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Posted at 10:28 AM ET, 01/29/2011

Welcome to the urban century

By Reuben Abraham

Urbanization is an issue that’s slowly been creeping onto the agenda at Davos, with multiple panels this year addressing various facets of urbanization. Not a moment too soon, since urbanization is the defining macro-trend of the next 20 to 30 years across Asia and Africa, affecting the lives of billions.

There has always been a tendency to romanticize the rural life and vilify the city. The irony is that the people who romanticize tend to either be wealthy and/or live in cities.

I find this strange, given the absolute centrality of cities to economic progress and well-being. According to the urban economist Richard Florida, close to 70 percent of global GDP and 85 percent of all innovation comes from 40-odd urban mega-regions. New York City alone has a GDP of about $1.2 trillion, making it the 12th or 13th largest economy in the world. Although cities are traditionally seen as a consequence of economic growth, they are in fact a cause and consequence of economic growth, and you cannot have robust economic growth without rapid urbanization.

The trends are clear. In 1800, 2 percent of the world was urban. In 1900, it was 14 percent urban. In 2008, the world crossed the 50 percent threshold. By 2050, it is expected that the world will be 80 percent urban. In 1900, there were 16 metro regions with a population of 1 million or more; today there are 400, of which China has 160, the United States 49 and India 37. Both India and China are witnessing the greatest migrations in human history as hundreds of millions leave the countryside for urban areas. In India alone, 300 million to 400 million people will migrate to cities over the next 25 years. The challenges of managing this process are obvious, but there are opportunities as well. Urban areas are expected to produce 70 percent of India’s GDP and 85 percent of all tax receipts by 2025.

People tend to associate developing country cities with horrifying slums. True, but it’s worth keeping in mind that cities like San Francisco were once shantytowns as well (things get better as incomes rise), and the people who live in slums have voted with their feet and represent a severe indictment of the conditions they have migrated from. Slums are also a hive of economic activity; Dharavi (India’s largest slum) is assumed to produce economic activity worth anything between $600 million and $1 billion per year.

Cities also have a positive impact on population growth, with the pressures of city dwelling and increased incomes leading to lower fertility rates. In addition, cities will have a positive impact on climate change. Despite heat island effects, a recent study of American cities showed that New York City had the lowest per capita carbon footprint, which should be fairly intuitive since most New Yorkers don’t own cars and walk or take public transit. Finally, chances are that cities will emerge as the dominant power centers and mayors will become powerful political actors. Such a decentralization of power will make it easier to negotiate issues of international importance since you can form effective "coalitions of the willing" without getting into thorny issues surrounding transnational negotiations.

Welcome to the urban century!

Reuben Abraham is a professor and executive director of the Center for Emerging Markets Solutions at the Indian School of Business in Hyderabad, India.

By Reuben Abraham  | January 29, 2011; 10:28 AM ET
Categories:  Reuben Abraham  
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