The art of economics consists in looking not merely at the immediate hut at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups—Henry Hazlitt
Finally someone in the mainstream partly shares my view on why the centralization “urbanization” paradigm of economic growth represents a passe model as the world transitions to the post industrial or information age.
From Deutsche Bank’s global strategist Sanjeev Sanyal writing at the Project Syndicate (bold mine) hat tip Zero Hedge
The problem with this post-industrial urban model is that it strongly favors generalist cities that can cluster different kinds of soft and hard amenities and human capital. Indeed, the growth dynamic can be so strong for some successful cities that they can hollow out smaller rivals (for example, London vis-à-vis the cities of northern England).
Some specialist cities could also do well in this world. But, as Detroit, with its long dependence on the automotive industry, demonstrates, cities that are dependent on a single industry or on a temporary location advantage may fare extremely poorly.
All of this has important implications for emerging economies. As it transformed itself into the “factory of the world,” the share of China’s urban population jumped from 26.4% in 1990 to around 53% today. The big, cosmopolitan cities of Beijing and Shanghai have grown dramatically, but the bulk of the urban migration has been to cookie-cutter small and medium-size industrial towns that have mushroomed over the last decade. By clustering industrial infrastructure and using the hukou system of city-specific residency permits, the authorities have been able to control the process surprisingly well.
This process of urban growth, however, is about to unravel. As China shifts its economic model away from heavy infrastructure investment and bulk manufacturing, many of these small industrial cities will lose their core industry. This will happen at a time when the country’s skewed demographics causes the workforce to shrink and the flow of migration from rural areas to cities to slow (the rural population now disproportionately comprises the elderly).
Meanwhile, the post-industrial attractions of cities like Shanghai and Beijing will attract the more talented and better-educated children of today’s industrial workers. Unlike rural migrants heading for industrial jobs, it will be much more difficult to guide educated and creative professionals using the hukou system. The boom in the successful cities, therefore, will hollow out human capital from less attractive industrial hubs, which will then fall into a vicious cycle of decay and falling productivity.
Stories like Detroit’s have played out several times in developed countries during the last half-century. And, as the fate of Mexico’s northern towns suggests, emerging economies are not immune from this process.
This shows of the evolving transition from the industrial centralized based economy towards knowledge based decentralized economy
This also means that central planning or government infrastructure spending based on the urbanization model will eventually translate to huge losses for society.
But again taxpayers will bear the burden for the miscalculations of presumptuous popularity and vote seeking policymakers
I wrote here and here denoting of how the forces of decentralization, which has been underpinned by the deepening of technology innovation trends, will likely upset on mainstream’s mantra of urbanization.
Work will increasingly become mobile and move away from fixed time and or location as globalization spreads. And such dynamic will reconfigure people’s lifestyles.
We are seeing more signs of such dynamic in play through increases in home based employment which now accounts for 10% of US employment.
About one in 10 workers toils at least partly from home now, an emerging trend that could boost the productivity of the entire economy.
The U.S. Census Bureau said in a report Tuesday that some 13 million people, or 9.4% of the working population in 2010, worked at least one day at home per week, compared with just 9.2 million people in 1997, when 7% worked at least partly from home. People working either entirely or partly from home were more likely to be in management and business. Those in computer, engineering and science jobs saw among the biggest shifts home-ward: “Home-based” work in these fields jumped around 70% from 252,000 workers in 2000 to 432,000 workers in 2010. (Home-based workers work exclusively or part of the time from home.) According to Census figures, 5.8 million people or 4.3% of the U.S. workforce worked from home most of the week in 2010 — an increase of about 1.6 million since 2000.
Around the world, advances in technology are making it easier for millions to work from home. But there is much debate over the benefits of telecommuting Yahoo Chief Executive Marissa Mayer set off a recent round of debate when she ended the company’s work-from-home arrangements.
Public or private projects based on the concept of centralization, such as urbanization, will be faced with greater risks.
CBS 60 minutes has a very insightful investigative report on China's property bubble. Reporter Lesley Stahl calls this perhaps the largest housing bubble in human history (hat tip Mark Thornton/ Mises Blog)
-the public's restricted investment options. For instance the public hasnot been allowed to invest abroad. Yet such have been a compelling reason for the current bubble. With limited options, housing has likewise been seen as inflation hedge
The report has been silent on what drives China's inflation, though. Yet easy money policies and stringent capital-currency controls represent financial repression.
-Housing has been the main driver of state dictated statistical economic growth, where real estate has been estimated at 20-30% of the economy
-The Chinese government spends about $2 trillion to finance between 12 to 24 (mostly ghost) cities every single year!
-Stahl: "It’s all make believe: Non-existent supply for non-existent demand...It’s surreal and it’s everywhere".
-On China’s urbanization: Properties are unaffordable. The Chinese government, says the interviewed analyst, are building the wrong sorts of apartments.
In other words, China's centrally planned properties don't meet Chinese consumer needs.
-State driven property bubbles also means a shift of land use from productive to ghost cities. Agricultural properties, like ricefields have been forcibly teared down to accommodate state projects.
-A bubble bust will translate to 3 generations of evaporated savings and millions of construction workers will be out of jobs.
I would add to the impact of the potential bubble bust: domino effect on the global economy, finance (think US treasuries which the Chinese government may likely sell that may cause higher rates and political friction with the US), commodity markets, globalization and even the geopolitical risks of war in order to mask all such problems
-The biggest developer in China thinks that the Chinese property markets are in a bubble: he says that properties are MORE than 45x average resident’s salary (Shanghai). And that many developers are now in deep debt. And many today suffers from unfinished projects.
He further adds that property bubble could become a debt crisis because of the scale of the loans.
And economic crisis could lead to social unrest.
Asked of what could happen on the realization of a bubble burst “Maybe Arabic Spring” says the developer.
The bottom line: policies of quasi permanent booms has been implicitly designed to preserve the political power of the incumbent Chinese political authorities. Thus, unless they are ready to relinquish such political privileges, such policies are expected to remain in place (despite superficial measures to quell them)
Yet despite all these, a mania still dominates the unwitting buyers of unsustainable ghost cities.
Outsourcing has been largely thought as mainly company based commercial operations. However in the real world, given today’s deepening of the digital economy or information age, the application of outsourcing has been broadening to include individual operations.
The oxymoronic account of where a company caught an employee outsourcing one’s job, from CNN.com, which led to his termination, seems like a manifestation of such snowballing dynamic
After a U.S.-based "critical infrastructure" company discovered in 2012 its computer systems were being accessed from China, its security personnel caught the culprit ultimately responsible: Not a hacker from the Middle Kingdom but one of the company's own employees sitting right at his desk in the United States.
Bob was an "inoffensive and quiet" programmer in his mid-40's, according to his employee profile, with "a relatively long tenure with the company" and "someone you wouldn't look at twice in an elevator."
Those innocuous traits led investigators to initially believe the computer access from China using Bob's credentials was unauthorized -- and that some form of malware was sidestepping strong two-factor authentication that included a token RSA key fob under Bob's name.
Investigators then discovered Bob had "physically FedExed his RSA token to China so that the third-party contractor could log-in under his credentials during the workday," wrote Andrew Valentine, a senior forensic investigator for Verizon.
Bob had hired a programming firm in the northeastern Chinese city of Shenyang to do his work. His helpers half a world away worked overnight on a schedule imitating an average 9-to-5 workday in the United States. He paid them one-fifth of his six-figure salary, according to Verizon.
Some thoughts
Programmer Bob’s offense has really not been about outsourcing but of the unauthorized disclosure of what has been internal corporate affairs to a third party.
In the digital economy or the information age, non-contiguous work requirements enable outsourcing on an international scale. The non-sensitivity to geographic confines means that work can be delegated to a specialty agent wherever access to connectivity is present. This translates to job decentralization or semi-autonomous jobs or jobs that allows for “home based” work or telecommutation. I may add that semi-autonomous work may not really be “home based” or static work location but about mobility.
Outsourcing, which contributes to the informal economy, should continue to grow as the world’s economy gravitates towards technology inspired specialization.
Why I don’t buy the mainstream’s embrace of the supposed deepening trend of urbanization? Because the pastis hardly the future. Technological advances extrapolates to increasing decentralization of social activities. And this covers commercial activities that can be seen from corporate operations.
With nearly half its employees working from home now, Aetna Inc. is convinced it is saving a good deal of money with no adverse effect on productivity.
A nine-month experiment at Ctrip, China’s largest travel agency, overseen by academic economists at Stanford and Beijing University, suggests Aetna’s experience may not be unique.
Ctrip, was looking to save money on real estate costs and cut turnover. It asked 996 employees in its Shanghai call center if they’d be interested in working at home four days a week. Half were interested, and 252 qualified for the experiment by virtue of having at least six months on the job and broadband access from a quiet corner of their home. Those with birthdays on even days were selected to work at home, those with odd birthdays stayed in the office, making this the sort of random experiment that academics relish.
The TED introduces Mr. Neuwirth for his "out-of-the-box" thinking, or as challenging
“the conventional thinking by examining the world's informal economy close up. To do so, he spent four years living and working with street vendors and gray marketers, to capture its scope, its vigor--and its lessons. He calls it “System D” and argues that it is not a hidden economy, but a very visible, growing, effective one, fostering entrepreneurship and representing 1.8 billion jobs worldwide.
Mises Institute’s Jeff Riggenbach quotes Mr. Neuwirth’s definition of the informal economy based on his book…
This "informal economy," he writes, "produces, cumulatively, a huge amount of wealth.… It is how much of the world survives, and how many people thrive." And he has a name for it: System D.
"System D," he quickly explains, “is a slang phrase pirated from French-speaking Africa and the Caribbean. The French have a word that they often use to describe particularly effective and motivated people. They call them débrouillards. To say a man (or woman) is a débrouillard(e) is to tell people how resourceful and ingenious he or she is. The former French colonies have sculpted this word to their own social and economic reality. They say that inventive, self-starting, entrepreneurial merchants who are doing business on their own, without registering or being regulated by the bureaucracy and, for the most part, without paying taxes, are part of 'l'economie de la débrouillardise.' Or, sweetened for street use, 'Systeme D.' Thisessentially translates as the ingenuity economy, the economy of improvisation and self-reliance, the do-it-yourself or DIY economy.
The video from TED Ideas Worth Spreading (hat tip Professor Mark Perry)
Some highlights:
-“Something like this is totally open, it’s right there for you to find. All of this is happening openly and above board there is nothing underground about it. It is our prejudgment that it is underground”
-Governments dislike this
-“We are all focused on the luxury economy” ($1.5 trillion per year)
-“It excludes two-third of the workers of the world, 1.8 billion people work in an economy that is unregulated and informal”
-It is where employment is
-It engenders a more egalitarian world
In reality, the so called “prejudgment” of the informal economy has been part of orchestrated government campaign propaganda to derogate them, for the simple reason that the existence of the informal economy diminishes the importance of the role of governments.
More significantly, the informal economy represents the stark account of government failure
The informal sector -- those businesses and entrepreneurs who work outside of the formal market economy -- is huge and largely undocumented in most developing economies. Almost everywhere, the root cause is the same: cumbersome, unresponsive, unfair, and overwhelmingly status quo-driven bureaucracy. People simply cannot get through the wall of red tape or the maze of regulations to gain access to the formal economy.
Moreover, author Robert Neuwirth points to the survivorship bias by public of focusing on the “luxury” economy (euphemism for consumption economy) which has been much smaller than the informal economy.
Again this represents the indoctrination by the mouthpieces of government conduits particularly through mainstream media.
Take the Philippines, hardly any serious study dwells with the informal economy. Every news exaggerates on the contributions of OFWs to the economy whose remittances accounts about 10% more or less of the economy.
When it comes to the informal economy, even when we deal with them or see them daily as a fact of life, they become a vacuum in mainstream’s eyes
The following excerpt is an example of one distorted perspective relative to OFW’s contribution to property development, the Global Property guide writes,
Overseas Filipinos’ remittances are powering the low-end to mid-range residential property market. They are snapping up housing projects and mid-scale subdivisions in regions near Metro Manila such as Cavite, Batangas and Laguna Provinces, while the expansion of the upper residential market, including the luxury market, is due to increased housing demand from BPO employees and expatriates, according to the World Bank.
Overseas Filipino Workers (OFW).account for around 17% to 18% of residential sales of Ayala Land, one of the country’s major developers. In the next five years Ayala Land President Antonio Aquino expects to double this, by branching out to the affordable and low-end market segment.
If OFWs account for say 20% of the housing or property demand, so what happened to the 80%? Which is mathematically bigger 20% or 80%? Since when has 20% become a dominant factor?
Let me add that OFWs also contributes to the informal economy, that is if the recipient families engage in unregulated or untaxed commerce.
This is why I have been repeatedly pointing out that for a country, whom according to mainstream has supposedly been living in Third World and has been allegedly 'poor', the Philippines hosts three of the largest malls in the world (Forbes 2008). Yet these malls, have not been like those ghost malls in China, as they have near full occupancy (which means profitable retail enterprises)
All these can HARDLY be supported by consumption spending by OFWs alone (or even if you add exports, which has been the favorite source of Keynesian influenced media).
The fact is that the informal economy has far been a larger contributor to the Philippines’ economic growth than has been projected.
Remember since the informal economy has been largely undocumented thus statistical estimates will bear significant errors.
Despite the survivalship bias practiced by the mainstream, Mr. Neuwirth’s putting into perspective of the real state and of the potentials of the informal economy appears to have been indirectly acknowledged by the World Bank,
the shadow economy has reached a remarkably large size with a weighted (unweighted) average value of 17.2 (33.1)% of official GDP. However, equally important is the clear negative trend of the size of the shadow economy over time. The unweighted average size of the 162 countries decreased from 34.0% of official GDP in 1999 to 31.0% in 2007; for the 21 transition countries from 36.9% in 1999 to 32.6% in 2007.
While the World Bank says the trend has been slowing, this has, I think, has mostly been a result of recent trends of globalization and economic freedom which tend to increase participation of the some erstwhile segments of the informal sector to the formal sector.
But such dynamics should not be construed as past performance determining future outcome. If the informal or shadow economy has signified as the public’s response to the politicization of the markets, then increased politicization means the tendency to shift economic activities towards the informal sector.
“These are not really people oppressed by poverty,” says writer Stewart Brand. “They are getting out of poverty as fast as they can.” This isn’t to say that cellphones are about to save the world. But they have become the tool of choice for people who are determined to save themselves.
The informal economy, thereby represents free trade in motion and has been about people’s natural recourse to survival.
As the distinguished Austrian economist Percy Greaves Jr. once said,
For men, life is a series of choices by which we seek to exchange something we have for something we prefer. We know what we prefer. No other man or bureaucrat is capable of telling us what we prefer. Our preferences are our values. They provide us with a compass by which we steer all our purposeful actions. Because few people fully understand this, we have some serious economic problems…
Anything that raises cost or hinders the free and voluntary transactions of the market place must keep human satisfactions from reaching their highest potential. Today the greatest obstructions to the attainment of higher human satisfactions are the well-meaning but futile political interferences with the mutually beneficial transactions of a free market economy.
So any obstacles placed against activities which facilitates people’s survival will intuitively lead to the informal economy.
This is common sense.
Unfortunately common sense has been unavailable to politically brainwashed mindsets.
Mr. Stephen Roach, Chairman of Morgan Stanley Asia, writing at the Project Syndicate thinks so,
Reports of ghost cities, bridges to nowhere, and empty new airports are fueling concern among Western analysts that an unbalanced Chinese economy cannot rebound as it did in the second half of 2009. With fixed investment nearing the unprecedented threshold of 50% of GDP, they fear that another investment-led fiscal stimulus will only hasten the inevitable China-collapse scenario.
But the pessimists’ hype overlooks one of the most important drivers of China’s modernization: the greatest urbanization story the world has ever seen. In 2011, the urban share of the Chinese population surpassed 50% for the first time, reaching 51.3%, compared to less than 20% in 1980. Moreover, according to OECD projections, China’s already burgeoning urban population should expand by more than 300 million by 2030 – an increment almost equal to the current population of the United States. With rural-to-urban migration averaging 15 to 20 million people per year, today’s so-called ghost cities quickly become tomorrow’s thriving metropolitan areas.
Shanghai Pudong is the classic example of how an “empty” urban construction project in the late 1990’s quickly became a fully occupied urban center, with a population today of roughly 5.5 million. A McKinsey study estimates that by 2025 China will have more than 220 cities with populations in excess of one million, versus 125 in 2010, and that 23 mega-cities will have a population of at least five million.
China cannot afford to wait to build its new cities. Instead, investment and construction must be aligned with the future influx of urban dwellers. The “ghost city” critique misses this point entirely.
All of this is part of China’s grand plan. The producer model, which worked brilliantly for 30 years, cannot take China to the promised land of prosperity. The Chinese leadership has long known this, as Premier Wen Jiabao signaled with his famous 2007 “Four ‘Uns’” critique – warning of an “unstable, unbalanced, uncoordinated, and ultimately unsustainable” economy.
I have deep respect for Mr. Stephen Roach but I think his “urbanization” argument hardly distinguishes from the other public work projects such as infrastructure and transportation. They are all anchored on justifications of centrally planned interventions that presupposes omniscience or the superiority of knowledge of political authorities, as well as, the incontrovertibility of such trends (which for me accounts as the folly of reading past trends into the future; or “fighting the last war”).
In short, urbanization, based on government design, seems like a lipstick on a pig.
Urbanization according to Wikipedia is closely linked to modernization, industrialization, and the sociological process of rationalization.
Urbanization is characterized by, again Wikipedia.org
Cities are known to be places where money, services and wealth are centralized. Many rural inhabitants come to the city for reasons of seeking fortunes and social mobility. Businesses, which provide jobs and exchange capital are more concentrated in urban areas. Whether the source is trade or tourism, it is also through the ports or banking systems that foreign money flows into a country, commonly located in cities.
Urbanization in reality are symptoms of the 20th century model of intertwined centralized social activities based on mass production, mass media and markets which drew development and population to urban areas that paved way for the age of urbanization.
But are we still in the industrial age or are we shifting to the information age?
While Urbanization has still been an ongoing phenomenon, signs are that current centralized trends have been shifting.
For instance in China, demographic trends show that population and development has been moving inland. This may be partly due to government projects, China’s spontaneous economic response to the unfolding events around the world and the alleged reshaping or “rebalancing” of China’s economy (The Economist)
But what mainstream seem to ignore is that mass production has been transitioning towards specialization, which is why Asia became a supply chain network.
Moreover, future trends points to home based production for simple products (3-D printing anyone?)
Decentralized social media via the internet has also been challenging mass media. In terms of advertising, mobile and internet have been dramatically gaining at the expense of Radio and Print. Even revenue growth from ads on TV has been stagnating.
Also, mass markets are being turned into niche or specialty markets.
Specialization of production and niche markets has led to grassroots development.
Proof?
The expansion of the booming Business Process Outsourcing has not only been within cities but to secondary cities and to rural areas as well. This applies both to India and the Philippines.
Also business focus will increasingly be directed to specific needs (niche marketing) rather than mass production and also on where the consumers and markets are.
In the Philippines, shopping malls have sprouted not only in major cities but also in capitals of provinces or secondary cities. Take for example the largest shopping mall chain the SM Group which has 43 malls nationwide and growing. This is a noteworthy example of the deepening dispersion trends, where facilities have been mushrooming outside of mega cities.
I might add that SM has reportedly been targeting rural or provincial areas for expansion due to a booming agricultural economy and has been on a land-buying binge in Bacolod, Tacloban, Baguio, Bulacan, and Laguna, Quezon and Pangasingan.
Of course the agriculture economy has been part of the boom, but as noted above, even BPOs are headed towards rural areas. There may also be other telecommuters or home based technology businesses, aside from the large informal economy and remittance based income.
What the point?
Decentralization is bound to upend centralized based social activities of the 20th century
As the prescient Alvin Toffler wrote in Third Wave (p. 298-299)
The Third wave alters our spatial experience by dispersing rather than concentrating population. While millions of people continue to pour into urban areas in the still industrializing parts of the world, all the high technology countries are already experiencing a reversal of this flow. Tokyo, London, Zurich, Glasgow, and dozens of other major cities are all losing population while middle-sized or smaller cities are showing gains…
This redistribution of and de-concentration of population will, in due time, alter our assumption and expectations about personal as well as social space about commuting distances, about housing density and many other things.
This has gradually been happening today.
Bottom line: Urbanization will unlikely save China’s Keynesian centrally planned capital spending boom from turning into a bust.
FOR a nation whose culture and society have been shaped over millennia by its rice-farming traditions, and whose ruling party rose to power in 1949 by mobilising its put-upon peasantry, China has just passed a remarkable milestone: its city-dwellers now outnumber its rural residents. New data from the National Bureau of Statistics show that of China’s 1.35 billion people, 51.3% lived in urban areas at the end of 2011. In 1980 less than a fifth of China’s population lived in cities, a smaller proportion than in India. Over the next ten years the government remained wary of free movement, even as it made its peace with free enterprise. Touting a policy of “leaving the land but not the villages, entering the factories but not cities”, it sought industrialisation without urbanisation, only to discover it could not have one without the other. Even now, its ratio of city-dwellers is, if anything, low for an economy at its stage of development. America reached the 50% mark before 1920. Britain passed it in the 19th century. Go further back, however, and China’s cities dazzled the world. It is likely that one thousand years ago, the Song Dynasty capital of Kaifeng was the world’s most populous city. Marco Polo, who visited China in the 13th century, claimed that Hangzhou was “the most splendid city in the world” with 13,000 bridges—although later estimates suggest the true number was 347.
Count me as a skeptic of the continuity of urbanization trends, a phenomenon derivative of the industrial age.
Basically urbanization has been driven by economic opportunities, the economies of scale and centralization of facilities all of which may be changing.
The dynamics of urbanization, according to Wikipedia.org (bold emphasis mine)
People move into cities to seek economic opportunities. A major contributing factor is known as "rural flight". In rural areas, often on small family farms, it is difficult to improve one's standard of living beyond basic sustenance. Farm living is dependent on unpredictable environmental conditions, and in times of drought, flood or pestilence, survival becomes extremely problematic. In modern times, industrialization of agriculture has negatively affected the economy of small and middle-sized farms and strongly reduced the size of the rural labor market.
Cities, in contrast, are known to be places where money, services and wealth are centralized. Cities are where fortunes are made and where social mobility is possible. Businesses, which generate jobs and capital, are usually located in urban areas. Whether the source is trade or tourism, it is also through the cities that foreign money flows into a country. It is easy to see why someone living on a farm might wish to take their chance moving to the city and trying to make enough money to send back home to their struggling family.
There are better basic services as well as other specialist services that aren't found in rural areas. There are more job opportunities and a greater variety of jobs. Health is another major factor. People, especially the elderly are often forced to move to cities where there are doctors and hospitals that can cater for their health needs. Other factors include a greater variety of entertainment (restaurants, movie theaters, theme parks, etc.) and a better quality of education, namely universities. Due to their high populations, urban areas can also have much more diverse social communities allowing others to find people like them when they might not be able to in rural areas.
These conditions are heightened during times of change from a pre-industrial society to an industrial one. It is at this time that many new commercial enterprises are made possible, thus creating new jobs in cities.
The transition to the information age extrapolates to more specialization, as commerce will evolve along with improvements in technology. This means reduced cost advantages of centralized organizations which simultaneously has been accelerating and deepening the trends of business outsourcing.
Moreover real time connectivity should enhance this process, which again reduces the motivation for commerce to congregate in specific areas—or cities.
Also business focus will increasingly be directed to specific needs (niche marketing) rather than mass production and also on where the consumers and markets are.
In the Philippines, shopping malls have sprouted not only in major cities but also in capitals of provinces or secondary cities. Take for example the largest shopping mall chain the SM Group which has 43 malls nationwide and growing. This is a noteworthy example of the deepening dispersion trends, where facilities have been mushrooming outside of mega cities.
Also this serves as an example of the evolving location based markets—businesses locating and providing goods and services where the consumers are.
On the supply side, the call center industry, whose firms have been looking for agents to fill up outsourcing jobs, has been spreading outside the metropolis (Metro Manila). According to Wikipedia.org, there are 788 call centers in over 20 locations, where growing number firms are being established again in secondary cities and in the provinces.
All these suggest that the snowballing forces of decentralization should dampen urbanization trends--that depends on the dynamics of centralization--over the long run.
Below is an interesting talk by physicist Geoffrey West at the TED forum on Cities.
Some points he makes;
-It’s hard to kill a city.
-He places tremendous emphasis on the scalability phenomenon where he connects size with social impact, e.g. bigger city bigger wealth more AIDs
-However he says that optimism bias tends to prevail over the city’s growth dynamics where people tend to see ‘wonderful things and forget the ugly and bad’
-He rightly points out that social networks are key to the growth of cities; ‘We are the city’ which is a result of people’s “clustering interaction”.
-Further he says that for cities to develop it needs ‘faster innovation in a continuous basis’.
-Lastly he says that he can predict the size of a city or company given the sublinear scaling from ‘sigmoidal growth’
Here are my thoughts
It’s interesting to see how mathematically inclined people try to quantify people’s actions.
In the past killing a city or a decline of relevance or marginal utility of a city comes in the form of war (Nineveh, Babylon, Selucia, Carthage, Rome, Pagan and Angkor Wat as examples), change in economic patterns (introduction of Cape Good lead to the decline of Venice) natural calamity (Pompeii) or cyclical-behavioral-political elements- such as overconfidence, which led to overexpansion or lack of diversity (fall of Rome).****
In addition, scale does not automatically translate to magnitude.
In history, autonomous small cities played vital role as Amalfi, Cadiz, Goa, Batavia, Geneva, Abu Dhabi and Monaco.*** Today we have semi-independent city states as (pre-China) Hong Kong and Singapore.
Social network is indeed important. But Professor West does not specify how social network would result to “clustering interaction”. Are cities politically or economically driven?
In the past, strong arm societies depended on the capability of leaders, such as Alexander the Great, Attila the Hun, Genghkis Khan, Timur, Akbar, and Kublai Khan***. When they passed away so did their respective empires and cities.
History shows that many cities emerged from trading routes and proximity thereof, particularly in coastal areas (Tripoli, Sidon, Carthage, Athens, Marseille, Syracuse, in recent centuries Venice, Famagusta, Genoa, Constantinople, Kafffa, Lisbon and etc.)***
Many factors are involved in city dynamics: some of the important ones are economic growth cycles, legal systems, economic freedom, infrastructure, adherence to property rights, (in the past) military power [Assyrians, Romans, Mongols], political climate or conditions (interaction between minority and majority, in the past conflict resulted to dislocations which have caused diasporas of Jews, Huguenots, Armenians) innovation and intellectual tolerance.
To quote the legendary investor Marc Faber***,
A dynamic society arises where there is also intellectual tolerance freedom of conscience, social mobility, freedom of ideas, and the expression of ideas which may be hostile to established beliefs or to the government. Where intellectuals, scientist, and philosophers were persecuted, imprisoned, tortured or murdered, they fled. But it is in their know-how on which progress depends.
Today, Manila’s relevance has been apparently declining, in terms of population growth and per capita income.
While Manila still has the second largest population second only to Quezon City, the growth rate has been stagnating and relatively underperforming against a vibrant Quezon City according to the 2007 census. The fastest growth rate is seen in Taguig, Paranaque and Kalookan City.
Manila still has the largest population density
However, in terms of per capita GDP, Manila ranks 5th to the following order Makati, Mandaluyong, San Juan and Muntinlupa (Wikipedia).
The obvious point is that city scale and magnitude while having some correlation does not exhibit strong causation. The huge gap in Professor West’s talk is how social interaction has led to city dynamics.
Finally Professor West says that he can predict growth dynamics of companies and cities from “sublinear scaling”.
My guess is by now he should have bettered the record of Warren Buffett as an investor.
I am reminded by the admonitions of the great Ludwig von Mises of relating natural sciences with social or human actions,
Nothing could be more mistaken than the now fashionable attempt to apply the methods and concepts of the natural sciences to the solution of social problems. In the realm of nature we cannot know anything about final causes, by reference to which events can be explained. But in the field of human actions there is the finality of acting men. Men make choices. They aim at certain ends and they apply means in order to attain the ends sought.
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
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.
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).
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.
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.
Drunk with the recent success of combining capitalism with her “communist” political structure, the Chinese government has embarked on a grand scale of central planning—China plans to build the largest megacity in the world!
China is planning to create the world's biggest mega city by merging nine cities to create a metropolis twice the size of Wales with a population of 42 million.
City planners in south China have laid out an ambitious plan to merge together the nine cities that lie around the Pearl River Delta.
The "Turn The Pearl River Delta Into One" scheme will create a 16,000 sq mile urban area that is 26 times larger geographically than Greater London, or twice the size of Wales.
The new mega-city will cover a large part of China's manufacturing heartland, stretching from Guangzhou to Shenzhen and including Foshan, Dongguan, Zhongshan, Zhuhai, Jiangmen, Huizhou and Zhaoqing. Together, they account for nearly a tenth of the Chinese economy.
Over the next six years, around 150 major infrastructure projects will mesh the transport, energy, water and telecommunications networks of the nine cities together, at a cost of some 2 trillion yuan (£190 billion). An express rail line will also connect the hub with nearby Hong Kong.
China’s government seems increasingly manifesting signs of overconfidence, a harbinger of bubble bust.
As previously explained in China’s Bubble and the Austrian Business Cycle, imploding bubbles are frequently highlighted or foreordained by “grand” braggadocio (mostly real estate) projects, but instead of the private sector, this time the symptom could emerge from the government.
In addition, while many experts have been obsessed with the supposed certainty of the “deepening” of urbanization trends, I am not one of them. That’s because I see technology as a pivotal offsetting force that leads not to concentration but to decentralization. And technology induced decentralization should apply to most social activities which includes politics, economics, demographics and others.
This is one aspect, which I think, central planners in China or elsewhere seems to have overlooked. Of course, substituting their “expert” knowledge over people’s preferences is another major factor, as exhibited by some of China’s existing ghost cities
