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Markets & Geopolitics

Metropolis now

Major cities used to be the fulcrum of the national economy. Now they’re nodes of the global economy. Are they starting to care more for their relationships with each other, than with their own hinterlands?

George Bull
24 October 2017

The city mayors of London, Paris and Barcelona signed an open letter in October 2016, arguing that the burdens carried by cities is greater than the funds available to deal with them. “Where states are finding it increasingly difficult to respond to citizens’ needs and address the present’s most challenging issues,” they said, “local governments are already working well on these issues, albeit with limited resources and poorly defined powers.” They went on to say that countries should allocate 25% of their tax revenues to municipalities and enable cities to “access global funding mechanisms currently restricted to nations”.

Cities and their political role

It is an example of the rhetoric calling for a greater political role for cities, many of which are already bypassing national government to tackle global governance issues. September 2016 saw the inaugural convening of the Global Parliament of Mayors, with a mandate to “promote collective city decision-making across national borders”.

The growing status of world cities should come as no surprise. They represent clusters of economic growth, talent and political stability, making them magnets for foreign investment. Tokyo and New York, for example, both have metropolitan GDPs of more than $1tn – that is an economic output similar to Canada or Spain. Products of the 1970s “Washington Consensus”, which favoured open markets, trade liberalisation, privatisation and deregulation, these cities have soaked up the benefits of globalisation, and are in many instances the major engines of the economy. They are open, diverse and connected, but they are also increasingly detached from their hinterlands.

What does the rise of the city mean for the nation?

Chris Choa, director of cities and urban development at Aecom, sees a time when it makes more sense to reorganise nations around networks of megacity regions. There are two things happening in parallel, he says. “On the one hand megacities are growing organically. These cities are not always legal entities, but broad metropolitan areas such as the Pearl River Delta – Guangzhou to Hong Kong – or the [north-east megalopolis] running from Boston to Washington that are effectively becoming a single region and boosting all the urban bits in between. The key here is transport infrastructure and how much of a population you can pull together in a one- or two-hour journey.”

Separately, and especially in older economies, nations are becoming harder to govern because life in the urban cores and rural hinterlands have less to do with each other than in the past. National policy is often too blunt an instrument to resolve these urban conflicts, says Choa. “In a country like the US you have low-density, low-population states technically governed in the same way as high-density, high-population states. But economically, demographically and socially, they’re very different. This creates a crisis for governance; there’s a feeling that the benefits aren’t equally shared.”

A desire for devolution

The result of this inequality is a desire for devolution. For the major city regions, going it alone looks straightforward enough; their scale, density and political stability enables them to “trade” directly with each other. International capital is organised between the major city economies, often with little consideration for the rest of a country. Talent pools connect city to city – moving London to Paris to Singapore – not nation to nation. New transport links, such as the Chinese-funded high-speed train line from Belgrade to Budapest, or the Tokyo to Nagoya maglev service, are shrinking distances. JLL has even observed that commercial trends such as “just-in-time delivery” are starting to drive a reurbanisation of some logistics and manufacturing operations.

Partnership towns

London and Paris

London receives more inward investment from Paris than any other global city, attracting £2.6bn and generating almost 10,000 jobs over the past 10 years. Paris, in comparison, is the largest European destination for foreign direct investment from London.

The day before Article 50 was triggered in March 2017, the mayor of Paris, Anne Hidalgo, and London mayor Sadiq Khan announced the Paris–London Business Welcome programme. Aimed at facilitating the joint domiciliation of companies in the two cities, it aims to ensure that entrepreneurs are able to develop their business in both markets. The programme offers assistance with company set up, access to co-working space, introduction to the local tech ecosystem and networking, and discounted accommodation.

US cities

In June this year, Bloomberg Philanthropies announced that it will invest $200m in the American Cities Initiative, which is designed to promote leadership in city halls, and advance policies and legislation in areas such as education, climate change and reducing gun crime. The first stage of the initiative is the Mayor’s Challenge, giving every US city with at least 30,000 residents the chance to pitch their ideas for funding.

Former New York mayor Michael Bloomberg launched the scheme, saying: “As Washington has grown more dysfunctional, cities have begun to play a vital role in determining our nation’s reputation as a global superpower.”

Coincidentally or not, a day after the announcement, it was reported that 300 US mayors had agreed to back the Paris Climate Agreement despite President Donald Trump pulling the US out of the deal earlier in 2017.

San Diego and Tijuana

The uncertainty caused by Trump’s plans for the US–Mexico border and his potential overhaul of the North American Free Trade Agreement have given some businesses in San Diego and Tijuana cause for pause. Despite this, San Diego mayor Kevin Faulconer has said that his city’s cultural and economic ties south of the border “have my unwavering support”.

On 13 March 2017, Faulconer and Tijuana mayor Juan Manuel Gastélum publicly renewed an agreement about how the cities will continue to cooperate. To date, the memorandum of understanding has resulted in cross-border training for firefighters and joint promotion of the economic advantages of what has been dubbed the “San Diego–Tijuana megaregion”.

Other cities have risen to prominence by using low- or zero-tax strategies to attract companies and capital. Dubai is a good example of this. By combining a favourable business environment with a strategic relationship with Emirates airlines, it has become the busiest international airport in the world. Dubai has seen all this happen in less than 50 years and, while a comparatively small city of 2.8 million people, it has become an essential node on the global city network.

Dubai’s success has not been at the expense of its surrounding areas. “Many parts of the Gulf are too hot to be habitable, so well over 70% of the population [of Gulf nations] already live in cities,” says Chris Seymour MRICS, regional development director and head of markets at Mott MacDonald.

“The Middle East is very much defined by its culture and its narrative is generally around its cities. For that reason, the Emirate of Dubai is effectively the city of Dubai.” - Chris Seymour MRICS

Its rural regions are so sparsely populated that there is no comparable transition. The human experience might be more and more focused around the cityscape, but Seymour says that has always been the case: “From where I’m standing in the Middle East, do I see cities becoming more important than nations? No. I can see this urban network notionally – Dubai is part of it – but then overlay some local arrangements like the laptop travel ban on flights from the Middle East to the US, and geopolitical forces quickly exert themselves.”

Jeremy Kelly, director of global research at JLL in London, says that “as nations become more protectionist, it’s down to city governments to network and set the agenda on things like sustainability initiatives. Investors are following this trend. They’re interested in how cities are future-proofing.”

A seperate foreign policy

Some city mayors are even developing what Kelly describes as “their own foreign policy”. Holland Metropole is an example a new urban region in the Netherlands comprising its four largest and most specialised cities: Amsterdam, Utrecht, Rotterdam and The Hague. Faced with a housing shortage and growing populations, the city mayors and a number of development partners have joined forces to promote the benefits to international investors of a single urban region with a combined GDP of €288bn and a half-hour commute between cities.

Holland Metropole is an example of good branding. Like the mega regions Choa talked about, it is not a legal entity but an alliance that enables the mayors to shout about “10-plus tech clusters within 90 minutes” and “special residence permits for innovators”. “If there’s a regionally coordinated transport initiative, isn’t that effectively the same thing?” suggests Choa. “Cities that were once not connected are now easily connected by rail within an hour. You are effectively defining an economic trading pattern.”

What is interesting about examples like this is that cities that once competed are now working together, says Richard de Cani, head of UKMEA planning at Arup. Take Bath and Bristol. “Two cities with strong identities that now have the same mayor. It will be interesting to see what they can offer to create space for housing, attract investment and draw people out.”

However, it is more challenging for the smaller towns clustered around them, says de Cani. “Many of these cities have suffered. They don’t have the infrastructure. It will take a very long time to connect Grimsby and other parts of Lincolnshire into what’s happening in the north-east and west [of the UK] for example. But often these places have strong heritage and cultural identities – to flourish they need to be able to exploit those.”

Tom Follett, policy and projects manager at ResPublica, says that it is just not possible for all places to be as productive as London.

“The rhetoric has always been to ‘catch-up all the other regions to London’. That’s existed for 20 years now and it hasn’t worked.” - Tom Follett

It is time to face the reality that economies operate differently, says Follett. “Physical regions need different economic models.” An experiment in what this might look like is under way in Preston, north-west England, itself inspired by the “Cleveland Model” in the US. First developed in Cleveland, Ohio, the idea is to set up worker cooperatives that can supply local anchor institutions, such as hospitals, councils and universities, so as to redirect that money locally.

In 2013, Preston City Council brought in the Centre for Local Economic Strategies to help identify 12 large institutions locally with a total annual spending power of £1.2bn. The thinktank then found businesses that could win contracts, such as a £600,000 printing contract tendered by the police, and the council food budget worth £1.6m, which was broken into lots and awarded to farmers across the region. Post-Brexit, the number of contracts these businesses are able to pick up could increase if public institutions, from health to construction, are no longer bound by EU procurement law.

Preston’s council has since spent an additional £4m locally – up from 14% of its budget in 2012 to 28% in 2016. Preston has also recorded the joint-second-biggest improvement in its position on the multiple deprivation index between 2010 and 2015, and last year it was voted the best city in north-west England to live and work.
“These might not necessarily be the high-performing economies that [former British chancellor] George Osborne once envisioned in his productivity plan,” says Follett, “but they might retain jobs and spending power in local areas.”

Choa is also alert to this concern. “Social inclusion is going to become a major priority. It is more likely that there’s deeper exclusion if we don’t reorganise our cities to include their hinterlands. So this itself is driving the need for this reorganisation.”

The challenge for nations is to make sure that these hinterlands are both connected to the country’s urban cores and given the autonomy to pursue economic structures that tap into their merits. Some mayors are already experimenting with this thinking. Perhaps the saviour of the nation state will turn out to be the cities themselves.

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