Prosperity Lives in the City

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 urbanization and the pivotal role of thriving cities. More often than not, cities are the engine that powers economic growth. When a country’s cities succeed -- and I do mean cities, plural -- the economy is much more likely to prosper.

The U.K. 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-country counterparts would be pleased with such numbers in the aggregate. The trouble is, as many businessmen and commentators emphasize, U.K. growth is not well balanced.

Britain is still too dependent on excessive borrowing and unsustainable consumption; exports and investment need to strengthen further; and real wages are still falling. The most conspicuous form of imbalance, though, is regional. The country increasingly depends on London and the southeast.

The crash hit finance -- hence the City of London and its metropolitan hinterland -- especially hard. That’s one reason U.K. output has yet to recover to its pre-crash level. Now, in turn, London’s recovery is supporting the broader economy. If growth were better dispersed among other U.K. centers of activity, the economic cycle would be less volatile and less likely to push wages and prices (notably house prices) out of line.

Dynamic Cities

The rise of the BRIC countries (Brazil, Russia, India and China) 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 urbanizing centers 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, if anything, can policy makers 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 and Co.: “The 10 Traits of Globally Fluent Metro Areas.” The paper rightly emphasizes that in an age of globalization, 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 (think of Seattle in the late 1980s). A tradition of global orientation has often 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 specializations 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 companies from around the world (Barcelona). The more of these traits you can combine, of course, the better (New York).

Changing Fortunes

Pessimism about cities such as Detroit and Liverpool is understandable and hard to shake -- but their situation isn’t hopeless. When I was studying American economic geography in the early 1970s, Boston and New England were written off. So much for that idea. Until quite recently, Hamburg was seen as finished; today it’s one of Germany’s most vibrant and fast-expanding cities.

The U.K.’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.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

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    Jim O'Neill

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