Laissez Faire Capitalism and City Competitiveness

The Economist devised a new measure of competitiveness applied to cities.

They write

The 120 cities in the index are home to some 750m people and $20.2 trillion worth of GDP, 29% of the world's total. High concentrations of skilled residents, infrastructure and institutions mean that the top of the index is dominated by America and western Europe, with 24 cities in the top 30. Comparing the index to the EIU's cost of living data (a measure of western-style living expenses), identifies those cities which also represent good value for money for the ambitious expatriate.

Explaining their findings, they add

Well over half of the world’s population now lives in cities, generating more than 80% of global GDP. Already, global business is beginning to plan strategy from a city, rather than a country, perspective.

Given the rapid growth and development of many cities, particularly in emerging markets such as China and India, competition between them for business, investment and talent will only get fiercer.

Size alone does not determine a city’s growth potential. While some megacities, such as New York and Tokyo, are immensely influential, there are smaller ones, such as Hong Kong and Singapore, which have established themselves as globally competitive centres in recent years. Meanwhile, emerging market cities such as Ahmedabad and Tianjin are witnessing double-digit economic growth and have the potential to grow even faster.

Competitiveness, however, is a holistic concept. While economic size and growth are important and necessary, several other factors determine a city’s overall competitiveness, including its business and regulatory environment, the quality of human capital and indeed the quality of life. These factors not only help a city sustain a high economic growth rate, but also create a stable and harmonious business and social environment.

The scatter plot diagram has a substantially significant message: the state of competitiveness is highly correlated with the standards of living. The more competitive a city is, the higher standards of living and vice versa. Given the above, the US and the west has, at present, the highest level of competitiveness, which similarly extrapolates to the highest ranking of standard of living. Meanwhile, Africa and Latin America has lagged.

And what has been the causal link which drives the correlation between competitiveness and quality of living?

The answer is capital accumulation via laissez faire capitalism

The great Professor Ludwig von Mises already explained this more than half a century ago or that the city competitiveness index merely validates Professor von Mises. (bold emphasis mine)

The truth is that the accumulation of capital and its in­vest­ment in machines, the source of the comparatively greater wealth of the Western peoples, are due exclusively to laissez-faire capi­talism which the same document of the churches passionately misrepresents and rejects on moral grounds. It is not the fault of the capitalists that the Asiatics and Afri­cans did not adopt those ideologies and policies which would have made the evolution of autochthonous capitalism possi­ble. Neither is it the fault of the capitalists that the policies of these nations thwarted the attempts of foreign investors to give them “the benefits of more machine production.” No one contests that what makes hundreds of mil­lions in Asia and Africa destitute is that they cling to primitive methods of production and miss the benefits which the employ­ment of better tools and up-to-date technological designs could be­stow upon them. But there is only one means to relieve their distress—namely, the full adoption of laissez-faire capitalism. What they need is private enterprise and the accumulation of new capital, capitalists and entrepreneurs. It is nonsensical to blame capitalism and the capitalistic nations of the West for the plight the backward peoples have brought upon themselves. The remedy indicated is not “justice” but the substitution of sound, i.e., laissez-faire, policies for unsound policies.

Of course times have been changing. Globalization has been prompting for the laggards (like Africa) to embrace more capitalism therefore becoming more competitive. Whereas debt plagued welfare states of West has led to a diminishing competitiveness. This should lead to a wealth convergence.