Cities And The Wealth Of Nations

It is quite usual to think of the wealth of nations or cities, as Adam Smith did. David Ricardo, in a letter to his fellow economist Thomas Robert Malthus, spoke of “the wealth and poverty of nations – the grandest of all questions in political economy”. Two centuries later, “national competitiveness” is seen as driving wealth creation for nations, regions and localities. Read this article to learn more.

The Global Competitiveness Report, published annually by the Forum, identifies the policies and institutions that boost national productivity, which determines competitiveness and growth. Today, focus should also be given to “cities and the wealth of nations” – the title of a book by the renowned urbanist, Jane Jacobs. More than ever, cities are the lifeblood of the global economy. Their competitiveness increasingly determines the wealth and poverty of nations, regions and the world. Hence, what makes cities successful must be one of the most important questions of 21st-century political economy.

For most people, the map of the global economy that comes to mind is of nation states interconnected through flows of trade, capital, people and technology. However, before the ascendancy of the Westphalian nation state in 1648, the primary political, economic and cultural unit was the city.

An alternative map of the global economy comes to mind; one of the cities connected across land borders, seas and oceans through the exchange of goods and services, foreign direct investment, migrant and short-term workers, and border-hopping technology.

read also: Global City Momentum Index: A New Era Of Competition

Throughout history, the most intensive cross-border economic transactions have been between cities – mostly those located on coastlines. Phoenician, Venetian, Genoese, Baltic and Arab merchants linked port cities within and across continents through sea- and ocean-going trade. Today, the bulk of international trade by volume still passes over the oceans between coastal cities, only now transported by huge container ships. What does this mean for the “competitiveness of cities” and the “wealth of nations”?

Two contemporaneous historical examples provide some clues. The development of cities drove the early economic advance of Europe – a veritable “European miracle”. Competition among cities in late medieval and early modern Europe enabled many European regions to catch up with and overtake other parts of the world as commercial centres well before the Industrial Revolution. Starting with Venice and Genoa in Italy, and moving on to north-west Europe and the Hanseatic League, cities vied with each other for commercial advantage. They eased restrictions on merchants and opened doors to skilled artisans, many of them dissidents fleeing religious persecution. Cities were magnets for the freethinking, the creative and the entrepreneurial, who brought their talents to these open urban areas to escape repressive hinterlands. Hence, the popular German saying Stadtluft macht frei – “city air makes you free”. Such decentralized political competition spawned a commercial revolution and paved the way for subsequent scientific, agricultural and industrial revolutions.

Early Asian prosperity was also driven by cities – a pre-modern “Asian miracle”. Cities dotted around the Indian Ocean enjoyed a golden age of trade in the two centuries before the Portuguese and Dutch moved in with extreme violence and imposed very restrictive commercial practices. Before they did, Arab and other trading diasporas roamed the seas freely, stopping off in city states along India’s Malabar and Coromandel coastlines and across South-East Asia. “Port-polities” such as Cambay and Calicut of India, and Malacca (of modern-day Malaysia) and Macassar (of today’s Indonesia), were cosmopolitan, lightly governed and tolerant of religion. They attracted traders from all over the world with low taxes and free trade policies. This enabled commerce to flourish from the Chinese coastline all the way to the Middle East. Fast-forward to 2014:.Most productive policy innovation is happening in cities and subnational regions, not at the level of national governments, let alone in international forums such as the United Nations (UN), the European Union (EU) and the Group of Twenty (G20). Policy-making is more flexible and practical the closer it is to the citizen, and is thus more conducive to policy experimentation, all-round learning and adaptation. Cities emulate each other and often adopt best international practice better than nations do. Policies are “initiated from below and diffused by example”, as the historian David Landes puts it. This has certainly been true in the United States and the EU in recent years, as the US government experiences partisan gridlock and EU institutions and national governments find it difficult to implement needed reforms. American cities are hotbeds of policy innovation. Some European cities are rediscovering the ingredients of the European miracle of a few centuries ago.

However, this century’s story of cities and the wealth of nations will be scripted mainly in the emerging world – outside the West. The world economy, spurred by urbanization trends, is shifting south and east, particularly to Asia. And Asian cities will be among the main players in city competitiveness.