by the Global Agenda Council on Competitiveness

More than ever, cities are the lifeblood of the global economy. Increasingly they determine the wealth of nations, which is why the World Economic Forum’s Global Agenda Council on Competitiveness has recently published a study on the competitiveness of cities.¹ “Competitiveness” hinges on the productivity of the city—that is, its ability to use available inputs efficiently to drive sustainable economic growth and prosperity.

Never before has the world urbanized at the speed and scale that it is doing today. As of 2010, for the first time in history, over half the world’s population lives in cities. Urban dwellers already account for over 80 percent of global GDP. According to the United Nations,² globally, an additional 2.5 billion people will move to urban areas by 2050. For the foreseeable future, rapid urbanization will be an almost-exclusively non-Western affair: 94 percent of those who will move to cities in the next few decades will come from the developing world. McKinsey Global Institute estimates that, by 2025, the developing world’s top 443 cities will account for close to half of global GDP growth and 18 percent of global GDP.³ These cities will contain the bulk of about 1 billion new middle-class consumers.

Through 33 case studies of cities around the world—including cities with different endowments, at different stages of development, and with different levels of success—the Forum’s study extracts key lessons for city competitiveness and offers the following checklist of four items, which constitute a “what-to-reform, how-to-reform” agenda:

• First, think institutions—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.
• Second, think of the regulatory framework for the city’s business climate. “Getting the basics right”—which involves stable and prudent fiscal policies, including efficient and simple taxation; a flexible labor market; openness to trade and foreign investment; simple and transparent business regulation—is the primary lesson for good public policy, at both national and municipal levels. Cities should develop their own foreign economic policies on trade, foreign investment, tourism, and attracting foreign talent, and go global as far as they can.
• Third, think “hard connectivity”—the city’s core physical infrastructure. Cities need a mix of planning and organic growth, which are complements of one another, not substitutes for each other. Manhattan is a great example, given both its street grid and the organic expansion it has experienced over the past two centuries.
• Fourth, think “soft connectivity”—the city’s social capital. Education is the ultimate soft connectivity. US cities such as Boston, Pittsburgh, and St. Louis have escaped post-industrial decline and specialized in knowledge-intensive niches by capitalizing on their strengths in education. Next, cities need to facilitate digital infrastructure to support human-computing interfaces that empower individuals. And making cities more liveable—improving the quality of urban life—must become a higher priority for upper-middle-income and high-income cities.

The study also draws a set of concluding observations that need to be taken into account when engaging in reform process: First, successful cities are those that are flexible and adapt quickly to changing conditions. That observation is borne out by the case studies of successful cities in the study. The alternative is to get stuck in mono-industrial, mono-cultural decline. Second, the right mix of priorities requires tailoring to specific conditions and stages of city development. Most obviously, priorities for a Western city with a stable population, facing sluggish growth, unemployment, and an aging population will be quite different from those of an emerging-market city with lower income levels, high growth potential, a quickly expanding population, and big gaps in infrastructure. And finally, reforms at the municipal level are usually more feasible than at the national level, even when the same reforms seem impossible in national capitals. Urbanization trends enlarge these possibilities. Cities should grasp this opportunity, experiment with new rules, and put reforms on a fast track.