From Miami to Mumbai: What Makes Cities Competitive?

Earth with names of major cities in the world, 3d render, clipping path provided
Earth with names of major cities in the world, 3d render, clipping path provided

It is every mayor's dream to govern a city where businesses thrive, jobs are abundant, and people are happy. So mayors spend long hours trying to attract investors and please citizens. It is a tough job. They know they compete with other cities, both at home and abroad. They have zero control over crucial factors -- like federal taxes or migration. And they know that there is no blue-print to guide them -- they work mostly by trial and error. Fortunately for them, this last bit of angst may soon taper off.

In a two-year-long effort, a team from the World Bank has painstakingly studied the performance of the world's largest 750 cities over, roughly, the past decade. Their report, aptly called "Competitive Cities", has just been published, and it is quite an eye-opener. What do cities that succeeded have in common? What have they done right? And what do they still need to do to stay on top?

First things first. Of those 750 cities, only 130 managed to grow faster -- in income, employment, and productivity -- than the countries in which they are located. In other words, success is rare. When it happens, it can happen both in places you are familiar with -- say, Dallas, Texas -- and others you never heard of -- do you know where Bucaramanga, Coimbatore, and Onitsha are? Among the cities that made it, you will find bustling marketplaces surrounded by rural areas, factory towns in industrial heartlands, and rich service centers booming in finance and tourism. There is no obvious pattern.

But, behind their wide diversity, well performing cities have much in common. To start with, they had plans that built on their core strengths -- if your brand was white beaches, you sought out nature-conscious hoteliers rather than car manufacturers. Those plans were seldom the brainchild of an enlightened leader, but rather, the outcome of consultation and partnership with both citizens and businesspeople. And they were kept flexible, learning and adjusting as they were put in place. [Speaking of core strengths and flexibility, you can follow a nail-biting, real-life case of how local development plans can fly or flop: in the next few weeks, the city of Miami Beach will decide whether to save one of its last, most precious, beach-front parks -- Allison Park -- or give it away for 99 years to a hand-picked charity to construct its headquarters.]

Once the plan was agreed upon, four main tools were used to implement it: reasonable institutions enforcing business-friendly regulations; accessible land serviced by good infrastructure; plenty of labor with the right skills; and support systems that ranged from market intelligence to workforce training. Mixed among those tools were subsidies. Yes, city governments usually lured firms in with gifts -- from tax credits to credit guarantees. How necessary those gifts were -- and are -- is a matter of debate. But one thing is clear: they worked better when they were given transparently and competitively -- for all to see and for anyone to apply.

As much as they were the key ingredients, smart design and competent implementation would not by themselves have gotten the job done. What closed the circle of success boils down to one word -- leadership. Behind every city that flourished, there were leaders ready to bet their political careers. They convened, challenged, cajoled, and convinced others to move in a single direction -- and to stay the course. They were the spark and the glue of their towns. Some of them came about as the result of matured political systems, and some were lucky accidents of history -- something that puts a question mark on their replicability.

Now, how sustainable is the success of a city? After all, many mighty metropolises saw decades of glory, only to be followed by bankruptcy -- think Detroit. Truth be told, cities are notoriously unstable arrangements -- fiscally, socially, environmentally, and technologically. On the fiscal front, mayors have a burning incentive to over-borrow. They can see themselves as merely "in transit" or "in training" for national-level office. Their tendency is to borrow as much as possible, cut as many ribbons as possible, and let their successors deal with the pile-up of debt. To make matters worse, lenders expect central governments to bail out big cities in trouble -- "too urban to fail" -- so loans are always on offer.

At the same time, competitive cities are expensive cities. The poor have a hard time living there, and are pushed out to, or kept at, the periphery. Many are forced to squat in the outskirts in what, over time, become cities in their own right. And most rely on government -- national or municipal -- to pay for urban services like transport, electricity, or water connections. Put differently, the transition to competitiveness needs to be managed, if it is to be socially inclusive.

You can feel a similar tension between a city's economic success and its environmental sustainability. By some estimates, cities are responsible for more than 70 percent of the world's energy consumption and energy-related greenhouse gas emissions -- a proportion bound to increase with population and income. They will also be prime victims of climate change -- the rise in sea levels could sink many coastal cities off the map. In fact, one third of those 130 successful cities sit by the ocean.

And then there is technological progress. To economists, the purpose of a city is "agglomeration" -- humans come out with newer, better, and cheaper products when they are literally closer to each other. But the value of agglomeration is being changed, perhaps undermined, by technologies like telecommuting, 3D printing, driverless cars, or remote-controlled delivery. Why do you need to be physically in the office to chat with your colleagues? Or keep large inventories in urban distribution centers? Or live downtown if you can sleep in a car that takes you there by itself?

We have no answers for those fundamental problems -- or not yet. But there is no doubt that they will be easier to tackle for vibrant cities where people can prosper. On that, the lessons from around the world have shown the way forward. While still tough, the Mayor's job has become slightly more doable.