Competitive Cities: A local solution to the global lack of jobs and growth

The Fox International Fellowship at the MacMillan Center sponsored a panel discussion (view video) on March 6 based on a World Bank report titled, “Competitive Cities: A Local Solution to the Global Lack of Jobs and Growth.” Megha Mukim, a 2006-07 Fox Fellow and an analyst at the World Bank, co-authored the report. She opened the discussion with a presentation on the major findings of the report. In addition to Mukim, the panel included Jeffrey Sonnenfeld, Senior Associate Dean for Leadership Studies & Lester Crown Professor in the Practice of Management (Yale University), and Professor Douglas Rae, the Richard S. Ely Professor in the School of Management (Yale University). Joanne Tan, a current Fox Fellow from the Department of Economics at Sciences-Po Paris, moderated the panel.

The World Bank defines a competitive city as one that “successfully facilitates its firms and industries to create jobs, raise productivity, and increase the incomes of citizens over time.” Mukim’s examined the factors that make cities competitive, using successful case studies as examples. She focused on why the competitiveness of cities is an important issue. To begin, she noted that 80 percent of the global GDP is produced by cities, and therefore the success of cities is crucial to the success of national and the world economies. To illustrate her point, she cited the World Bank’s estimate that 19 million more jobs would have been created last year alone had all cities performed at the level of competitive cities. She pointed out that fostering competitive cities is no easy feat, given that global competition between cities for talent and other resources is fierce. Technological change also part of the challenge because is forces cities to continually adapt to evolving circumstances. Thus, good teamwork among local agencies is necessary, which is a challenge in and of itself.

These competitive cities included not only household names, such as New York and Tokyo, but also lesser known secondary cities, such as Coimbatore, India, and Kigali, Rwanda. Mukim emphasized that despite Kigali facing stiff competition from neighboring cities, it was able to capitalize on its gorilla reserves to bolster tourism. She pointed out that competitive cities succeed by leveraging their comparative advantage.

On the question of who should be involved in fostering a competitive city, Mukim discussed the notion of the “City Wedge.” In such a model, success is driven by growth coalitions involving public-private partnerships, city mayors fully utilizing local capabilities, and the leveraging of regional and national resources. Citing the example of Gazientiep, Turkey, Mukim argued that successful private-public partnerships enabled the city to develop its light manufacturing industry, particularly in the production and export of woven carpets.

While the recipe for successful cities may seem straightforward, the implementation of such policies remains a challenge. This is especially true when local government agencies fail to coordinate or do so inefficiently. Mukim employed the example of Changsha, China, to demonstrate by using the right incentives to guide city officials, as well as the enforcement of succinct, problem-targeted meetings, city governments can overcome such obstacles and successfully implement their policies for competitive cities. She concluded her remarks by noting that disciplined and effective management of a city’s budget can also aid a city’s goal of becoming competitive.

While panel members Rae and Sonnenfeld both agreed with the World Bank report’s basic tenets of competitive cities, they debated the feasibility of implementation. In particular, Professor Sonnenfeld argued that while few would contest the benefits of focusing on one’s comparative advantage, cities often misread their comparative advantage and subsequently specialized in the wrong sectors. Sectors such as Meetings, Incentives, Conferences, and Exhibitions (MICE), for instance, was one in which many cities tried to specialize, but rarely succeeded in doing so. Though Professor Sonnenfeld acknowledged the potential benefits of public-private partnerships, he cautioned that this could lead to the privatization of basic city amenities. Moreover, he mentioned that the actual contributions of public-private partnerships to the economic growth of cities is unknown.

The realities of secondary cities may substantially hinder their move to greater competitiveness. According to Rae, who served as the Chief Administrative Officer of New Haven from 1990 to 1991, the fundamental traits of secondary cities, such as New Haven, Connecticut, could prove to be insurmountable obstacles. For example, with a rise in the phenomenon of Positive Assortative Mating, highly productive individuals tend to marry within their group, spurring the creation of power couples. While both members of a power couple may find suitable employment in metropolises like New York, this is not the case in secondary cities. This ultimately deters top talent from relocating to secondary cities, regardless of the incentives provided, which impedes such cities’ growth.

The questions from the audience continued in a similar vein. While they agreed with the broad ideas of the World Bank report, the implementation of these ideas was deemed to be far more onerous. Issues raised by the audience included how to optimally tax growth industries in local cities, the limited remit of local governments, and the possible implications of competitiveness policies for income inequality within cities. That cities endeavor to be competitive is a notion that enjoys general consensus, but how this should be achieved is an issue that invites further study and debate.

Written by Joanne Tan, 2016-2017 Fox Fellow, Department of Economics, Sciences-Po Paris.

Thursday, March 30, 2017