2.4 •The Economic Restructuring of the Historic City Center Pieter Terhorst and Jacques van de Ven Introduction Since the end of World War II Amsterdam’s historic city center has undergone two distinct rounds of urban restructuring. First came the decline in population, manu- facturing industries, trade and transportation, which was accompanied by the growth of producer and consumer services that are associated with a classic central business district (CBD). Partly this process involved a restructuring of the built envi- ronment and partly it came about within the existing building stock. The second, on- going round, which started during the late 1960s, saw the decline of traditional pro- ducer services while the tourism and leisure industries, specialized shops, and the general population have grown. It has largely taken place in a more or less fixed built environment. We aim to show that the restructuring of Amsterdam’s historic city center is an out- come of an integral economic process that includes economic as well extra-economic forces. Also, we hope to show how the restructuring of the historic city center has been shaped and mediated by successive local institutional regimes in and through which the two rounds of restructuring have taken place. A local institutional regime is made up of various institutional spaces. By an institu- tional space we mean the specific geographical area over which an institution is con- stituted and has effective reach or influence (Martin 2000, 87). We can define a hierar- chy of institutional spaces ranging from supra-national institutional spaces (e.g. internationally agreed-upon rules concerning competition, trade, and monetary rela- tions) through national institutional spaces (electoral systems, tax systems, welfare states, etc.) to local institutional spaces (local state structures, locally specific legal arrangements and other local social or economic traditions and conventions). These institutional spaces are nested, which means that their combination, interaction, and mode of articulation vary from place to place and from period to period (Boyer and Rogers Hollingsworth 1997). Thus, as we move from one area or one period to another, not only may the specifics of institutional nestedness change, but so too may the inter- actions within that ensemble. This is why local institutional regimes are historically and geographically specific. 85 Two Rounds of Restructuring the Historic City Center When Amsterdam’s urban-industrial growth took off in around 1870, the city was still contained within the present-day historic city center. About 225,000 inhabitants lived and worked in this area, which covers just eight square kilometres. Ever since then, Amsterdam’s historic city center has been involved in a continuous process of restruc- turing. The first round, which started in the late nineteenth century, was very similar to that of most other Western cities. It involved a relative (and later, absolute) decline in population, manufacturing industries, crafts, wholesale, and storage on the one hand, and a growth of producer and consumer services that are associated with a clas- sical CBD on the other hand (e.g. department stores, shops, banks, business services, public administration, and hotels). The second, ongoing round, which started in the late 1960s, sounds somewhat less familiar. The majority of traditional producer servic- es have declined, and the tourism and leisure industries, specialized shops and the population have grown. Population growth is partly the result of public-housing ur- ban renewal that mainly occurred in the 1980s and is partly the outcome of the con- version of offices, lofts, and warehouses into condominiums for a gentrifying class. And with the exception of financial services, universities, public administration and culture, the general scale of all of the firms has declined. As in-depth research shows, the latter trend indicates a growing diversification. Thus, Amsterdam’s historic city center has become not only a consuming place, but also a more diversified one (see Bergh and Keers 1981; Van Duren 1995). Urban restructuring often involves a restructuring of buildings and street patterns; that is, a change of economic functions is accompanied by the replacement of old buildings and street patterns with new ones. The built environment is, so to speak, adapted to the pressure of land-use change. It usually takes a long time before old buildings are replaced by new ones because the capital invested in the buildings pre- vents the realization of potential ground rents and provokes a gap between actual and potential ground rents (see Smith 1979; 1982). How long it takes before old buildings are replaced by new ones depends on the speed at which potential ground rents rise and the value of buildings depreciates. Old buildings will not be demolished until the potential ground rent is high enough to compensate for the amortization of the not fully depreciated value of the buildings and the costs of demolishing them. Thus, the faster the value of buildings depreciates and the more rapidly potential ground rents rise, the sooner old buildings can be demolished. Urban restructuring can, of course, also take place within existing buildings and street patterns. In the short term, this happens more often than not. Buildings can, af- ter all, be used in a variety of ways, with various adaptations. If adaptations are neces- sary, buildings can be used to serve other functions if the total price of the land and the buildings exceeds the old price by at least the building cost of adaptation. In the ex- treme case that buildings and street patterns are designated as landmarks, the built environment remains frozen. Buildings cannot be demolished and only minor adap- tations will be permitted. In that case, the process of urban restructuring has to adapt 86 PIETER TERHORST AND JACQUES VAN DE VEN itself to the fixity of the built environment instead of the other way around. This means that the demand for land in preservation districts cannot be fully realized, as a result of which demand has to be shifted elsewhere. This will equalize actual and po- tential land rents in those places, and provoke a relative decline of actual land rents, the more so because their accessibility will decline over the course of time because the existing infrastructure is also frozen. This does not necessarily mean that real estate prices will decline in preservation districts because, after all, real estate prices are made up of land prices and building prices. And whereas land prices will show relative declines, building prices will show sharp increases in preservation districts because monuments are “positional goods,” which cannot be reproduced elsewhere (Hirsch 1977). The First Round of Urban Restructuring and the Restructuring-Generated Crisis (1945-1974) The first round of restructuring came about partly within the existing building stock and partly involved a restructuring of the built environment. A significant part of the building stock in Amsterdam’s historic city center was constructed in the period 1850- 1940, either after older structures had been demolished or on empty plots or on land reclaimed from the water (as occurred in the case of the construction of Amsterdam’s Central Station and Berlage’s Stock Exchange). Moreover, in the nineteenth and the early twentieth century, a number of canals were filled in so they could be used for traf- fic arteries and, in some cases, to improve public health (see, for a detailed analysis, Wa- genaar 1990). And since World War II, a number of areas have been reconstructed.1 Despite these changes, Amsterdam’s historic city center has largely survived the pressure of modernization. Although it may now seem obvious to preserve such a his- toric place, this is contrary to expectations because in capitalist property markets, de- velopers and land and buildings owners are not very sensitive to the argument that old buildings are a valuable cultural heritage, certainly not in an era of modernism. And in this era of modernism, politicians and planners were much less concerned with histo- ry than they are nowadays. In the nineteenth and the first half of the twentieth centu- ry, the demolition of buildings that we would now consider of “historical interest” was welcomed rather than regretted because it was seen as “progress” or “moderniza- tion.”2 Why has Amsterdam’s historic city center largely survived the pressure of modern- ization? First of all, Amsterdam was a stagnating city during most of the nineteenth century. For a long time it followed the dead-end path of trade capitalism, and indus- trialization only took off around 1870 (the same applies to the Netherlands in general). And although Amsterdam is the largest city in the Netherlands, it has never had a pri- mate city status like London and Paris. The pattern of Dutch urban growth has been dif- fused rather than concentrated in one or a few cities, which is why the size of the other Dutch cities has been much more similar than might be expected on the basis of the rank size rule. Moreover, the size of Amsterdam’s historic city center is relatively large for a medium-sized city, too large to be completely filled up with a “modern” CBD be- THE ECONOMIC RESTRUCTURING OF THE HISTORIC CITY CENTER 87 fore the Great Depression. And during the Great Depression and World War II the growth of Amsterdam’s CBD stagnated altogether. In addition, the size of Dutch firms was relatively small in the pre-Fordist era and thus could easily be accommodated in historic buildings. For all these reasons, the pressure on Amsterdam’s property market in the historic city center was only moderate until World War II. Real estate rents and prices were remarkably stable in the period 1877-1940 (Wagenaar 1990, 180-184; Kruyt 1974, 161-198), which is why dwellings were not completely replaced by offices and shops before World War II.