Urbanization and Globalization in the Twenty First Century:

Emerging Challenges

December 14, 2011

Rakesh Mohan

Urban Growth in the Next 30 Years

“People intuitively perceive the advantages of urban life. This explains why millions flock to the cities every year. Yet many planners and policy makers in rapidly urbanizing nations want to prevent urban growth”

• Majority of the world now lives in cities: expect attitude toward cities to change

• Need a more positive welcoming attitude to urbanization and urban growth

• Next 30 years may add another 2.1 billion people to urban areas– Two thirds of these will be in Asia

The majority of the world lives now in cities

y = 0.001x0.9052

R² = 0.3503

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

- 100,000,000 200,000,000 300,000,000

GDP/ per capita

GDP per square kilometer

Relationship between economic density and per capita GDP by cities, 2005-6

Source: Citymayors.com and Demographia.com

Jobs per square Km

Globalization

• Free trade and globalization; death of distance

• Prices of traded products tend to equalize across the world

• Relative productivity of cities will determine comparative advantage of a country

• Globalization has added further focus to the importance of city level efficiency

What can we learn from Asian experience over the last 30 years? (1)

• Efficiency achieved from the efficiency of its leading cities

• Heavy concentration of economic activity in and around coastal regions • e.g. Japan, South Korea, Taiwan, Singapore, Hong Kong,

Indonesia, Thailand, Malaysia and China

• Great economic efficiency was achieved through the proximity of many activities: agglomeration economies and scale economies

• Economic distance got killed (within countries and across borders)

• South East Asian manufacturing engines got intertwined with each other and across the Pacific

• Good deal of off-shoring of production is concentrated in Asia

• Low transportation and communication costs: cities more likely to be linked with their counterparts across borders, than with their own hinterlands

What can we learn from Asian experience over the last 30 years? (2)

New Challenges of Globalization for Cities

• Need to focus on city efficiency:

– Efficient infrastructure (water, sanitation, sewerage, urban transportation, power, and communication)

• Asia shows that we can economize on the city efficiency through concentration of economic activity

What is new about globalization with respect to cities?

• Moving toward a new focus on ‘softer areas’ of infrastructure:

• Knowledge

• Vocational Education

• Secondary/Primary Schooling

• Health

• Urban Amenities (Colombia)

Globalization and cities

• Globalization reinforcing the need for cities to become more consciously knowledge based

• Cities becoming more inter-connected across borders

• Unskilled labor obsolete?

• Provision of urban amenities for all is a must

Source: http://ykalaska.wordpress.com/2007/07/26/where-is-transport-hub-of-the-world/

Some Demographic Changes

• Over the next few decades:

– Weight of natural population growth in urban growth will be higher relative to rural-urban migration

– Ageing issues increasingly important: people will live longer and longer, even at low income levels

– Demand for space in crowded cities for schoolingneeds to be addressed

– Pattern of growth will change (largest cities will begin to slow down in growth and others will start to grow faster)

Cities and the Poor

• Most approaches to urban poverty focus on slums and shelter for the poor

Source: World Bank Urbanization Review

Cities and the Poor

• We need to separate issues:

– Income generation (macro management and strategies to encourage overall economic growth)

– Provision of living environments (city level policies that do not discourage entrepreneurship and growth)

• At the lowest level of income, no level of “formal” housing is affordable

• The poor have to squat. But public policy cannot encourage squatting transparently

What to do with the poor?

• Provision of shelter for the poor will remain chaotic

• What to do? Expand their access to land

• Best strategy for helping the urban poor is:

– Make the city economy vibrant

– Promote employment growth

Jobs per square Km

Source: World Bank, Urbanization Review 2011

Strategies to help Urban Poor

– Take care of education

– Take care of health

– Take care of clean water

– Take care of sanitation

– Reduce barriers to entrepreneurial entry

– Promote mobility

– Provide security of tenure

– Equalize public spaces

Source: Urbanization Review 2011

Source: http://richditch.wordpress.com

Source: http://lhoustoun.files.wordpress.com

Source: http://www.essortment.com

Governance and Financing

• There are two kinds of financing needs

– Financing for public goods and services: provision of public goods and services has to be paid by taxes

– Financing for private goods and services: provision of private goods has to be financed by a flow of user charges

– In the middle there is scope for public-private partnerships

No uniformity in pattern of urban financing systems across the world

Cities with pop > 100,000 in 2050

Source: World Bank Urbanization Review

No uniformity in pattern of urban financing systems across the world

• United States: Towns and cities have to be creditworthy to self-finance through municipal bonds

• Germany : Creditworthy towns and cities financed by Pfandbriefs floated by national level mortgage banks

• In Asian countries: financial markets not sophisticated enough to allow for such financing methods yet– Financing for urban infrastructure has usually come from

higher tier governments, or from banks and financial institutions that are typically government owned or sponsored

Utilities are also key for city competitiveness

• Most utility services are in the nature of private services

• Need to look for and ensure cash flows(subsidies generally go to the rich)

• As long as there is cash flow, the activity can be financed– Cash flow from local taxes: the activity being

financed is a public good

– Cash flow from user charges: is a private good

• Task: improve local municipal governments and utilities so that they can be creditworthy

Governance is also key for economic growth (1)

• Urban growth is welcome and we need to prepare for it

• Large metropolitan cities also have large budgets

– BUT city managers generally

have low prestige

are paid poorly

lack in competence to manage modern growing cities

Governance is also key for economic growth (2)

• Largest cities are bigger than many countries– YET urban management, urban planning and the like

are not so appealing.

• Schools of urban management, urban financial management and urban planning are few and far between– YET cities are crying out loud for

Innovation Flexibility Forward looking strategies Greater participation by the people Modern financial management

Summary: Population Growth

• More urban population will be added in the next 30 years than in the last 50 years Mostly in Asia and Africa

There will be much more organic urban population growth than from rural urban migration. Cities will get more aged everywhere

• Encouraging growth of entrepreneurship and urban employment opportunities in our cities must be pursued and not discouraged

Summary: Urban Management and Financing

• City governance and management should be made much more innovative, flexible and responsive

• Need to learn how to manage and finance urban infrastructure needs, both physical and social in a low income context

Urban infrastructure financing. In early rapid urban growth phase, financial markets are yet to develop only way to tap long term funds could be development financing by

dedicated financial institutions, domestic or foreign

Some open questions remain

• Will there be enhanced competition among Asian countries for available international savings?

• With the emerging adverse demographics in the West, and hence low savings rates will this competition lead to higher real interest rates in the years to come?

exact converse of the current situation of excess world liquidity and low interest rates?

• Efficient intermediation of financial savings within and across countries, will be as important in the years to come for urban development

for financial market development per se

for monetary policy makers