followed. Nowadays though, these projects are usually put up by a consortium of civic boosterists. The more “serious” financial institutions have apparently learned their lesson.
The cluster of New York skyscrapers below accompanied the Panic of 1907.
No sooner had the New York City stock market recovered from the 1907 panic than it crashed again with the outbreak of World War I in Europe. Nonetheless, F. W. Woolworth had time to put up his flagship skyscraper, dubbed “the cathedral of commerce.”.
As roaring as the 1920s may have been, corporations spent most of the decade moving into the glut of pre-war office space. It is only in 1929, just before the crash, that ground was broken for a cluster of new “tallest buildings ever.”
Other Manhattan skyscrapers of the Crash of ’29 era include:
In fact, between 1928 and 1933 a huge amount of new office space went up in state-of-the-art skyscrapers in cities across North America (Chicago, Montreal…). All of it had been financed before the crash and most of it arrived on the rental market after demand for office space had plummeted.
The long post-WWII boom–almost consistent GDP growth from the late 40s through to the early 70s–did not immediately produce a crop of super-tall buildings. There was still lots of space to be had in the skyscrapers of the previous era. As with the “roaring 20s” it was only at the end of the “swinging 60s” that we encounter new adventures in record-breaking heights. These buildings were completed in time for the oil embargo-induced recession of 1973-75 and the stagflation which followed.
At the end of the 20th century “the world’s tallest building” action moved from the USA to Asia-Pacific and then on to the oil-drenched Middle East. Meanwhile, stock market crashes were coming more frequently and more furiously than at anytime since the early decades of the century. Take a look:
One might be permitted to hope that, following the sub-prime real-estate debacle of 2008 (the devastating effects of which have yet to fully play out), and given the astounding height of this latest “tallest building in the world,” we all might be spared addition expressions in the genre for at least a few decades. Remember, the Woolworth Building held on to its title for 17 years, the Empire State for 39 and the Sears Tower for 25. The developer of Burj Dubai/Khalifa certainly hoped that the leap to over 800 meters would assure the title for the long-term. Alas! this is not to be. The taste for building super-tall skyscrapers has not soured and real-estate developers and civic boosters from China to Arabia are already competing to top Burj Khalifa in the near future.
A theory is only as good as its ability to explain phenomena (i.e: reality), and no theory should ever be used to foretell future events. That said, since the emergence of corporate architecture in the late 19th century the skyscraper index seems to hold, empirically. The only significant exception was the crash of 1987. No “tallest building ever” was put up around that time. The same cannot be said, really, of that other pop economics index, the hemline index. According to the hemline index, which reflects consumer attitudes rather than investment cycles, the rise and fall of women’s hemlines follows the rise and fall of stock markets (at least in countries where women’s hemlines are allowed to rise at all). Compare the flapper fashions of the 1920s with the gowns of the 1930s, or the miniskirts of the late 1960s with the maxi-skirts of the mid 1970s. Since the deregulation of the financial sector in the 1980s however, the stock markets have been all over the place and women have learned to base their fashion choices on other variables.
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