Urban Competitiveness

Theory and Practice

Peter Kresl, Daniele Ietri

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781135128760
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

During the past 25 years the burden of managing economic policy for competitiveness has devolved to cities and to urban regions. National governments have increasingly been focused on staving off fiscal collapse. Mayors and local administrations have become very creative and active in looking after the state of their local economy and have developed extensive agencies for inter-city cooperation and action. This book explores this evolving role of cities and urban regions.

Intelligent and rational policy must be based on an accurate understanding of the situation at hand and of the economic theory that can be utilized in the assessment of the most effective means that can be deployed. This book examines the theoretical contributions of economists and geographers and through the analyses of the performance of various cities will give the reader an understanding of the logic behind rational policy formation. Evaluation of a city's relative competitiveness is a controversial matter and this book provides a full treatment of the various approaches. Finally, it examines the experiences with competitiveness of several cities in North America and in Europe.

Urban Competitiveness: Theory and Practice confirms that many cities in trying times do have a mechanism for enhancing their competitiveness and can work to create the sort of economic life the city's residents want.

1
The study of urban competitiveness in the twenty-first century

Introduction

Twenty-five years ago, the study of competitiveness was dominated by the notion that the nation was the proper subject of analysis and The Global Competitiveness Report (World Economic Forum) was the primary document that evaluated the competitiveness of nations. Michael Porter’s work (1990) supported this notion, although one prominent dissenter was Paul Krugman (1994, p. 34) who argued from the traditional economic position that it was the firm that was the center of competitiveness. Robert Reich (1990) wrote that: “‘National competitiveness’ is one of those rare terms of public discourse to have gone directly from obscurity; to meaninglessness without any intervening period of coherence.” Since he was referring to competitiveness at the level of the nation, the authors of this book see little that is objectionable. One of the authors of this book remembers approaching a major US foundation, which was advertising itself as the primary supporter of research on competitiveness, with a proposal for a study of urban competitiveness – only to be told that cities had nothing to do with competitiveness. Shortly thereafter the OECD had a conference on “Cities and the New Global Economy” and Urban Studies published the review issue on “Competitive Cities.” Cities had suddenly emerged as the primary locus of the reality of competitiveness.

During the past quarter century a series of developments in technology, governmental structures, mobility of capital and labor, and openness has taken place that have caused the focal point for the study of competitiveness to shift from the nation to the urban region, or city. By the twenty-first century, it had become clear, by use of benchmarking exercises with dozens of variables, that while it can be demonstrated that one nation may be more successful in achieving a set of economic objectives than another, the relative degree of competitiveness of a nation is principally dependent upon the competitiveness of its urban regions. Today the World Economic Forum still publishes The Global Competitiveness Report and it remains an important document, but it has been joined by, and one can argue has been supplanted by, several newer studies that examine the relative competitiveness of cities, some of which will be discussed below.

Nonetheless, it must be admitted that some economists continue to hold to Krugman’s initial skepticism as to the legitimacy of the concept of urban competitiveness and certainly as to the study of it. It is certainly true that there is no economic variable that captures the concept and that makes its measurement easy and universally accepted. Rather, as Kresl commented several years ago, one has to capture the shadow it casts (Kresl, 1995). As we will show below, economists who accept the notion that it is cities, rather than nations, that compete and that they compete as aggressively as do firms, have developed models of this competitiveness and methods for evaluating the success of these efforts to compete against other cities or urban regions. This will be the subject of Chapter 4.

The term competitiveness itself is rather straightforward in its definition: multiple entities struggle against one another to achieve some objective. Competitiveness is both the desire of each of the entities, the competitors, to achieve the goal and their capability to do so. Usually the objective is clearly stated. In musical competitions the objective is to convince the judges that you outperformed the others. In athletic competitions it is to win the most games or to get to the finish line in the shortest time. But when we consider the competitiveness among cities the objective is less clear and may not be identical for all competitors. One of the consequences of this is the difficulty it presents when we try to measure and to evaluate a city’s relative competitiveness. For example, as we will show later in this book, some researchers take per capita income to be the objective of a competitive city; others take a set of several variables (which we will refer to as its objective set) relating to income, production, well-being, and trade performance to be the objective; others argue that the objective ought to be attainment of a certain status or structure – say, a center of high-technology activity, or of urban amenities. What these have in common is the fact that they are externally and subjectively determined, without reference to any specific city or set of similar cities. An alternative to these asserted universal objectives is the assumption that each city may very well have a distinctive set of elements in its objective set, dependent upon the history, values, and aspirations of that city’s residents. Each may differ with regard to its work-leisure trade-off; its tolerance of inequality; its preference for urban amenities such as cultural institutions, recreation, and beauty; and its openness to outsiders as to foreign institutions and ideas. Perhaps it would be most effective if the objectives of a city’s plan to enhance its competitiveness were to be determined by the residents of the city and by their elected officials, rather than by objective, but external, specialists. If this is the case, then there will not be one “winner” but rather each city can be more or less competitive in accordance with its own objective set.

If city leaders, or researchers, look at the competitiveness of one city and its development over time they may delude themselves with regard to the impact their policies are having on the competitiveness of that city. If by some measure the competitiveness of the city is being advanced over time, this may indicate that the absolute competitiveness of the city is improving, but a study of a large number of cities or of a set of similar cities may show that all cities are improving their absolute competitiveness. If their city has a new convention center or an improved airport or new production or research facilities they are right to be pleased, but they may find that most of their competitors have done the same thing so that their relative competitiveness is unchanged or has actually deteriorated. So in this study we will be concerned only with relative competitiveness.

Before we enter more deeply into the subject of this book, there are three general factors we must introduce. The first is the absolute necessity of establishing an environment in the city of openness to ideas, individuals, companies, investment, and the reality of change. Cities with expanding and innovative economies have always been open to outside influences and to immigration. The evolution of a city’s place in the global urban hierarchy by necessity involves a Schumpeterian creative destruction of existing activities, producers, and specializations that is offset by processes of innovation and nurturing of the new. Relatively closed systems range from Mao’s China with its Cultural Revolution and backyard steel production to today’s Italy, closed to the young and controlled by yesterday’s men. These systems stagnate and even decline in relation to other more open systems, such as Taiwan and Sweden. Exciting and creative places, such as fin-de-siècle Vienna, Berlin in the 1920s, and New York in the post-WWII period, have opened their production systems, whether cultural or scientific, to immigrants from the continent in which they are situated or to the entire world. Today’s centers of innovation from Silicon Valley to Cambridge to Munich are cosmopolitan magnets for people and ideas from distant places.

The second factor we would like to emphasize is the need to establish a distinctive role for the city. To be a player on the global scene a city must be in important ways different from other cities; indeed it must make itself important to other cities, whether as a source of new technologies, products, and ideas or as a command and decision-making center. All cities in the world are positively linked with the global cities London, New York, and Tokyo, via financial, corporate, or research activities. There is room in each of these three activities for dozens of cities to find their own niche in which they will be able to contribute to the well-being and competitiveness of many other cities. The smaller and less commanding the city is, the smaller will be its sphere of influence and contribution. A city that simply duplicates what several other cities do is of very marginal interest to other cities in the global urban system.

The third factor is the relationship between the individual city and its needs, and the more generalized notion of what is true for cities at a certain moment in time. Many readers will have had the experience of attending two or more events at which city leaders announce the goals and initiatives that comprise the latest strategic plan for the city’s economic future. It is disconcerting when two plans are virtually identical while examination of the two cities indicates that they are quite different in their resources and assets, their history, and, probably, the aspirations of their residents. More likely than not the plans are the product of intervention by outside consultants who have worked out a “strategy for the day” and then counsel several dissimilar cities to adopt it. The suggestion is that all cities in this period of time should become centers of high technology, or of knowledge and innovation, or centers of biopharmaceutical or information-communications technology – this is what the current reality requires. In actuality this message is relevant for only a few cities that have the capacity to excel in the chosen activity. It makes much more sense for city leaders to develop their own strategy for competitiveness enhancement or economic growth or job creation or whatever the relevant objective should be, rather than simply to adopt the “strategy of the day” – both with regard to the overall objective and the specific initiatives that should be implemented.

Recent developments

An extensive literature on the consequences of globalization, innovation, and technological change is readily available to researchers in this area, so we will not do more than discuss their general impacts on cities and on urban competitiveness. It is also true that while these phenomena continue to have their impacts on city economies, they have been operating in this way for decades now and our interest in them must be in how they will evolve in the next decade and beyond. As these forces evolve they will offer a combination of threats, challenges, and opportunities to all cities on the globe. How these cities will respond to them with new policies and initiatives will be perhaps the most interesting story of the coming decade as it will affect the lives and fortunes of firms and individuals, and of the cities themselves.

Policy initiatives for enhancement of urban competitiveness in the coming years will be dominated by the developments that will occur in the manner in which a city interacts with the global economic environment. The widely discussed changes in the capacity of cities in all parts of the world – increases in the skills of labor, infrastructure improvements, development of financial centers, engagement of institutions of higher education in the needs of emerging economic sectors, establishment of research facilities, and so forth – means that activities that were historically concentrated in, and limited to, specific urban centers in which they had been developed are now transferrable to these new locations in Asia, Africa, and Latin America. Automobile and aircraft production, steel, finance, manufacturing, and professional services are now located in many of the large urban regions throughout the world. This has posed several challenges to established centers in North America and Europe. The cities of the US Industrial Heartland, of the English Midlands, and several well-known sites on the European continent have experienced significant decline. While some such as Chicago and Pittsburgh, in the United States, have recovered through a restructuring of their activities, either through a post-Fordist transformation of traditional manufacturing activities or through transition from manufacturing to services and knowledge-based activities, others have continued to stagnate or decline.

The increased importance of knowledge, technology, and innovation is not focused only on advanced high-technology sectors, such as information-technology-communications and biopharmacy, but also transforms traditional sectors, such as textiles, logistics, furniture making, and hotel-restaurant-leisure, as well. With the cost-reducing impacts of innovation in transportation, and the immediacy established by advances in communication between producer, distributor, and seller, an increasing array of activities can be distributed more widely throughout the globe with efficiencies in production of distant producers being more efficiently linked to retailers. Furthermore, with rising incomes consumers move beyond the necessities of life to an array of products that become differentiated as they meet needs other than sustenance-level goods and services. Products now satisfy the less pressing, more symbolic needs of status and class affiliation and of personal individualization and identity. Thus, for example, there seems to be space in all consumer markets for automobiles made in North America, Europe, and Asia, each of which projects specific characteristics and attributes onto the purchaser. The same is true for almost all consumer goods, household furnishings, and food and drink. The result is that there is space for production centers in dozens of places throughout the global economy, rather than industrial heartlands in a small number of urban centers that cater to the needs of all consumers. Concomitant with this has been the development of relatively affluent consumer classes in countries in which the affluent had previously been primarily foreign residents and a small number of the ruling elite. The development of mass consumption markets in developing countries is having a profound impact on the optimal spatial distribution of production facilities.

The threats, challenges, and opportunities are intensified now that advances in communication make information available to anyone who wants it. Knowledge is available through face-to-face contact as well as through published sources – and always for a price, skilled workers are quite mobile, and relatively footloose companies are often willing to relocate on short notice. This is a two-way street, of course. While a city can no longer rest comfortably on a long record of accomplishment in a sector of activity, it can also challenge the positions of other cities for economic activities in other sectors that would be new to its economy. This all points to an era of increased activism on the part of city leaders so as to ensure the continued economic strength, and even relevance, of their local economy. In the United States, two researchers at the Brookings Institution have garnered considerable publicity with their book The Metropolitan Revolution. In this book, Bruce Katz and Jenifer Bradley (2013) note that urban mayors and their administrations are asserting themselves with regard to development initiatives and policy, partly in disgust with the inactivity of leaders at higher levels of government. This is, of course, old hat to some extent. US cities and their mayors have been very active for decades responding to the challenges of globalization, deindustrialization, the crisis of the Industrial Heartland, the need to diversify away from mono-industrial economies, the need to restructure spatially, and the rise of industries related to the new technologies, among other things. The need for them to do this has been exacerbated by the dereliction and fiscal irresponsibility on the part of the federal and state governments to the point that it is now noticed by a larger number of observers.

This city activism was actually started, in the modern era, by the Eurocities movement when it asserted in its manifesto, of 1989, “Now is the time for the cities!” suggesting a collective activism of cities of a certain size in Europe in a space that had been dominated by national and sub-national governments. In the quarter century since then, activist cities and mayors in Lyon, Rotterdam, Birmingham, Barcelona, and other cities throughout Europe have been taking charge of their economic activities and futures. Today this collective activism is joined by an assertive competition among cities throughout the world.

This interurban competition does not have the structural character to which cities had become accustomed – with cities in industrialized countries doing the high-level, skilled, and white-collar work and with cities in the developing world specializing in low-level manual labor and some necessary supervisory activities. Millions of students from China, India, Brazil, and other countries throughout the “third world” gained skills, knowledge, cosmopolitanism, and sophistication at universities in industrialized countries and then returned home as valuable human assets. They made their countries attractive as production sites for foreign multinational firms and places for new start-ups to be undertaken. The lowering of a wide variety of barriers to flows of knowledge, goods, labor, and capital – especially foreign direct investment – greatly facilitated this development. So today automobiles, ships, aircraft, steel, all nature of manufactured goods are produced in places other than just in traditional places, such as: Chicago, Düsseldorf, and Osaka. This is taking place in a global context of an overarching adoption of the basic precepts of an evolving model of capitalism. While all nations modify a capitalism ideal type to their own specific real type, nonetheless an acceptance of the basic structure of capitalism is being accepted and implemented by virtually all entities, national or urban, that want to participate in this emerging system. Each fashions its own model of neoliberalism, social democracy, and state participation subject to the proviso that this model not be incompatible with the dominant form.

One consequence of this evolution has been the development of a new global urban hierarchy. Through the 1980s this hierarchy consisted of the “global cities” of Sassen – New York, London, and Tokyo, at the pinnacle, with tiers of less dominant cities descending through the industrialized world to a periphery of analogous structures in the developing world, with some serving as control/command posts for the dominant cities in dominant countries. This structure connected villages with global cities in an integrated structure of capitalist production and distribution. Certain tasks, such as research, product design and development, financial control, and decision making were reserved for the center and lesser tasks were allocated down through the structure to lesser, peripheral locations. The most recent couple of decades have seen a redistribution of tasks throughout the structure, with some financial activities, research, and product development occurring in cities of the developing world, and with some aspects of manufacturing returning to the traditional industrial centers of Europe, North America, and Japan, albeit with less labor intensive modes of production, as wage differences began to diminish.

In this period of significant change it is incumbent upon city leaders, both public and private, both elected officials and professional staff, and representatives from a variety of other entities – from unions, universities, and social organizations – to consider the competitiveness of their city and to design strategies to enhance the capacity of their economy to function and become an important actor in the new structure. This initiative at strategic planning may be constrained by several factors over which these individuals may have little or no control or influence. For example, the national government may privilege one or more other cities when it plans infrastructure initiatives, such as high-speed rail lines, support for international congresses or events, location of major educational or research facilities, support for development of certain industries or firms, and investment in urban renewal, social housing, and so forth. National capitals are always privileged, as are some cities with traditional political and economic strength. The strength of autonomy movements in places such as Catalonia, Scotland, and Quebec are evidence of this. Firms are often induced to change the location of production or headquarters functions in response to subsidies offered by national or regional governments and the allocation of these subsidies to less privileged cities and regions is often a detriment to their development and competitiveness.

In choosing a course that will dominate thinking and initiatives introduced with regard to the future, city leaders will have to confront the issue of path dependency. Well into the relatively predictable twentieth century, cities could focus on doing better basically what they had been doing for the previous decades and, in most cases, centuries. Pittsburgh produced steel, Seattle produced aircraft, Turin produced automobiles, and so forth. Their economic future was seen to be an extension of what had always worked for them, that is to say it was path dependent. In the contemporary context, path dependency works for few cities. Chicago transformed itself from basic steel and basic manufacturing to financial and professional services, transportation, and research-based manufacturing. Pittsburgh saw its steel sector virtually disappear to be replaced by health and medical technology, based at the University of Pittsburgh, and computer science and robotics, based at Carnegie-Mellon University, and Seattle became the home to Microsoft. Still, Chicago’s steel producers became competitive in specialty steel produced with advanced technology and nested in a set of patents, and in Seattle, Boeing transformed itself into an aerospace and high-technology producer. So in some instances, the past can still provide a base for future economic activity.

This all suggests that activism on the part of city leaders is called for. The alternat...