Wednesday, January 10, 2018

The challenge faced by small cities

Granted cities are the engines of growth, but it is not clear that urbanisation in the developing countries will involve big and small cities or mostly a few big cities. The context for this debate is the the perceived trend of hollowing out of small cities in countries like the US and the success of the larger cities. So what is the outlook for small cities? 

Two separate examinations by Paul Krugman and Emily Badger both raise questions about the future of small cities. 

Emily Badger points out that in earlier times, cities were built on the one or two big businesses that made the city their base. They created supplier networks and jobs which in turn supported significant economic activity not just in the city but its surrounding region. In contrast, the big modern companies have limited local supplier networks and are part of large global supply chains (or the digital ones do not even have a physical supply chain), and even have greater affinity with other similarly place global cities. 

Sample this,
Such a picture, Ms. Saskia Sassen, a sociologist at Columbia, said, “breaks a past pattern where a range of smaller, more provincial cities actually fed the rise of the major cities.” Now major cities are feeding one another, and doing so across the globe. Ram Mudambi, a professor in the Fox School of Business at Temple University, offers an even more unnerving hypothesis, in two parts: The more globally connected a city, the more prosperous it is. And as such cities gain global ties, they may be shedding local ones to the “hinterland” communities that have lost their roles in the modern economy or lost their jobs to other countries...
Those changes have come from multiple directions — from globalization, from computerization, from the shift in the United States away from manufacturing toward a knowledge and service economy. These trends have buffeted many smaller cities and nonurban areas... “The economic base has shifted in a way that highly favors cities — and big cities — because it’s now based on knowledge, on idea exchange, on agglomeration,” said Mark Muro, the policy director of the Metropolitan Policy Program at the Brookings Institution. Programmers benefit from having more programmers nearby, in ways different than when assembly line workers gather together. The forces of agglomeration, which big cities enable, are strongest in the kind of knowledge work that has become central to the economy... “The hinterland for Silicon Valley is Shenzhen,” said Timothy Sturgeon, a senior researcher at the M.I.T. Industrial Performance Center.
Then Paul Krugman has a fascinating hypothesis on how Agriculture sustained small cities earlier and then it was the good luck of industrial development triggered off by the chance coming together into that area of one or two companies. 
Once upon a time, it was obvious what towns and small cities did: they served as central places serving a mainly rural population engaged in agriculture and other natural resource-based activities. The rural population was dispersed because arable land and other resources were dispersed, and so you had lots of small cities dotting the landscape. Over time, however, agriculture has become ever less important as a share of the economy, and the rural population has correspondingly declined as a determinant of urban location. Nonetheless, many small cities survived and grew by becoming industrial centers, generally specialized in some cluster of industries held together by the Marshallian trinity of information exchange, specialized suppliers, and a pool of labor with specialized skills.
What determined which industries a small city developed? In some cases particular features of the location and nearby resources were important, but often it was more or less random chance at first, then a sequence in which one industry created conditions that favored another... Some localized industries created fertile ground for new industries to replace them; others presumably became dead ends. And while a big, diversified city can afford a lot of dead ends, a smaller city can’t. Some small cities got lucky repeatedly, and grew big. Others didn’t; and when a city starts out fairly small and specialized, over a long period there will be a substantial chance that it will lose enough coin flips that it effectively loses any reason to exist... it makes sense to think of urban destinies as a random process of wins and losses in which small cities face a relatively high likelihood of experiencing gambler’s ruin... for generations we have lived in an economy in which smaller cities have nothing going for them except historical luck, which eventually tends to run out.
And he has dismal prognosis about their future,
Are there policy implications from this diagnosis? Maybe. There are arguably social costs involved in letting small cities implode, so that there’s a case for regional development policies that try to preserve their viability. But it’s going to be an uphill struggle. In the modern economy, which has cut loose from the land, any particular small city exists only because of historical contingency that sooner or later loses its relevance.
I am inclined to agree with both of them in the context of developed economies.

But I do think that small cities have more legs to play out in the developing countries. For one, agriculture and rural areas are and will remain major economic drivers well into the future. Second, knowledge based industries are not as predominant as drivers of urban growth as in developed economies.

Finally, there is nothing sacrosanct about the dynamics and trajectory of urbanisation from developed countries which should be applicable to developing countries too. For example, unlike the developed countries in their growth phase, two major factors - traffic congestion and resultant commute times, and affordable housing - have worsened to an extent that they seriously threaten the growth prospects  of the largest cities in developing countries. Unplanned development means that spatial growth in the larger urban centres of developing world is inefficient and it hits its its limits much sooner in the city's development when compared to cities of the developed world.

1 comment:

Karthik said...

I have a chapter about this in my recent book on markets:
https://www.amazon.in/Between-Buyer-Seller-Karthik-Shashidhar/dp/8193197690/ref=sr_1_sc_1?ie=UTF8&qid=1504685834&sr=8-1-spell&keywords=karthik+shashidahr

I recorded a podcast episode for the Seen and Unseen podcast on this topic:
http://ivmpodcasts.com/the-seen-and-the-unseen-episode-list/2017/9/18/ep-36-sezs-special-economic-zones