Mapping the growing power of cities

 
Allister Heath
HUMANITY recently reached something of a milestone: for the first time, more than half of the global population is now living in towns and cities, rather than in the countryside where we all started off as hunter-gatherers. The global urban population is growing by 65m a year. Cities are great for economic growth and wealth-creation: thanks to economies of scale, network effects and cluster effects, urban centres are more productive and wages invariably higher. They attract the best, most skilled and motivated people from around the world. Their size allows extreme specialisation, cultural as well as commercial.

That is why so many of us work and live in and around London, rather than in the Shetland Islands. The movement of poor people from the country to the city has helped radically reduce poverty in countries such as China. As a report from McKinsey argues, urbanisation will continue to be one of this century’s biggest drivers of economic growth, just as it was in the 20th century.

The importance of urban centres to progress – economic, cultural, scientific, social and political – cannot be underestimated. Across all continents, 23 megacities—metropolitan areas with at least 10m inhabitants—generate 14 per cent of global GDP, according to McKinsey. The world’s top 100 cities generate $21 trillion of GDP, 38 per cent of the total. The 600 largest urban centres generate $30 trillion, 60 per cent of the total, yet house just 22 per cent of the world’s population. But what is most impressive is that the London urban zone is the world’s third largest by GDP, beaten only by Tokyo and New York. By 2025, McKinsey believes New York will have taken the lead, followed by Tokyo. Remarkably, London will still be ranked fourth, being overtaken only by Shanghai and remaining ahead of Beijing and Los Angeles; I hope the consultancy is right, though I worry for Britain’s future prosperity when I listen to what anti-capitalist protesters and many politicians have to say. The competition is certainly increasing all the time and we are not doing enough to stay ahead.

While the top 600 cities will continue to account for a similar share of global GDP in 2025, their composition will change markedly. One third of those from developed economies will be booted out – and 136 new cities are expected to enter the top 600, all from the developing world. Astonishingly – or perhaps not – 107 of these new cities will be in China including Haerbin, Shantou, and Guiyang. India will contribute 13 newcomers including Hyderabad and Surat and Latin America eight cities, including Cancún and Barranquilla.

In the UK today, cities generate 78 per cent of economic growth. London dominates, producing seven times more GDP than Birmingham, the second most important city, and 8.8 times more than Manchester. It will become even more dominant, the research argues, generating 7.7 times more GDP than Birmingham by 2025. For individuals, the ability to relocate and adapt is key. Education – and useful, marketable skills – will be more vital than ever. Mandarin or Spanish would help. Corporate strategies should be based more on cities than countries. And London’s future will depend on a drastic overhaul of infrastructure, regulations, tax and education. Complacency is a disastrous sickness at the best of times – but today it is absolutely inexcusable.

allister.heath@cityam.com

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