Cities make the wealth of nations

Cities make the wealth of nations

Adam Smith called it the wealth of nations. Two centuries later, we talk about "national competitiveness". The World Economic Forum's annual Global Competitiveness Report, for example, identifies the policies and institutions that boost national productivity, which determines competitiveness and economic growth.

Perhaps we should also focus on cities. More than ever, cities - especially existing and aspiring "global cities" - are the lifeblood of the global economy. The competitiveness of cities - what makes them more productive and successful - increasingly determines the wealth of nations, regions and the whole world.

But the competitiveness of a city does not stand in isolation. Cities are still linked to their immediate hinterlands and embedded in their nations. In other words, the competitiveness of a city and the nation of which it is a part are intertwined and mutually reinforcing.

The map of the global economy most of us have in mind is one of nation states connected to each other via trade and the movement of capital, people and technology. That is still highly relevant. But throughout history, the most intensive cross-border economic transactions have been between cities - mostly cities located on coastlines.

It is therefore useful to think of a different map of the global economy: one of cities connected across land borders, seas and oceans through the exchange of goods and services, foreign investment, workers and border-hopping technologies.

Unprecedented levels of urbanisation make this city-based map especially relevant. Three years ago, for the first time in history, over half the world's population lived in cities. Urban areas also account for over 80 per cent of global gross domestic product (GDP).

According to McKinsey Global Institute, as of 2007, 1.5 billion people (22 per cent of the world's population) lived in the world's 600 most populous cities and accounted for a GDP of US$30 trillion (S$37.6 trillion) - well over half the global GDP. The top 100 cities, with a GDP of US$21 trillion, accounted for 38 per cent of global GDP.

In 2025, McKinsey reckons that the top 600 cities will have 25 per cent of the world's population and nearly 60 per cent of global GDP.

What does this mean for the "competitiveness of cities" and the "wealth of nations"?

Most productive policy innovation is happening in cities and sub-national regions. It is not happening at the level of national governments or in international forums like the United Nations, the European Union and the G-20.

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