This blog is written in response to a generous and humbling offer by the urban anchor at the World Bank to present my book on the Evolution of Great World Cities (Kennedy, 2011). Having provided occasional assistance to the Bank over the past few years, I realized how big a challenge this may be. The Bank has brainpower akin to an Ivy League university, and is a large organization with so many endeavours that are hard for me to keep abreast of. Nonetheless, while tackling enormously complex development challenges, the clear objective of the Bank is to help with the elimination of poverty. Given that my book is primarily about stinking rich cities, there’s a chance that I could completely miss my audience! There again, the rapid rate of urbanization in the developing world provides such a huge opportunity to bring millions out of poverty, if planned well - and many cities in the developing world no doubt aspire to be great world cities.
One of the basic principles that I set down early in the book is that the wealth of a city should be measured by the net assets of its citizens, which primarily means by the value of residential real estate, business equity and other financial assets. This seems a straight forward measure, although it is complicated in the case of publicly owned housing, as municipal assets are not added in the calculation (as they are already captured through residential property values). Recognizing citizens’ assets to be the basic measure of wealth, it is apparent that establishing property rights and encouraging household savings both directly contribute to urban wealth. Property rights are necessary for real estate to be effectively valued. Despite all the challenges that surround ownership rights in illegal squatter settlements, for example, assigning and enforcing just property rights is fundamental to establishing wealth in cities. Saving is also critical too, and even though it seems tenuous to expect the world’s poorest families to save part of their meagre incomes, successes such as micro-finance schemes of urban poor community associations and savings groups suggest that it is possible (Dodman et al., 2009). Promoting community savings not only builds financial capacity, but may help develop social cohesion, empower citizens and render them more resilient to climate change.
Of course, as development agencies know well, provision of basic infrastructure – water, sanitation and transportation - is necessary for emancipation of poverty and growing urban economies. The economic impacts of infrastructure investments are well understood (Kessides, 1993). Infrastructure that improves personal welfare will increase labour productivity. Investments that improve unreliable infrastructure will reduce costs for employers, investors and workers, while other infrastructure can contribute to economic growth through structural change, e.g., increasing productivity of agriculture, or enhancing service sectors through telecommunications infrastructure.
In the book, I discuss deeper roles that infrastructure plays in the formation of great cities. Picking up on the work of economic historian Norman Gras, development of substantial transportation infrastructure is recognized as the key third phase in the evolution of financial centres. Having established commercial and industrial activities, cities must become hubs of transportation networks, providing control over surrounding regions, in order to progress to a fourth and powerful phase of financial centre. Infrastructure such as the Erie Canal, Gotthard Tunnel and Frankfurt Airport, were pivotal in New York City, Zurich, Milan and Frankfurt becoming wealthy cities. Of course, there are already financial centres in the developing world – Shanghai, Mumbai, Sao Paulo and Johannesburg for example – but perhaps there are other developing cities for which investment in key strategic infrastructure could help create a nucleus of wealth, supporting long-term economic prosperity.
Aspiring wealthy cities do, however, have to be careful as to what type of urban form is encouraged through their infrastructure investments. A city’s transportation infrastructure and the land-use, and hence lifestyle, that it supports can go a long way in distinguishing between what I call consumptive cities and investing cities. While the sprawling, automobile dependent city was fundamental to economic growth in the 20th century, I conjecture that citizens of such cities over-consume, thereby undermining their investment rates and thus their long-term accumulation of wealth. In recent decades, household savings rates, which are a key determinant of investment, have significantly fallen in several Western countries, most notably Australia, Canada and the United States, the countries with the most sprawling cities. By contrast, savings rates in France and Germany, countries with less sprawling cities and higher levels of transit use, have held relatively steady. Citizens of the highly consumptive, sprawling cities may well have been living in what Joan Robinson (1962) labelled a Bastard Golden Age, over-consuming at the expense of capital accumulation. Meanwhile, investing cities such as Singapore and Freiburg achieve a different balance between accumulation of financial capital and physical expansion; these are cities, where citizens typically save more of their income and are on average slightly more modest in their purchasing of automobiles, suburban palaces, and associated goods. Indeed, I suspect that the world’s wealthiest cities – London, New York City, and Tokyo – maintain their wealth because they achieve an appropriate balance between citizens’ consumption and investment. These are the cities that the developing world should learn from.
The history of infrastructure development in London, particularly during the 19th century, potentially has many lessons for today’s developing world cities. Over the nineteenth century, London evolved from a compact pedestrian-oriented city of one million people to a metropolis of six million teeming with taxicabs, omnibuses, and trains. London’s investments in transportation infrastructure were vast – new roads, bridges, subways, streetcars, steam ships and railways – often entailing technological change (Barker & Robbins, 1963). As separation between workplace and residence became increasingly common, London created new economic sectors – notably the transportation sector itself, but stemming from this came new retail, entertainment and tourism. The development of rail-based suburbs, fuelled by private capital, favourable tax systems and building regulations, underlay a fundamental social change that was accompanied by huge economic growth. Of course, nineteenth century London was the world’s leading financial centre, not withstanding occasional challenges from Paris, and it was also the capital of the country at the forefront of the Industrial Revolution. Cities in the developing world face different circumstance today. Nonetheless, many of the processes that London pursued and the type of urban form that was developed are worth emulating.
Barker, T.C., and M. Robbins. (1963) A History of London Transport: Passenger Travel and the Development of the Metropolis. Vol. 1. London: Allen and Unwin.
Dodman, D., et al. (2009) Victims to Victors, Disasters to Opportunities: Community Driven Responses to Climate Change Paper presented at the World Bank’s Fifth Urban Research Symposium, Marseille, France June 28 – 30.
Kennedy, C. (2011) The Evolution of Great World Cities: Urban Wealth and Economic Growth, University of Toronto Press
Kessides, C. (1993) The contributions of infrastructure to economic development: a review of experience and policy implications World Bank. 48 p.
Robinson, J. (1962) Essays in the Theory of Economic Growth. London: Macmillan.