If you study the biggest and most rapidly emerging economies, as I have for many years, you are bound to be struck by the power of urbanisation and the pivotal role of thriving cities.
More often than not, cities are the engine that powers economic growth. When cities succeed – and I do mean cities, plural – the economy is more likely to prosper.
The UK illustrates this point rather forcefully. The economy as a whole is finally beginning to recover at a respectable pace: real gross domestic product rose by 3.2 percent at an annual rate in the third quarter, and growth in the second quarter was pretty good, too. There’s still a lot of ground to make up, but many of Britain’s developed counterparts would be pleased with such numbers. The trouble is, as many businessmen and commentators emphasise, UK growth is not well balanced.
Britain is still dependent on excessive borrowing and unsustainable consumption; exports and investment need to strengthen further; and real wages are still falling. But the most conspicuous form of imbalance is regional. The country depends on London and the south-east.
The crash hit finance – hence the City of London and its metropolitan hinterland – especially hard. That’s one reason UK output has yet to recover to its pre-crash level. Now London’s recovery is supporting the broader economy. If growth were better dispersed among other UK centres of activity, the economic cycle would be less volatile and less likely to push wages and prices (notably house prices) out of line.
The rise of the Brics nations (Brazil, Russia, India, China and South Africa) demonstrates that economic growth is essentially driven by two things: demographics and productivity. Cities are where those mighty forces converge. In Brazil and Russia, and even more so in China and India, rapidly urbanising centres are powering national growth. And it’s worth noting that the most dynamic cities aren’t necessarily the largest. In India, for example, the action isn’t confined to Mumbai. Bangalore, Hyderabad, Chennai, Pune and many others are forcing the pace.
The question is, what can policymakers do to help cities – including those in the second or third tier – to succeed? A useful starting point for this discussion is a recent study by Greg Clark and Tim Moonen for the Brookings Institution and JPMorgan Chase: “The 10 Traits of Globally Fluent Metro Areas”. The paper emphasises that in an age of globalisation, cities need to form and exploit connections that run beyond national borders. That’s the aptitude the authors call “global fluency”.
Here, according to the study, are some of the most helpful elements. First and most important is “leadership with a world view” – business and government leaders at the local level need to be outward-looking.
A tradition of global orientation has made this easier. True, traditions can be forgotten (Detroit and Liverpool lost their way), but with a little ingenuity, they can also be invented (Munich and Toronto are building on newer legacies of global interaction). The authors also point to “economic specialisations with global reach” (think Bangalore); economic adaptability (Singapore); emphasis on skills and knowledge (Tel Aviv); the ability to attract international and domestic finance (Brisbane); physical and digital connectivity (Chicago); supportive regional and national governments (Shenzhen); and a physical and cultural environment that appeals to people and firms from around the world (Barcelona). The more of these traits you can combine the better (New York).
Pessimism about cities such as Detroit and Liverpool is understandable – but their situation isn’t hopeless. Until recently, Hamburg was seen as finished; today it’s one of Germany’s most vibrant and fast-expanding cities. The UK’s Royal Society of Arts has just announced it’s setting up a City Growth Commission to recommend new approaches to this challenge. I’m to be its chairman, so I’ll be giving all this a lot more thought.
I hope we’ll take a slightly novel approach, concentrating on supply-side factors such as education, skills, training and infrastructure, which I’m convinced are the keys to success.
Ways of drawing our most disadvantaged citizens into the process will also be at the front of our minds. Coming up with practical, effective ideas won’t be easy, but looking at what has succeeded elsewhere is a good place to start.
Jim O’Neill is a Bloomberg View columnist. The opinions expressed are his own.