Not true. Go to Leiden Netherlands and see how economically vibrant a small city can become if it incentives efficient land use and limits traffic in city centre in favour of pedestrian paths an public transit.
I'm not sure I would say the latter change, which was recent-ish, made a big difference versus just the general cleanup of the inner city (better train station, spruced up Beestenmarkt square etc).
Compared to small cities in North America, Leiden infrastructure is amazing — as is a lot of Dutch towns. It not that you have to completely block off all roads either. It’s just that everywhere there are roads for cars, there’s also equal space for bike and pedestrians and public transit is invested in much more. If you want to see a video series that compares the two look up the YouTube channel notjustbikes