Urbanization and the Knowledge Economy

Investing guru Templeton’s Mark Mobius, reflecting on the mainstream view, believes that “Urbanization” will drive emerging market investments. ADB, for instance, has a literature on managing Asian cities here

Mark Mobius writes, (bold emphasis mine)

Over the next few decades, I believe we are likely to see an increase in several types of infrastructure investments due to rapid urbanization, which drives the increasing global demand for resources, mainly from emerging markets. I expect there will likely be many opportunities, particularly in the energy and materials sectors. Rapid urbanization in emerging markets, driven by rural populations migrating to cities in search of work and better opportunities, has put pressure on resources and prompted governments to pump money into a range of urban infrastructure-related sectors such as housing, transportation, sanitation, water, electricity and telecommunications.

I am a skeptic of the urbanization theme.

That’s because urbanization oversimplifies on the evolving trend of the global economic structure. Urbanization puts emphasis on past economic (industrial age) paradigms which it assumes will be carried forward.

Urbanization basically neglects the rapidly growing contribution and the deepening of the knowledge economy which has been reconfiguring people’s lifestyle and commerce.

Essentially urbanization focuses on the economies of scale from concentration and centralization, whereas the knowledge economy has been decentralizing socio-economic activities as a consequence of decreasing trend of communication, connectivity and transaction costs.

The Wikipedia explains the forces of the Knowledge Economy,

there are various interlocking driving forces, which are changing the rules of business and national competitiveness:

-Globalization — markets and products are more global.

-Information technology, which is related to next three:

Information/Knowledge Intensity — efficient production relies on information and know-how; over 70 per cent of workers in developed economies are information workers; many factory workers use their heads more than their hands.

New Media – New media increases the production and distribution of knowledge which in turn, results in collective intelligence. Existing knowledge becomes much easier to access as a result of networked data-bases which promote online interaction between users and producers.

Computer networking and Connectivity – developments such as the Internet bring the "global village" ever nearer.

As a result, goods and services can be developed, bought, sold, and in many cases even delivered over electronic networks.

I would add that increasing specialization will hallmark the knowledge economy. And specialization will diminish the economics of urbanization.

The changing nature of work can be exemplified by the telecommuting jobs, which have been rapidly growing.

These jobs are based on the web, are flexible and are not location sensitive (working from home, or elsewhere).

Wikipedia estimates

that over fifty million U.S. workers (about 40% of the working population) could work from home at least part of the time, yet in 2008, only 2.5 million employees (not including the self-employed) considered their home their primary place of business.

Occasional telecommuters— those who work remotely (though not necessarily at home) —totaled 17.2 million in 2008.

Very few companies employ large numbers of home-based full-time staff. The call center industry is one notable exception to this; several U.S.-based call centers employ thousands of home-based workers. For most employees, the option to work from home is granted as an employee benefit; most do so only part of the time.

In 2009 the Office of Personnel Management reported that approximately 102,000 Federal employees telework.

In the next three years, public and private sector IT decision makers expect telework to increase by 65% and 33%, respectively.

I, for one, am a Philippine based telecommuter.

As society evolves towards the knowledge economy, the incentive will largely focus on diversity dynamics from localized knowledge and commerce.

A study from McKinsey Quarterly seems to validate this perspective as local champions have been outperforming multinationals

we have found that high-performing global companies consistently score lower than more locally focused ones on several critical dimensions of organizational health—direction setting, coordination and control, innovation, and external orientation—that we have been studying at hundreds of companies over the past decade.

That’s how the knowledge economy has been changing the nature of commerce and will continue to do so.

So while I agree that infrastructure will highlight growth of emerging markets because of increased economic freedom and greater degree of free trade, emphasis on urbanization should translate to a lot of misdirected resources—yes they account for as emerging bubbles similar to China’s ghost cities and Potemkin Malls

If free markets will determine where infrastructure trends are headed for, then a more widespread development that caters to the growing forces of technology enabled specialization and diversity should be expected.

Government sponsored urbanization, thus, represents a symptom of bubble cycles at work.