With urbanization are reshaping the world’s economy, and are

 

With
currently more than 50% of the world’s population living in urban areas, cities
have become crutial catalysts to global economic prosperity. Cities are sites
of production and innovation, command points for organising the economy and the
locations of financial and specialized services (Sassen 2005), thus are
absolutely crutial to the world’s economy. Cities are the drivers of economic
growth, with the largest urban areas generating a third of the world’s global economic
output, whilst only containing an eighth of the world’s population (Trujillo,
J). The world is therefore producing uneven regional and international development,
as well as extreme urban hierarchies, that are encouraged by the certain
agglomeration advantages that these cities such as London and Tokyo have. Richard
Florida’s ‘The World is Spikey’ theory
shows this:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As shown in
the diagram, innovations (a large part of economic growth) are concentrated in
certain cities in the global north. This theory therefore implies that specific
urban areas are certainly more influential and prove higher economic growth
than others, counteracting Thomas Friedman’s ‘The World is Flat’ theory, that advances in technology have
levelled the global economic playing field. Although this is true, we can not
deny that some cities are more prosperous than others, as they develop into
global cities and centres of capitalism, no matter if technological advances
are now increasingly available and are making global businesses and knowledge
transfers more accessible. The reasons behind cities evolving into global
centres of economic growth are fairly complex, but in this essay I will be
exploring three core forces that drive this growth. Global integration,
technological advances and urbanization are reshaping the world’s economy, and
are distinctly producing competitive economic urban areas. We must not forget,
however, about the influences of capitalism within these global cities. Capitalism
assists economic growth, and results in increasing wages and expenditure theus stimulating
the economy and creating more jobs, allowing the government to collect more
taxes. This, over time creates a strong capitalist and growing economy, like we
have seen in China since the 1970’s economic reforms. Since embracing the
tenets of capitalism, China has become one of the largest economies in the
world, with an annual GDP of over $11 trillion (World Bank, 2016) and will soon
overtake the US to become the world’s largest economy. Big cooperations make
large amounts of profit under a capitalist economy, hence why capitalist countries
such as the US, Japan and the UK all prove high economic growth and have at
least one global city. However not every city can prove this high economic
growth that we see in many developed countries. Therefore we ask, why do certain
cities become global centres of capitalism and
economic growth?

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A key driver
of these global centres is globalisation. Trade interactions and investments between
countries have increased from 24% to 40% of global GDP since 1990, and it has
been proven that cities that are well integrated and connected into the world’s
economy prove a GDP growth around 40% higher than those who’s global
connections are weaker (Trujillo, J. 2016). The presence of globally-engaged
firms means increased knowledge spill overs, increased FDI and more trade.
Simply, this creates economic growth that includes better standards of living
for people as wages rise creating a larger disposable income on average. In
addition, as cities globalise and become increasingly integrated in the global
economy, they tend to move away from manufacturing (as less developed counties
can provide manufactured goods for lower prices) and into services, such as
those in the financial sector. This was proven in London in the 1980’s, with
the transition towards a finance-led economy resulting in a loss of
manufacturing of 8% in 1998 and job growth of 800,000 between 1996 and 2008
(Marsden, J. 2016). Today, London is one of the most influential cities in the
world, with over 40% of European HQ’s of the world’s top companies located
there (Sproul, D. 2014).

Indeed, by
cities embedding themselves in global chains they have access to low cost, high
quality imports thus allowing them to become more competitive as it lower’s
their overall cost. This usually increases wages and productivity, and as FDI
injects new wealth from other countries it can create the multiplier effect if
invested regionally. This will further tax revenue, create jobs, growth and
diversity of goods and services. Furthermore, global exchange allows regions
who can’t produce some products competitively to move up the economic ladder
and boost productivity by becoming more specialized. It allows capitalism and
large-scale profit- motivated firms to thrive. However, globalization is not
always positive for the growth of global cities as they face the possible
dislocations caused by the increased integration. For example, US suffered big
job losses as China came into the global trading system, able to offer the same
manufactured goods for a cheaper price. Indeed, globalization has abled China
to become a global centre for economic growth as it’s low wages and regulations
makes it’s manufacturing market extremely competitive in the global market. Although
this has created large-scale regional disparities and many other complex issues
within China, being globalized and integrated has meant that china has become a
global centre of capitalism and economic growth.
It has allowed China to grow further by creating SEZ’s such as Guangdong and
Shenzhen, specializing in manufacturing and creating plenty of jobs, although
the working conditions and wages may be poor.

 

Globalization
is a highly important factor whilst considering why
certain cities become global centres of capitalism and economic growth, but we
must not forget about other critical factors such as Urbanisation. Cities are
at the centre of global economic development as the world is becoming more
urban, with 66% of people predicted to be living in cities by 2050 (Trujillo, J.
2016). As we have already discovered, the transition from agriculture to manufacturing
to services is crutial whilst developing, and history proves that urbanisation
facilitates and accompanies these economic transitions. It creates large
clusters of labour, large amounts of capitol and proximity to other firms
because of agglomerations. This can currently be seen in Latin-American cities and Asian cities, with
an urban population growth of 2.5% in the past 4 years (World Bank, 2015). As Richard
Florida notes, people ‘cluster because
density brings such powerful productivity advantages, economies of scale, and
knowledge spillovers’ (Florida,
R. 2015).

 

Urbanization
has meant that larger urban areas have been created in developing countries,
where firms and workers are able to advance. Agglomeration externalities now
exist in these areas, that is the benefits for workers, firms and the local
area as a result of clustering, which plays a part in cities becoming global
centres of capitalism and economic growth, with cheap labour and high profits. Rapid
urbanisation in less developed countries, however, is uncontrollable and can
result in large-scale poverty and slums as a mega city is created, such as
Mexico City. Negative externalities may outweigh the positive agglomeration
externalities and could cause urbanisation without growth, that causes strain
on local governments to provide transport, clean water and housing etc. However,
if urbanisation is at a manageable rate it can be very beneficial. More people means
a larger consumer market and more expenditure, as well as more workers. If they’ve
come from rural areas they’re probably willing to work for lower wages too.
This creates a centre for capitalism and economic growth.

Cities
become global centres of capitalism and economic change due to technological change,
in addition to the factors we’ve already discussed. Digitization and technology
improvements and advancements are altering modes of production processes and communication.
The pace of the change seen by new emerging technologies has been relentless,
especially in advanced industries such as science and technology. These
industries drive productivity growth as an average advanced industry worker is
twice as productive as workers from other sectors, as these industries are able
to utilise better use of technology. They therefore get higher wages, and this
is beneficial within a city, as it thrives on highly productive firms but also
sees the clear benefits of higher wages for their workers. However, technologies
have the potential to take work from people resorting in a loss of jobs, as
proved in the US, where it was said that 45% of US jobs could be automated
(Arntz, M. 2016). This becomes more possible with the ageing populations seen
in more developed countries. As the labour force retires there’s more pressure
to keep productivity high therefore this could become a problem. To achieve growth
rates comparable to those over the past half a century, productivity growth
will have to be 80% faster to compensate for slowing employment growth
(Manyika, J. 2015). Although there is a posing threat to jobs, we know that
technology can cover jobs if parts of the workforce are lost, enabling cities
to keep up their productivity. Technology advancements allow cities to become
centres for economic growth as they drive technology and innovation and
increase productivity, which will increase living standards.

I can
therefore conclude that, global integration, urbanisation and technology
advances are some of the core reasons why certain
cities become global centres of capitalism and economic growth. Urbanization has placed cities on the
forefront of economic growth, and they exemplify the drivers of economic
growth; innovation, trade and connectivity. There is not one reason why certain
cities become global centres; it’s a mixture of reasons. Urban agglomerations can
create specialized areas of high productivity, for example China’s SEZ’s such
as Gunangdong, which thrives on capitalism and drives economic growth. Urbanization
is also crutial to get a large number of the workforce in one area, willing to work
for low wages under barely any regulations which creates a centre of capitalism
and keeps the sector competitive. Technology innovations are also crutial to
creating centres of economic growth as cities are under increasing pressure to
increase and maintain their productivity whilst still keeping costs as low as
possible. Of course there are other, smaller factors that create global centres
too, such as good governmental growth policies (such as incentives like good
infrastructure to attract FDI) and also geographical location, as cities on coastlines
have the advantages of ports and being more accessible. In addition, if a city
has a comparative advantage in creating a product over other cities/regions, theoretically
it should also become a centre of economic growth as it’s specialization and
comparative advantage in production is beneficial. It could possibly be argued
that cities almost have to be slightly capitalist to prove great economic
growth, like the world’s leading cities such as London and Tokyo. The
profit-focused and low-waged system allows firms to thrive and therefore create
economic growth, therefore it is easy to see why cities become capitalist, as
this system seems to work for global growth. Moreover, certain cities become
global centres of capitalism and economic growth for many reasons, but the main
components being globalization, urbanization and technology improvements. These
factors all have their possible disadvantages, but they certainly create powerful,
capitalist cities, thriving on productivity and competitiveness in global
markets. 

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