A tale of two cities?

world-cities-dayJulia Stockdale-Otárola, OECD Public Affairs and Communications Directorate

At times we describe cities with the most hopeful and  endearing terms. Think of “The City of Light”, “The City of Lilies”, “Pearl of the Danube”, “The Holy City”, and so on and so forth. There are other times when only the unique stench, pollution and squalor found in city streets seem to warrant attention. Even in the pages of Plato’s The Republic this dichotomy of wealth and despair is found: “Any city, however small, is in fact divided into two, one the city of the poor, the other of the rich; these are at war with one another”. And yet the attraction to the hustle and bustle of urban centres has not wavered. The allure of cities seems to be as enticing as ever.

Of course, the speed and intensity of urbanisation has varied both over time and across nations. Throughout history many cities have boasted the title of the “most populous city” – though it must be noted that the requirement for such a title has changed drastically. For example, Jericho was a bustling metropolis in 7 000 AD with only one thousand people. By 2014, Tokyo, Delhi, Shanghai, Mexico City and São Paolo all reached “megacity” status with more than 20 million people.

Though rapid, these population spikes didn’t happen overnight. Many cities started to grow and mature into the metropolises many of us call home in the 18th century. From 1750 to 1950 the urban population increased by about 400 million, primarily in Europe and with London at its core. This 200-year period is known as the first wave of urbanisation.

It would seem that the second wave of urbanisation is already proving to be much greater than the first in both magnitude and speed. Growth was particularly concentrated in Latin America and making it one of the most urbanised regions in the world with an urbanisation rate of about 80%.

Looking forward, the urban population is expected to increase to about 6 billion by 2050 – quite the jump from less than 1 billion in 1950! By 2100, the number of urbanites is projected to swell to an impressive 9 billion people, or 85% of the world’s population. This time, the majority of this growth will be concentrated in Asian and African cities.

It’s not only the number of cities that is growing but also the size of cities. Some 41 megacities will likely be scattered across the globe by 2030 (compared to only two in the 1950s) – with Asia boasting 7 of the top 10. Meanwhile, with some exceptions, urban growth will likely slow down or go into decline (if it hasn’t already) in much of Europe and North America.

This major demographic shift comes with its consequences. Policy makers across the globe are tackling myriad challenges for the 50% of the world’s population already living in cities. Population growth, increased pollution, and ageing or inadequate infrastructure all threaten the environment, the efficiency and productivity of cities, and the health and well-being of their citizens. Poor planning can lead to the exacerbation of place-based inequalities. Poverty in the city is also distinct from that in the countryside. Climate change only increases the risk of natural disasters causing potentially devastating damage to urban centres and threatening public safety.

It can be difficult to cope with change. Even more so when that change moves quickly – but cities are trying to adapt. Some cities are being retrofitted to improve the lives of their citizens in a sustainable way by reinventing themselves as eco-cities or ‘green cities’ while fighting inequalities. The city of Malmö, Sweden, claims to be home to Europe’s first carbon neutral neighbourhood. This was achieved following significant planning changes in infrastructure, waste management and energy supply to a former industrial wasteland. To improve the health of its citizens, Mexico City launched the El Médico en tu casa programme bringing medical professionals directly to the homes of those in need. These are examples of sustainable and inclusive policy decisions made at the municipal level.

Where do you fit in?

Everyone can play key role in either pressuring for the adoption and implementation of urban sustainability policies at the local and national level. For example, more cities are offering alternative transportation services including bike and car sharing schemes. These alternatives help curb individual carbon footprints (and even kick-start a healthy daily habit!). New technologies are also opening innovative ways for people to make micro-interventions. The application FixMyStreet helps people communicate local issues in real time, e.g. broken street lamps and pot holes. Large and small businesses can also play a role. For example, the OECD recently launched a campaign involving staff in offsetting commuting-related carbon emissions by offering to plant one tree for every staff member in the Paris area. Staff could then go a step beyond by choosing to plant a few more trees at a subsidised cost.

Useful links

Get involved: https://www.fixmystreet.com

How does your city fare? Check out the Sustainable Cities Index or the EU’s Green Capital Awards

African Economic Outlook 2016: Sustainable Cities and Structural Transformation AfDB/OECD/UNDP

Governing the City OECD

The Metropolitan Century: Understanding Urbanisation and its Consequences OECD

Habitat III and the challenge of urbanisation in five charts

oecd-h3-coverBill Below, OECD Directorate for Public Governance and Territorial Development (GOV)

At the end of the first millennium, the only city that came close to reaching one million inhabitants was Baghdad—an incredible feat considering the total world population was estimated to be about 230 million. Fast-forward one thousand years to 1950. With the world population at 2.5 billion, the planet witnessed the rise of its first megacities—urban conglomerations of more than ten million inhabitants. The first of these colossi were Tokyo and the New York/Newark urban region. Today, there are 29 megacities, the majority in the developing world. By 2030, this number is expected to rise to 41. But, urbanisation isn’t just producing megacities. More than 50% of the world’s population now lives in cities of all sizes, with the figure projected to reach 85% by 2100. Within 150 years, the urban population will have increased from less than 1 billion in 1950 to 9 billion by 2100.

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Ready or not

Few cities are well-equipped to handle the tens of millions of inhabitants of today’s largest urban centres. As urban populations rise, physical and administrative infrastructures struggle to keep up. Cities expand, swallowing up once-distinct neighbours, often leaving a hodgepodge of local administrations with varying degrees of cooperation and sometimes diverse political priorities. Coping alone, as a kind of minimal solution, isn’t an adequate response for reasons we will see below. Steps need to be taken to ensure that our cities are liveable, sustainable and inclusive going forward. For this, an adequate roadmap must exist along with the political and economic means to implement it.

A New Urban Agenda

What would such a roadmap resemble? The Habitat III Conference, presently underway in Quito, Ecuador, under the auspices of the United Nations, has an answer. It’s called the New Urban Agenda, a document that sets global standards of achievement in sustainable urban development for the next 20 years. As many urban populations continue to grow at a breathtaking rate, the next years are going to be critical in achieving Sustainable Development Goal 11–making cities inclusive, safe, resilient and sustainable. The OECD co-chaired the policy group devoted to producing the National Urban Policies document, one of the key building blocks of the New Urban Agenda.

How cities see themselves vs. how they really are

Urban areas are socio-economic and environmental entities that go beyond historically defined administrative borders. In spite of this, often, administrative boundaries between municipalities are based on centuries-old borders that do not correspond to contemporary patters of human settlement and economic activity. In the images of Paris and Rome below (high-density areas are red), population densities and administrative borders seem mis-matched. The OECD, in collaboration with the EU, has developed a harmonised definition of urban areas as functional economic units or Functional Urban Areas (FUAs), consisting of densely populated municipalities (urban cores) as well as any adjacent municipalities with high degrees of economic integration with urban cores, measured by travel-to-work flows. This helps to better understand the dynamics of the urban area and provides urban data at the right spatial scale for monitoring performance and providing comparable data between cities around the world.

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Metropolitan areas are a boon for wages and per capita GDP

Throughout the OECD, productivity and wages increase with city size. Human capital levels in a city are a strong determinant of its productivity and cities attract and retain more educated workers. Productivity is also higher because firms in urban areas tend to be more specialised and innovative, and the high number of firms allow better matches between employers and employees. OECD estimates suggest that productivity increases by 2-5% for a doubling of population size. This implies that, on average, productivity increases by more than 20% when comparing urban agglomerations of 50,000 inhabitants within a metropolitan area such as Paris. Given high productivity levels and their sheer size, large cities have been making sizeable contributions to national growth, reaching a maximum of above 70% in certain countries. Related to productivity, higher household incomes, as seen in the graph below, represent an important agglomeration benefit.

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But cities are often inequality machines

Agglomeration benefits include higher wages, more jobs, public transportation, amenities and markets. But the downside to agglomerations includes elevated housing prices, congestion, pollution, crime and inequality. For many, these negative effects constitute the inescapable reality of urban life. Using the Gini coefficient that measures inequality on a scale of zero to one, 63% of the cities examined had higher levels of inequality than the national average. And inequality is growing. One measure of inequality is spatial segregation, the degree to which rich and poor concentrate separately in metropolitan areas. In many cities, spatial segregation is on the rise. Growth in spatial segregation can indicate poverty traps including diminished access to health and educational services and entrenched differences in well-being.

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Cooperation works

Managing urbanisation requires successful cooperation across all levels of government to design, implement, monitor and evaluate policies for sustainable urbanisation. No city can go it alone. National Urban Policies, as defined by the NUP policy group at Habitat III, must strengthen alignment of national and local policies affecting urban development. But, even at intercity or regional levels of cooperation we can see tangible benefits when local governments  can pull back and look at the big picture, as in the cases of regional governance of public transportation and metropolitan governance of urbanisation. It suggests that cities that can get out ahead of the problem through cooperation have a decent chance of making urbanisation compatible with sustainability.

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Useful links

OECD, Habitat III and a New Urban Agenda

National Urban Policies

The Metropolitan Century

Making Cities Work for All

Governing the City

OECD & Regional Development

Africa’s urbanisation and structural transformation

AEO 2016We don’t know the name, or the place and exact date of birth, of the baby who changed world history. My guess is that she was born somewhere in Africa in 2007. Not that she cared as she lay there all wrinkled and raging at the disagreeable turn her life had just taken, but it was thanks to her that for the first time ever, the world had more urban dwellers than country folk.

Africa itself won’t pass that landmark until sometime in the 2030s, but when you look at the numbers rather than the percentages, you can see why this year’s African Economic Outlook from the OECD Development Centre, African Development Bank, and UNDP is focusing on “Sustainable Cities and Structural Transformation”. In 1990, Africa was the world’s region with the smallest number of urban dwellers: 197 million. Now it has more than twice that at 472 million, and the urban population is expected to almost double again between 2015 and 2035. By 2020, Africa is forecast to have the second highest number of urban dwellers in the world (560 million) after Asia (2348 million).

Most of us, including many of the people who live in them, probably have a negative impression of African cities. Lagos-based Bayo Olupohunda warns that “intractable traffic gridlock, breakdown of law and order due to social exclusion, amenities crises are the signs of population apocalypse…”. Likewise, The Guardian is running a series on cities just now, and the headlines of its articles about African metropolises like Kinshasa and Nairobi talk about chaos and pollution.

It’s worth noting, though, that African urbanisation isn’t mainly due to the megacities we always hear about. In fact, between 2000 and 2010, urban agglomerations with fewer than 300,000 inhabitants accounted for 58% of Africa’s urban growth, compared with 29% for those with populations over a million. Nor is it due to rural-urban migration: migration accounts for less than a third of urban population growth in 22 African countries. It accounts for over 50% in only 7 countries (Burkina Faso, Cabo Verde, Lesotho, Namibia, Rwanda, Seychelles and South Africa, whereas it contributed to half of Asia’s urban population growth. The Outlook groups African countries into five types according to their stages in three processes: urbanisation, fertility transition, and structural transformation.

Whatever their individual characteristics, the Outlook, exposes a daunting series of problems facing Africa’s urban areas. In many African countries, a large portion of the urban labour force remains trapped in low-productivity informal services activities, and access to public goods is unequal. Moreover, despite Africa’s slow industrialisation, the costs of environmental degradation are large and increasing, adding to the economic and social challenges of urbanisation.

The speed of the economic transformation could be a problem as well. Some economists are concerned that African countries – and developing countries generally – are moving into the service sector too early in their development trajectory and that this “premature deindustrialisation” may damage future growth prospects by depriving economies of the benefits of industrialisation for sustained growth and economic convergence. For example, if people are moving out of farming into hotel and restaurant work or street trading, especially informal jobs, the sectors they move into are likely to see productivity growth slowed by this influx of cheap labour.

And yet, despite all the readily available negative evidence, the Outlook argues that urbanisation could boost structural transformation – moving economic resources from low to higher productivity activities, essentially from traditional agriculture to manufacturing or services. In part, this view is based on economic history. Cities everywhere have traditionally provided “a large and diversified pool of labour, a more dynamic local market, more cost-effective access to suppliers and specialised services, lower transaction costs, more diversified contact networks and greater knowledge-sharing opportunities, and an environment that encourages innovation”.

They are also ideal for cashing in on one of the trends defining the new economy. Often this is referred to as the “sharing economy”, but as Diane Coyle argued at an OECD seminar earlier this year, “matching” is a better term to describe what platforms like Uber or AirBnB do – they match the demand for something to those supplying it. Cities help firms match their requirements for labour, materials, and premises better than towns or rural area. Larger markets bring more choices and opportunities. Cities also afford firms access to a wider range of shared services and infrastructure because of the scale of activity. Firms gain from the superior flow of information in cities, which promotes more learning and innovation, and results in higher value-added products and processes.

Bayo Olupohunda recognises this, arguing that if well-managed, Lagos could be efficient, “enabling economies of scale and network effects. Furthermore, the proximity and diversity of people as seen in Lagos can spark innovation and create employment, as exchanging of ideas breeds new ideas”. He also recognises that these benefits don’t come automatically though, and that “the availability and quality of infrastructure are at the core of many of the challenges faced by a rapidly urbanized Lagos.”

The Outlook makes the same diagnosis for African cities in general, citing three policy-related issues: public and private actors have not sufficiently upgraded the urban infrastructure; steadily high fertility rates in urban areas have contributed to overcrowding through fast urban growth; and dysfunctional real estate markets have led to the explosion of informal housing. To tackle the problems, governments and the private sector will have to invest twice as much by 2050 as they have since the years of independence, but policies to restrain urbanisation have tended to be more popular than policies to use urbanisation to boost structural transformation.

This may be changing. The Draft Africa Common Position on Habitat III, the Third UN Conference on Housing and Sustainable Urban Development taking place in October, states that Sustainable Development Goal 11 to make cities and human settlements inclusive, safe, resilient and sustainable, “needs to be considered together with goals 8, 9 and 10 on matters relating to promoting economic growth as well as full and productive employment; building infrastructure, industrialization and innovation, as well as reducing inequality within and between countries”.

Useful links

A 21st Century Vision for Urbanisation Dr Joan Clos, Executive Director, UN-Habitat on OECD Development Matters blog

OECD Development Centre work on Africa and the Middle East

The main sector of economic activity in West Africa consists of feeding its population

west african papersLaurent Bossard, Director, OECD Sahel and West Africa Club (SWAC) Secretariat

In launching the new “West African Papers” series produced by the OECD Sahel and West Africa Club Secretariat, T. Allen and P. Heinrigs have reflected on the region’s food economy opportunities, providing us with a useful and necessary occasion to look back and measure the extent of changes that have taken place.

I’m old enough to remember the West African agriculture – and especially that of the Sahel – that existed in the middle of the 1980s. One could (already) witness the power of demographic growth. Between 1960 and 1985, the population of the Sahel had doubled and the urban population had increased fivefold. But farming did not keep pace. Excluding weather variations (people were just emerging from the terrible drought of 1983), this 25-year period revealed an increase in imports to the tune of 8% per year. In his 1987 book, Le sahel face aux futurs (The Sahel: Facing the Future), Jacques Giri was already sounding the alarm: “Overall, the Sahelian food production system has remained very traditional, very vulnerable to drought and not all that productive. It has not adapted in terms of quality, quantity or needs […]. The region is increasingly dependent on outside sources and, in particular, on food aid. The return of more favourable weather conditions has not led to a decrease in this dependence.”

A significant portion of the region’s “imports” were, in reality, related to food aid, which had practically become institutionalised since the middle of the 1970s. While it’s true that Europe – whose grain production had doubled between 1970 and 1985 – was not averse to providing this type of aid, this state of affairs was not sustainable and the prospects were worrisome.

Farmers in the Sahel and in West Africa were clearly divided into two extremely unequal halves. On the one hand, the majority practised subsistence farming, and a large proportion of that majority did so with self-sufficiency in mind. Markets only played a marginal role in producers’ lives, especially as, in a number of countries, prices were set by ministries and commercialisation was – in theory, at least – a state monopoly.

On the other hand, export crops were enjoying a major boom, compelling a minority of small farmers to “modernise”. Stabilisation funds supported by the international community guaranteed purchase prices for producers, irrespective of global prices. This was the case for cotton, the production of which surged from the beginning of the 1970s onwards, or for cocoa and coffee in Côte d’Ivoire and Ghana. Groundnuts, meanwhile, offered great benefits for Senegal, Gambia and Niger, until the northern countries realised that they could produce oilseed crops at home at a lower cost.

But overall, the prospects were poor: demographics and towns would lead to a relentless increase in the food deficit. Revenue from export crops would not be sufficient to fund imports; structural food aid could not last.

More than three decades later, it appears that what we believed to be the cause of the problems (urbanisation) has in fact been the driving force behind spectacular agri-food development. By growing and multiplying, towns polarised a large part of the farming world, dragging it into the market. In doing so, they sparked the emergence and development of a large number of essential professions, all along the increasingly complex food chain,  both upstream and downstream of production: tool manufacturers and repairers, fertiliser and grain sellers, traders (collectors, wholesalers and retailers), labourers, packers, transporters, processors and restaurant owners. And this is not taking into account all the activities that enable the aforementioned to perform their jobs – take for example, those that wait by the side of the road to replace the punctured tyres of passing lorries.

In 2010, this food economy represented USD 178 billion, which equates to 36% of the combined GDP of all the countries in West Africa (likely around USD 240 billion in 2015). It is the top economic sector of the region and is experiencing strong growth. The move to extend the market has opened up new opportunities both upstream and downstream of agricultural production, which now represents just 60% of the food economy.

Today, the great challenge for farming lies less with crop exports and more with the economic opportunities offered by the regional market. Two-thirds of what West Africans consume is commercialised. A significant and fast-growing part of it is processed. The future of the agri-food sector is highly promising in terms of development and jobs. Taking more of an interest in the new activities developing along these value chains will also offer opportunities to women, who are especially prevalent in the processing and food distribution segments.

Public policies must be adapted to match these real-world changes.

Useful links

SWAC work on regional governance of food and nutrition security

West Africa: Security crisis and food crisis Laurent Bossard on OECD Insights

Moving beyond agriculture: It’s food that matters Thomas Allen on OECD Insights

New Approaches to Economic Challenges in a Century of Cities

NAECRolf Alter, Director of the OECD Public Governance and Territorial Development Directorate @raltergov

We live in the century of cities. In OECD countries, two out of three people live in cities with 50 000 or more inhabitants. Outside the OECD, the share of urban residents is currently slightly lower, but urbanisation is progressing rapidly. While today over half of the world’s population lives in urban areas, the United Nations estimate that the global urbanisation rate will reach 60% by 2030 and 70% by 2050.

Cities are important drivers of economic performance, and their contribution can be expected to increase. Metropolitan areas with more than 500 000 inhabitants generate 55% of OECD countries’ GDP and more than 60% of their economic growth. Due to agglomeration economies and high levels of human capital, most cities have higher productivity levels than their countries as a whole. As many OECD countries have seen declining rates of productivity growth in recent years, utilising the full potential of productivity-increasing agglomeration effects can create new sources of growth.

Cities matter not only for the economic performance of a country; they also play a crucial role in determining the well-being of their residents. This is recognised prominently in Sustainable Development Goal 11, which calls for cities to be inclusive, safe, resilient and sustainable. It is also at the heart of the “New Urban Agenda”, to be launched at the UN-Habitat III Conference in October 2016 and an opportunity to reinvigorate our collective commitment to address urban policies at all levels of government.

Already today, many cities are desirable places to live and continue to attract new residents. Cities often provide better and more specialised services than rural areas. They generally have better transport connections and more diverse consumption opportunities. Most cities also offer greater cultural diversity and other amenities than rural areas.

But cities also face challenges in the form of agglomeration costs. Some are directly measurable economic costs, such as higher price levels; others primarily affect the well-being of residents and are more difficult to quantify in monetary terms. Air pollution and noise levels, for example, tend to be worse in large cities and have negative effects on the health of residents. Most commonly, agglomeration costs affect both economic performance of cities and well-being. A shortage of affordable housing, increasing congestion, long commutes and high crime rates have clear economic costs and also direct adverse effects on well-being.

Cities within the same country often have very different productivity levels and face varying degrees of agglomeration costs. This indicates that policies play an important role in influencing the performance of cities. In particular, the degree to which agglomeration costs can be avoided determines a city’s success. Cities in developing countries face some challenges that developed countries have already tackled, such as the provision of water and access to sanitation for all residents. But reducing agglomeration costs is important everywhere and can improve productivity and well-being even in the most advanced cities.

Agglomeration costs and policies to alleviate them frequently concern the same fields across developing and developed countries, albeit at very different starting points. The provision of affordable housing is a necessary condition to upgrade slums in developing countries and it is also required to make the most successful cities in developed countries more inclusive. Similarly, reducing congestion will increase productivity levels in cities in advanced countries, just as it will increase productivity levels in the least developed countries.

City governance needs to be re-evaluated

Most of the challenges that cities face are complex and multi-dimensional. The policy response requires therefore governance mechanisms which facilitate the development and implementation of complex and multi-dimensional public policies in urban areas. Running a big city requires more than just concentrating on a few specific problem areas in a piecemeal approach to policy. It requires a package of coordinated policies that produces synergies and complementarities.

Effective urban and regional policy calls for co-ordination between many different actors, an area in which until recently many countries have fallen short. In the past, national-level urban policies in OECD countries were often narrowly defined and limited to one or two issues, such as infrastructure provision or the revitalization of distressed neighbourhoods.

Yet a wide range of national policies can have a profound impact on urban development, even if national policy-makers do not view them through an “urban lens”. Better co-ordination of national policies affecting cities can eliminate tensions between various sectorally oriented policies and give clearer signals to city leaders, empowering them to work more effectively with each other, with higher levels of government, with citizens and with the private sector.

Empowering cities will in many cases require more efficient city and metropolitan governance. As administrative boundaries are typically based on historical settlement patterns that do not reflect the increasingly inter-connected socio-economic realities in large urban agglomerations, municipal fragmentation makes it difficult to coordinate policies on the local level and puts a brake on growth. OECD metropolitan areas with appropriate governance systems have not only higher productivity, but also experienced less sprawl and greater citizen satisfaction, particularly with transport systems.

Preparing cities for the future

According to the United Nations, urban populations in high-income countries are expected to increase only modestly over the next two decades, from 920 million people to just over 1 billion. Consequently, changes to cities and their urban form will be incremental.

In developing countries, by contrast, the stakes are much higher. Existing cities will need to be modified and expanded, and new cities will need to be built. The importance of actions taken today goes far beyond the 15 years’ time horizon of the SDGs. Housing and infrastructure that will be built to accommodate billions new urban residents will determine urban form for many more decades to come. This is a task that neither city authorities nor national governments can take on alone. It is therefore crucial that the mechanisms chosen to implement the SDGs and the New Urban Agenda take into consideration how choices made in cities today will affect the extent and impact of global challenges such as climate change, the ability to achieve emission reductions and the capacity to adapt to changing circumstances, such as ageing population.

Achieving inclusive growth requires co-ordination of economy-wide and local policy measures to build cities that are both environmentally sustainable and offer the opportunities for personal fulfillment that education, skills and jobs can bring. At stake are our hopes and aspirations for a fairer, more prosperous world. Let’s make sure we ‘get cities right’.

Useful links

OECD work on cities

OECD Directorate for Public Governance and Territorial Development

OECD work on Regional Development

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