Cities and Economic Development
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When and how were cities born? Does urbanization foster innovation and economic development? What was the level of urbanization in traditional societies?
Did the Industrial Revolution facilitate urbanization? Has the growth of cities in the Third World been a handicap or an asset to economic development?
Hong Kong, described as a barren rock over 150 years ago, has become a world-class financial, trading and business centre and, indeed, a great world city. The Globalisation and World Cities group (GaWC) identifies it as an ‘alpha’ world city - one of only ten in the world economy based on its advanced producer services. With a population of 6.88 million, the city has become the world s 11th largest trading economy, sixth largest foreign exchange market, 13th largest banking centre, and Asia s second biggest stock market. It is also the seventh most visited city on earth. This success is highlighted by its strong performance on a number of international benchmark comparisons.
For instance it has been ranked:
The world’s freest economy (Heritage Foundation/The Wall
Street Journal, 2006).
The 4th best developed city in the world (UN Habitat State of
the World’s Cities, 2005).
The city with the highest average IQ in the world (University
of Ulster, 2002).
The most accessible place in the world (FedEx: The Power of
Access - 2006 Access Index).
Fifth in a poll of the world’s effective city management (Jones Lang La Salle, 2005)
Second in study of the world’s most competitive business environments (IMD International World
Competitiveness Yearbook, 2006).
18th in a study of Quality of Life in 118 countries (The Economist, 2005).
International analyses have also rated the city’s facilities and infrastructure highly. For example it has
been classed as having:
The world’s best airport (2001 to 2005 inclusive, SkyTrax).
The world’s best container port (AAPA World Port Rankings 2002 - 04 inclusive).
The world’s best skyline (Emporis Data Committee 2006).
Some international analyses which include the city have however shown more mixed results.
For example the city has been rated:
The 4th most expensive city in the world (Mercer Cost of Living Survey 2005).
Only 59th in a worldwide survey of press freedom (Annual Worldwide Press Freedom Index 2006
Reporters without borders 2006).
68th in a survey of Quality of Life in cities worldwide (Mercer Human Resources 2005).
ii. Internationalisation strategies/ strategies for the global economy
Hong Kong has no natural resources, except one of the finest deep-water ports in the world, and has developed its economy based on its hardworking, adaptable and well-educated workforce, coupled with entrepreneurial flair. The city grew to become internationally competitive in the 1970s and 1980s by offering low-cost, labour-intensive manufacturing bases along with the other so-called Asian Tigers of
Singapore, Taiwan and South Korea. Growth averaged a strong 8.9% per annum in real terms in the 1970s and 7.2% p.a. in the 1980s. However, whilst Singapore, Taiwan and South Korea have all developed hightechnology industries in recent years, Hong Kong has become a services centre, in particular for companies (foreign as well as those from Hong Kong) doing business in China. As the economy shifted to services (manufacturing currently accounts for just 4% of GDP), growth slowed to 2.7% p.a. in the 1990s.
The city’s economic development has however suffered two major setbacks in recent years, firstly from a drop in demand for exports following the South East Asian Financial Crash which lead to a 5.3% decline in economic growth in 1998. Hong Kong then suffered a further blow from the SARS outbreak in the city in
2003 which reduced economic growth to 2.3% in 2003. To grow the economy, following the Asian financial crisis, Hong Kong has focussed on institutional reform in the financial services sector, the growth of advanced producer services, modernisation of its logistic platform, and growth of tourism.
However unemployment in the city is still about 7%, lower than the 2003 high, in the wake of the South East Asia crash and the SARS outbreak, but still substantial when compared to other cities and mainland China. Unemployment is also socially concentrated - the young are most likely to be unemployed with a
rate of 22% in the 15 - 19 age group.
At the start of the 21st century, the HKSAR Government undertook a review of Hong Kong’s long-term development strategies, partly to cope with the changes and capitalise on the opportunities arising from 1997 reunification with Mainland China, and partly in response to the many challenges of globalisation and the emergence of a knowledge- based economy. The review followed a two-year study by the Commission on Strategic Development that encompasses a vision and a strategic framework for Hong Kong to become not only a major city in China, but also Asia’s world city.
More than ever before, the traditional bricks-and-mortar drivers of
economic growth are giving way to an economy based on brains and
creativity, where the skills, aptitude, knowledge, creativity and innovation
of a workforce are becoming increasingly important drivers of
economic growth and activity. Cities are the focal points for this
Forward-looking civic leaders will alter their investment strategies to
optimize city services around highly skilled, innovative citizens and
communities, as well as knowledge-intensive businesses. Cities can
achieve improvements in their current service delivery capabilities, as
well as lay the foundation for new and expanded services, by making
their core systems smarter. This requires a shift from appealing to
mass audiences to appealing to individual citizens en masse (see Figure).
Cities need to focus initially on four high-impact areas of improvement:
Reduce congestion in transport systems.
Improve public safety by reducing crime and emergency response
Streamline and tailor services for the citizen, including a heavy
emphasis on education and training.
Enable appropriate access to healthcare data for better quality of
care, early disease detection and prevention.
Challenges cities face in their core systems - as well as improvements
made to such systems - are interconnected. For example, a reliable,
well-run transport system does not just reduce congestion. It improves
the health of a city’s citizenry by reducing carbon dioxide emissions,
stress and vehicular accidents. As such, forward-looking cities that want
to fully leverage the improvements in efficiency and effectiveness from
smarter core systems must adopt crucial principles of systems thinking.
The application of advanced information technology can help cities
better understand, predict and intelligently respond to patterns of
behavior and events. Leveraging the power of real-world data generated
by cities’ systems of services requires:
Collection and management of the right kind of data
Integration and analysis of the data
Optimization of systems to achieve desired systems behavior based
on insights gained through advanced data analysis.1
Cities that adopt this systems thinking and make wise investments to
build a smarter city can position themselves to thrive. Those that
continue to invest in traditional infrastructure improvements designed
for a mass population are very likely to struggle.
Recorded on 21 September 2011 in Sheikh Zayed Theatre, New Academic Building.
Urban areas are the most productive parts of the developing world, yet concentrated urban poverty presents some of the biggest policy challenges. This debate will address the potential and the challenges of economic development in urban areas.
Sergio Cabral is Governor of the State of Rio de Janeiro.
N K Singh is a member of the Indian Parliament.
Tony Venables is professor of economics at Oxford University.
This event is part of the International Growth Centre s Growth Week, a unique three-day conference taking place between 19 and 21 of September at the London School of Economics and Political Science (LSE). Growth Week is the annual conference of the IGC, based at the London School of Economics. It brings together the IGC s international network of scholars, institutional partners and policy makers in partner countries in Africa and South Asia for three days.