Long-term trends will change the global economy, putting unique strains on both large cities and outlying areas. PwC has identified five megatrends actively shaping our world: rapid urbanization, technological breakthroughs, shifts in global economic power,...
Competitive Cities Must Meet the Challenge of Job Creation
As magnets for talent and crucibles of creativity, dynamic cities are the pacesetters for innovation and entrepreneurship in this era of cross-border commerce and globalized production. Competitive cities play another vital role, too: Vibrant metropolitan areas are the world’s indispensable engines of job creation. Ensuring that cities can spur vigorous job growth – especially in the leading-edge industries that will shape the future – is now all the more vital, as economies large and small struggle to overcome this decade’s slow-growth stall.
The global economy will need to create about 600 million new jobs within the next 15 years to employ the new working-age population.Job creation is the top priority for policymakers worldwide in the wake of the Great Recession, and the world’s cities will play a make-or-break role in generating the higher-skill, higher-wage jobs that every economy craves. If the world’s cities fail to live up to their full job-creation potential, then hundreds of millions of people – especially in the developing world – will remain vulnerable to chronically high unemployment and persistent poverty.
Today’s jobs crisis seems painful in recession-wracked Athens, Madrid and Lisbon – where the slump has now lasted longer than did the Great Depression of the 1930s – but the chronic reality of mass poverty is even more despairing in such swelling cities as Kolkata, Kinshasa, Lagos and Lahore, where restive urban-dwellers and new city migrants to have long yearned for pathways out of poverty. The continuing upheavals in Cairo and Tunis – and this summer’s riots in Istanbul and São Paulo – show how urban anxieties can become explosive when a chronically excluded underclass and a frustrated middle class have their expectations raised, only to be dashed.
Simultaneous surges in joblessness, population and urbanization are now making it more critical than ever to get urban policy right.
Mass-scale unemployment seems destined to intensify in the world’s most impoverished nations, according to this year’s flagship World Bank publication, the “World Development Report 2013.” More than 200 million people worldwide are now officially counted as unemployed – but another 1.5 billion people are only marginally employed, earning only subsistence-level incomes, and an additional 2 billion working-age adults are neither working nor seeking a job.
Worse, an imminent demographic surge is poised to bring millions of young entrants into the labor force. The global economy will need to create about 600 million new jobs within the next 15 years to employ the new working-age population – a pace of job creation about equal to the peak rate that China managed to achieve in the 1990s and 2000s. And even that blistering growth rate, if it could be sustained, would be barely enough to keep up with just the coming growth of the labor force: It wouldn’t reduce today’s already-grim global unemployment rate.
Nor is increasing public-sector employment a panacea, according to the WDR 2013 and a companion jobs study by the International Finance Corporation. Public-sector payrolls are practically maxed out: About 90 percent of future job creation must occur in the private sector, since governments will be able to productively employ only about 10 percent of the new job-seekers.
About 90 percent of future job creation must occur in the private sector, since governments will be able to productively employ only about 10 percent of the new job-seekers.Combine the jobs crisis and the population surge with the global urbanization trend, and the challenge is even more acute – especially in Africa and South Asia, where the urban populations will double within the next 20 years. Worldwide, nearly two billion people will stream into ever-more-stressed cities by 2030 – most of them, in low-income countries. The number of megacities is projected to soar, as an additional 310 million working-age people will soon stream into just 600 of the world’s most densely crowded cities. That will compound the complexities of urban management.
Providing jobs for the impoverished, hungry, crowded urban millions will be the challenge of the century. To create anywhere close to enough jobs, competitive cities will need to shape policies that inspire startup firms and entrepreneurship; that create innovation-minded clusters that maximize the “spillover effects” among adjacent industries; and that channel investment toward economic sectors with promising growth potential.
In a relentlessly competitive global economy, mass-scale unemployment and poverty can be overcome only by equipping cities with the policies and tools that will help them compete. Each city must strive to establish an enduring comparative advantage for itself – seizing a niche in industry value chains that stretch across national boundaries.
A comprehensive approach to building urban competitiveness can promote investment where it will be most valuable: in innovative ecosystems that bring together networks of inventors, investors and industries – so that all those creative elements, in close proximity, can catalyze growth. Fatalistic laissez-faire economic doctrines will clearly not be enough: Activist economic strategies and supportive public policies must deliberately focus on building competitiveness.
The elements of such an activist, urban-focused strategy are clear: The hard part is in implementing them in each city, case by case. Governments and the private sector must work together to ensure that a strong and agile infrastructure is continuously renewed; that a well-educated workforce is equipped with flexible job skills; that advanced industries are incubated in concentrated clusters; and that disciplined investments in innovative sectors help each metropolitan area take maximum advantage of its local economic strengths.
Private-sector companies will be the engine of job creation, but the public sector has a critical role to play, too – and it must play that role energetically, not just grudgingly. Sound policies must provide the enabling legal framework, regulatory regime and infrastructure that help industries compete. Industry-specific growth strategies should help urban economies focus their local attributes and advantages in industrial sectors that have the strongest potential for success.
Competitiveness strategies do not require heavy-handed attempts to “pick winners and losers” – an approach that some economies tried, with only limited success, a half-century ago. Instead, crafting market-attuned strategies for competitiveness will require both business and governments to reach deeper into their policy toolkit. Analytical tools, including the use of Big Data, can help promising growth industries stay flexible enough to meet ever-changing market demand. Most of all, such strategies will require a continuing dialogue among business leaders and policymakers, who together can channel supportive investments – in infrastructure, R&D, education and job skills – toward industrial sectors that seem poised to seize a competitive edge.
Mobilizing a metropolitan region’s innovation capacity and productive agility is certainly not easy – yet there are some cities and regions that have shown how they can focus their policies to “punch above their weight.” One of the most dramatic examples is Singapore, which has pioneered public-private economic coordination. Anticipating future market demand – a technique that Singapore’s leaders call “market sensing” – has helped Singapore stay ahead of market trends, rather than merely react to them. Seoul, Taipei, the Guangzhou-Shenzhen region of the Pearl River Delta, and other “Asian Tiger” cities have also shown how bold strategic bets can pay off.
Focusing a region’s economic ambitions has certainly paid dividends for some world-leading competitors. Silicon Valley has famously thrived on government funding for high-tech innovation, often channeled through the Defense Department budget. The Research Triangle in North Carolina and Silicon Glen near Cambridge, England have catalyzed growth through close alliances among universities, government-funded research laboratories and local manufacturers. The same pattern holds for the biotech industries focused in Maryland near the National Institutes of Health; the robotics cluster around Pittsburgh’s university medical centers; the ambitious nanotech corridor around R&D centers in upstate New York; and the polymer-and-plastics enclave that has enlivened growth in the old tire-and-rubber city of Akron.
Providing jobs for the impoverished, hungry, crowded urban millions will be the challenge of the century.There are certainly cautionary tales, as well. Regions that fail to keep up with the tempo of change – such as the rusting old shipbuilding cities of northern England and Northern Ireland, the moribund steelmaking neighborhoods of Youngstown and Cleveland, and even the once-robust Route 128 technology corridor around Boston – show how companies that lose track of market trends can squander their advantages. And the decades-long decay of now-bankrupt Detroit is a fearsome example of how regions overly concentrated on a single, no-longer-innovative industry niche can wither.
Analyzing urban policies through the competitiveness lens is a promising way for each city and region to strengthen its most valuable assets – the better to define its distinctive identity and embrace its economic vocation.
Helping the developing world’s metropolitan regions make the most of their specific economic strengths is the aim of the Competitive Cities initiative, a part of the World Bank’s practice group on Competitive Industries. Helping cities succeed, by tailoring solutions to meet each metropolis’ particular needs, is crucial to achieving the Bank’s mission: eliminating extreme poverty by 2030 and building societies that enjoy shared prosperity.
The battle against poverty will be won or lost in the world’s cities – and those who hope to build a world free of poverty must focus on building competitiveness, not only in the already-successful capitals of middle-income countries, but also in the fast-growing secondary cities of low-income countries. Cities have a central role in driving job creation, and achieving that goal effectively will require them to maximize their full economic potential by capitalizing on the dynamism of the private sector.
Delivering transformational solutions to promote prosperity will call for all the ingenuity that mankind can muster – requiring activist, urban-focused strategies that make the most of the assets that are concentrated within creative, competitive cities.
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