Global Cities Redefined

An analysis published in autumn 2016 differentiates between seven types of global cities. In addition to the innovative approach, the growing prominence of global roles played by Asian cities, which is the result of the urbanisation trends evolved in the last decades, is remarkable.

Thanks to urbanisation, cities mean the core of economic growth. Although an urbanised world means far more than global cities, the drives of modern economic growth – commerce, innovation, talent and infrastructural relations – are concentrated in a territorially unique way in these metropolises. During the course of mapping cities, it is revealed that significant differences manifest in different factors even on the level of metropolis regions, proving the presupposition that each city becomes a global city on the basis of its own competitive industries and fields. There is no single definition of global cities.

In world history, there have been numerous occasions when cities of global significance emerged – such as ancient Athens or Rome – but the notion was introduced widely and in a modern sense by urban sociologist-economist Saskia Sassen for the first time in her work published in 1991,  entitled The Global City: New York, London, Tokyo  (and as its forerunners, Peter Halls’s The World City from 1966  and the article of John Friedmann entitled The World City Hypothesis, published in 1986, must be mentioned). In her now classic book, Sassen identifies global cities primarily on the basis of economic aspects: they are entities functioning as leading centres of the global economy. According to her definition, global cities play a key role in organising the governance of world economy, they are the primary focus areas of financial institutions and, among leading economic sectors, the specialized services replacing the traditional manufacturing output, they are the major scenes of manufacturing, especially innovative manufacturing, and finally, they are also the markets of manufacturing and innovation.[1]

 An Overview of the Rank of Global Cities

Rankings of global cities, city typologies and top lists on world-level, and the scores achieved in them are rather important for cities, they may play a role in improving their ability to attract investment, and may provide transnational companies with viewpoints for establishing their centres and offices. Competitive city rankings as we know them today barely existed a decade ago, although the first ones date back to the 1970s (the Swiss Bank UBS released its first Prices and Earnings Survey in 1970 to compare 72 cities around the world, and they have been producing this ranking every year ever since)[2]. However, we can easily understand that as ranking can be performed according to numerous aspects, there is no single absolutely global city, and we cannot regard any ranking definitive, either. Consulting firms, think tanks, governments, academics, chambers of commerce, business groups, tourism companies, and the media use a variety of approaches to evaluate and compare cities. The rankings range from comprehensive, in-depth analyses to compendiums of existing rankings (essentially rankings of rankings), to macroeconomic and future growth projections, rankings tracking the aspects of a selected social or business trend, etc.[3]

Redefined Notion of the Global City

In September 2016, Brookings Institution released a publication entitled “Redefining Global Cities – The Seven Types of Global Metro Economies”, as part of its Metropolitan Policy Program. US-based Brookings Institute is one of the world’s leading think tanks (in 2016, it was on the very top of the list compiled by the University of Pennsylvania ranking global research institutions[4]), which has a considerable research background in analysing urban issues, in addition to social-economic-political matters. Their research findings are shared with the leaders of cities, and through these consultations they are able to work out practical solutions, which, eventually, can be applied at both the national and the international levels.

Global Cities – The Seven Types of Global Metro of Economies[5]

With more than half the world’s population now living in urban areas, cities are the critical drivers of the economy; the world’s 123 largest metro areas (studied in the analysis) contain a little more than one- eighth of global population, but nearly one-third of global economic output is focussed here.

As societies and economies have urbanized, they have upended the classic notion of a global city. No longer is the global economy driven by a few major financial centres like New York, London and Tokyo. Today, a vast and complex network of cities participate in international flows of goods, services, people, capital, and ideas, and thus make distinctive contributions to global growth. Therefore, in the current economic environment, what the IMF terms as the world suffering from “too slow growth for too long” (thus the world economy is basically stagnating), efforts to understand and enhance cities’ contributions to growth and prosperity become even more important, as a kind of preparation for the next period of global growth. In view of these trends and challenges, this report redefined global cities.

The Seven Types of Global Cities
(1) Global Giants

They serve as the command and control centres for the world’s largest advanced economies. They include the largest cities of the USA, Japan, France and the United Kingdom, New York and Los Angeles, Tokyo and Osaka, and London. These metro areas not only serve as the command centres of their extremely powerful nations, but as the world’s most significant concentrations of wealth, corporate decision making, and international exchange. The main feature of this group is their size: on average, they have 19.4 million residents and generate over $1 trillion in real output, three times more than the next largest set of economies, the Asian Anchors. If they were a single country, they would be the world’s third largest economy. These metro areas are also the world’s major nodes for flows of people, capital, and knowledge. Among the seven types of metro areas, Global Giants have the highest education levels, the second highest patenting rates, and the second highest number of scientific publications per capita. Los Angeles and Osaka may seem surprising at first sight; however, these metro areas are the fifth and sixth largest metro economies in the world, respectively.

(2) Asian Anchors

Asian Anchors include five East-Asian metro areas (Beijing, Hong Kong, Seoul-Incheon, Shanghai, and Singapore) as well as Moscow (which, while more aligned with Europe, falls in this group on the basis of its size, wealth, business and financial services). Asian Anchors have many of the same characteristics as their established counterparts in Europe, Japan, and the United States, but are not yet as wealthy and globally connected. These cities serve as the gateways between the global investment community and their fast-growing nations. These cities attracted massive foreign investments, which have since been bolstered by investments in local infrastructure and skills. Asian Anchors are now among the cities with the largest concentrations of people and market activity. GDP per capita is the second highest in these regions, and since 2000 it has grown by an average of 4.2 percent per year. Several characteristics bind these cities, especially the five Asian metro areas: foreign direct investment (between 2009 and 2015) is the highest in this group, nearly double the average of the next highest grouping. These metro areas rank first in average internet download speed and relatively well-educated workforces. Yet, labour productivity in this sector is only about one-third as high as in Global Giants, they have a significant backlog in terms of patents and scientific publications, although on national level they can be considered the innovation hubs of their respective countries.

(3) Emerging gateways

This type includes 28 large metropolitan areas from developing economies that serve as the largest business, transportation, and, in most cases, political centres of their countries and regions. Nearly one-third of the cities in this group are capitals ( (e.g., Ankara, Brasilia, Cape Town, Mexico City, Pretoria, Santiago, and Warsaw). Eight of them serve as the financial centres of their countries, and many of them also serve as gateways for entire regions (as is the case for São Paulo  in financial and business services within South America; Istanbul connecting the Middle East and Europe; Johannesburg as the business hub of sub-Saharan Africa). In this group, cities house on average 10 million inhabitants and have an average GDP of $265 billion. Real GDP per capita has grown 5.5 percent annually since 2000 (second fastest after Factory China metros). They are not yet on par with the Global Giants in terms of international business or with Knowledge Capitals in terms of global innovation, although their prominence is growing quickly.

(4) Factory China

This category comprises Chinese manufacturing hubs, and these 22 cities are a good representation of the geographic diversity of China’s industrial revolution. It includes metros on China’s east coast (Hefei and Nantong), inland regions (Chengdu and Zibo), and the Pearl River Delta (Foshan and Dongguan). In this group of Factory China, there are second- and third-tier population centres that are growing quickly. The typical city in this group has an average population of 8 million and a nominal GDP of $205 billion. Output and employment have grown in these metros by an outstanding 12.6 and 4.7 percent annually between 2000 and 2015. Real GDP per capita has expanded fivefold since 2000, from $2,500 to $12,000. The most salient feature of this group is the extreme reliance on manufacturing, which accounts for nearly 40 percent of their total output; this ratio increased in a time-proportional manner, in 2000, it was merely 30 percent. Factory China metro areas plug into the global economy as nodes in international manufacturing supply chains, providing goods to wealthier consumer markets in advanced economies. Several multinational corporations (e.g. Unilever, Goodyear, Samsung, Intel, Pfizer, Dell) anchor manufacturing operations in Factory China.  But in these cities, the industrial  activity has come with significant environmental pollution: pollutant levels are 40 times above what the WHO recommends.

The lack of economic diversification explains why cities in this cluster rank last in flows of FDI, venture capital attraction, and international passengers. Additionally, in this group there are only few research universities, resulting in a low share of patents, and less than 10 percent of the population 15 years or older has tertiary education.

(5) Knowledge capitals

Knowledge Capitals tend to be mid-sized population centres that are among the wealthiest and most productiv  cities in the world. This group of 19 metro areas has an average population of 4.2 million, the second smallest group by population. Nevertheless, they have the third highest average economic output, and the highest nominal GDP per capita and GDP per worker. Knowledge Capitals are the world’s leading knowledge creation centres. Having excellent infrastructure connectivity, (among others, this is the reason why they have the greatest volume of aviation passengers in the world), they compete in the highest value-added segments of the economy, relying on their significant stock of human capital, innovative universities and entrepreneurs. 41 percent of their  15-and-over population has obtained a college degree (often from an elite university), this group boasts the largest share of highly cited scientific publications, and although with only about 1 percent of the world’s population, 16 percent of patents were generated here (between 2008 and 2012). Knowledge Capitals also have the highest venture capital investment rates per capita in the world (led by San Jose, San Francisco, and Boston): more than half of all global venture capital funding flowed to these 19 markets over the past decade.

 

(6) American middleweight

Mid-sized production centres, scattered all over the United States; cities that have experienced significant population growth recently (Miami, Phoenix, Orlando, St. Louis, Tampa, Sacramento). While many of the cities in this group are still finding their global niche, they all maintain at least one globally relevant export sector (for example, Charlotte, Detroit, and Phoenix are among the leading metro exporters of engine and power equipment, motor vehicles, and semiconductors, respectively).  Their competitiveness isenhanced by the existence of highly skilled labour force (strengthened by an advanced tertiary education infrastructure) and tradable clusters, enabling them to succeed in global markets as well.

 

(7) International middleweights

This last group is very diverse, including wealthy cities in Canada, Europe, Asia and Australia.  These 26 metros have an average population of nearly five million, their economies are very varied, including cities (e.g. Toronto, Sydney, Frankfurt, Madrid, and Copenhagen) that play a fundamental role in the provision of business and financial services in their national and regional economies, as well as industrial centres (Kitakyushu-Fukuoka, Nagoya, Stuttgart, Karlsruhe, Milan, and Barcelona). They tend to specialize in knowledge services, advanced manufacturing, or some combination of both.

Nonetheless, there are several shared characteristics that bind International Middleweights. They are outstanding in terms of migration of workforces and capital flows, about one-fifth of their population is foreign born, the highest share among any cluster. These metros boast the second highest level of foreign direct investment per capita, with $2,000 of FDI stock per inhabitant. The number of people with tertiary education, the number of research universities and patents filed are also high in these metros. However, they share another characterization that is not so favourable: sluggish economic growth. Between 2000 and 2015, output, GDP per capita, and employment grew less than 2 percent annually, each the slowest of any group. The international financial crisis of 2008 dealt a crushing blow to these cities, breaking their trajectory of economic growth; more than one-third of the cities could not return to their pre-crisis GDP per capita levels until 2015, and five cities have yet to regain their pre-crisis employment base.

Methodology

The typology focusses on competitiveness; this is a complex variant made of 5 plus 1 indicators, determined in the course of the ranking, The 5 plus 1 indicators include:

+(1) tradeable clusters (stock of greenfield  foreign direct investment, and total stock of  jobs created by FDI between 2009 and 2015);

+(2) innovative capacity (share of total publications between 2010 and 2013, total patents in absolute number and per capita between 2008 and 2012, stock of venture capital investments in absolute value and per 1,000 inhabitants, 2006-2015);

+(3) talent (human capital) (share of the population  15+ with tertiary education in 2014, or at the soonest point of time)

+(4) infrastructural connectivity (number of aviation passengers in absolute value and per capita

in 2014, average internet download speed in 2015);

+(5) governance (the extent it helps to attract investments and implement growth strategies (data were not available for all metro areas)

(+1) general industrial and economic characteristics (population, GDP, GDP per capita, output per worker, industry share of overall output, industrial output per worker, 2015).

Identification and selection of metro areas: 123 metro areas with the largest economies measured at purchasing power parity rates were included in the survey (on the basis of data from 2015). With a few exceptions, these metro areas all tend to have economies larger than $100 billion in nominal terms. The sample’s average population is 7.6 million.

Global growth is not solely powered by these large metro economies; in fact, small and mid-sized cities matter greatly, this study, however, intentionally focuses on a smaller sample because they uniquely concentrate the assets that undergird global growth.

Major global city rankings produced according to different criteria

Comprehensive rankings

– Cities of Opportunity (Pricewaterhouse Coopers)

– Hot Spots 2025 (Economist Intelligence Unit)

– Global Cities Index and Emerging Cities Outlook (A. T. Kearney)

– Global Power Cities Index (Mori Memorial Foundation)

Niche rankings (audience, perspective, city selection)

– World’s Most Competitive Cities (IBM; (audience: business site selection)

– Sustainable Cities Index (ARCADIS; (perspective: sustainability)

– Global Financial Centres Index (Z/Yen Group; (city selection: financial centres)

– Global Cities of the Future (fDi Intelligence; perspective:  foreign direct investment)

– Resilient Cities (Grosvenor; audience: real estate clients)

– Quality of Living Survey (Mercer; audience: companies with an international workforce)

– The Wealth Report Global Cities Survey (Knight Frank (audience and perspective: real estate and attraction of high net worth individuals)

– City Momentum Index (Jones Lang LaSalle; (audience: real estate clients)

Analyses based on macroeconomic data

– Global Metro Monitor (Brookings Institution)

– Urban World: Mapping Economic Power of Cities (McKinsey Global Institute)

Implications

Through examining global city economies, the authors of this study identified three broad territorial patterns.

1 First, there is no one general “definition” of the global city. Every city may become one on the basis of various factors. But the pervasiveness of globalization has linked metro economies in an international network that is simultaneously collaborative and competitive.

Technological innovation features heavier than ever in becoming a global city, rendering a set of U.S. and European mid-sized regions of global significance (due to the results of their research universities and firms engaged in research). Their ability to attract global finance and investment, their role as global gateways to large, middle-income countries are decisive, rising most of the manufacturing and export-oriented Chinese metro economies onto global level.

Maintaining a developed economy and specialisations are major global strengths of several advanced-economy metros (USA, United Kingdom, Europe, Japan).

2 The different ways cities engage globally are reflected in their economic outcomes. Unsurprisingly,

lower-income metro areas, led by Factory China, demonstrate the the greatest growth (they have experienced the fastest GDP per capita growth since 2000), and although the pace is slowing, growth is expected to continue in the future). Global Giants and Knowledge Capitals not only have higher average incomes but have also experienced faster growth in GDP per capita, while the American Middleweights and the International Middleweights tend to have not only lower incomes but also lower growth.

3 Local and national leaders must approach economic strategies with a clear understanding of the role their city-regions play in a global context, the opportunities they have, and the risks they have to run. The study also produced a set of recommendations within each group for devising their development strategies.

Recommendations

Global Giants

What has made these global metro economies great also poses risks: an overreliance on financial transactions, and high levels of inequality that are creating significant pressures on low- and middle-income households (namely, housing is very expensive in these metros). Industrial diversification must be accompanied by investments in housing to ease affordability pressures

Asian Anchors

These metros are considered to be some of the world’s most impressive examples of urban economic growth. However, to drive this growth they must focus on boosting productivity, embracing entrepreneurship, investing in education and skills, and developing the infrastructure. These metros house the headquarters of numerous world-leadingcorporations (e.g., Beijing-based Lenovo or Seoul-based Samsung), still, it remains a question whether these regions can generate new rounds of successful, homegrown companies that can compete in global markets.

Emerging Gateways

Their function is similar to that of Asian Anchors, but they have yet to achieve as prominent a role, and they primarily serve as the entry point to emerging markets of secondary and tertiary cities. However, they have their shortcomings: investments into research and development and the development of infrastructure connectivity are their priorities of action. Addressing social inequalities is key to their further development. They need to take advantage of their privileged position as magnets of knowledge, and closer collaboration between the universities and the firms should be among the top priorities.

Factory China

The last 15 years saw an accelerated growth in these cities, but it has not come without costs: life expectancy in some of these cities is on average five years lower than in the rest of the country due to air pollution; population growth, climate change, and industrial demand are creating water shortages in several cities. Pricing these negative externalities must be a critical goal of energy, environmental, and industrial policy going forward.  High levels of debt pose another challenge that they must address to transition to a more sustainable growth model.

Knowledge Capitals

Knowledge Capitals must assert their knowledge in the global marketplace, attract more direct investment, and thereby enhance the competitiveness of metros. Furthermore, these cities also face affordability challenges; these concerns must be acknowledged and addressed.

American Middleweights

This group of cities is striving the most to retain their global position. Due to the presence of less-productive industries, their economic growth is slow, and their problems were further aggravated by the international economic crisis of 2008. Specialisation in their traditional industries and innovation may mean a break-out point for them, and they have significant potential available (intellectual capital, skilled workforce).

International Middleweights

Their greatest challenge is to create new business models, products, and to come up with new ideas. They should encourage entrepreneurial firms and embrace entrepreneurship by removing regulatory hurdles if necessary. Since they have sufficient potential, there is actually scope for growth led by innovation and R&D.

References:

[1] Csomós, György (2015) A globális vállalati kutatás-fejlesztési aktivitás földrajzi eloszlásának vizsgálata. In: Facultates sine finibus: Tanulmányok a “Süli-suliból”. Didakt Kft., Debrecen, pp. 36-43. http://real.mtak.hu/26803/1/2015%20-%20Facultates%20sine%20finibus%20Tanulm%C3%A1nyok%20a%20S%C3%BCli-sulib%C3%B3l.pdf

[2] The lastest version of the survey can be find here: https://www.ubs.com/microsites/prices-earnings/prices-earnings.html

[3] Leff, Scott, Petersen, Brittanny (2015): Beyond the Scorecard: Understanding Global City Rankings. The Chicago Council on Global Affairs. http://www.thechicagocouncil.org/sites/default/files/BeyondtheScorecardReport.pdf

[4] G. McGann, James: 2015 Global Go To Think Tank Index Report http://repository.upenn.edu/cgi/viewcontent.cgi?article=1009&context=think_tanks

[5] Trujillo, Jesus Leal, Parilla, Joseph (2016): Redefining Global Cities – The Seven Types of Global Metro Economies. https://www.brookings.edu/research/redefining-global-cities/

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