Wednesday 17 September 2014

How Asian cities stay ahead

A study of cities' competitiveness highlights four areas of reform: building institutions, business regulation, and building hard and soft connectivities.
By Janamitra Devan And Razeen Sally, Published The Straits Times, 16 Sep 2014

CITIES are the lifeblood of the global economy and determine the wealth of nations. Throughout history, cities have been magnets for talented people who disseminate knowledge, spark entrepreneurship and innovate.

Today, most productive policy innovation is happening in cities and sub-national regions, not at the level of national governments, let alone in international forums like the United Nations, World Bank, International Monetary Fund, World Trade Organisation and G-20.

Policymaking is more flexible and practical the closer it is to residents. At local levels, policy experimentation, and learning and adaptation, become infectious. Cities emulate one another and often adopt best international practices better than nations do.

This is why the World Economic Forum has just published a study on the competitiveness of cities.

"Competitiveness" hinges on the productivity of the city - its ability to use available inputs efficiently to drive sustainable economic growth and prosperity.

We compiled 33 case studies of cities around the world, with different endowments and at different stages of development. Nine are in Asia. Some are proven success stories, others are potential success stories, and yet others have got stuck or failed.

Urbanisation is the megatrend that is most relevant to city competitiveness. Never before has the world urbanised at such speed and scale as it is doing today.

As of 2010, for the first time in history, over half the world's population lives in cities. This population accounts for over 80 per cent of global gross domestic product (GDP). According to the UN, globally, an additional 2.5 billion people will move to cities by 2050.

For the foreseeable future, rapid urbanisation will be an almost exclusively non-Western affair: 94 per cent of those who will move to cities in the next few decades will come from the developing world. The McKinsey Global Institute (MGI) estimates that, by 2025, the developing world's top 443 cities will account for close to half of global GDP growth and 18 per cent of global GDP. These cities will contain the bulk of about one billion new middle-class consumers.

The four agendas of reform

SO WHAT are the key lessons for city competitiveness in Asia? Here is a checklist of four items. Think of it as a "what-to-reform, how-to-reform" agenda.
- Institutions
First, think institutions, which are the decision-making framework of the city. Leadership and vision - a clear, far-sighted view of where cities should head and a single-minded practical will to ensure they get there - show the power of city leaders as CEOs.

Two Asian examples stand out: Mr Lee Kuan Yew and his first-generation leadership team in Singapore; and Mr S.R. Rao, the chief executive of Surat Municipal Corporation, who turned the Gujarati city of Surat around to become one of India's most successful.

Singapore highlights the importance of gradually building up institutional strength through successive phases of development. But Cebu in the Philippines points to fragile institutions that can endanger existing gains as well as future competitiveness.

Cities should also look out for windows of opportunity - often during a political or economic crisis or turning point - to push through a critical mass of decisive reforms. This is what happened when Singapore was kicked out of Malaysia in 1965, when Penang elected a new opposition-led state government in 2008, and when Surat was stricken by the plague in 1995.
- Business regulation
Second, think of the regulatory framework for the city's business climate. Getting the basics right - stable and prudent fiscal policies, including low and simple taxation, a flexible labour market, openness to trade and foreign investment, and simple and transparent business regulation - is the primary lesson for good public policy at both national and municipal levels.

One of the big takeaways from the Singapore story is to keep policy simple for producers, consumers and citizens. Cities should also develop their own foreign economic policies on trade, foreign investment, tourism and attracting foreign talent, and go global as far as they can. Singapore, Penang, Hyderabad and Ahmedabad in India, and Ningbo in China are great examples.
- Hard connectivity
Third, think "hard connectivity" - the city's core physical infrastructure. Cities need a mix of planning and organic growth, which are complements, not substitutes. Chandigarh in India and many Chinese cities today are examples of overplanning.

Next, urban density, including "building tall" in city centres, is preferable to urban sprawl. Hong Kong, Singapore and Shanghai are great examples of urban density. Other Chinese cities, though, could also do with more density and less sprawl. Mumbai is a glaring counter-example of very bad urban planning.
- Soft connectivity
Fourth, think "soft connectivity" - the city's social capital. Education is the ultimate soft connectivity - as Singapore has shown by becoming Asia's education hub. Next, cities need to facilitate digital infrastructure to support human-computing interfaces that empower individuals. Also, making cities more liveable - improving the quality of urban life - must be a higher priority for upper-middle-income and high-income cities. Singapore, as a "global city", appreciates that it has to expand and diversify its educational, cultural and recreational facilities to attract top global talent.

Renowned urbanist Jane Jacobs said successful cities are those that are flexible and adapt quickly to changing conditions. That is borne out by the success stories mentioned here. The alternative is to get stuck in mono-industrial, mono-cultural decline.

A second concluding observation is that the right mix of priorities requires tailoring to specific conditions and stages of city development. Priorities for high-income cities will differ from those with much lower income levels, high growth potential, a fast-expanding population and big gaps in infrastructure. And middle-income cities in between will have a different set of priorities.

Last, reforms at the municipal level are usually more feasible than at the national level, even when they seem impossible in national capitals. Urbanisation trends enlarge these possibilities. Cities should grasp this opportunity, experiment with new rules and put reforms on a fast track.

The first writer is a former vice-president of the World Bank and is currently strategy adviser to senior executives. The second writer is an associate professor at the Lee Kuan Yew School of Public Policy, National University of Singapore.

Prof Sally coordinated the WEF study as chair of its Global Agenda Council on Competitiveness, and Dr Janamitra contributed as a member of the council.

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