The New Age of Cities

Guiyang -China

In the Financial Times weekend edition, there was an article on the Comment & Analysis page written by Arif Naqvi, Founder and Group CEO of Abraaj Group, an investor in global growth markets. He opens his article with the statement:

“Each passing week provides a million new reasons to rethink the view that countries are the fundamental building blocks of civilisation in the 21st century. For that is the number of people who make the journey from country to city every seven days, exchanging rural for urban life with no intention of going back. That is equivalent to populating eight cities the size of New York every year.”

He continues “This means that nearly half of the economic growth expected over the next decade will take place in just 400 cities in the world´s global growth markets”, and in saying this, he echoes what we in Bearing have been saying since the turn of the millennium. We live in the new age of cities.

He also argues that “Cities are in fact more stable fixtures than countries in our geopolitical, economic and cultural landscape. … And cities have become a requirement for prosperity. Rarely does a country achieve per capita income levels of $10,000 annually until at least 60 per cent of its population shifts towards urban centres.

City waterfront

Reading Naqvi´s article while I am on a two hour flight from Stockholm to Zurich on the Saturday morning, I decided to write down some thoughts of my own on this development.

It is only recently in the history of our species that people have gathered in the densely populated and highly structured settlements we call cities. The first cities were established about 5,000 years ago, but it has only been in the last 200 years, with the advent and spread of industrialization and with the global population rising at an exponential rate, that cities have grown significantly in size and number. At the start of the 20th century only about one person in ten lived in a city, but since last year the majority of people are urban dwellers. By 2025 nearly two-thirds of the world’s population will live in urban areas.

imageCities have become the focal points, the hubs of education and economic development. Overall the global competition of places is estimated to host 2,7 million towns, 3 thousand large cities and 455 large metropolitan areas with a population over one million. All of them compete in the struggle for attention from investors and talented people.

At the same time, driven by globalisation, we now live in hyper competitive global markets. This competitive environment makes it important for places, no matter their size or composition, to clearly differentiate and to convey why they are relevant and valued options. They must act and become more organised and competitive, or they will fail, like DetroitYubari, and other recent examples.

Places have always competed with each other, but today the competitive environment is increasingly fierce, because of economic and cultural globalization and the increasing mobility of talents and capital.

United-States-national-debtWe live in the new age of cities for several reasons, but perhaps the most definitive one is that most developed countries in the world have high, close to unmanageable national debts. In the illustration on the right we see the development of United States national debt since 1960.

Governments have been allowed to fund themselves through borrowing since the 1930s, when John Maynard Keynes and other demand side economists proposed that inadequate aggregate demand could lead to prolonged periods of high unemployment, and suggested that National governments should borrow and spend on public works in recessions to keep up demand, and thus smooth the transition to the next boom period when the national government budget should run a surplus.

The problem with the theory is that it justifies the decision by many politicians to run an almost permanent deficit. Political parties with the ambition to be re-elected are hesitant to recover the debt by running a surplus. Step by step small and big national decisions have been taken whereby irresponsible overconsumption has continued in too many countries.

This means that national governments can no longer fund large scale reforms and investments. They struggle to maintain the current costs of government, security, health care and education, as they must simultaneously pay amortisation and interest on the accumulated burden of debt.

In cities and towns, the mayor and other people in the local government are closer to the people and there is more transparency than in national governments. It is easier to see the connection between decisions and results, and therefore in this new current age city mayors have visible accountability. For financial prudence, this is very good.

imageThe sustainable path to economic recovery and growth must therefore come from local initiatives.  Instead of the current overconfidence in centralization, politicians should go for decentralization and encourage cities, places and regions to develop their local attraction forces and create economic growth from the local places.

This is not only about the global cities but just as well about small cities and municipalities. The new world requires a new way of thinking, on how places can develop independently from being satellites to the main metropolis.

The advanced economies in particular needs to recover and grow from their roots, from the local entrepreneurs, places and regions where entrepreneurial individuals and businesses can find the right climate. It is the task for the numerous cities and towns place managers and entrepreneurs to make this happen.

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