Why Some Cities Lose When Others Win
In 1950, the world's largest urban areas were New York and London, both with more than 12 million people, followed by Tokyo (8.4 million), Moscow (7 million), Rhine-Ruhr (6.9 million), Paris (6.7 million), Shanghai (5.8 million), Chicago (5.6 million), Buenos Aires (4.6 million), and Calcutta (4.6 million).
By the mid-2000s, the ranking had changed substantially. Cities in emerging economies dominated the list of the world's largest urban areas. Tokyo topped the list with more than 35 million people, followed by Mexico City and Mumbai with roughly 20 million each. Meanwhile, New York had dropped to fourth, followed by Sao Paulo, Delhi, Calcutta, Jakarta, Buenos Aires, and Dhaka. Los Angeles was 12th, Paris 22nd, Chicago 25th, and London 28th.
Driving this, of course, is the rapid urbanization of the global economy. By 2050, 7 out of 10 people in the world will live in a city. These forces pose dramatic implications for cities, especially American ones. As New York City Mayor Michael Bloomberg noted in the Financial Times this week:
A recent study commissioned by Citigroup and conducted by the Economist Intelligence Unit found New York City to be the most competitive city in the world, edging out London for the top spot, followed by Singapore, Paris and Hong Kong. What are these places doing better than others, and how should cities think about distinguishing themselves and cultivating long-term competitiveness in the 21st century?
Many newly successful cities on the global stage – such as Shenzhen and Dubai – have sought to make themselves attractive to businesses based on price and infrastructure subsidies. Those competitive advantages can work in the short term, but they tend to be transitory. For cities to have sustained success, they must compete for the grand prize: intellectual capital and talent.
This process is similar to what happened when industries globalized a couple of decades ago. Before globalization, there were national industries. Countries had their own auto, steel, electronics, chemical industries, etc. As national barriers came down and these champions faced global competition, there were shakeouts, and lots of companies failed or were acquired.
Something similar, though not quite as extensive, is happening to cities and it is creating a dramatic reordering of the urban hierarchy around the world.
This poses substantial implications for U.S. cities, shaping the economic decline of some and the rise of others. in a fascinating piece on "The Great Reordering of the Urban Hierarchy" that ran earlier this week over at New Geography, Aaron Renn, who blogs at The Urbanophile, suggested that it was shaping the further dominance of New York as the United States' "first city" and of the dramatic rise of Washington, D.C., as its "second city," while challenging Los Angeles and Chicago not to mention a whole host of smaller and medium-size urban centers.
[I]n the "spiky world," the peaks thrive while the valleys suffer. But it is the highest peaks that thrive most of all. Hence we've seen the emergence of a robust NYC post-9/11. It seems to have become if anything more the center of the universe, a huge financial center, media center, fashion center, cultural center, etc. - and adding to it new strength such as its emergence as America's #2 tech startup location after Silicon Valley. New York is at an all time population high and even withing about 60,000 jobs of its all time peak employment.
So we have New York entrenched as America's first city, and Washington, DC increasingly its new "Second City." Los Angeles, which seems to have never quite recovered from the early 90s defense draw down, and Chicago with its 2000s malaise, seem to be the victims of DC's rise. Another loser is Boston, which has seen its status as a financial hub decline and whose Route 128 corridor of tech, having first lost out to Silicon Valley, now appears to be losing out to NYC.
Simulations by Robert Axtell of George Mason University show that the biggest, dominant cities can survive and thrive for a very long time. New York has been America's largest city since its first census in 1790. London has been the United Kingdom's largest city for a very long time. Athens and Rome have remained influential long past their prime.
But the competition and "churning" among smaller second- and third-tier cities is brutal. These cities rise and fall frequently. Early in the 20th century, rising industrial cities in the United States and Europe displaced once dominant mercantile centers. By the end of that century, many of those same industrial cities were being replaced by knowledge-based ones.
This reordering is now happening on a global scale. Rampant globalization exposes smaller, niche cities to an onslaught of ferocious global competition. America's entire industrial belt is fending off the rise of Shanghai and adjacent areas as the "world's factory." As Tim Gulden of George Mason recently told me: "When you merge the economies of various countries, these niches come into competition with one another."
One useful way to think about what's happening is a construct known as "Zipf's Law." Named for its discoverer, George Zipf, it says that many things that occur in nature and society, including the distribution of city populations, follow a basic "power law." As Steven Strogatz explained it:
The mathematics of cities was launched in 1949 when George Zipf, a linguist working at Harvard, reported a striking regularity in the size distribution of cities. He noticed that if you tabulate the biggest cities in a given country and rank them according to their populations, the largest city is always about twice as big as the second largest, and three times as big as the third largest, and so on. In other words, the population of a city is, to a good approximation, inversely proportional to its rank ... Even more amazingly, Zipf’s law has apparently held for at least 100 years. Given the different social conditions from country to country, the different patterns of migration a century ago and many other variables that you’d think would make a difference, the generality of Zipf’s law is astonishing.
While Zipf's law holds within countries, Renn notes that research conducted by my colleagues and I show finds that it does not apply on a global basis, due to barriers to migration and other factors. He writes that:
[M]igration type barriers have declined over time, and it's easy to conceptualize that many types of activities that once operated largely in purely domestic hierarchies now complete in global ones. If true, this would suggest that some cities, like LA, Chicago, and Boston, which ranked high in a national hierarchy might be pretty far down the list in a global one. Those cities with the greatest advantages of talent, high end specializations, and the greatest global connections would be best positioned to succeed in making the transition. We can also note the rise of new cities of importance in the BRIC counties, the Middle East, and other parts of the "developing world" that would bring new competition to traditional developed world power players, particularly for those that were already secondary centers in their own country.
While the world's cities do not conform to a conventional Zipf distribution on the basis of population, my research with Gulden finds that we begin to see a much more Zipf-like distribution when we look at economic output and innovation. As Gulden notes:
"When one looks at population, cities across the world do not match the conventional Zipf distribution, My read of the Zipf plots is that capital is much more globalized than population -- in some ways the global urban system is one single system with regard to economic productivity, but it is still a bunch of national systems with regard to population. This single system is shaking out as more and more efficiency is squeezed out of it. The highly creative, productive population gets to do a fair amount of moving with the money -- but those that are left out end up stranded in their home countries."
The upshot is that the world is heading toward a single globalized system of cities, with ever large cities at the top and much more volatility and turbulence for small and medium size ones. This will likely reinforce the position of the New Yorks, Londons, Tokyos, Sao Paolos and Shanghais of the world, while smaller and medium size cities face far greater turbulence and volatility.
This much is clear: The new phase of globalization entails a dramatic reordering of cities around the world. Dealing with this increasingly spiky, concentrated and unequal economic landscape will serve as a major challenge for mayors, city leaders and global policy makers for some time to come.
Top image: Reuters/Issei Kato