Urbanization in the 21st Century

In the developing world, large cities are and will continue to be the engines of prosperity and growth. That’s the conclusion of new research by Ed Glaeser and Wentao Xiong. But the benefits of urbanization in emerging economies are not a fait accompli. And even as density, clustering, and agglomeration drive innovation and efficiency, they also concentrate intra-urban inequality and drive sharper divisions between urban and rural populations. How to wield the double-edged sword of urbanization in the 21st century is, as Richard Florida writes in his recent book, “the central crisis of our time.”

First, some numbers. The productivity of workers was 60% higher in urban Uganda compared to rural Uganda, over 150% higher in Bangalore compared to India as a whole, and over triple in Shenzhen compared to the rest of China. The same pattern holds in the developed world as well, with higher per capita GDP in London and Paris compared to the rest of Britain and France. In the United States, the 100 largest metro regions are about 20% more productive than the rest of the metro regions.

Cities have many inherent advantages. Industries tend to concentrate in cities, particularly dense coastal cities, because dense cities facilitate easy trade of goods. Dense cities also facilitate the exchange of skilled workers and ideas. These benefits are called agglomeration economies. As countries modernize their agricultural systems and require less rural labor, people cluster in cities, and this is a key trend driving world urbanization. According to the United Nations, the world became over half urban around 2007, and is projected to be 66% urban by 2050.

But even as urbanization raises standards of living, it raises questions about quality of life. Messy urbanization can even lead to cities without growth. In rapidly growing cities with excessive regulation on building, such as Mumbai, growth is strangled, prices become unaffordable, and residents suffer from overcrowding. If infrastructure is poor, residents of dense cities will also suffer from disease, crime, and traffic congestion.

There is no simple solution to the challenges of urbanization, but growing cities in the developing world must take them head on. To thrive, cities must attract entrepreneurial talent and develop modern infrastructure. To do these things, they must develop strong and honest government.

While Glaeser and Xiong focus on cities in the developing world, there are lessons for advanced economies as well. Many of the largest and most productive cities in the developed world have developed restrictive land-use regulations that prevent people from moving to them. If more people in the United States could move to San Francisco or New York, for instance, this would boost economic activity because SF and NYC have very productive economies. Chang-Tai Hsieh and Enrico Moretti estimate that if land-use restrictions were lifted and people could move freely between cities in the United States, the country’s GDP would be boosted by 9.5%, generating $1.5 trillion of new wealth each year.

As modern cities create wealth, there is the risk that they also concentrate wealth to a dangerous degree. The easing of land-use restrictions in the most productive cities can ease pressure somewhat by allowing more people to move in, but it is not realistic to imagine that the entire United States, for instance, will move into a few large cities. Contemporary urbanization has not just concentrated wealth, but concentrated media and quite possibly contributed to the growing cultural divides that many countries face. Whatever one thinks about Brexit or the election of Donald Trump, these events reflect a dangerous disconnect between urban and rural that can no longer be ignored.

Former Denver Mayor Wellington Webb said, “The 19th century was a century of empires. The 20th century was a century of nation states. The 21st century will be a century of cities.” Ensuring people can thrive in the cities of tomorrow will prove one of the major challenges of this century.