Cities Beyond the Pain

Remember company towns? From Detroit to Wolfsburg, Germany, home to Volkswagen, they used to be places where you could count on a job for life. Now, they are mostly places where you count your unemployment checks. But as the global economy shrinks (we should brace for "the worst performance in most of our lifetimes," said IMF managing director Dominique Strauss-Kahn last week), and the public sector expands to cope with the fallout, there's a new kind of boomtown—the government town.

In places like Brasília, Ottawa, Brussels and Washington, not only are new jobs being created, but home sales are rising, incomes are up, car dealerships are full, and new malls, shops, luxury hotels and gyms can't be built fast enough. "High wages and job stability make the market in a public-sector city like Brasília look irresistible and practically recession-proof," says Carlos Jereissati Filho, chef of the São Paulo–based Iguatemi Shopping Center Company, which is building a new $80 million high-end mall in Brasília with 200 shops, including Louis Vuitton and Zegna.

Other developers agree and are voting with their feet. Even though commercial-real-estate projects in Belgium are faltering, bureaucrats in Brussels just gave the thumbs-up to a new €8 million aqua gym and fitness studio to be used by European Commission members. The commission this month also announced plans for an architectural revamp, funded by its own coffers, of the entire EU quarter where it occupies more than 50 buildings.

Similar trends are brewing in North American government towns. Last year, home building nose-dived throughout Canada—except in Ottawa, where industry is scant and one in five workers draws a government paycheck. In the Canadian capital the resale price for condos jumped nearly 12 percent in 2008 and 5.7 percent for single-family homes. No wonder, given that federal employees enjoy a 41 percent wage premium over private-sector workers. As Toronto Star columnist Jim Travers wrote recently, "Hard times arrive here in mink slippers."

Ditto Washington, where 28 percent of the District's paychecks are cut by the various layers of the federal bureaucracy. While the private sector has shed 4.6 million jobs since December 2007, when the economic contraction began, the federal government has hired 200,000 workers, according to the Bureau of Labor Statistics. The new administration will likely create another 400,000 temporary jobs and 180,000 permanent ones. No wonder D.C., without a factory in sight, was the nation's second-fastest-growing job market (after Alaska) in 2008.

Perhaps the biggest prosperity bubble of all is in Brasília, where more than 50 percent of jobs depend directly or indirectly on the state. The Brazilian economy will be lucky to grow at all this year, but Brasília is booming. Wages are already four times the national average and are predicted to grow again this year. In December and January, as national car sales were flat, new car sales in Brasília jumped 20 percent. Home sales rose 25 percent last year and are expected to climb another 20 percent in 2009 compared with a 15 percent drop nationally.