SUMMARY
Purpose: The main purpose of the paper is to highlight some limits of the traditional theoretical interpretation of the relationships between the city and economic activities. This interpretation usually makes reference to two elements: agglomeration economies, cumulatively generating gains in efficiency and consequently in competitiveness and attractiveness and external connectivity, linked to multiple networks of both physical and immaterial nature. This approach, mainly functional and geographical, nowadays looks quite reductionist and overlooks crucial aspects of the urban realm that explain urban economic success The first aspect concerns the social and cultural nature of the main inter-personal and inter-institutional relationships taking place inside the city, conducive to crucial processes of cooperation, collective learning, creativity and innovation. In addition to this, the growing concentration on (mainly large) cities of command and control functions which not only witnesses the presence of their political power – underlined by a growing literature in geography and political science – but also widely determines income distribution in space, at the local, national and global scale. The functional interpretation of the city should be complemented by a relational-cognitive and hierarchical-distributive approach. The latter one is particularly interesting for the interpretation of the development of ‘monopolistic’ cities which operate on economic functions in which they can benefit from a captive market: capital cities and art cities in particular.Methodology/Approach: While the first part of the paper is mainly theoretical, it presents also an empirical side in the second issue, namely the destiny of medium-sized cities. The last section of the paper concerns a logical turnaround: ‘cities as businesses’ where high surpluses are generated in the real estate field, taking advantage of the economic success of the cities themselves and appropriating a consistent share of the generated profits in the form of land rents.Findings: The traditional view is that medium-sized cities cannot take full advantage of agglomeration economies and therefore will necessarily show lower growth rates in the long term. This paper argues against this view, on both theoretical and empirical grounds, looking at the evidence of European cities in the last twenty years. In many countries, this process should be more appropriately taxed in order to allow sustainable and socially equilibrated development: a fairer sharing of these surplus-values between private and public parties is justified by the collective nature of urban externalities.Originality/Value of paper: The implications of the arguments presented here are relevant on both the interpretative and policy ground. The sources of urban economic success are not linked only to functional or efficiency elements but also to cultural-psychological and to power elements. The former ones require subtler policy strategies and the latter more appropriate policy tools oriented towards the widely ignored challenge of income distribution in space.