Taiwan, China and Dubai are presently competing to possess the world's highest building. If the above thesis is correct, then firms thinking of expanding eastwards should take steps to limit their exposure to a sudden economic downturn. But is it correct?
The historical evidence is as follows.
The original skyscraper boom took place 100 years ago in New York. This was the age of the Vanderbilts, Rockefellers and Morgans, when the USA was becoming the world's leading economy. Sky-high rents in lower Manhattan made sky-high buildings financially attractive, and the invention of steel frames and electric elevators made them technically possible. Between 1906 and 1913, the tallest building title was held by the 187 m Singer Building, the 213 m Metropolitan Life Insurance Tower and the 241 m Woolworth Building. Just after the completion of the Singer Building, two bankruptcies triggered a panic on Wall Street and a run on the banks, some of which failed. And when the Woolworth Building held its opening ceremony in April 1913, America's economy had just entered a recession that lasted until the end of the following year.
The next outbreak of tower-building came in the 1920s. Again, three buildings broke the record in rapid succession, partly as a result of a contest between Craig Severance and William Van Alen, two architects who had once been partners, to see whose skyscraper would come closest to the heavens. Plans and finance were repeatedly upgraded to provide more storeys. Severance's building, 40 Wall Street, came in at 283 m in 1929, but the following year Van Alen played his ace, hoisting up a 56 m spire to complete his 319 m Chrysler Building. But Chrysler soon suffered a double blow: the Empire State Building reached its full height of 381m in 1931, and rather worse, the stock market crash of October 1929 turned into The Great Depression. Before the crash, the Empire State Building's owners forecast that tenants would pay $64.50 a square metre. In fact, they did not do so until the mid-1950s, when the stock market returned to 1929 levels.
The World Trade Centre was designed and built in the 1960s, a period remembered on Wall Street as "the go-go years". The first tenants moved into the lower floors in 1970, although the second tower was not finished until 1973. But the 417 m twin towers did not hold the record long: the 443 m Sears Tower, completed in 1974, transferred the title to Chicago. Once again, the breaking and re-breaking of the record coincided with economic turmoil: the Arab oil embargo and Nixon's resignation in 1973 poured cold water onto the stock market, and economic stagnation was combined with runaway inflation.
Malaysia entered the 21st century with the world's tallest building and a pulverised economy. The 452 m Petronas Towers were completed in 1997, months before currency devaluation, and a stock market crash beggered East Asia's tiger economies. As the fireworks ushered in the new millennium, the world's tallest building was still looking for tenants.
There is a straightforward economic explanation for this conjunction of the pride and fall: putting up the world's tallest building requires vast amounts of money and reckless optimism. Both are available in abundance only at the peak of the business cycle, when soaring share prices and new-found wealth creates "irrational exuberance" in investors: they lose discipline, and throw their money into extravagant schemes.
At the same time, land is expensive, so it seems to make sense to build towers, thereby cramming as much space into the building footprint as possible. And if you make your tower the world's tallest, that will act as a gimmick to differentiate your building from all the others coming onto the market: the height of the World Trade Centre was the PR department's idea.
At some point the central bank raises interest rates to stop the economy overheating. By then, major property developments are often past the point of no return: the Empire State Building was still rising in 1930. So pouring the concrete for the world's tallest building doesn't actually cause a recession, but it is an indication that you are in the middle of an unsustainable boom.
Clearly, not every recession is preceded by a record-breaking building. Japan spent the 1990s languishing in alternating periods of recession and low growth, but although it built many skyscrapers, none of them came close to the world record. No new skyscrapers marked the spectacular bursting of the internet bubble in 2000 and the subsequent worldwide economic slowdown, perhaps because American developers were chastened by the property crash of the early 1990s. It could be that record-breaking buildings are associated only with the severest recessions, such as the Great Depression and the Asian crisis . The economist David Levy predicts that America is now entering a period of "contained depression" similar to Japan's: no sudden drops in economic output, but not much growth either.
But if the world's largest economy is safe from the skyscraper curse, what about Taiwan and Dubai? Taiwan's push to beat its rival, Shanghai's World Financial Centre, has echoes of the New York developers' one-upmanship in the 1920s. Rivalry with mainland China might yet prove Taiwan's undoing: Beijing regards the island as a rebellious province, and Taiwanese president Chen Shui-Bian is less wary than his predecessors of provoking all-out war with a call for full independence. In the meantime, Taiwan's factories are losing more and more business to cheaper competitors on the mainland.
There's no guarantee that the 508 m Taipei 101 is going to signal the collapse of Taiwan's economy, but it's easy to see how it could happen.
The script is even easier to write for Dubai. Like pretty much everything else in the emirate, plans for the Burj Dubai were drawn up at the behest of the crown prince Sheikh Mohammed. Its planned height is a closely guarded secret, but with 150 storeys, it looks likely to beat its nearest rival by more than 100 m. Throughout the 20th century, each of the world's tallest buildings has beaten its predecessor by less than 40 m – the one exception was the Empire State Building, which won by 62 m and ushered in the biggest depression of all. Dubai is full of unlet office space and unoccupied hotel rooms, which makes it unwise for the Burj Dubai to add more. The emirate's fearlessly ambitious building programme is a gamble, and there's a lot to lose unless it can defy the laws of supply and demand.
Even countries with no record-breaking ambitions are at risk if this latest building boom turns to bust. Past experience shows that curse of the skyscrapers extends far beyond the home of the world's tallest building.
The crashes of 1929 in America and 1997 in south-east Asia coincided with completion of record-breaking towers, but their effects were felt worldwide. If you are so inclined, you can tell yourself that this time it's different. Otherwise, stop buying shares – and if Sheikh Mohammed starts building the Burj Dubai this December as promised, start selling.