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The resurgent city. Leverhulme International Symposium, London School of Economics. Key Note Adress, 19-21 April 2004




1. Globalization and the rise of big cities are closely linked. Why?

In his picture of the beginning of modern times, F. Braudel told the story of what he calls the race opposing two big “runners”: the state and the city. Three centuries after, the overwhelming victory of the state makes no doubt. With the minor exception of city-states like Singapore or Dubai, and in spite of the effects of globalization, national states are still the major players in the world. But this could change in the future. The main geographical, but also social and political, trend of present history is certainly the increasing concentration of wealth and power (and also poverty and despair) in cities, and especially in the biggest cities. This trend is worldwide. In Europe and in America, the economies of cities are still, and for a long time, embedded in state-driven structures (especially in Europe, given the overall presence of the welfare-state). But in Africa and in Asia the urban explosion creates enormous territorial inequalities, and will deeply affect the political structures. By 2015, Asia will account for 12 of the world’s 20 biggest cities, and of the 2 billion people who will be added to the earth’s population, the vast majority will live in urban Asia. It is fascinating to compare the economic weight of cities and nations: the GNP of Tokyo is twice that of Brazil; the GNP of Kansai is bigger than the GNP of Spain. Of course, the logics of this tide of urbanization are deeply different in Lagos, Mumbai, Shanghai, Tokyo and Paris or London. I will concentrate in this presentation on the cities in the develop world. The main evidence is the following: metropolitan spaces are becoming, more and more, the adequate ecosystems of advanced technology and economy (this is not an explanation, it has to be explained). And the central paradox is: in a world where goods, information and people (to a lesser extent) move with more and more speed and freedom, concentration is growing and spatial inequalities are increasing. This is a lesson from the 19 th century (with the revolution of railways and telegraph), strongly confirmed by the last decades of the 20 th century: the decrease of communication costs does not by itself lead to a spreading and diffusion of wealth and power; on the contrary, it entails their polarization.

The explanation of this paradox and apparent mystery is, at base, very simple. A world where communication costs are high – or very high, as it was the case for centuries for land transportation, before railways – is a world of closed and separate compartments, which strongly limits the level of competition between the firms, creates spatial monopoly rents, and hinders the expression of economies of scale and of the advantages of agglomeration, for consumers and producers. On the contrary, as the fluidity of goods and information grows, these positive effects in terms of increasing returns and of agglomeration externalities can unfold freely and appear on the front stage. What demonstrates the metropolitan growth process? Basically the overwhelming strength, strongly underestimated by traditional economics, of agglomeration externalities, either pecuniary (i.e. linked with the price mechanism) or “technological” (or what I prefer to call social-relational).

This basic mechanism is, in one sense, a generic one, and it is relevant for many periods of history. In the present period, however, this logic is strongly reinforced by the specific features of current globalised competition, i.e. the shift from a price-based competition to a more complex pattern, where quality, diversity and innovation, for goods and services, are becoming key-factors of economic survival, and the traditional difference between price-based competition and differentiation is getting less and less clear, except for small niches. (Firms involved in globalised competition have generally no choice between price-based and differentiation-based competition; they must face both, at the same time). These deep changes in the pattern of competition are themselves the result of the lowering of the traditional barriers enclosing national oligopolies. And the main (explicit or, more often, implicit) discovery made by firms is that competition through quality and innovation is particularly linked with agglomeration externalities. So, there is a threefold, and not only twofold, reinforcement process: increased mobility of factors (1), innovation and quality-based competition (2) and metropolization (3) are the points of a triangle linked by positive feed-backs.

Traditional competition, where natural and national barriers play a central role, is space-based. The new world, where cities are becoming major players, is a world of time-based competition. When you are less protected by space, you must be quicker, more reactive, learn better and faster the rules of the new open games. This is clearly illustrated by the new rules of the diffusion of innovation, either process or product oriented. The spatial protections having disappeared, there is no longer place for the international cycle described by Vernon in the 60s, where the new products and the new processes migrate slowly from the core country (the US) to Europe and to other countries, as and when their standardization increases. Today, the new products and processes appear quasi simultaneously all over the world, though not equally in all places.

At this stage, let me add two remarks.

The first remark is about the well-known dispute among economist concerning the respective role of globalization and technology in the current changes of our societies, and especially the labour markets: on one side, Krugman and his critic of “pop-internationalism” (and the majority of the profession); on the other side, the scholars who put all the emphasis on international trade and global restructuring. Actually, even a superficial observation of what happens in firms shows that there is a very tight interplay between globalised competition and technological innovation (not only for so-called defensive innovation in South-North trade: see Thoenig, Verdier, 2003; Wood, 1994). And, in this interplay, the economies of big cities have a major role, as the breeding environment for new consumption- or production-oriented technological experiments.

Second remark: the classical distinction made between emerging new industries and mature sectors has, in my opinion, to be lessened. The current linkage between globalization and innovation affects more or less all the industries. Old industries like steel making or automotive industry are challenged very strongly, and compelled to innovate constantly, just as new ones, like multimedia or biotech. Economic history shows the crucial role of the territorial matrix in the first stages of development in a new sector – because of the role of tacit knowledge and other externalities of this kind. And, of course, this is still true. But mega cities are not simply super technological clusters or districts (even if they often include this type of districts). And the threefold relationship I mentioned - among the metropolitan environment, quality and innovation-based competition and globalization - is a much broader pattern, which includes mature manufacturing and service sectors, as far as they are involved in an international competition.

2. The economy of cities as “Schumpeterian hub”

In this very short presentation, it is impossible to take a detailed look of the economic mechanisms that underlie the growth of cities, either mega cities or second range cities (which are growing fast in Europe). It is also impossible to draw a list or taxonomy of the multiple externalities involved in these mechanisms. There is excellent work on that subject (Fujita, Thisse, 2001). There are also widespread mantra, which don’t really explain what is happening, and therefore can be obstacles for a deeper analysis. For instance: the famous “knowledge-based” city. What does it mean? Was Paris in the 17th and 18th centuries, with its dense network of highly skilled industries for luxury goods not a knowledge-based city? Was it not a learning city?

I would emphasize briefly one feature of modern developed cities: their consistency with the Schumpeterian dimension of advanced economies, and with the systemic and relational basis of efficiency in the current context. In others words, I would focus on the dynamic effects, in contrast with a sometimes rather static vision of economies of agglomeration.

The important point is that cities offer not only complementary assets (like in the input/ouput structure of a local production system) and static coordination between the actors of the economy, but the possibility of reshaping rapidly and efficiently the networks of actors and the value chains. The best metaphor is that cities can be likened to powerful hubs or switchboards, which permit the constant creation and reshaping of the chains linking producers, consumers, and different kinds of indirect players of the economy (like universities).

Cities are especially efficient in accelerating the search processes that are the basis of growth in a Schumpeterian context. This is particularly visible for three crucial dimensions. Firstly, for consumption markets, big cities are the laboratory for new products, new services, and new ways of life. This is not new, of course. And, paradoxically, in the current context, the physical agglomeration in the supply of diversified goods or services is probably less relevant than it was in former stages of development. After all, with the internet and with the modern commercial logistical structures, theses goods and services are available almost everywhere. But the mega cities are still the non-replaceable context for the exploratory and reflexive process of creation of the most advanced forms of consumption, before goods and services enter the mass production and distribution system.

Secondly, the size of labour markets is probably the main competitive advantage of cities. Why? Recent evidence about labour markets shows that the relatively small variations of the balance of employment hides very high levels of creation and destruction of jobs, in a process of steady and relatively massive recomposition. For a 1 % or 2 % annual variation of the overall stock of jobs, in plus or minus, one estimates to about 15 % the volume of jobs created and destroyed during the same period (strangely, this figure seems to be relatively constant in developed countries; see Cahuc, Zylbelberg, 2004 ; Davis, Haltiwanger, 1999). The quality of the adjustments and of the search process underlying these movements is therefore the key variable of the efficiency of labour markets. And one understands easily why large labour markets accessible without residential change facilitate this search process. The size of the market must be understood as the “effective size”, i.e. the set of jobs really accessible for the residents in the city (wherever they live): it depends crucially from the quality of the transportation system, which is no surprisingly a key-factor for urban dynamism.

My third point concerns the cities and the new patterns of production. Here, the most salient aspect is the change of the dominant efficiency paradigm (Veltz, 2000). In the present context, competitivness lies no longer in the mere intensification of work and traditional productivity effects. Efficiency depends less and less on pure division of labour (which is still present, and which was the main driver of productivity for centuries). It depends more and more on the quality of the cooperation processes, of which only a small part can be standardized and mechanised, as in Taylorist industry. Criteria such as innovation or quality of goods and services, and the reliability of sophisticated machinery, which is the key factor of the productivity of capital, depend crucially on the quality of formal and informal communication among the actors of a value-chain, among the different components of a firm, among the firm, his suppliers and his clients, among engineering, production and marketing, etc., and between the firm and its overall environment. Cities, in that respect, are the principal suppliers of the relational resources that fuel these open-ended coordination processes, which cannot be set up – this is the point I wish to emphasize – either by the decision making of a centralised technostructure or through sheer market forces. Cities provide many forms of relational externalities, based or not on informal communities, based or not on face-to-face contact. The shift occurring in production organisations from hierarchical and pyramidal structures to more open network-shaped structures acts like a positive feed-back in this context: mega cities are the adapted ecosystem for the continuous restructuring of such networks.

Let me briefly sketch a fourth point. The three dynamics I have now identified are based on short term adjustments, short term flexibility, although they crucially involve resources based on long lasting mechanisms, like “social capital”, trust, shared culture and tacit knowledge, etc. But cities, and especially big cities, provide also another kind of flexibility, for the mid or the long term, which is close to a kind of insurance. For an entrepreneur, the choice of a metropolitan location is less risky and creates potentially, in an undefined future, more opportunities than any other location choice. The probability of finding tomorrow or after-tomorrow the needed (and still unknown) skills and also the probability of being able to leave the place without paying high exit costs (in monetary, social, and political terms) are much higher in a metropolis than in a small town. And this is also true for the individuals and the households, especially given the strong increase of women’s labour force participation and the deep changes in family structures that require more coordination in terms of job search, training and carrier among the members of the family group.

Finally, let me come back briefly to the issue of face-to-face. I do not wish to deny the argument of the continuing (and perhaps increasing) importance of face-to-face contact in modern economy. But there is no mechanical link between this fact and the rise of cities. People do not agglomerate in cities basically to facilitate face-to-face contacts! Face-to-face discussion is easier in cities, but there are many other factors involved in the “switchboard”-type economy I allude to above. The possibilities of flexible and constant reshaping of value chains, of increasing the efficiency of the search processes of all kind, the lowering of irreversibilities in the location process are powerful drivers of urban growth, which are independent of face-to-face contact. Actually, the most powerful technological tools of the urban economy are probably e-mail and cell phones !

3. The archipelago economy

The concentration towards big cities is not only a local phenomenon, or an addition of local phenomena. The important point is that this trend takes place in an overall reshaping of the spatial framework of developed societies. In order to qualify in a synthetic way this emerging framework, I proposed the metaphor of the archipelago (Veltz, 1996). My view is close to the description given by Scott (Scott, 1997) and Storper (Storper, 1997). It differs from Castells’s presentation of “the rise of the networked society” (Castells, 1996) by a much lower emphasis put on technology as a driving force of change.

How to characterize this new emerging framework? Let me underline four points:

3.1. The emerging structure differs ever more from the traditional nested hierarchy that comes immediately in mind when we want to represent space, and which is still at the core of most forms of institutional and political organisation. In this structure, the relationships between the actors, either trade-oriented, or social and political, are all the stronger as the physical distance is shorter: it is the natural representation of a world of high-cost communication. In Braudel’s world, for instance, you find at the one end of the spectrum the huge base of short-range economy (with a high amount of self-subsistence economy), in the middle the local, regional and increasingly national market economy, and at the opposite end the long distance trade, extremely important but based on very thin flows. These different layers are well structured under the law of distance. But Braudel’s world exists no longer! The local and the global are now deeply intertwined. Distance is no more a relevant factor for measuring the intensity and the frequency of relations. And it becomes difficult to establish “natural” levels of subsidiarity in the framing of organisations and in the definition of policies (despite the attempts of EU to promote this concept as a key concept for its own structure).

3.2. The overall network of the world economy is increasingly a horizontal network linking the major poles and nodes, and the vertical links connecting these nodes with the inferior layers of urban hierarchies or with peripheries are of decreasing importance. The available evidence concerning the flows of all kind shows that the flows linking the biggest poles increase faster that the others. This seems to indicate a kind of resurgence of spatial structures which had been declining during the last two or three centuries. Broadly speaking, one could consider a twofold model of space organisation. The first model would be the network of cities, which played the first role during the Middle Ages in Italy and in Flanders, but also in many other places and periods of economic history (for instance the economy of colonial trading posts; or of maritime basins, like the ancient Greek cities). In this model, a complete control of territory is not a relevant issue. The second model would be the model of “territorial economies” whose aim is to control extensively and exhaustively large portions of continental areas, which is at the core of the difficult construction of unified states (not necessarily nations-states) like those built in Europe by the French or Spanish monarchies. (Ancient France seems to be a pure example of this second model, because of his centralised structure of power, in a very large and transport-resistant space: but even in France things are more complex; see Fox, 1971). Is the contemporary trend a revenge of the first model? In one sense, it is. But the argument must be carefully specified, for the present networks of cities are basically different from the ancient ones, and cannot be understood without considering the major role played by the states. Even if there are more and more trans-border flows, and even if the transnational relationships are becoming stronger and denser, these relationships remain deeply embedded in the state-based structures and regulations. Networks of cities will not in a near future replace the mosaic of states that is the basic architecture of our world. These networks are progressively mixed with the old structures, disturbing and in the same time, enforcing the state-based organisation.

3.3. A crucial point is the weakening of the links between poles and hinterlands, cores and peripheries. This assumption looks paradoxical, given the fact that the modern “new economic geography” puts a strong emphasis on core-periphery models. But there can be a difference between the needs of formalised theory and the real world! Instead, it is easy to understand that the traditional functions of peripheries and the traditional links between core and non-core spaces are becoming obsolete in many cases. The supply of big cities (food, construction materials, etc.), so important in the past, is no more a relevant territorial issue (it’s a problem of worldwide logistical networks). Low skilled labour force, once a basic product of peripheries, is no more needed in advanced economies. On the contrary, poor surrounding regions appear as a burden for rich urban core regions. To put it succinctly, the rich don’t need anymore the poor. Some authors, like K. Ohmae, have made the theory of this argument, emphasizing the success of state-regions or city-states (like Singapore, which fascinates the Japanese Ohmae), whose competitive advantage is to be freed from the weight of subsidised agriculture or corrupt state bureaucracy (Ohmae, 1995). De facto, the economic performance of small countries is often remarkable (see in Europe Ireland or Denmark). They have the big advantage of a high level of institutional and social coherence, low transactions costs, a small-sized redistribution system that remains accountable. Their macro-economic tools are efficient: for instance, if they decide a fiscal policy aimed to attract foreign investors, the relative impact of such strategies is higher than in bigger countries, where the effect must be shared with a much broader domestic capital. By contrast, Boyer calls attention to the “curse of middle-sized countries”, that have neither these blessings of smallness, nor the advantages of large and structured domestic market, like the US. And if we look at the large non-structured empires, one can wonder what is the value added to the rise of Moscow, or Shanghai, by the huge and threatening hinterland (except the natural resources). Even in Europe this question about the peripheries as burden is rising, and not only in Italy. Let alone the ethical dimension of the question, it is difficult to predict whether the growing selfishness of core regions will be politically sustainable or not.

3.4.The present networks of cities differ deeply from the ancient ones, in that sense that they don’t connect well identified collective actors, but are made from a complex addition and crossing and entanglement of transversal business chains or social and intellectual communities. They are nodes in distributed networks rather than summits in a graph. Socrates compared the Greek cities to an assembly of frogs sitting and croaking around a pond. But each frog had his individuality, could compete or cooperate as a whole with the other ones. In the networks of the Middle Ages, the dominant players were the “coopetitive” (mixing strong competition and cooperation) groups of merchants, whose local citizenship was glorified and whose wealth was based on the extraprofits produced by the resistance of space, the high communication costs and risks attached to their long distance operations. Today, the main actors in integration are multinational firms or transnational business communities or technoscientific groups, which operate in stabilised and homogenized environments, or try to create this kind of environment throughout the world. The sources of their wealth and power lie no more in the exploitation of huge gaps of potential between different parts of the globe. They are on the contrary in the ability to build controlled networks of homogenous places, which appear often as islands in their broader local environment, and are the ground for standardised operations, as well as for open discussions and creative processes. The academic archipelago of campuses is a good example. In the world of manufacturing, the differences of productivity are no more among the countries as a whole, but among the units belonging to the first-range networks and the other units. Of course, this is only a trend. They are still local anchor points for cross-border communities or organisations. But the transversal logics, either formal or informal, expand rapidly, and one of the consequences is that it becomes difficult to specify something like a collective local actor, especially for the biggest cities, which could be compared with the “urban bourgeoisies” of the past. Therefore, there is a growing gap between the demand for local identity of the ordinary people, even in world-cities, and the cosmopolitan nature of the leading sectors of the society.

4. City vs State, and policy issues

As to conclude this brief discussion, I would like to add some remarks concerning more specifically the European cities, and policy issues.

4.1. As Le Gales puts it clearly (Le Gales 2003), the dynamics of European cities remain closely linked to the state mechanisms, and especially those of the welfare state. It is stupid to oppose states and cities (or city-regions) in Europe: they have a common history, and a common destiny. The claims for more autonomy given to the city authorities are legitimate, but the boasting declarations of independence are superficial insofar as they forget the huge volume of activities and jobs which depend directly or indirectly from national public sector and/or from national transfers. This volume is high in all the cities, and particularly in the cities of the second layer of the urban hierarchy .Davezies gives figures for the French “chef-lieux de departments” (provincial capital) which show that enormous shares of their economy come from outside the market mechanisms. ( Davezies 2000). Paris, by contrast, is the most “private” city of France, despite the well-known administrative centralisation of the country: therefore, the economy of the capital city is more dependent on the international conjuncture. But, even in Paris region, the place of state related activities and of non-market income is extremely high, and acts like a shock absorber which does not exist in American or Asian cities. European cities, consequently, are two-faced, like Janus. On the one hand, they are fundamentally fuelled by the economy of flexibility; on the other hand, they are still deeply embedded in the shock absorbing logics of the welfare state. This defines probably a real competitive advantage over purely flexibility-driven cities, on the condition that there is a balanced mix of the two forces. Europeans cities are, or could be, or should be, the privileged laboratories of the necessary, and in some cases like France, urgent reform of the public sector and of new alliances between private and public actors. Already European cities offer a unique (and diversified) range of experiences of public-private partnerships coming for a rich history in the fields of urban services and utilities. This should be considered as a major competitive advantage, and not dismantled for ideological reasons.

4.2. Though the policies aimed at ensuring economic and social success for our cities are not the topic of this contribution, permit me a brief comment along theses lines. As I said above, the successful cities are the places where the market oriented dynamism best catches social externalities and effects linked with untrated interdependencies (like “milieu” effects), where fluidity of market relationships associates with an integration in long lasting social structures, providing immaterial assets like mutual confidence, tacit knowledge and speeding up the collective learning processes. Therefore, the relevant policies are basically these which are aimed to reinforce this immaterial infrastructure. Hard infrastructure remains important: it is a sine qua non condition of development. But soft assets are more important. The ability to promote interfirm cooperation, to enhance the quality of coordination among institutions, to produce shared values, anticipations and projects and finally the quality of public and private governance are the key factors of success. The key resources for development are socially built-up, and not a given of nature or geography. Traditional geographical location factors are increasingly weakened by the decrease of communication costs. Cities, as social and political actors, are responsible for their success or failure.

Another important point is the following: territorial marketing has not to be the alpha and omega of development policies. Many cities, especially those facing difficulties, are obsessed by the attraction of outside investors and ready to all kinds of overbidding for that, mainly by tax-cutting. They tend to forget three basic facts. Firstly, there is strong evidence that the core explanation of success or failure in job creation lies in the good or bad health of the locally existing firms (Cheshire, Gordon, 1998). Monitoring carefully the trends, the risks and the opportunities in the established local economy has therefore often a better pay-off than hunting the new investor. Secondly, as the central mode of competition in the economy of our countries shifts from purely price-based to the quality and innovation-based competition, it’s odd for cities to build primarily their strategies on cost variables. The decisive competitive advantages of cities are much more complex and sophisticated than that. And cities must differentiate their goals and strategies, which means absolutely not choose a narrow way of specialization. Thirdly, as Gordon also stresses, it is crucial to find the right scale for the development policies: too often, local policies result simply and sadly in a zero sum game between different zones, different actors, and different interests in the same city.

Ref :

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Castells M., The Rise of the Networked Society, Oxford, Blackwell, 1996

Cheshire P.C., Gordon I.R., Territorial Competition: Some Lessons for Policy, Annals of Regional Science, 32, 1-26, 1998

Davezies L., Le développement local hors mondialisation, in Caisse des Dépôts et Consignations, Comment améliorer la performance économique des territoires ?Paris, 2000

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Wood A., North-South Trade Employment and Inequality, Clarendon Press, Oxford, 1994