Managing the city economy challenges and strategies in developing countries

1 Cities in a contemporary context 3 2 The purpose of managing the city economy 26 3 The developmental challenge for city managers 41 PART 2 4 The nature of the city economy 65 5 The

Managing the City Economy

In a world increasingly organized as networks of cities, this book offers the first full-length treatment of the subject of managing the city economy It explores key challenges and strategies, particularly in developing countries where developmental deficits are greatest and almost all urban growth will take place between now and

2050 International in scope, this book is unique in its focus as it connects theory with practice

Through an interdisciplinary and strategic approach, this book explores the lenges and options in managing the contemporary city economy It aims to illustrate the extent to which appropriate policy interventions in the city economy could offer effective solutions to some of the most difficult social and environmental challenges facing cities The book comprises five main parts Part I sets the scene by examining contemporary processes that affect cities and explaining the challenges these processes pose for city managers Part II presents a selection of conceptual frameworks com-monly used in urban economic analysis Part III examines the management of secto-ral growth, covering manufacturing, exports of services, transport and logistics, and real estate Part IV addresses urban poverty, low-carbon transition and the informal economy Part V focuses on laying the foundation for long-term city development, exploring the roles of city development strategies, municipal finance, investment in people and appropriate infrastructure

chal-This book is designed for graduate courses in urban economic development, urban planning, urban policy and public administration, and for professionals who are involved in the management of city economies and/or conducting research, consul-tancy or policy advocacy for cities Through critical review of relevant debates and a dozen case studies, this book will equip city managers with the knowledge required

to strengthen the performance of their city economy while delivering authentic and sustainable development

Le-Yin Zhang is a Senior Lecturer with the Development Planning Unit at University

College London, UK

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Managing the City Economy

Challenges and strategies in developing countries

Le-Yin Zhang

2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN

and by Routledge

711 Third Avenue, New York, NY 10017

Routledge is an imprint of the Taylor & Francis Group, an informa business

© 2015 Le-Yin Zhang

The right of Le-Yin Zhang to be identified as author of this work has been asserted in accordance with the Copyright, Designs and Patent Act 1988 The right of the editor to be identified as the author of the editorial material, and of the authors for their individual chapters, has been asserted

in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988.

All rights reserved No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers.

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registered trademarks, and are used only for identification and explanation without intent to infringe.

British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British Library

Library of Congress Cataloging in Publication Data

Zhang, Le-Yin.

Managing the city economy: challenges and strategies in developing countries/Le-Yin Zhang.

Includes bibliographical references and index.

1 Urban economics 2 Urbanization—Developing countries 3 Economic development—Developing countries 4 Regional economics—Developing countries I Title

1 Cities in a contemporary context 3

2 The purpose of managing the city economy 26

3 The developmental challenge for city managers 41

PART 2

4 The nature of the city economy 65

5 The rationale and scope for city-level public interventions 80

6 Frequently used conceptual and theoretical frameworks 98

PART 3

7 Making manufacturing work 115

8 Promoting exports of services 130

9 Exploring the potential of cities as transport junctions

10 Managing urban real estate 159

PART 4

11 Tackling urban poverty 175

12 Exploiting a low-carbon transition 192

13 Dealing with the informal urban economy 206

PART 5

14 Formulating and evaluating a city development strategy 225

15 Safeguarding municipal finance 238

17 Developing appropriate infrastructure 264

11.1 The virtuous cycle of economic growth and poverty reduction 182

12.1 An illustration of a typical technological transition 197

13.1 Slow urbanization and de-industrialization in Ethiopia 216

1.1 Annual growth rate of urban population in major

1.2 World urban population distribution by urban agglomerations

1.3 Estimated urban slum population and proportion in

1.4 Regional capital inflows in 2012 and changes (2007–2012) 14

1.5 Increased importance of developing countries in world

2.1 Estimated total wealth and distribution in the world, 2000 38

3.1 Urban and rural ‘$1 a day’ poverty measures worldwide

4.2 Change in cropping labour productivity in China, 1978–1987 71

4.3 Peasants’ sales (retail and wholesale) to non-agricultural

5.1 Typology of possible economic roles of the state 90

6.2 An illustration of the principle of comparative advantage 103

6.3 Stages of competitive advantage and its sources 108

7.2 Manufactured exports by developed and developing countries 119

8.2 Value, growth and composition of ‘other commercial services’

8.3 Share of developing countries in global exports 135

8.7 Population growth in Bangalore urban agglomeration area 141

10.1 Who owns the city of London? 165

10.2 Changes in key baseline indicator in the Docklands UDA 169

11.2 Unemployment and working poor throughout the world 180

11.4 Growth, inequality and poverty reduction in Brazil, China and India 183

12.1 Growth of selected renewable energy companies in Baoding

13.1 Changes to the size of informal employment in selected

13.2 Different schools of thought regarding the informal economy 211

13.3 Manufacturing size distribution in Ethiopia (2007/08) 218

15.1 Comparative fiscal role of local government in different regions 240

15.2 Distribution of municipal expenditure in selected

15.3 Distribution of municipal revenues in selected developing countries 243

17.1 Uneven distribution of unreliable infrastructure among world regions 264

9.1 Airports can be a risky investment: The case of Zhuhai 150

10.2 Property-led urban regeneration and structural transformation 169

11.1 Poverty reduction through social policy in Brazil 185

11.2 Labour-intensive manufacturing as a key driver of poverty

11.3 Good governance and poverty reduction in Bogotá, Colombia 189

The contents of this book are based on the teaching materials of a module that I have been running since 1998 at the Development Planning Unit (DPU), University College London (UCL) It is a core module for the MSc Urban Economic Development pro-gramme (until 2008, entitled MSc in the Economics of Urbanisation and Managing the City Economy) The MSc programme was created in 1993 by Nigel Harris, a former director of the DPU and Emeritus Professor of the Economics of the City at UCL Based

on more than three decades of professional experience in research, teaching and tancy, he imbued the MSc programme with profound insights about the developmental potential of cities He also supervised my doctoral dissertation and was instrumental in recruiting me to take over the directorship of this MSc programme upon his early retire-ment For all these reasons, I owe an enormous debt to his intellectual leadership in the field of the city economy and to his steadfast personal support and encouragement over the past two decades and a half I could never thank him enough

consul-I would also like to express my thanks to the students who have attended the UED programme over the past 16 years The contents of this book were shaped in innumer-able ways by their questions and our exchanges in the classroom The UED teaching assistants over the years have also contributed to this book by keeping the bibliog-raphy updated for the MSc programme, a resource which I have drawn on freely I thank them all warmly

It gives me great pleasure to express my deep gratitude to the Trustees of the British Friendship Scholarship Scheme (SBFS), which was jointly funded by the Sir

Sino-Y K Pao Foundation and the governments of the People’s Republic of China and the United Kingdom, for awarding me a three-year (1988–1991) scholarship from the SBFS It enabled me to study for a doctorate at the DPU under Professor Harris’ supervision My thanks also go to my former tutors in the Department of Geography (now School of Geography), Beijing Normal University, who recommended me for the receipt of this scholarship I would not be in a position to write this book without their generosity

I would also like to thank my DPU colleagues, especially those in the MSc Urban Economic Development and MSc Development Administration and Planning pro-grammes, with whom I shared many conversations and fun times, especially during our annual fieldtrips to Africa These conversations and the African experiences have been a source of inspiration and motivation to me

Needless to say, this book would not have been possible without the support

of my publisher, Routledge I thank each member of the team with whom I have worked In particular, I thank Khanam Virjee for her enthusiastic reception of the

idea, Robert Langham for reviewing the book proposal and eventually ing the writing, Natalie Tomlinson for keeping me going, Emily Kindleysides for making the change in editorship as smooth as it has been and Daniel Bourner for overseeing the production process Lisa Thomson deserves special thanks for her endless patience in dealing with the final submission of the manuscript In addi-tion, I wish to thank Marylouise Wiack for her determined efforts to make this book more readable than it otherwise would be Her editorial contribution is gratefully acknowledged Thanks are also due to Tamsin Ballard of Swales and Willis for coor-dinating the final production of the book.

commission-Last but certainly not least, I thank my husband (Yao Xu) and my children (Ann and Kevin Xu) with all my heart for their love and support I have no doubt whatso-ever that I would not have been able to write this book without them

All errors are of course mine

Acronyms and abbreviations

ADLI Agricultural Development-led Industrialization

CBD Central Business District

CDP Carbon Disclosure Project

CII Confederation of Indian Industries

CIS Computer and Information Services

CSA Central Statistical Agency

DECC Department for Environment and Climate Change

DESA Department for Economic and Social Affairs

DETR Department of the Environment, Transport and the RegionsDFID Department for International Development

DMIC Delhi-Mumbai Industrial Corridor

EPRDF Ethiopian People’s Revolutionary Democratic Front

FDI Foreign Direct Investment

GATS General Agreement on Trade in Services

GaWC Globalization and World Cities (a research group)

HITEC City Hyderabad Information Technology and Engineering Consultancy

City

ICAO International Civil Aviation Organization

ICLS International Conference of Labour Statisticians

ICRIER Indian Council for Research on International Economic RelationsICT Information and Communication Technology

IEA International Energy Agency

ILC International Labour Conference

ILO International Labour Organization

IPCC Intergovernmental Panel on Climate Change

ISIC International Standard Industrial Classification

KNEC Kwazulu-Natal Executive Council

KSIA King Shaka International Airport

LCOE Levelized Cost of Electricity

LDCs Less Developed Countries

LDDC London Dockland Development Corporation

LtDRs Least Developed Regions

MGI McKinsey Global Institute

MLP Multi-level Perspective

MLSA Ministry of Labour and Social Affairs

MNE Multinational Enterprise/corporation

MoFED Ministry of Finance and Economic Development

MSEs Micro and Small Enterprises

NASSCOM The National Association of Software and Services CompaniesNEET Neither in Employment, nor in Education or Training

NGOs Non-governmental Organizations

NICs Newly Industrialising Countries

NIDL New International Division of Labour

NIMZs National Investment and Manufacturing Zones

NIPFP National Institute of Public Finance and Policy

NPLs National Poverty Lines

OECD Organisation for Economic Co-operation and DevelopmentPASDEP Plan of Action for Sustainable Development and Eradication of

SADC Southern African Development Community

SCMI Supply Chain Management Institute

SEEPZ Santacruz Electronics Export Processing Zone

SLF Sustainable Livelihoods Framework

SMEs Small and Medium Enterprises

SWOT Strengths, Weaknesses, Opportunities and Threats

TCC Transnational Capitalist Class

TIS Technological Innovation System

TNCs Transnational Corporations

UCLG United Cities and Local Governments

UNCHS United Nations Centre for Human Settlements

UNCSD United Nations Conference for Sustainable Development

UNCTAD United Nations Conference on Trade and Development

UNDP United Nations Development Programme

UNESCAP United Nations Economic and Social Commission for Asia and the

PacificUNFCCC United Nations Framework Convention on Climate ChangeUN-HABITAT United Nations Human Settlements Programme

WBGU Germany Advisory Council of Global Change

WCED World Commission on Environment and Development

The history of civilization is marked by the rise, fall and renaissance of great cities such

as Athens, Rome, Venice and London As Braudel (1984) and Abu-Lughod (1991) have so convincingly shown, it was cities that spanned both the trans-continental trade networks of medieval times and the European empires of the more recent past It has been cities’ resources and global reach that have contributed to the growth and strength

of modern nation-states since the sixteenth century (Tilly 1990) Yet a city cannot remain powerful and function well for any stretch of time if it does not have a thriving economy

Curiously, however, the city economy is under-studied, especially in comparison with the national economy This is despite three important facts First, while the city economy goes back four millennia, the national economy as an integral part of the nation-state has gained relevance only in the past five centuries Second, the city econ-omy has a high degree of internal coherence because of proximity and dense exchanges between its economic activities and actors By contrast, the national economy is often

a putative aggregation of the economies of cities and their hinterland regions (or regions) Third, the number of cities has multiplied in recent decades In particular, the number of million-plus cities has risen from 272 in 1990 to 449 in 2010, a 65 per cent increase over 20 years (Scott 2001; UN-DESA 2012)

city-Thus the intellectual neglect of the city economy is not because of its lack of history, coherence or significance Rather, it is an unfortunate consequence of the political economy that has made cities mere subordinate units in the framework of nation-states However, the order of the world is changing with urbanization, globalization and a plethora of other processes (see Chapter 1) Urban researchers and futurists are predicting a diminishing role for nation-states and the ascendency of city-states in the coming decades (e.g Petrella 1991; Brenner 1998; Taylor 2004) It is high time that

we pay the city economy the intellectual attention that it deserves

Shortcomings of urban economics textbooks

Of course, a score of textbooks exist on urban economics, the discipline that is most closely related to the city economy So why do we need a book like this? My argu-ment is that existing urban economics textbooks provide limited guidance for the management of the contemporary city economy, especially on where and what mat-ters I will explain First, urban economics textbooks are usually set in the context

of developed countries (specifically the United States) However, it is the developing world1 that faces the gravest challenges in managing city growth This is because

developing countries already account for three-quarters of the million-plus urban agglomerations in the world and will host 94 per cent of the 2.3 billion people who will become urban residents between 2015 and 2050 (UN-DESA 2012) Moreover, the urban management challenges in the developed and developing worlds are fun-damentally different: while many cities in the developed world (or developed cities for the sake of brevity) are trying to deal with problems that come with economic maturity, affluence and over-stretched welfare states, cities in the developing world (or developing cities for short) are suffering from a low level of economic devel-opment, manifested in multiple deficiencies ranging from low productivity, weak technological foundations, poverty, poor access to education and infrastructure, to large income disparities and informal institutions.

Indeed, in the developing world, the dominant economic challenge remains trialization As ‘virtually every country that experienced rapid growth of productivity

indus-and living stindus-andard over the last 200 years has done so by industrialising’ (Murphy et al

1989, p 1003), the crucial question for today’s developing countries (and developing cities) is two-fold: Should they also try to industrialize? If yes, how? If not, what alter-native paths of development can they follow? Such questions are a far cry from urban economics’ preoccupation with spatial equilibrium and optimization

Moreover and second, the scope for public intervention is much greater in the developing world because of the lack of well-developed markets and institutions A comparison of India with the United States shows, for instance, that population size and level of existing industry can explain 80 per cent of the spatial variation in entre-preneurship (measured by jobs created by new firms) in the United States, but only 29 per cent of the same in manufacturing and 33 per cent in services in India The authors conclude:

A large portion of this gap is because India is in a much earlier stage of ment India’s industrial landscape is also adjusting after the deregulations of the 1980s and 1990s At such an early point, and with industrial structures not yet entrenched, local policies and traits can have profound and lasting impacts by shaping where industries plant their roots

develop-(Ghani et al 2014, p 3) 

Given such differences, the role of government warrants very careful consideration in developing cities In contrast, however, reflecting an anti-interventionist stance per-meating neoclassical economics, urban economics focuses on the study of economic factors underpinning the locational decisions of individuals, households and firms in urban settings and their spatial effects, rather than what the government ought or is able to do

Third, urban economics is concerned with issues that have limited relevance to the needs of developing cities One of the leading textbooks on urban econom-ics states: ‘Urban economics explores the location decisions of utility-maximizing households and profit-maximising firms, and it shows how these decisions cause the formation of cities of different size and shape’ (O’Sullivan 2009, p ix) In other words, urban economics is focused on understanding what happens to the cities themselves in terms of size and shape, rather than the current performance and long-term transformation of the city economy and the impact on people But developing cities are in urgent need of economic transformation

Urban economics has a fourth deficiency, namely that, methodologically, it draws

on neoclassical economics (and geography), rather than political or social economy, not to mention other disciplines In reality, however, the city economy is fundamen-tally a social economy: not only is the social domain where difficult decisions about distribution have to be made, but social relations are also what underpins the produc-tive and innovative capacity of the city economy (Storper 1997) Similarly, there are also inherent links between economic and environmental processes Such links mean that the process of managing the city economy requires a cross-disciplinary approach

to the city economy

Indeed, this book argues that many environmental and social problems are linked with how the economy operates, and that a strong and stable economy can go a long way towards laying the foundation for social stability and environmental sustain-ability On the other hand, it also advocates that ethical considerations such as equity and sustainability must inform policy decisions by governments This book seeks to exploit these two-way dynamics to support not only the city economy, but also the sustainable development of the society and the well-being of its people

My approach

Pedagogically, this book seeks to help readers – postgraduates and practitioners alike – to gain a better understanding of the character and dynamics of the city economy: its role in the international/national economies; its component activities and their operating contexts; the interdependence and interaction between these activities; and the forces that underpin the performances of individual sectors and drive the structural transformation of the city economy as a whole In so doing, it presents the city economy as a distinct unit of analysis in its own light, rather than

a subdivision of the national economy

This book takes an interventionist approach towards the city economy In other words, it subscribes to the view that the role of the state should go beyond the basic provision of law, order and security Accordingly, it seeks to explore all available ven-ues and means by which state actions can effectively promote efficiency, sustainability and social justice at the city level Nevertheless, the brevity of this text means that this exploration is conducted in broad strokes The best way to make use of this book is probably to treat it as a road map for more in-depth exploration

To serve its purpose, this book pursues the subject matter of managing the city economy along three lines of inquiry First, it critically surveys the key theoretical debates surrounding the relative roles of the market and the state in urban economic development, the ethics of development and the dynamics of urban economic growth and development, especially in the contemporary global context In this respect, the book will sensitize the reader towards current key debates in the field It will also help develop the reader’s ability to grasp and apply socio-economic concepts and theories to understanding and analysing urban economic development issues, as well

as to appreciate the scope, options and limitations of government intervention at the city level for development purposes After all, it aims to enable the reader to acquire

a critical mass of knowledge and perspectives required in order to competently lyse macroeconomic data at the city level, and to develop, formulate, and evaluate industry-level and city-level development policies and strategies in pursuit of urban economic development goals

ana-Second, in recognition of the significant structural differences between the city economy in developed and developing worlds, and given that the majority of the urban growth in the next few decades will take place in the developing world, this book focuses on issues affecting cities in developing countries Nevertheless, in recog-nition of growing interconnectedness under globalization, efforts are made to place these discussions in the internal and external contexts of cities’ long-term socio-economic development processes, to learn lessons from more developed cities’ past successes and mistakes, and to explore connections between the cities on both sides

of the shifting divide between the developed and the developing worlds Indeed, I believe that developing cities’ performance, and their scope and options for action, can only be properly understood in the context of what has happened and is happen-ing elsewhere, and that they can learn a great deal from developed cities and from each other This is why much attention is paid to cross-city comparison and relations Most importantly, emphasis is placed on exploring the opportunities that derive from the external contexts

Third, the principal thrust of this book is in the direction of pragmatic and critical learning from theories and past experiences, rather than policy prescription out of a par-ticular theoretical perspective The fact is that I am not pre-committed to any particular theoretical perspective Rather, I have taken what Creswell (2009) has described as ‘the pragmatic worldview’ This book’s main mission is to enable the reader to gain a sense

of what interventions work or do not work, and the underlying reasons In essence, it means that emphasis is placed on identifying the problems and challenges in specific areas and the approaches available to tackle them in the light of theories and prior experiences However, my concern with practical problems and their remedies does not mean that I have become detached from theory Rather it compels me to choose

a perspective that suits the specific task or issue at hand This means a degree of ency in interpreting reality and experiences through theoretical lenses In other words, I

flu-am adopting what Hirschman (1987) has called a ‘more open-ended, eclectic, sceptical inquiry’, rather than ideologically positioned prescriptions Synthesising and building on existent literature, this book places emphasis on critically understanding and applying different perspectives to real-life situations concerning the city economy In this sense, I strive to be the bee, rather than the ant or spider, as Francis Bacon has observed.2There is considerable emphasis on industry-level analysis in this book This is prem-ised on the idea that the prosperity of a city – like a nation or region – is fundamentally determined by how its industries perform, and that industries are meaningful units for policy intervention thanks to their specific characteristics and shared contexts and needs (Porter 1998)

This book obviously focuses on economic topics and issues As stated earlier, though, there is no pure economy, but political or social economy.3 That is to say, political processes and social relations fundamentally affect, and are in turn affected

by, how the city economy operates Thus I will also be concerned with political and social processes whenever they affect the city economy in an important way, and endeavour to illustrate how economic processes and instruments can be used to help the process of meeting social and environmental challenges In this sense, the role of the state in the city economy, in terms of its policies, strategies and actions, will be a running theme throughout the book

However, there is no presumption that city managers will be able to control the exact course that their city will take because of their action Rather, they are encouraged to

approach their task intelligently and strategically, knowing that their chance of success

is greater if their action is sound In this regard, Giddens’ (1991) analysis about nity is insightful He likens modernity to a juggernaut, something whose exact course can’t be controlled and predicted He stresses however that this does not mean that we should give up our attempt to influence the future Instead we should engage in ‘the creation of models of utopian realism’ (p 154) Part of the mission of this book is to discover elements of such models

moder-The central questions of this book

This book poses many questions about the city economy and public intervention at the city level However, its central question is: ‘How and to what extent can city manag-ers help achieve significant progress towards authentic and sustainable development

in their city (and possibly beyond) by managing the city economy more effectively?’ This raises questions about who city managers are and what constitutes authentic and sustainable development Loosely defined, city managers are municipal officials with

a degree of responsibility for the performance of the city economy Mayors, planners and economic development officers all fall into this category Authentic development

is discussed in Chapter 2 in detail But briefly, this is the kind of development that effectively achieves economic efficiency, social justice and environmental sustainability Following the World Commission on Environment and Development (WCED) (1987), sustainable development is defined as development that meets the needs of the current generation without compromising the ability of future generations to do so

In order to answer this central question, this book addresses numerous other lesser questions, including the following:

• What should be the purpose of managing the city economy?

• How can cities perform better in terms of efficiency, equity and sustainability? What can we learn from past experiences in different parts of the world?

• What industries and economic activities have the greatest potential for facilitating authentic and sustainable development?

• Apart from agglomeration economies and dis-economies, what else drives the contemporary city economy, especially in the developing world?

• How can we raise the productivity of particular industries?

• What advantages and disadvantages do different types of cities have, and how can

we utilize this knowledge for authentic and sustainable development?

• How is the city economy related to international, regional and national economies?

• What crucial opportunities do globalization and climate change provide to developing cities (including their industries)? How should cities respond to these processes?

What does the book cover?

This book focuses on the identification and elaboration of key challenges facing city managers regarding their economy and its component activities; the theoretical perspectives and tools that can be used for diagnosis and prognosis; and the extent

to which public intervention can help to meet these challenges, and the scope, options and possible limitations of such interventions It elucidates and illustrates

these challenges and possible solutions by drawing on a wide range of literature and practical experiences around the world, albeit briefly To benefit fully from this book, the reader needs to follow its lead and conduct their own research into the issues and experiences identified.

This book has five parts Part I sets the scene by examining the contexts, both practical and ethical, for contemporary cities and city managers It covers five broad processes: urbanization; the evolution of the capitalist world economy; the ICT rev-olution; climate change; and democratization and decentralization This part also explains the broad challenges for city managers that emerge from these processes and from the ethics of development Part II explores the key theoretical issues surround-ing the city economy and public intervention This covers the driving forces for urban growth and structural change, and the rationale and scope for public intervention

To aid application, it also includes a chapter that describes and evaluates some of the most frequently used conceptual and theoretical frameworks in urban economic analysis and management

compo-nent activities The division of labour between the three parts is as follows: Part III

considers the management of sectoral growth, Part IV is concerned with cross-cutting issues and Part V deals with long-term topics More specifically, Part III looks at challenges and strategies in managing sectoral growth in four particularly dynamic areas of the city economy: manufacturing, exports of services, transport and logistics, and real estate This exploration aims to illustrate the different dynamics that affect these sectors and the disparities in their potential to fulfil development purposes Each chapter has four main parts: 1) the socio-economic characteristics of the sector and its developmental potential; 2) market prospects: supply and demand conditions; 3) key challenges: constraints, imbalance and tensions between different goals and processes; and 4) strategic practices (case studies)

at the challenges and strategies relating to urban poverty, low-carbon transition and the informal economy What these three chapters have in common is that the issues are topical and there is a significant amount of existing work, although less so for low-carbon transition My effort is focused on connecting the existing work with the city economy in order to generate new insights on these issues Each chapter has four main parts: 1) the origin and significance of the issue; 2) different perspectives; 3) key challenges in terms of constraints, imbalance and tensions between different policy measures; and 4) practices (case studies)

foundation for long-term development Here I explore the formulation and evaluation

of City Development Strategies (CDSs), the safeguarding of municipal finance, and issues around investing in people and developing appropriate infrastructure Although these tasks relate to traditional public sector work, the forms that they take and the challenges that city managers face are quite new What they have in common is that there is significant presence of externalities (i.e market failures) so that these are areas that individuals and businesses would look to the public sector to take care of In other words, they can have a profound impact on whether a city is able to function effectively and attract the right types of firms and people This part aims to illustrate how a more strategic, pro-active and entrepreneurial approach by city managers could strengthen their city economy, enhance social welfare and individual well-being, and

facilitate sustainability in the long-run It also explores some of the constraints in doing so Each chapter also has four main parts: 1) assessing the significance of the topic; 2) a review of contrasting perspectives; 3) an outline of potential and key chal-lenges; and 4) practices (case studies).

Notes

1 Following the World Bank definition, the term developing countries/world here refers to low- and middle-income countries, with a per capita national income below US$12,615 In this book, they are used interchangeably in broad terms with less developed countries/world, underdeveloped countries/world, or the Third World.

2 ‘Those who have handled sciences have been either men of experiment or men of dogmas The men of experiment are like the ant, they only digest and use; the reasoners resemble spi- ders, who make cobwebs out of their substance But the bee takes a middle course; it gathers the material from the flowers of the garden and of the field but transforms and digests it by a power of its own’ (cited in Deane 1989, p 12).

3 There is a fine discussion about this point in Braudel (1984), p 19.

References

Abu-Lughod, J L (1991) Before European hegemony: The world system A.D 1250–1350

New York: Oxford University Press.

Braudel, F (1984) The perspective of the world London: Collins.

Brenner, N (1998) Global cities, global states: Global city formation and state territorial

restruc-turing in contemporary Europe Review of International Political Economy, 5(1), 1–37 Creswell, J W (2009) Research design: Qualitative, quantitative, and mixed methods

approaches, 3rd ed London: Sage.

Deane, P (1989) The state and the economic system: An introduction to the history of political

economy Oxford: Oxford University Press.

Ghani, E., Kerr, W and O’Connell, S D (2014) What makes cities competitive? Lessons from

India Economic Premise, 132, pp 1–4.

Giddens, A (1991) The consequences of modernity Cambridge: Polity.

Hirschman, A (1987) The political economy of Latin American development: Seven exercises

in retrospection Latin American Research Review, 22(3), 7–36.

Murphy, K M., Shleifer, A., and Vishny, R W (1989) Industrialization and the big push

Journal of Political Economy, 97(5), 1003–1026.

O’Sullivan, A (2009) Urban economics, 7th ed New York: McGraw-Hill.

Petrella, R (1991) World city-states of the future New Perspectives Quarterly, 8(1), 59–64 Porter, M E (1998) The competitive advantage of nations Basingstoke: MacMillan.

Scott, A (ed.) (2001) Global city-regions: Trends, theory, policy Oxford: Oxford University Press Storper, M (1997) The city: Centre of economic reflectivity The Service Industries Journal

17(1), 1–27.

Taylor, P (2004) World city network: A global urban analysis London: Routledge.

Tilly, C (1990) Coercion, capital and European states, AD 900–1990 Oxford: Blackwell United Nations Department of Economic and Social Affairs (UN-DESA) (2012) World urbani-

zation prospects: The 2011 revision – highlights New York: United Nations.

World Commission on Environment and Development (WCED) (1987) Our Common Future

Oxford: Oxford University Press.

Part 1

Contexts: Understanding the field

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1 Cities in a contemporary context

Introduction

Cities operate in complex, multi-layered contexts Such a configuration challenges our ability to imagine them and design interventions aimed at improving their perfor-mance However, a good grasp of these contexts can significantly facilitate the task of steering the city economy This chapter provides an overview of the five most potent processes that, in my view, affect cities: urbanization; the evolution of the capitalist world economy (including globalization); the ICT revolution; climate change; and democratization and decentralization

Urbanization and cities

Definitions

Urbanization and cities are two intrinsically connected, but distinct phenomena Urbanization refers to an increase in the proportion of the population residing in urban areas in total population Thus the criteria of the urban, as opposed to the rural, play

a key role here In fact, such criteria vary a great deal between countries, ranging from administrative status, population size and density to economic structure and functional features of the settlement However, the most frequently used criteria are administrative status on the one hand, and population size/density on the other (UN-DESA 2012a) Even within the same criterion, though, threshold requirements could differ When pop-ulation size is used as a criterion, for instance, its threshold can vary from 200 to 50,000 people (UN-DESA 2012a) Another point to note is that, at a higher level of urbani-zation, where people live may not reflect what they do for employment: a software engineer may choose to live in the countryside This has led to efforts to count urban populations not in terms of where they live, but what they do All these variations can have significant impact on the recorded level of urbanization in a country Thus, ‘India can be said to be less than 30 per cent urban or more than 60 per cent urban, depending

on the proportion of settlements with between 2,000 and 20,000 inhabitants classified

as urban or rural’ (Tacoli 2003, p 10) This discrepancy cautions against accepting any cross-country urbanization figures too readily Notwithstanding this, the UN-DESA (2012b) finds that, as of 2011, 52 per cent of the world population were already living

in urban areas, responsible for an estimated 80 per cent of the economic activities on this planet In reality, of course, urbanization means much more than the spatial concen-tration of people, or occupational change It also entails the diffusion of the system of values, attitudes and behaviour that characterize ‘urban culture’ (Castells 1977)

Cities form a subset of all urban areas They are characterized by high density and complex forms of social, economic organization and functions The United Nations (2014) regards the ‘city proper’ as a ‘locality defined according to legal/political bound-aries and an administratively recognized urban status that is usually characterized by some form of local government’ This highlights the importance of the administrative status of the settlement in defining cities.

However, the city defined here is only the political city, not the economic city The economic city (or the city economy) is normally larger than the political city It refers

to inter-related, concentrated economic activities in and around a city, integrated through the labour and housing markets In fact, to follow Storper’s (1997) concep-tualization of the city economy as a social economy, it ought to include not only the economic activities, but also the social relations underpinning these activities Further-more, the scope of integrated economic activities depends to a crucial extent on the availability and efficiency of a networked infrastructure Therefore, broadly speaking, the city economy encompasses the integrated economic activities, the social relations and the physical infrastructure that underpin these activities and their integration.Depending on the threshold requirement of integration, the city economy mani-fests itself through either the metropolitan area or the wider metropolitan region The metropolitan area is typically characterized by a denser core and less dense peripheral areas in terms of population For instance, in the case of the United States, in the 2002 Census, a metropolitan area included a core area with a population of at least 50,000, together with adjacent communities that are integrated, in an economic sense, with the core area To be included as part of a metropolitan area, outlying areas must meet certain minimum thresholds (25 per cent) of commuting rate to or from the core area (O’Sullivan 2009, Chapter 1) On the other hand, the UN-DESA (2012b) defines the metropolitan region as including ‘both the contiguous territory inhabited at urban lev-els of residential density and additional surrounding areas of lower settlement density that are also under the direct influence of the city (e.g., through frequent transport, road linkages, commuting facilities etc.)’ (p 7) The OECD (2006) writes:

Metropolitan regions are generally identified as large concentrations of population and economic activity that constitute functional economic areas, typically cover-ing a number of local government authorities An economic area in this sense denotes a geographical space within which a number of economic links are con-centrated: most obviously labour markets, but also networks of firms, important parts of supply chains, and relations between firms and local authorities

(p 31)Once again, it is important to recognize that there are significant differences in how metropolitan areas and regions are defined Moreover, the differences between a metropolitan area and region are a matter of both scale and substance On the one hand, a metropolitan region (or city-region) covers a wider area than a metropolitan area However, there is also a substantive difference in terms of functions While it is commuting that links up the metropolitan area, it is the mutual provision of services that underpins the metropolitan region In the case of London, its metropolitan area includes the central city (i.e areas covered by the Greater London Authority) and its neighbouring home counties, while the London metropolitan region covers the wider Southeast region of the United Kingdom (Llewelyn-Davies 1996)

Urbanization versus city growth

It is important to distinguish urbanization from city growth: whilst the former is a transition with an end point (i.e urbanization level of 100 per cent), the latter could

go on growing without limit Indeed, Davis (1965) stresses that for contemporary urbanising societies, the key challenge lies in managing city growth, rather than con-trolling the speed of urbanization as governments tend to do

Davis notes that, contrary to popular belief, the speed of today’s urbanization in developing countries is only slightly faster than developed countries in their heyday

of urbanization: in 40 underdeveloped countries for which he had data in the decades

up to the 1950s and 1960s, the average increase in the proportion of the population that was urban was 20 per cent per decade, whereas in 16 industrial countries, during the decades of their most rapid urbanization (in the nineteenth century), the average gain per decade was 15 per cent (p 49) However, he finds that the absolute growth of urban populations in today’s underdeveloped countries was much faster than that of earlier urbanizers: in 34 underdeveloped countries for which Davis had data relating

to the 1940s and 1950s, the average annual gain in urban population was 4.5 per cent, compared with 2.1 per cent in nine European countries during their period of fastest urban population growth (in the second half of the nineteenth century)

More recent statistics show that urban population growth in the 1950s, 1960s and 1970s was actually much faster than in subsequent decades across the world Most regions had their peak growth rates by 1970 (Figure 1.1) The only exceptions were China and India: China had two peaks – 5.9 per cent per annum in 1950–55 and 5.4 per cent per annum in 1980–85 – whereas India’s peak came in 1975–80 at 4.4 per cent per annum (Table 1.1)

In comparison, for the 35 years between 2015 and 2050, the urban population is projected

to increase globally by only 1.4 per cent per annum on average This projected rate is only slightly higher for less developed regions (LDRs) (1.7 per cent), but much higher for the least developed regions (LtDRs) (3.5 per cent) The rate will be 2.2 per cent for India and 3.4 per cent for Sub-Saharan Africa (SSA) By 2045–50, urban population growth will completely cease in China, but it will continue for LtDRs and SSA, at 2.9 per cent (Table 1.1)

By contrast, the rates of urbanization, measured by increases in the level of zation, are more diverse As Figure 1.2 shows, in the less developed world and Asia, the first decade of the twenty-first century saw the peaking of this increase: the average increase in the percentage of urban population per decade was nearly 6 per cent in the less developed world and almost 7 per cent in Asia However, in SSA, this rate peaked

urbani-in 1960–70 and reached its trough (4 per cent per decade) urbani-in the 1990s Indeed, urbani-pendent research suggests that the rate of urbanization may have been substantially over-estimated Using satellite image data, a study from the London-based African Research Institute (2012) suggests that out of 18 selected African countries, four experienced de-urbanization in the previous decade; ten countries’ urbanization either stagnated or grew by less than 1 per cent in the first decade of the twenty-first century; and in only four countries (Kenya, Tanzania, Cameroon and Burkina Faso), there appeared to be meaningful urbanization (i.e by more than 1 per cent in a decade), although even here there is some uncertainty For instance, while the populations of the two largest cities in Kenya (Nairobi and Mombasa) appeared to have grown faster than the national population, eight of the eleven main established towns recorded in previous censuses grew more slowly than Kenya’s national population between 1999 and 2009 The report concludes: ‘The evidence in many countries indicates an increase

inde-Figure 1.1 Growth of urban population in major regions.

Source: Data from UN-DESA 2012b.

in the urbanisation level of only about 1 per cent per decade’ (p 10) This suggests

that urbanization per se was stagnant in some SSA countries.

Determinants of urbanization

There are three determinants of urbanization:

1 growth and reclassification of previously designated rural areas as urban;

2 faster natural population growth in urban areas compared with rural areas; and

3 rural-urban migration (Davis 1965)

Davis notes that there are major differences in the patterns of urbanization in terms

of the relative contributions of the second and third factors between earlier zation of today’s industrial countries and the contemporary urbanization in today’s developing countries Relating to the factor of relative urban population growth, he notes that, while early urbanization was held back by higher mortality rates in urban areas and had to drain the countryside for labour used in urban centres, this is not the case anymore Improvements in medical services and better infrastructure have made urban areas much more liveable As a result, developing cities have much higher natural population growth

urbani-Table 1.1

Major area, region, or country

Figure 1.2 Past and projected rates of urbanization.

Source: Data from UN-DESA 2012b.

More developed regions

Less developed regions

In particular, Davis finds that, whilst rural-urban migration provided the dominant source of early urbanization, this was not the case in the 1940s and 1950s For instance, general population growth and rural-urban migration provided 44 per cent and 20 per cent respectively of the growth of the urban population in Costa Rica (1927–1962); and

50 per cent and 22 per cent respectively in Mexico (1940–1960) The comparative figures were 19 per cent and 69 per cent in Switzerland (1850–1888); general population growth provided only 21 per cent of the growth in France (1846–1911)

Davis attributes the diminished role of rural-urban migration to the lack of nomic development (or industrialization) in cities of underdeveloped countries While early urbanization in today’s industrial countries effectively ‘took surplus rural manpower and put it to work producing goods and services that in turn helped to modernize agriculture’, city growth today has become ‘increasingly unhinged from economic development’

eco-Bairoch (1988) provides even more striking evidence of what he calls the urbanization’ and ‘urbanization without industrialization’ in the Third World In particular, he explores the gap between the level of urbanization and the percentage

‘hyper-of industrial (including manufacturing and mining) employment in total ment for today’s developed countries and the Third World at the heights of their urban growth His analysis reveals that the gap was about 50 per cent in the first half of the nineteenth century for the developed countries, but 130 per cent for the Third World in the first half of the twentieth century

employ-Though more recent comparable data are lacking, there is little evidence that, with the exception of Asia, this situation has improved at all The situation in SSA is especially dire Evidence shows that, during 1995–2010, out of the 44 countries examined, only 12 coun-tries managed to increase the share of manufacturing in their GDP In comparison, 18 countries increased the share of mining in total GDP (IMF 2012, Table 3.2) Given rela-tively high and rising productivity in industry, it is likely that these figures hide a declining, rather than rising, ratio of industrial employment In other words, the ‘urban explosion’ that so worried Davis and Bairoch decades ago remains a problem today.

Conditions of developing cities

Contemporary urbanization in developing countries is accompanied by the existence of cities of extraordinary scale As of 2010, 17 out of 23 (74 per cent) mega-cities (with 10 million or more inhabitants) and 30 out of the 38 cities with populations of 5 to 10 mil-lion were in the LDRs Fifty-two per cent of LDRs’ urban population live in cities with more than half a million residents Moreover, it is projected that, by 2025, 29 out of 37 (78 per cent) mega-cities will be in LDRs, and 59 per cent of the urban population will be living in cities with a minimum of half a million people in the LDRs (Table 1.2)

The proliferation of mega-cities in developing countries is fed by fast natural population growth and the lack of labour-related opportunities elsewhere, as well

as deregulation and liberalization However, such city sizes severely challenge the already constrained coordination capacity of local authorities in a number of areas ranging from employment, housing and infrastructure, to environmental manage-ment and municipal finance The widespread existence of urban slums and the high proportion of urban slum dwellers are perhaps the clearest signs that all is not well

million people, or nearly 62 per cent of the total urban population, lived in slums

In summary, the challenge of urbanization in the developing countries is both qualitative

and quantitative The problem is two-fold: while urbanization per se is not

particu-larly fast, there is fast city growth However, as demonstrated by the large number of slums, this city growth has apparently outstripped the growth of governance capacity and the resources needed for urban development On the other hand, the lack of eco-nomic development in cities has led to widespread development deficits among existing

Table 1.2 World urban population distribution by urban agglomerations of different sizes

Source: Adapted from UN-DESA (2012a), File 17a.

urban populations in cities How to facilitate urban economic development and help to address the development deficits is a central challenge for city managers.

The evolution of the capitalist world economy since the 1970s

Few economic entities ever exist in isolation Indeed, scholars like Braudel, Abu-Lughod and Jacobs have shown that the fortune of an economic entity, be it a country, region or city, depends crucially on where it stands in the web of trading relations, or the division

of labour of which it is a part

The relationship between the developed and developing is profoundly determined

by the nature of the world-wide capitalist economy As Marx pointed out a century and a half ago, capitalism is founded on the pursuit of profit-making and capital accumulation It is characterized by private ownership, market-based coordination and a distribution regime overwhelmingly in favour of capitalists As a result, polariza-tion without re-distribution is a defining feature of the capitalist system Globally, the capitalist system has produced the stratification of nation-states Back in the 1950s, Dependency Theory scholars recognized the unequal relationship between peripheral economies and centre economies, where the former became specialized in the production

of raw materials and the latter in manufacturing This resulted in ‘the development of underdevelopment’ (Frank 1969) or ‘dependent development’ (Cardoso 1972) in the former colonial economies even long after decolonization

However, the capitalist world economy has entered a new era since the 1970s, when the Oil Crisis saw the quadrupling of world oil prices within a decade thanks to the decision of the OPEC to raise oil prices This Crisis has had a profound impact on the economies in both the developed and developing worlds By dramatically raising raw material costs, it accelerated the efforts by producers in developed countries to seek out low-cost production sites overseas through foreign direct investment (FDI) and in the process drew the economies of developed and developing countries ever closer This process has re-defined economic relations between different parts of the world

Table 1.3 Estimated urban slum population and proportion in developing countries, 1990,

2000 and 2010

Urban population living in slums (1,000)

Proportion of urban population living in slums (%)

All developing regions 656,739 766,762 827,690 46.1 39.3 32.7

Sub-Saharan Africa 102,588 144,683 199,540 70 65 61.7 Latin America and the Caribbean 105,740 115,192 110,763 33.7 29.2 23.5 Eastern Asia 159,754 192,265 189,621 43.7 37.4 28.2 Southern Asia 180,449 194,009 192,748 57.2 45.8 35 South-Eastern Asia 69,029 81,942 88,912 49.5 39.6 31

Source: Adapted from State of the World’s Cities 2010/2011, Table 1.3.1 p 32.

Note: The MDGs’ progress report (UN 2013) shows that the percentages were stable between 2010 and 2012.

‘New international division of labour’ and stratification of nation-states

Fröbel et al (1978) describe this process as a ‘new international division of labour’

(NIDL) Their claim is that, from the mid-1970s, the preconditions for the expansion and accumulation of capital have experienced a qualitative transformation:

[T]he old or classical international division of labour, where the underdeveloped countries were on the whole only incorporated into the capitalist world economy as raw material suppliers, no longer exist[s] today At present, it is the underdeveloped countries which are increasingly becoming the location sites of manufacturing indus-tries for competitive production in the world market

(p 125)This transformation is said to be dependent on three preconditions:

1 ‘The development of a world-wide “reservoir” of potential labour force’ This covers a low wage (10–20 per cent of the level in traditional home markets); a longer working day and the flexibility to vary the working day; a level of pro-ductivity comparable to developed countries; the ease to hire and fire; and a pool large enough to meet any specific requirement in terms of age, skill, sex etc

2 ‘The development of technology which renders industrial location and the tion of production itself less dependent on geographical distances’ (transport and telecommunication technologies play an important role here)

direc-3 ‘The development and refinement of technology and labour organization which makes

it possible to decompose complex production processes into elementary units so that even an unskilled labour force can easily and quickly be trained to perform otherwise

complex operations (fragmentation of jobs)’ (Fröbel et al 1978, pp 126–128).

A useful way of thinking about the NIDL is through the lens of Raymond Vernon’s (1966) Product Cycle theory It hypothesizes that there are three main stages in the life of a product – growth, maturity and standardization – each of which has differ-ent implications for spatial patterns of domestic and overseas production First, a new product tends to be developed and made first in the market where there is the demand for it (e.g a high-income or labour-saving product in the US), and where it is easiest to find a variety of supporting inputs (including information) outside the firm (i.e external economies)

Second, once the product design and manufacturing techniques are sufficiently developed and standardized, economies of scale and cost saving become primary con-siderations The need to meet emerging demand overseas will lead to the establishment

of overseas production facilities through FDI once the marginal production cost plus the transport cost of the goods expected from the US exceeds the average cost of pro-spective production in the market of import The need to overcome tariff and non-tariff barriers and the wish to secure market shares strengthens the motivation of overseas production

Finally, when the product is fully standardized and the production process can be precisely specified, the cost of labour becomes a significant factor in reducing the over-all costs Home production will then diminish and overseas production will be used

to meet both home and overseas demand (including those of the third parties) This

is facilitated by the fact that there is a large scope to break manufacturing production into a series of operational steps (Vernon 1966)

The Product Cycle theory implies that high-income economies will lead in the ment of new products and the associated technologies, especially those that are demanded

develop-by high-income consumers, whereas low-cost developing countries will be able to attract FDI and become specialized in the manufacturing of a variety of products by utilizing standardized technologies, transferred from the more developed countries While the transfer of technology and employment opportunities that are created by this re-location

is welcomed in developing countries, the theory does raise the question of whether oping countries could ever catch up with developed countries (see Chapter 3)

devel-Wallerstein’s World-systems theory provides another interesting angle Wallerstein (1979) postulates that, since the sixteenth century, we can only properly understand a national economy in the framework of the world-system or the capitalist world-economy, which he defines ‘simply as a unit with a single division of labour and multiple cultural systems’ (p 97) The essential feature of the capitalist world-economy is ‘production for sale in a market in which the object is to realize the maximum profit’ (p 101) Thus capitalist production is constantly expanded as long as further production is profitable

In this analysis, the role of political entities, including the nation-states, is to serve as market devices on behalf of the economic actors to ensure short-run profits

non-In contrast to the Dependency School’s dichotomy between centre and peripheral economies across national and regional boundaries, Wallerstein (1979) proposes a three-tiered structure of the world-economy, namely core, periphery and semiperiphery, depending on the position of these nation-states in a series of commodity chains cut across state boundaries The key unit of analysis here is economic activities, which con-stitute the nodes on these chains These activities are of two types: core-like and periph-ery-like The former benefits from innovation-driven super-profits, whereas the latter is under the pressure of cost competition Periphery zones are defined as those that host periphery-like economic activities within their boundaries, whereas the core zones have within their boundaries mainly core-like economic activities In contrast, the semiperiph-ery zones host a more or less even mix of core-like and periphery-like economic activities (Arrighi and Drangel 1986) The emphasis is that core-like activities can happen in any industry A related point is that industrialization (i.e increased weight of manufacturing

in the economy) does not guarantee higher aggregate reward Rather, the level of gate reward depends on where a nation-state stands along numerous commodity chains.Arrighi and Drangel (1986) have succeeded in quantitatively demonstrating the existence of this three-tiered structure Studying the cross-state pattern of population distri-bution (on the vertical axis) and GNP per capita (in log terms, on the horizontal axis) over the period 1938–1983, they confirm the tri-modal structure hypothesized by Wallerstein They also find that the positions of different nation-states are remarkably stable:

aggre-In sum, 95 per cent of the states (and 94 per cent of total population) for which

we could find data were in 1975/83 still on or within the boundaries of the zone

in which they were in 1938/50

(p 44)Out of 93 states studied and over the 45-year interval, Arrighi and Drangel (1986) found only three cases of transition from a semiperiphery to a core position (Japan, Italy and Libya); one case of upward mobility from periphery to semiperiphery (South Korea)1; and one case of downward mobility from semiperiphery to periphery (Ghana) Their explanation of this stability is in terms of Schumpeter’s ‘creative destruction’

mechanism (see Chapter 6) and the development of a symbiotic relation between core capital (i.e those associated with core-like activities) and core state Innovation-driven superprofits of core capital increase the revenue of core states and enable them to cre-ate conditions that are in turn conducive to the operation of core capital By contrast, peripheral states are constrained with revenue and are unable to attract core capi-tal And finally, semiperipheral states may adopt a dual strategy – protecting the core capital on one hand and encouraging periphery capital to participate in international competition But by doing so, these states weaken the incentive and innovation capac-ity of the core capital within their boundaries In this analysis, the core regions have

‘revenue advantage’, whereas the periphery regions have ‘cost advantage’

A lesson from this analysis is that industry-level analysis may have limitations What matters is to identify those positions on commodity chains where an economy can become favourably placed The other lesson is that core zones and periphery zones are not neces-sarily along national boundaries It is entirely conceivable in the logic of World-systems theory that some cities in a semiperiphery state are core zones in their own right

Globalization, internationalization and transnational practices

Globalization is commonly regarded as the most influential trend since the 1970s Defining it is not an easy matter, though, as it has collected many different meanings

along the way Held et al (1999, p 16) define globalization as ‘a process (or set of

pro-cesses) which embodies a transformation in the spatial organization of social relations and transactions – assessed in terms of their extensity, intensity, velocity and impact – generating transcontinental or interregional flows and networks of activity, interaction, and the exercise of power’.2 While it captures the essence of increasing intensity in the interdependence and interactions between different parts of the world, this definition is

a good illustration of how vague the definition of globalization has become

Two related debates are concerned with how globalization today can be distinguished from internationalization that has been going on for much longer, and the implication for nation-states and for developing countries Wallerstein (2000) dismisses globaliza-tion as a useful concept He argues that what is described as globalization ‘has been going on for 500 years’

Globalists such as Strange (1996) argue that thanks to the accelerating pace of technological change and the rising importance of international financial markets, a truly global market has emerged or is emerging Moreover, unlike previous periods

of internationalization, the current phase is driven by the impersonal forces of world markets, through the operation of transnational corporations in finance, industry and trade As a result, this process is making government strategic management increas-ingly irrelevant and is leading to the ‘retreat of the state’

On the other hand, the sceptics claim that the extent of globalization and the cations for the declining role of nation-states are exaggerated In their influential book

impli-Globalization in Question, Hirst and Thompson (1999) problematize the

globaliza-tion theme and emphasize the distincglobaliza-tion of globalizaglobaliza-tion and internaglobaliza-tionalizaglobaliza-tion They suggest that in the latter, an open international economy is ‘still fundamen-tally characterised by exchange between relatively distinct national economies’ and

in which ‘many outcomes .are substantially determined by processes occurring at the national level’ (p 7) They argue that ‘globalization in its radical sense should be taken to mean the development of a new economic structure, and not just conjunctual

change towards greater international trade and investment within an existing set of economic relations’ (p 7).

More recent studies, especially those by multilateral organizations such as the IMF and EU, tend to accept that contemporary economic globalization is distinct from

earlier ones and to a higher level A study by EU research staff (Denis et al 2006)

examines the globalization trends over a more extensive period of time It points out that contemporary globalization is underpinned by both technological change and a shift in policies in many countries towards a more open, market-based system of economic governance It concludes that the post-1990 globalization phase is characterized by three key interrelated phenomena which differentiate it from previous phases stretch-ing back to the 1850s:

[F]irstly, an unprecedented deepening in trade and capital market integration; ondly, a cost-induced and ICT-enabled acceleration in the worldwide relocation

sec-of production processes and finally, regarding the developing world, higher trade and capital flows coupled with strong human capital endowments are driv-ing .global income and technological convergence

(Denis et al 2006, p 4)

On the other hand, defining economic globalization as ‘the increasing integration of economies around the world, particularly through the movement of goods, services and capital across borders’ as well as the movement of people (labour) and knowledge (tech-nology) across international borders, the IMF (2008) notes a body of evidence pointing

to an increase in economic globalization, as follows First, the value of trade (goods and services) as a percentage of world GDP increased from 42.1 per cent in 1980 to 62.1 per cent in 2007 Second, FDI increased from 6.5 per cent of world GDP in 1980 to 31.8 per cent in 2006 Third, the stock of international claims (primarily bank loans), as a percentage of world GDP, increased from roughly 10 per cent in 1980 to 48 per cent in

2006 Fourth, the number of minutes spent on cross-border telephone calls, on a capita basis, increased from 7.3 in 1991 to 28.8 in 2006 Finally, the number of foreign workers has increased from 78 million people (2.4 per cent of the world population) in

per-1965 to 191 million people (3.0 per cent of the world population) in 2005

However, as a result of the post-2008 ‘great recession’, globalization has stalled

(see The Economist, 12 October 2013; UNCTAD 2013) World exports as a ratio of

world GDP rose steadily from 1986 to 2008, but have not recovered to that peak level five years later Global capital flow, which topped $11 trillion in 2007, amounted to barely a third of that figure in 2012 (Table 1.4) The only exception is Africa, where capital inflows increased by 66 per cent between 2007 and 2012

Table 1.4 Regional capital inflows in 2012 and changes (2007–2012)

Indicator Americas Western Europe Eastern Europe Africa Middle East Asia

While much attention is focused on relations and practices between nation-states, Sklair (1995) proposes a sociological global system based on the concept of transna-tional practices, that is, ‘practices that originate with non-state actors and cross state borders’ Three spheres are distinguished – economic, political and ideological – with each characterized by a primary major institution:

The transnational corporations (TNCs) are the most important institution for nomic transnational practices; the transnational capitalist class (TCC) for political transnational practices; and the culture-ideology of consumerism for transnational cultural ideological practices

eco-(Sklair in Roberts and Hite 2007, p 242)This categorization highlights the multi-faceted nature of globalization Indeed, glo-balization takes multiple forms The IMF (2008) recognizes four types of globalization: cultural, political, environmental and economic Giddens (1990) spreads his net even wider, suggesting that globalization encompasses four dimensions: world capitalist

system, nation-state system, world military order and international division of labour

Part of the complexity of the globalization challenge is that these different forms (or dimensions) of globalization can either weaken or reinforce each other, depending on the extent to which they are compatible with each Thus, the power of global cities

is reinforced by a form of cultural globalization, cosmopolitanism (Held et al 1999).

Effects of economic globalization on developing countries

It is strongly evident that, since the 1980s, developing countries have become more deeply integrated into the global division of labour, especially in the manufacturing sec-tor (Table 1.5) Developing countries’ share in FDI stock has increased from 24.7 per cent in 1990 to 33.9 per cent in 2012, whereas their share of manufacture exports has risen from 21.9 per cent to 31.1 per cent over the same period Furthermore, this pace has quickened since the turn of the century The scale of this increased engagement

is sometimes extraordinary An EU study (Denis et al 2006) found that accelerated

globalization since the early 1990s had resulted in a 50 per cent increase in the world’s non-agricultural labour force, adding 700 million workers possessing a comparable level of human capital with the low-skilled workers of the ‘developed’ world (p 3)

Table 1.5 Increased importance of developing countries in world trade and capital flows

Share in FDI stock (%) Share in manufacturing exports (%)

Developed countries 75.3 76.6 60.3 High-income

countries 78.0 80.5 68.9Developing countries 24.7 23.6 33.9 Low- and middle-

income countries

21.9 19.5 31.1 Transition economies 0.0 0.8 3.7

Sources: This table presents two series of data: share in FDI stock, drawn from the World Investment Report 2013 (UNCTAD 2013); and share in manufacturing exports, drawn from World Development Indicators 2013 (World Bank 2013).

Having said this, this process is not without problems It has been shown that the terms of trade index for developing countries have declined on average by 0.96 per cent per annum over the course of 1985–2005 (Chakraborty 2012) A sharp break in 1984–85 is noted This has been attributed to two factors: the Debt Crisis and the entry

of China and other East Asian countries into the manufacturing exports market around that time This deterioration means that developing countries have to export an increas-ing amount of manufactured goods to exchange for the same amount of imports.Nevertheless, the significance of this terms-of-trade decline should not be over-emphasized There is evidence that global inequality has improved in the last two decades (see Chapter 16) Dollar and Kraay (2004) found that, since 1980, glo-balization has contributed to poverty reduction and a reduction in global income inequality They found that, during the 1990s, income per person in ‘globalising’ countries in the developing world grew three-and-a-half times faster than in ‘non-globalizing’ countries

Indeed, global inequality appears not to have risen to any significant extent under globalization, and may have fallen Milanovic (2012) points out that global inequality can be measured in three different ways, resulting in three different trends He calls these Inequality 1, Inequality 2 and Inequality 3 Inequality 1 is measured as a Gini coefficient using mean income for each country Inequality 2 is also measured by a Gini coefficient, but it takes into account the size of the population By contrast, Inequality 3 is repre-sented by a Gini coefficient calculated using individual income (in PPP dollars) across the world Milanovic argues that only Inequality 3 is a ‘true’ measure of global inequality Milanovic’s analysis shows that Inequality 1 increased between the 1980s and 1990s, but has declined since the early 2000s By comparison, Inequality 2 had steadily declined since the 1960s, accelerating from 1990 Much of the difference is explained by the rise

of income in two populous countries, China and India Finally, Inequality 3 is found to

be higher than both Inequality 1 and Inequality 2, in the range of 70 Gini points Since household survey data, which are needed to calculate Inequality 3, are only available from 1988 onward and at five-year intervals, only a small number of Gini coefficients can be calculated However, Milanovic concludes: ‘[P]erhaps for the first time since the Industrial Revolution, there may be a decline in global inequality Between 2002 and

2008, global Gini decreased by 1.4 points’ (pp 7–8)

Shifting gravity of economic power

The past two decades have seen the centre of the gravity of the world economy shifting from the West to the East, and from developed to developing countries This is evident

in terms of the distribution of GDP and wealth Studying the dynamics of the global economy’s centre of gravity in terms of GDP produced on this planet, Danny Quah (2011) found that this centre has drifted from the mid-Atlantic in 1980 to a location east of Helsinki and Bucharest thanks to the continuing rise of China and the rest of East Asia Extrapolating growth in almost 700 locations across Earth, he projects the world’s economic centre of gravity to locate by 2050 literally between India and China Observed from Earth’s surface, that centre will shift from its 1980 location

9,300 km, or 1.5 times the radius of the planet On the other hand, Hausmann et al

(2011) found that, with the exception of India and Guatemala, eight out of the ten countries that are predicted to have the fastest GDP growth to 2020 are from Africa The World Bank (2011) estimates that, in 2010, developing countries accounted for

about 28 per cent of world GDP at market exchange rates, and 45 per cent at PPP; they contribute about one-half of global economic growth at market exchange rates Moreover, developing countries ‘now account for 30 per cent of world imports Their share in world import growth is higher still, exceeding 70 per cent in the last five years’ (World Bank 2011, p 2).

As a result of this shift, consumer purchasing power, which has always been the target for capital, is shifting in the same directions Since demand plays a decisive role

in stimulating innovation, this should give producers (and consumers) in the ing world a new advantage But it is up to foresighted businesses and public bodies in the developing countries to actively explore and grasp the opportunities that this shift brings It will be important to ensure that TNCs are not the only ones who benefit from booming consumer markets in developing countries through ownership or other kinds

develop-of control

Effects on nation-states and cities

Globalization has had profound effects on nation-states and cities Views are, ever, divided between those who see state capacities being eroded by globalization (Ohmae 1995; Strange 1996), and those who argue otherwise (e.g Weiss 1997) However, a majority of scholars see the effect of globalization as transforming or recasting the roles of the nation-state Sassen (1998) acknowledges that globalization does not strengthen the interstate system However, the state remains to be ‘the ulti-mate guarantor of the “rights” of global capital’ (p 197) Sassen (2006) suggests that, with its economic control much diminished by the TNCs and mobile capital, the con-trol of population represents the last remaining sphere of significant state influence Brenner (1998) highlights a ‘re-territorization’ of the state power upwards (towards supranational organizations) and downwards (towards cities) as a result of globali-zation Weiss (1997) identifies the replacement of the ‘integral state’ by a ‘catalytic state’ The latter would ‘achieve their goals less by relying on their own resources than

how-by assuming a dominant role in coalitions of states, transnational institutions, and private-sector groups’ (Weiss 1997) Following Ikenberry’s (1986) logic of the ‘Janus-faced state’, Clark (1998) suggests that the state is a political broker (thus ‘broker state’): it is a medium between the national social forces and international capital over the question of how the costs of globalization are distributed

By contrast, there appears to be significant consensus that globalization has increased the significance of at least some cities It has created new types of city-based territorial units such as global cities (Sassen 1991) and global city-regions (Scott 2001) It has also given cities a great deal of autonomy from nation-states (Petrella 1991) This effect is explored in detail in Chapter 3

The ICT revolution and the informational city

The ICT revolution refers to the rapid expansion of the commercial use of computers, the Internet and related systems since the 1960s and their consequent transformative effects on every aspect of our economy and society By creating unprecedented capac-ity and speed to create, store, access and process data, this revolution has rapidly altered the way the economy and our society operate On the question of whether the Internet has substituted face-to-face contact and resulted in ‘the death of distance’ as