[Editor's note: Returning from traveling in China, cities, growth, and urban geography are on my mind. Enjoy this article from the Economist about a rapidly urbanizing world populous, and how that is not necessarily a bad thing for poverty and wealth.]
Reprinted from The Economist print edition. Nov 6th 2008.
The problems—and benefits—of urbanisation on a vast scale
IN JANUARY this year a vast number of would-be travellers were stranded at railway stations and on roads in China, after an unusually heavy snowfall blanketed the south of the country just before the country’s new-year festivities. What amazed the world (in addition to the unusual sight of a prime minister apologising for his government’s slowness) was the unprecedented scale of the disruption: an estimated 200m people were on the move.
Governments in many poor countries react with a shudder to this sort of news item—and indeed to any news that seems to expose the fragility of newly urbanised economies. Most of those frustrated Chinese travellers were migrant workers going from cities to their families in the countryside or vice versa. Movement on such a scale seems inevitable, given the sort of urbanisation China and others have experienced: over the past 30 years, the world’s urban population has risen from 1.6 billion to 3.3 billion, and over the next 30 years cities in the developing world are set to grow by an extra 2 billion. But many governments have become doubtful of their ability to cope with urbanisation on such an enormous scale; some have concluded that they ought to slow the process down in order to minimise social upheaval. This view owes as much to anti-urban bias as it does to sober analysis.
In 2005, more than half the poor countries surveyed by the UN Population Division said they wanted to reduce internal migration to rein in urban growth. The food crisis of the past 18 months has sharpened worries about how to feed the teeming slums. This week the UN’s secretary-general, Ban Ki-moon, warned the biennial World Urban Forum meeting in Nanjing that 2 billion could be living in slums in the year 2030 and that “urban areas consume most of the world’s energy and are generating the bulk of our waste.”
Such fears of urban over-concentration are reflected in the policies of many different countries. Saudi Arabia is spending billions on new super-cities to ease the growth of Jeddah and Riyadh. Egypt is building 20 new cities to divert people away from Cairo. It plans 45 more. And attempts by poor countries to alter the course of urbanisation have a long pedigree in the rich world. In the 1950s and 1960s, Britain and France built lots of new towns to counter-balance their capitals’ dominance.
Yet new research published by the World Bank in its annual flagship World Development Report* suggests that pessimism over the future of huge cities is wildly overdone. The bank argues that third-world cities grow so big and so fast precisely because they generate vast economic advantages, and that these gains may be increasing. Slowing urbanisation down, or pushing it towards places not linked with world markets, is costly and futile, the bank says. At a time of contagion and bail-outs, the research also reaffirms the unfashionable view that the basic facts of geography—where people live and work, how they get around—matter as much as financial and fiscal policies. (The award of this year’s Nobel prize for economics to Paul Krugman of Princeton University for his work on the location of economic activity was another reflection of that view.)
The bank’s research yields lots of new insights. It argues, for example, that the share of humanity that lives in cities is slightly lower than most people think. The bank drew up a fresh index to get around the knotty problem of defining “urban”; this new measure puts the world’s city-dwelling population at about 47% in 2000. In fact—as Indermit Gill, who oversaw the report, acknowledges—it is impossible to pinpoint the proportion: the urban slice of humanity may be anywhere between 45% and 55%, depending on how you count. The report’s main point is that, whatever their exact dimensions, the Gotham Cities of the poor world should not be written off as a disaster simply on grounds that they are too big, too chaotic, too polluted and too unequal.
It is true that they are unprecedented in size. Mexico City, Mumbai, São Paulo and Shanghai each have over 15m people, whereas Paris and London, after their surge in the 19th century, had less than half that. The average population of the world’s 100 largest cities now exceeds 6m. In 1900, it was only 700,000.
But relative to the size of countries’ populations, the current growth is far from unusual. Between 1985 and 2005 the urban share of the population of developing countries rose by eight percentage points. Between 1880 and 1900, the bank says, the urban share in then-industrialising Europe and America went up by about the same amount. Over time, cities as disparate as Santiago (in Chile), Seoul, Lisbon and São Paulo have all followed strikingly similar paths, rising fast until they made up about a quarter of their countries’ populations, then stabilising when the country’s income hit about $5,000 per person (see chart). This path roughly tracks the transition of a country from an agricultural to an industrial base. Many countries are undergoing that sort of transition now, and therefore urbanisation is accelerating. But history suggests it will not go on rising at this rate for ever.
History also suggests that the income gaps that worry governments will narrow. As people move to the city, urban wages are typically 40-50% higher than unskilled farm earnings (that was the premium in Europe in the 19th century; it is about the same in developing countries today). But the income gaps of rich countries have narrowed, so living standards in the West today are roughly the same between town and country. That convergence is starting in poor countries, too: in poorer Malawi and Sri Lanka, city dwellers account for a much bigger share of consumption than of population (20% compared with 10%). But in richer Chile and Brazil, urbanites account for only slightly more consumption than population.
So one answer to the question—why are third-world cities so big?—is that they are not in relative terms all that large. But another answer, suggests the World Bank, is that they are big because they do an economic job that is becoming more, not less, important.
Cities are products of trade. Market towns trade crops. Second cities produce and trade manufactured goods. Metropolises design, make and sell everything, especially services. Over the past 50 years world trade has expanded hugely, especially in services, and giant cities have thrived correspondingly. Among the most striking of these urban success stories are cities in southern China that most people outside the region have never heard of because they were collections of villages just 20 years ago. Take, for example, Dongguan, in southern China. This little-known city in the Pearl River delta makes 30% of the magnetic recording heads used in hard drives across the world and 16% of the world’s electronic keyboards. Its population has risen from tens of thousands 20 years ago to 7m today.
What has made such growth possible, argues the bank, is cheap transport. Falling transport costs in the 18th and 19th centuries enabled Britain and Portugal to trade wool and port (as the political economist David Ricardo memorably pointed out). Cheap transport in the past 25 years has produced a second sort of trade revolution. Countries now sell each other not final products like port but intermediate ones such as recording heads for hard drives. That has been made possible by an extraordinary fragmentation of production: every step in the production line is broken down. Parts are made separately, then shipped for assembly.
This matters because many of today’s cities are places where lots of different factories turn out the same specialised components. In some ways, this specialisation and concentration of manufacturing seems strange: if parts can be made anywhere, it might appear more efficient to make them in the middle of nowhere, where land is cheapest. Yet factory owners like to cluster together because of the concentration of skills, as well as infrastructure, that cities offer. Workers with particular competences migrate to places where those skills are in demand—and all the businesses that need those skills benefit. Consumers, naturally, appreciate cities because it is easier to shop where goods are available in one place. And business services (banking, insurance, consultancy) cluster round the honeypot. Indeed, the usefulness of concentrating business services is all the greater in an era of much increased capital flows (the credit crunch notwithstanding). In short, the bank suggests a formula: the fragmentation of production lines, plus the clustering together of particular stages in the production line, plus cheap transport, equals higher productivity in the biggest cities.
If it is so important where economic activity takes place, what should countries do if they lack big cities—perhaps because they are landlocked, or cut off from world markets or have many poor people living in rural areas? These, the bank thinks, are the real problems of urbanisation, not the multiplication of slums or congestion. The answer, in the bank’s view, depends on why people are cut off.
If they are trapped in underemployment in remote rural areas, the main task is to establish land markets and basic services (schools, streets, sanitation) to help cities grow. This is the situation in much of Africa and remote parts of China, which last month took a few hesitant steps to liberalise its rural land markets. But countries are all too rarely willing to stand back and let cities grow: Tanzania and Ethiopia, to name just two, are busily trying to slow urbanisation down, despite the fact that three-quarters of their people are stuck in rural poverty.
Where urbanisation has started but pockets of the population are trapped far away, governments have to focus more on transport and other sorts of infrastructure to connect lagging regions with fast-growing ones. This is happening in western China, which is being linked up by air, road and rail with booming Chongqing. It is not until a more advanced stage of urbanisation is reached—with 75% of the population in cities (like, say, northern Egypt or Rio de Janeiro)—that it makes any sense to spend a lot on such policies as slum clearances, lest the now-teeming city is split apart by crime and grime.
These prescriptions have something in common. For poor countries, the key to development is to link up flagging and fast-growing regions. To do that, governments often overemphasise policies targeted on particular places. In practice, there are more powerful instruments of integration than “spatially targeted” efforts—eg, land markets that unify all places, or infrastructure that connects some places to others. Growth, says the bank, is inevitably lumpy. Governments must learn to like it.