The Growing Economic Power of Cities
Cites and metropolitan areas are once again emerging as major players in the global economy, and major drivers of foreign investment and international trade. While rural areas and former industrial centers move in the direction of protectionism and isolationism, many major cities and metropolitan areas are leading the drive to preserve and expand the flow of international trade and investment. In fact, in places where protectionism and isolationism have become more powerful forces on the political landscape, it is these places’ dynamic and expanding cities and metropolitan areas that are countering this trend and fighting to defend international trade and investment. This is not the first time that we have seen local economies act as a driver for change, or as a preserver of foreign trade and investment. In fact, there are many examples throughout history of cities and metropolitan areas leading their countries’ drive to expand trade and investment. In this age of protectionism and anti-globalization, it falls to these cities and metropolitan areas to preserve the gains that trade and investment have provided.
The urbanization of the world that has taken place in recent centuries has resulted in many cities and metropolitan areas today possessing levels of population and economic output that would have once been unthinkable. For example, the metropolitan areas of Tokyo and New York City have economic outputs that would make them the 10th and 12th largest economies in the world if they were countries, with economic outputs that exceed countries such as Australia, Russia or Spain. Currently, it is cities in developed economies that are home to eight of the ten largest cities in the world by economic output. This is a reflection of the fact that urbanization began much earlier in places such as North America, Europe and Japan. However, it is cities in emerging markets that will drive much of the growth in terms of local economic output in the 21st century as their populations swell and their level of economic growth exceeds that of their developed economy counterparts. Already, two Chinese cities (Shanghai and Beijing) are in the top ten in terms of metropolitan area economic output today, and many other emerging market cities are rapidly climbing the table.
In the coming years, two types of cities will drive growth for the global economy, major cities in emerging markets and mid-sized cities that can flourish in the 21st century’s high-tech and globalized economy. In terms of emerging markets, we have seen the tremendous contribution to global economic growth provided by China’s leading metropolitan areas, and there are still cities in China where economic growth rates exceed 10% per year. Meanwhile, major emerging market metropolitan areas such as Sao Paulo, Mexico City, Istanbul and Jakarta are developing into some of the most economically-important cities in the world. Next up are Africa’s dramatically-expanding cities, including places such as Lagos, Kinshasa and Cairo, where population growth is higher than just about any place on earth. Likewise, as we move away from a centralized economy towards one driven by smaller businesses and individuals, mid-sized cities that area able to attract investment in high-tech and modern service industries will grow much faster than their countries’ overall levels of growth. Good examples of this include places in the United States such as Silicon Valley and Austin, Texas, places that have thrived thanks to their ability to attract investment in high-tech and high-growth sectors of the economy and to bring talented people to their areas.
The trend towards even more urbanization, particularly in emerging markets, will continue in the years ahead, further increasing the economic and political power and influence that cities and metropolitan areas will be able to wield in shaping economic policy. In many developed economies, urbanization has largely run its course and this has played a role in the recent increase in the influence of supporters of protectionism and isolationism, as these policies are based in both rural areas and in those urban centers that have failed to keep up with modernization and globalization. However, support for trade and investment will remain strong in the fast-growing urban centers in emerging markets, some of which are approaching the scale of giant developed economy cities such as New York, Tokyo and Los Angeles. This will lead to an intensification of the competition among cities and metropolitan areas for investment and talent, while these cities will seek to exercise greater political influence in their countries and around the world. Should protectionism and isolationism continue to gain support in developed economies, this will force cities in these countries to fight to maintain their ties to sources of trade and investment. Moreover, they will face greater competition from the fast-rising cities of the emerging world, which are hungry for trade, investment and talent. In fact, this will be one of the key deciding factors in the future expansion or contraction of global trade and investment.