DEVELOPMENT: Cities to lead March To Global Growth

By Marwaan Macan-Markar Reprint | | Print |

Marwaan Macan-Markar

MEXICO CITY, Sep 16 1999 (IPS) - The World Bank is putting its faith in “dynamic cities” – like this capital – to lead the march forward to global economic growth in the new millennium.

The manufacturing and service industries contribute a larger portion to the world’s economic plate than does the agricultural sector, according to the Bank’s latest World Development Report.

The annual report, released Wednesday, points out that “as countries develop, cities will account for an ever-increasing share of the national income.”

To back up this assertion, the reports points to the prevailing geography of the gross national products recorded by the countries of the world. Currently, “urban areas generate 55 percent of the Gross national product (GNP) of low-income countries, 73 percent in middle-income countries and 85 percent in high-income countries,” the report says.

Weighing in on the side of globalisation, it goes on to add that “trade liberalisation and financial integration” will underscore the importance of urban centres in the future.

The Australian city of Sydney is among a few that comes in for high praise, since it represents the kind of dynamic achievement the Bank’s policy makers had in mind regards the primacy of urban centres.

“Sydney’s transformation into a global city between 1971 and 1991 translated into a 25 percent increase in employment creation as well as a radical shift toward financial and business services,” it says.

Such growth, the report indicates, is the outcome of an agglomeration economy – an accumulation of manufacturing and service industries concentrated in close proximity, where they benefit from ample markets for “inputs, outputs and labour, and where ideas and knowledge are rapidly defused.”

Furthermore, studies have revealed that agglomeration has increased the productivity of a wide array of economic activity in urban areas. “Productivity rises with city size, so much so that a typical firm will see its productivity climb 5 to 10 percent if the city’s size and the scale of local industry double.”

When it comes to wages, urban sectors also have more attractive offers to make than do rural economies. In some instances, wages are “two to four times higher in mid-income countries,” the reports says.

For World Bank-watchers such as Gustavo Garca, the focus on “dynamic cities as engines of growth” is a new spin on an old tale.

“The idea surfaced in the mid-1980s and was welcomed at a theoretical level. The cities were recognised for having so much potential for growth,” says Garca, senior researcher at the College of Mexico.

Nevertheless, he embraces the Bank’s policy initiative and cites Mexico City as case in point.

This city is the largest in the world by virtue of the size of its population – currently put at 19 million – and contributes about 48 percent of Mexico’s Gross Domestic Product (GDP) – an increase on the 30 percent figure for the years 1930-1970.

The economy has been sustained by the dominant players such as the manufacturing and industrial sector and the new, albeit vastly improving, entrant – the service sector.

“If the economic base of this city grows further, there will be more benefits,” adds Garca, who specialises in demographic and urban development studies. “For that, local and federal governments will have an important role to play.”

The Bank also recognises the obvious need for improved infrastructure to make megacities hospitable venues for development, and to attract and maintain a sufficient level of investment.

Furthermore, urban governments are expected do more by way of training its citizens. The Bank spotlights such training initiatives evident in France, Italy, Malaysia and Pakistan.

France and Italy have decentralised vocational training and “local governments are best suited to working with local firms,” the report says. In the case of Malaysia, the Skills Development Centre of Penang draws together representatives of industry, state and local government, and the academia to “bridge the gap between formal education and job skills the area’s top investors require.”

As for Pakistan, development councils in Karachi and Lahore, made up of provincial and federal government representatives, employers and workers’ representatives, serve as “useful links between industry and training providers.”

Governments also will have to pay attention to the increase in population that will come in the wake of such urbanisation. The report expects cities to absorb 2.4 billion new residents over the next 30 years, resulting in close to 60 percent of the world’s population being city dwellers.

In the 1970s, a medium-sized city, according to the Bank’s demographers, was one with a population ranging from 250,000 to 500,000. At that time, there were 163 metropolitan areas worldwide that had more than one million citizens. Yet, less than 40 percent of the world’s population lived in urban areas.

Today, a medium-sized city boasts of a population close to a million and statistics indicate that there are 350 such areas around the world.

For David Dunham of the Institute of Social Studies at the Hague, such signs of economic migration have to be seen in another context: the small business and self-employment drive of the last decade having rarely produced “enough remunerative jobs to make any real difference.”

In some small Asian countries, he says, “It is extremely difficult to see real change in the rural areas unless there is much higher growth rates in non-agricultural activites, generating more jobs.”

At the moment, Dunham says, “People fall back on small plots of family land and eke out an existence there because they have nothing else.”

Furthermore, the urban emphasis of the Bank’s report is a clear indication that the call for economic decentralisation, so popular during the last decade, has had “limited success,” he says.

Both Dunham and Garca agree that the ones who will reap an immediate harvest in the Bank’s shift towards concentrated urban economic growth will be the middle and upper middle classes of the cities. In Mexico City, for instance, they comprise about 60 percent of the city’s population, close to 11.4 million people.

At the same time, both men sounded a cautious note about the other side of this economic equation – rural poverty.

According to Dunham, the Bank’s strategy to fight rural poverty “echoes of the old neoclassical models of development economics” depending on urban job creation to solve rural woes.

For the moment, though, he admits, “It may not be so out of place.”