Archive for July 20th, 2012

Urban Growth, Inequality, and Telecommuting

By Xenia Dormandy

Among other issues that the NIC Global Trends 2030 effort highlights is the rise of inequality associated with urbanization. There are some aspects of this that add more complexity to the urbanization debate that could lead to slightly differing outcomes from those typically considered.

We often focus principally on inequality between states.  According to various sources including the World Bank and the UN, the Gini coefficient (a measure of inequality in which 0 indicates full equality (everyone holds equal wealth or income) and 1 full inequality (one individual holds 100% of the country’s wealth or income)) of many countries, including the US, China and India, is rising.  However, as urbanization and the Report make clear, inequality is also significant within states. As inequality between states could lead to inter-state conflict, so too can inequality within a state lead to intra-state conflict.

The consequences of this are increasingly apparent around the world. For example, the Occupy Wall Street movement in the US and the demonstrations over the past 18 months in Spain and Israel were about fairness (or the perceived lack thereof). The Arab Revolutions in Tunisia, Libya and Egypt last year were in large part about jobs, corruption, and equal opportunities. One of the greatest drivers of instability in the future decade is going to encompass this belief of growing perceived inequality. It is even playing a role in the current US election with much debate around President Obama’s push for ‘fairness’ though such initiatives as the Buffett rule.

The impact of this perception of inequality (including that between the casino pa natet urban and rural sectors) is magnified by the concurrent expansion in communications channels and information exchange. As never before those in the lower economic brackets are able to see and understand how the other half live. Whereas this information used to be unavailable or small leaks could be argued away, today the plethora and diversity of information sources all sending similar messages makes it impossible for wealthy elites to counteract. Again this is true both at a state to state level (e.g. for the North Korean government to suggest its standard of living is the same or above that of South Korea) and within a state (e.g., for Beijing to convince its population that there isn’t corruption in the system while the children of Chinese elites live a high life in the West as in the recent case of Bo Xilai’s son, Bo Guagua).

At the same time as these technological advances lead to more transparency, they also have another impact directly relevant to the urban/rural divide. This relates to the trend towards telecommuting. As statistics from Global Workplace Analytics show, in recent years there has been a significant upswing in telecommuting in the US (and perhaps elsewhere). Increasingly white collar workers are choosing to work from or near their home rather than commuting into the center of cities. New businesses have started up that provide offices for workers from different companies to come together and from which they can telecommute.

This trend, if it continues, could somewhat mitigate both the increasing urbanization (with all the associated costs that Drew Erdmann mentioned in his earlier blog) and the concurrent inequality rise between urban and rural populations.  As more (relatively) wealthy individuals choose to live and spend time on the outskirts of cities or even in rural areas, working from there, they will invest more in these areas so bringing economic benefits.  As communications technologies continue to improve and become cheaper, from conference calling to Skype to personal videoconferencing, this could have an impact on these other trends of rising inequality and urbanization and make less stark the consequences of the rural/urban divide.

Xenia Dormandy is a Senior Fellow at Chatham House in London.

By Andres Cadena, Mike Kerlin, Jaana Remes, Alejandra Restrepo, and Henry Ritchie

Fifty years ago next month, John F. Kennedy and a group of Latin American presidents were assessing their early progress when they marked the first anniversary of the signing of the Alliance for Progress. The effort aimed to boost Latin American income, democracy, literacy, land reform, price stability, income equality, and economic and social planning. Over the past five decades, the region made significant progress in some of these areas and struggled in others.

What has changed most in the last 50 years is the playing field: from mostly rural to mostly urban. Latin America’s progress over the coming years and decades will turn on what happens in the region’s cities. It is not a coincidence that the Inter-American Development Bank has launched a Emerging and Sustainable Cities program and that Latin America already absorbs more World Bank urban development lending than any other region.

Back in the early 1960s, less than half of Latin Americans lived in cities. Now, four out of five make their lives in urban settings. That makes Latin America the most urbanized region in the world after North America. Most of the action is taking place in 198 large cities, home to 260 million people and $3.6 trillion in GDP.  McKinsey Global Institute research has found that these large cities will only get more important. 65 percent of Latin America’s economic growth to 2025 will occur in those large cities, and they’ll contribute 1.5 times more to global growth than large  These trends could easily lead the region’s cities to declare victory.

But the needs, and the opportunities, are immense.  We studied eight of Latin America’s ten biggest cities and found dramatic improvement potential in four dimensions—economic performance, quality of life, environmental sustainability, and finance and governance—of an Urban Performance Index (UPI).

The good news is that each dimension of urban performance has its standouts: Monterrey, Mexico in economic performance; Buenos Aires and Bogota in health services; Lima and Bogota in solid waste management; and Sao Paulo in urban planning. To capture their potential as engines of economic growth, each category’s laggards need to catch up, not quite as easy as it sounds.

To boost economic performance, Latin America’s cities will need to team up with federal policymakers. Less restrictive labor policies and lower tariffs on imported inputs will help manufacturers. Service sector companies will gain productivity if more join the formal sector, with the help of lower labor taxes, more compliance monitoring, and other initiatives. And the natural resource sectors can boost their productivity—for example, Latin American mines are only 30 percent as productive as their U.S. counterparts. Productivity growth will also depend on more transparent land ownership and zoning regulation, reliable urban infrastructure, and intercity transportation networks.

Capturing all this economic potential requires improvement on the other dimensions of urban performance. More efficient management of mobile casino water, energy, and waste will not only reduce greenhouse gas emissions and stave off water crises; it will also boost economic productivity and cut costs. Urban planning, congestion management, accessible housing, efficient public transportation, stronger education and better security will not only improve quality of life, but they will also smooth the way for firms to set up and expand in the region’s cities. And none of these improvements can happen without stronger finance and governance. That means increasing tax collection, managing debt more effectively, and reducing corruption, while not being afraid to expand the planning horizon and invest in critical services like housing, transportation, education, and health care.

Improvement in all of these dimensions can only truly be called progress if it extends to the neediest people in Latin American cities. The region still suffers from some of the starkest inequality in the world, and its cities are no exception.  So the agenda next era of progress must be an inclusive agenda.

To achieve a competitive, inclusive future, Latin American cities will require strategic vision, tough decisions and tight management. They will also need to build innovative models of collaboration among city governments, businesses, non-governmental organizations, and universities.

Fifty-one years ago, it was Latin American presidents who signed up for the Alliance for Progress with President Kennedy. Now, the mayors stand at the center of the action, and they’re off to a promising start. They recently joined their peers from around the world in the signing of the Mexico City Pact to reduce urban greenhouse gas emissions. Some have engaged with the Inter-American Development Bank’s Emerging and Sustainable Cities program, focused on excellence in mid-sized cities.

To sustain the momentum, Latin American cities—and all who help shape their fate—must recognize that, in the next five decades, their progress is the region’s progress.

Andres Cadena is a Director in McKinsey & Company’s Bogota, Colombia office and leader of McKinsey’s Public and Social Sector Practice in Latin America. Mike Kerlin is an Associate Principal in McKinsey & Company’s Philadelphia office. Jaana Remes is a Senior Fellow with the McKinsey Global Institute. Alejandra Restrepo is Practice Manager for McKinsey & Company’s Public and Social Sector Practice in Latin America. Henry Ritchie is a Principal in McKinsey & Company’s Rio de Janeiro, Brazil office. The views expressed herein represent their personal views and do not necessarily reflect the perspectives of any organization with which they are affiliated.  The McKinsey Global Institute report cited in this post is Building Globally Competitive Cities: The Key to Latin American Growth

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Urbanization’s Implications for Governance

So far, this week’s blog has featured discussions of overall urbanization dyanmics and their potential economic and national security (part 1 and part 2) implications. Now we turn to governance. Humanity’s rapid movement to cities in the coming two decades will inevitably challenge governance structures around the world.  These three contributions share a commimtent to this foundational conclusion, but they then derive from it different possible futures.

In “Citizens of Cities Not Nations – Implications of an Urban World for Government,” Jonathan Woetzel of McKinsey & Company and Co-Chair of the Urban China casino online Initiative suggests that our primary political identities may shift from nation states to our cities.

In “Urbanization as Opportunity,” Brandon Fuller of the NYU Stern Urbanization Project offers an optimistic image of cities’ future through successful urban planning.

In “Urban Growth, Inequality, and Telecommuting,” Xenia Dormandy of Chatham House highlights the importance of inequality — and perceived inquality — between and within countres for future governance.

By Jonathan Woetzel

An urban world is a fundamentally different place with implications for governance, environment, and technology, not just demography. In some ways this will be a “back to the future” experience. Conurbations are the original unit of social organization dating from Gilgamesh and the warring states of China. Technology development, notably large-scale agricultural engineering, led to imperial bureaucracies and the amalgamation of these clusters into what became nation-states. However, cities have always been the centers of civilization. By 2050 the scale and density of these clusters relative to the whole of humanity will be unprecedented.

The implications go well beyond demographics. In an urban world there is no longer a rural reservoir. Impacts of social crises no longer roll slowly through the countryside, sometimes to peter out unnoticed by the rich and powerful. Rather events explode, demanding immediate responsive governance. Humanity’s most pressing security threats will be urban in nature with the advent of bioterror and pandemics. Environmental pressures will be immediate as urbanites struggle to adapt to a volatile context with rising weather uncertainties, extended global supply chains, and mounting waste and water challenges. On the positive side, innovation casino hubs will drive scientific development. The correlations between technical productivity and density are clear. Geoffrey West’s work notes that with urban scale we get 1.2 times everything – patents, economic growth, crime. The basis is network effects as in an urban context we get to share it all – the good, the bad and the ugly.

The winners will be those urban leaders who are most effective at building cohesive, integrated, sustainable clusters. National governments that stand in the way of these clusters will fall behind as the costs of their inefficient health plans and outdated military machines mount. Successful clusters will have the scale to fend for themselves politically, economically and environmentally in an atomized landscape. Accountability will be a first marker of their potential. Recognizing the complexity of federal, state and local interactions, cities that have gained an increased measure of local responsibilities for both income and expenditures will be more successful in making change happen. Effective local leaders can enable local clusters to form, incorporating externalities in a planned way, enfranchising minorities, and developing integrated city plans. Key tools include the use of big data, empowering city employees, and long-term professional financial management.

Successful cities are the future – there is no other model for human development. The urban world will be one in which we will be first and foremost, citizens of cities.

Jonathan Woetzel is a Director in McKinsey & Company’s Shanghai Office and Co-Chair of the Urban China Initiative (http://www.urbanchinainitiative.org). The views expressed herein represent his personal views and do not necessarily reflect the perspectives of any organization with which he is affiliated.

Urbanization as Opportunity

By Brandon Fuller

“Without cities we would all be poor.”

- Jane Jacobs, The Economy of Cities

If Jacobs was right, and there’s good reason to believe that she was, the world in 2030 stands to be a much better place. According to UN estimates, the urban share of the world’s population will grow from just over 50 percent in 2010 to 60 percent in 2030. The vast majority of this urbanization will occur in the developing world, where urban areas are expected to add another 1.3 billion people by 2030.

There are two ways to accommodate this influx of urban residents: expand existing cities or build new ones. In both cases, weak and ineffective governance poses a significant challenge to successful urbanization. The graph below shows the negative relationship between a country’s score on the Rule of Law Index and its expected average annual rate of urban growth over the next four decades.

At the NYU Stern Urbanization Project (UP), we’re focused on urban growth strategies that account for the conditions of governance in the developing world. One initiative, led by Paul Romer, focuses on new cities — particularly the potential for new cities to advance reform and improve choices for urban migrants. Another initiative, led by Solly Angel, focuses on urban expansion.

Urban Expansion

With growing numbers of urban migrants, the physical expansion of developing world cities is inevitable. If incomes continue to rise relative to transport costs, the trend toward expansion will be even stronger. Such expansion needn’t be unsustainable. Because urban densities in the developing world are more than double those of Europe and Japan, they can decline considerably without inducing the sorts of suburban sprawl associated with land-rich developed countries like the United States.

Cities in developing countries should come to terms with urban expansion. Ignoring it won’t stop it. People will continue to arrive in an uncoordinated fashion, excluded from the formal sector and consigned to congested slums. Some planning will be necessary. But given the massive scale of urbanization and the governance constraints that characterize much of the developing world, overly intricate planning efforts may be just as likely to fail as no plan at all.

UP advocates for a lighter touch approach, one in which governments consolidate land for public space and arterial roads based on realistic forecasts of urban expansion. This approach ensures corridors for public service provision and effectively coordinates the private decisions that comprise the majority of urban development. By spacing arterial roads 1 kilometer apart the city can make public transport accessible to everyone; by making room for expansion the city can ensure that the supply of housing remains ample and affordable.

New Cities

Political risk in the developing world remains a key bottleneck to what would otherwise be relatively high-return investments in urban infrastructure. Policy innovations that mitigate political risk can channel enormous amounts of foreign investment into rapidly growing cities; investments that would in turn offer billions of people opportunities to work their way out of poverty. UP believes that charter cities—new cities built casino online in special reform zones—offer a promising way to mitigate political risk and drive reform in the developing world.

The first country to adapt the charter cities concept to its development strategy was Honduras, a country whose urban population is expected to more than double in the next few decades. Seeing this urbanization as an opportunity for reform, the Honduran government established a new legal entity known locally as la Región Especial de Desarrollo (RED).   

Though part of sovereign Honduran territory, the RED will be largely autonomous. Critically, the RED will also have the power to partner with credible foreign allies, such as Canada and Mauritius, on core government functions including policing, jurisprudence, and a range of public service provision. Such partnerships can strengthen the rule of law in the RED, attracting investors, generating jobs, and providing safe new options for the millions of people in the region who currently lack them. The Honduran government believes that reform in the RED can complement the process of reform and reconciliation elsewhere in the country.

Enhancing Global Stability and Growth

Looking forward to 2030, UP is optimistic about the prospects for urbanization to enhance global stability and buoy trade and investment flows. We believe that inclusive urban planning strategies, grounded in the understanding that urban expansion is inevitable, are more likely to result in cities that are accessible, affordable, and peaceful. We also believe that new cities, based on innovative models of international cooperation, have an important role to play in driving reform, unlocking high-return investment opportunities, and improving the choices of urban migrants.

Brandon Fuller is a Research Scholar with the NYU Stern Urbanization Project.