Belfast Telegraph

Thursday 18 December 2014

Impending urbanisation must be handled carefully

Tokyo is an example of a well-run city
Tokyo is an example of a well-run city

Let's stand back. The long agony of the eurozone will grind on a while yet.

The long slog of correcting UK finances will grind on too. But while they matter tremendously to us, these issues are small in the broader scheme of things.

When they write the economic history of the first decades of this century the focus instead will be on the shift of activity to Asia and the rapid urbanisation of the world.

The first of these themes has received wall-to-wall coverage and for good reason: what China or India does has a profound impact on the rest of us. But urbanisation has been covered more unevenly, with emphasis slanted towards the problems that it creates rather than the benefits and opportunities it brings. A new paper by McKinsey Global Institute, Urban World - Cities and the Rise of the Consuming Class, focuses on the latter and deserves a wider audience.

The starting point is that economic growth is closely associated with urbanisation. As countries get richer more people move into cities.

The UK is unusual in that urbanisation peaked in 1939. And the sharp-eyed among you will have noted that wealth per head in China now is roughly the same as it was in Britain in 1939, while India has roughly the same as Britain in 1860. That is something that makes you think.

The theme of the study runs like this: About one billion people will enter what McKinsey calls the global consuming class by 2025, who have what one might call a modest, middle-class prosperity. Of this billion, some 600 million will be in 440 cities across the emerging world, and will generate half of the global growth to 2025. Only 20 of these will be megacities with a population of 10 million or more, and the rest will be medium-sized cities with a population of 250,000 upwards to the low millions.

These cities will also be a huge market for consumer goods.

And these cities need a lot more buildings. McKinsey estimates between now and 2025 they will have to build almost as many new residential and commercial buildings as the entire stock of buildings that exist now. These cities will need a lot more water, power, ports and other facilities. Managing this well will be an enormous challenge and municipalities will need help from the private sector.

McKinsey thinks we in the West have rather ignored these opportunities, thinking still in terms of countries rather than urban agglomerations, and I think that is right. But my own concern is more that we still see urbanisation as a scourge rather than a blessing.

The problems of cities in the emerging world are very different from those in the developed world.

In the latter the problems are usually concerned with the need to boost slow growth, rather than how to adapt to rapid growth.

But there is one common factor, summed up by McKinsey here: "To sustain and improve their services, most cities will need to be able to do better with less. Involving the private sector can help bring in expertise as well as intelligence about what constraints may be limiting their growth in a particular city and how to overcome them."

I would go further. How will the 10 billion people who will inhabit the world in 2050 have reasonable living standards without putting too heavy an environmental burden on the planet?

A big part of the answer will be to make these new cities function much better. The challenge is to make high-density living safe, pleasant and satisfying.

There are examples of cities that work well. Tokyo, the world's urban agglomeration, is also the safest. Detroit, the centre of a metropolitan area of more than five million people, is one of the most dangerous in the US.

What matters will be whether the majority of those 440 cities that will generate half the world's growth will be well-run or failing ones.

And all this is much more important to the world than what is going to happen to the euro.

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