Anthony Williams- Rebuilding Cities: Reflections on my experiences

In the first quarter of 2017 the Centre for Development and Enterprise (CDE) invited Mayor Williams to speak about his experiences as Mayor of Washington DC, and his subsequent experiences as Chief Executive Officer and Executive Director of the Federal City Council.

In a vibrant discussion in Johannesburg with city officials, local experts, businessman and diplomats, the mayor spoke about the importance of leadership, trust and unity and why it is essential that cities prioritise growth. He also highlighted how a solid business-government relationship is essential for faster growth and mass employment, and why it is important that cities attain global standards while developing their own identities and distinct advantages. Click here for the full report.




Anthony Williams Restoring Cities

Anthony Williams, former Mayor of Washington DC was invited by the Centre for Development and Enterprise (CDE) to talk about his experiences as mayor and his subsequent experiences as Chief Executive Officer and Executive Director of the Federal City Council. In his talk with city officials, local experts, businessman and diplomats, he highlighted that cities should be seen as engines of growth, the locomotives pulling the economy along, which need to grow at much higher rates than the rest of the country. He also spoke about the importance of finding a politically defensible way of bringing the private sector in to finance public assets. Williams mentioned that as long as immigrants are law-abiding, pay their taxes and contribute to the growth of the country they should be welcomed.




CDE comments on the Green Paper on International Migration

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Cities: Pathways to Prosperity

At a series of events arranged by CDE involving government, business leaders as well as the public, Harvard Professor Edward Glaeser made a powerful case for cities as the path out of poverty and key to any nation’s growth. Click here for the full report.

 

 

 




Cities: Pathways to Prosperity

CDE invited Professor Edward Glaeser to South Africa for a series of events in June 2015 where he presented his arguments in favour of urbanisation, and then, in numerous question and answer sessions, engaged with South Africans ranging from National Treasury officials, CEOs of public companies, diplomats, academics and representatives of civil society organisations.

On this page, you’ll find a write up of his presentations, video clips from the public event, photographs and charts, and commentary by CDE executive director, Ann Bernstein. You can download the publication based on his presentation here.

CDE and cities: Ann Bernstein, CDE executive director

ResponseCDEexecutiveDirectorAnnBernsteinIn the 1990s and early 2000s, the Centre for Development and Enterprise (CDE) produced a series of reports on South Africa’s cities as centres of economic growth and opportunity in a globalizing world. In many ways these reports were ahead of their time. Cities have not featured as strongly as they should have as part of the national agenda during the past two decades. But a focus on urbanization and cities is vital if South Africa is to generate the jobs and growth we need to meet our current challenges. Cities account for over 80% of global economic output. In South Africa, four city-regions (Gauteng, Cape Town, eThekwini, and Nelson Mandela Bay) account for 42% of South Africa’s population and 57% of formal economic activity. Between 1996 and 2013, the metro economies grew at nearly twice the pace of the rest of the country. Per capita income in the metros is about 40% higher than in the rest of the country, and residents of the largest cities are significantly more productive than secondary cities, towns or rural areas. Importantly, the rate of employment growth in the metros between 1996 and 2012 was more than twice that of everywhere else.

It is encouraging that some important people in government are starting to take cities more seriously. But South Africa needs to go further. Cities – and how they are governed and managed – must be at the heart of the national economic growth and jobs debate. If we are to have any hope of reaching the NDP growth and employment targets, our cities will need to grow at much faster rates for the next 15 years than ever before.  Adopting a ‘business as usual’ approach to cities is a strategy South African cannot afford.

The country’s future prosperity will be urban-led and this must be based on unleashing market forces in urban environments. The role of the state is crucial in this. Governments, at both the national and the local level, must enable cities to strengthen and improve their roles as engines for economic growth, mass employment, innovation and more vibrant, dynamic entrepreneurship.


Edward Glaeser

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Edward Glaeser is the world’s leading urban economist. He is the Fred and Eleanor Glimp Professor of Economics at Harvard University. His research has made a powerful case for cities as the path out of poverty and key to any nation’s growth. His latest book, Triumph of the City: how our greatest invention makes us richer, smarter, greener, healthier and happier, explains how cities spur innovation, attract talent and sharpen it through competition, encourage entrepreneurship, and allow for social and economic mobility. The Economist magazine calls it “an enthusiastic guide to the blessings of human proximity”. 

Presentation: Professor Edward Glaeser

 

Gandhi famously regarded the growth of cities as “an evil thing, unfortunate for mankind and the world.”  With all due respect to the great man, I think he got this one completely wrong.  The transformation taking place in India is not happening in the village economies he championed.  It’s happening in places like Bangalore, Mumbai, Kolcata, and Delhi. It’s happening in cities that are providing pathways out of poverty into prosperity, that are providing conduits across civilisations and across continents, and that are enabling the flow of knowledge and ideas that are the most important wellspring for economic success in the 21st century.

The benefits of city living

In 2007, humanity crossed an important threshold: more than 50% of us now live in cities.  When we compare those countries that are more than 50% urbanised to those countries that are less than 50% urbanised, the more urbanised countries have, on average, incomes that are five times as high and infant mortality levels that are less than a third, than less urbanised cities.

PerCapitaGrowthGDP_1960to20101

      GDP growth and urbanization. Graphic: Edward Glaeser

If you look at countries that had per capita incomes below $5,000 in 1960, those countries that were already highly urbanised at that point subsequently all experienced positive per capita GDP growth between 1960 and 2010. Some of them at spectacular rates. At the same time, those countries that were not particularly highly urbanised in 1960 did not do so well subsequently. This in cludes a host of African countries such as the Democratic Republic of the Congo, Zimbabwe, Niger, Burundi, Sierra Leone, Senegal, Zambia, Central African Republic, and Ghana. In other words, countries that were poor with relatively low levels of urbanisation in 1960, stayed poor.

What this tells you is that, contrary to Gandhi’s claim, there is no future in rural poverty. Of course, this is not to suggest that governments should force their citizenry out of rural areas and into cities or arbitrarily tax rural areas to subsidise city life. At the very least, though, governments should aim to create a level playing field for cities.

Human progress is largely based on our ability to learn from one another, and cities have been making this happen since Socrates and Plato first bickered on an Athenian street corner. Governments should encourage this process wherever possible or at least never arbitrarily prevent it from occurring or flourishing.

Presumably Gandhi wasn’t talking just about the supposed economic disadvantages of cities but also about some loss of soul, some loss of satisfaction that comes with urbanisation. This view is not Gandhi’s alone but is also reflected in the Anglo Saxon tradition from Jefferson to Wordsworth,  which often elevates rural life over city living. Given the poor quality of water and sanitation in 18th century cities this was, in some ways, a sensible view to hold.

However, it is equally true that modern rural India is not a Wordsworth poem.  Modern, rural India is not in any sense a bucolic existence and the empirical data on health and wellbeing show that life there is hard. On balance there is far more hope in urban slums than in the rural poverty that has persisted for millennia without delivering the change, the promise, the hope that continues to exist on city streets.

When we move from income to self-reported life satisfaction, the central message is reinforced. Among rich countries there is no clear pattern of urbanisation making you happier. Some countries’ respondents are a little happier when they are living in cities (e.g., Sweden and Finland) and some are a little happier when they are living in the countryside (e.g., Italy and New Zealand). In fact, the data suggest New Zealand has some very happy rural dwellers indeed.

“To be poor is to be rural.”

However, the difference is marked when you look at poorer countries. The gap between urban and rural happiness in India is the highest in the world. And the gap between rural and urban happiness is also prominent in Rwanda, Mali, Ghana, and South Africa where city dwellers are much happier than rural respondents.

No matter how you look at it, Gandhi was wrong.

Why are cities so important to human prosperity and happiness?

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Three elements lie at the heart of effective cities.

The magic of economic interaction

Cities exist to connect us and to enable us to learn from one another, trade with one another, and take advantage of economic opportunities.  That explains why cities have become more, not less, vital with the rise of information and communication technologies.  These technologies have flattened the world in a variety of ways and have enabled us to perform certain tasks from a distance; they have also radically increased the returns to being smart. We become smarter by being around other smart people. Humans are intellectual magnifiers: we pick up knowledge from other people around us and use it and transform it into something better. This is how human creativity has always worked. And it is why the most technologically-oriented firms such as Google no longer allow their employees to work from home. Instead they built the Googleplex which facilitates interaction among employees. And the more complicated the world becomes, the easier it is for ideas to get lost in translation and the more valuable it becomes for us to be able to communicate with each other directly.


Combatting the demons of density

There are downsides to human interaction that invariably emerge when a lot of human beings occupy a small amount of space together. If two people are close enough to exchange an idea face to face they are also close enough to exchange a contagious disease. And if someone is close enough to sell you a newspaper then he is close enough to mug you. This is the nature of cities. But it does not mean that we should halt the urbanisation process and keep people in rural areas for fear of subjecting them to the demons of density. What it does mean is that government becomes much more valuable in an urban context.  We need to focus our attention on combating the disadvantages of density – on providing clean water, safe neighbourhoods, and uncongested roads. To accomplish these things requires a smart public sector; a government that focusses on fighting crime, reducing congestion, enforcing the rule of law, and creating the preconditions for innovation and creativity to flourish.


People and the physical city

The buildings and the infrastructure of the city are important. But we must not confuse the physical city with the real city. Johannesburg’s real city is not the skyline; it’s not the Hillbrow Tower or the Carlton Centre or Ponte.  It’s the humanity that is in the city.  It is the people who are connected by proximity that make the city what it is, not the structures that they inhabit. Of course, the buildings and infrastructure matter, in the sense that they could facilitate human interaction more or less efficiently. But they are always only means to ends and never ends in themselves.


Watch: More videos, as well as Glaeser’s full presentation, are available on the CDE YouTube Channel.

Skills matter

When one looks at the difference in the performance between cities, one need look no further than skills as a key predictor of urban success. If you look at per capita GDP in 2010 across major US metropolitan areas and the share of adults in those areas with college degrees in 2000 there is a reasonably strong, positive relationship:  The higher the share of adults with college degrees in a metropolitan area in 2000, the higher the per capita GDP of that metropolitan area in 2010. This is not just about your skills making you more productive, it’s about your neighbours’ skills making you more productive. Holding years of schooling constant, as the share of adults in your metropolitan area with college degrees goes up by 10 per cent, your wages go up by 8 per cent. This study has been replicated in many countries, including India and China, and the results always support the advantage of having skilled neighbours. Quite often the relationship in the developing world is much stronger than it is in the developed world.

And, this relationship becomes more critical and powerful as density levels increase. In fact, density and skills are complements. This was particularly evident in the US during the great recession. What saved some metropolitan areas from having high unemployment rates was having a strong skills base because having skilled neighbours not only makes you smarter but also means having a neighbour who is a potential entrepreneur who might give you a job.

So human capital is really the starting point for a city’s success. What this means is that when you think about underperforming cities, don’t think infrastructure first, think skills first.

   

 

Entrepreneurship and the city

Of course, the skills that really matter are those that are learnt on the job and there is no skill that is more valuable to the long-run health of a city than the talent and inclination to become an entrepreneur.

Fifty years ago, New York’s great industry – and the largest industrial cluster in the United States in the 1950s – was garment production.  This was an industry with very few barriers to entry, with very few returns to scale, one in which anyone with a good idea and a couple of sewing machines could get started. As a result, it was a spur to entrepreneurship. Thousands of people came to New York and started working for small garment producers or set up their own business. And because entrepreneurial skills can be transferred from one industry to another, New York’s garment entrepreneurs went off in search of new opportunities in other industries as opportunities changed. They went on to start film studios, to build skyscrapers, and to do amazing things for America.

By contrast Pittsburgh, which was built upon the coalmines around the city, was heavily reliant on one very large corporation – US  Steel. Steel manufacture is an industry with vast returns to scale, and US Steel was a tremendously productive company. But it certainly did not leave a residue of entrepreneurial capital in the city. US Steel trained company men and when US Steel faltered those company men were not as adept at seeking out new business opportunities as the garment entrepreneurs of New York.

EconomicGrowthAndFirmSizeOur measures of entrepreneurship are generally weak and imprecise. However, one way of seeing whether entrepreneurship levels are high is by looking at average establishment size. And, in this regard, there is a strikingly strong relationship between how quickly American cities grow and how big the average firm is: cities with lots and lots of small firms tend to grow more quickly than cities in which the economy is dominated by larger firms. In fact, cities with the smallest firms on average (and which can be said to have higher than average levels of entrepreneurship), have also seen much faster employment growth. This is true across different regions of the US and the results are enormously robust.

The harder question here is: if we believe in the power of entrepreneurship, what is the government supposed to do about it? Is it possible to do more to train people to do entrepreneurial things? Is it possible to implement reforms that will makes it easier for people start out as entrepreneurs? Perhaps the answer is no for the first question and yes for the second. One of the most entrepreneurial places in the world is Mumbai’s Dharavi slum. It is filled with unbelievable Indian talent doing things one would never think would be lucrative. But the water isn’t safe to drink and the electricity is (at best) intermittent. It reminds us of how critical the public function is because it is not that India lacks entrepreneurial zeal but it lacks an effective public sector that is able to deal with the downsides of density.

 

Managing cities: some policy considerations

 

cog Urban water supply is primarily about engineering. For governments, the overriding objective is to make sure you bring clean water into the city and dirty water is taken out of the city, so it doesn’t make sense to obsess too much about water charges for poor people in Africa or anywhere else. However, when it comes to something like transport the behavioural response is critical and hence engineering solutions are only part of the answer. If you build more roads, more people will drive on them. Studies have shown that vehicle miles travelled increase roughly one-for-one with roads built. Road building, when not accompanied by pricing, is simply a recipe for more traffic, which is why people need to be charged for the social cost of their actions. Singapore is one of the densest areas on the planet and yet it has roads on which traffic moves effortlessly because the government charges people to use them.
peoplemover

Detroit tried to reverse its decline with foolish investments like its People Mover, which here glides over essentially empty streets. Picture: Dennis MacDonald/World of Stock from Triumph of the City: How our greatest invention makes us richer, smarter, greener, healthier and happier

  busMany cities tend to underestimate the value of the bus relative to the train. In fact, there is very little that you can do with a train in an urban context that you can’t do with a bus, especially one on a dedicated lane. However, when it comes to the bus, we shouldn’t just be thinking about bus rapid transit. We should be thinking about minibus taxis too and how to integrate them into the urban public transport system. Minibuses are cheap, flexible and well-tailored to cities with medium densities such as those found in South Africa. The challenge is how to use public funds to upgrade the minibus experience: to shorten the wait, to make them safer, and to serve the needs of the city and the wider country better over time. In many cases, it makes most sense to think about services and systems that are currently in place, and about how to upgrade them incrementally and to make continuous improvements to them over time.   One of the reasons why trains became popular in the United States was that they were sold as vehicles for the regeneration of declining cities. But the hallmark of declining cities in the US is that they were built for a much larger population and therefore have an abundance of structures and infrastructure relative to the level of demand in their post-decline situation. In the case of Detroit, the US government confused the real city with the physical city: engaging in urban renewal projects and building public monorails that would somehow magically entice people to come back to the city. In the end, the result was a colossal waste of money. The poor people in Detroit did not need a monorail. They needed better schools, they needed public safety. In short, they needed investments that actually made a difference to their lives.

personPublic policy must focus on delivering services for people, not places. There is no need to ensure that economic activity occurs in every place in the United States. There is no reason why the government should be subsidising people to locate their businesses in the foothills of the Rockies or for that matter subsidising them to locate in Detroit. However, the government does have an obligation to make sure that the children who grow up in Detroit have the tools, especially the education, to make a brighter future for themselves. 

gunNew York’s regeneration was partly about the emergence of the financial services industry in the city. But a key factor was improving the rule of law and making the streets of the city safer for its inhabitants. You can argue about the methods used by the city – Boston’s community-based approach to crime prevention is a very good counter-example – but the lesson is clear: Since attracting and keeping smart people is so fundamental to a city’s long-run success, ensuring public safety is one of the most critical investments a city can make. I often tell city leaders in the US that the right economic development strategy is to attract and train smart people and then, more or less, get out of their way. In the 1970s no one in their right mind would have wanted to live in New York and work somewhere else. Today, this is all the rage and it would not have been possible without safer streets.

buildingsPolicies influenced either by NIMBYism or by momumentalism are both dangerous. NIMBYism (Not-In-My-Backyard-ism) often results in knee-jerk opposition to new building development. Until very recently, Mumbai had, for 40 years, a limit on building above one and quarter stories in the central city. Pushed in part by an adherence to British town and country planning ideals, but also by public officials who didn’t want Mumbai to grow, the result was a low, sprawling metropolitan area. With the exception of a few new skyscrapers, typically surrounded by big empty fields to meet the floor to area ratio requirement, Mumbai grew out instead of up, effectively making pedestrian transit impossible. As such, Mumbai is an object lesson in the overregulation of city building. In contrast, monumentalism, which essentially amounts to building structures or grand buildings for their own sake, is equally problematic. Monumentalism repeats the error of focusing on the buildings rather than the people who may or may not need those buildings. Somehow a balance needs to be struck that allows for city growth without building for buildings’ sake.

Density and the environment

One of the reasons why it is important to allow cities to build up rather than out is that it is good for the environment. When countries become more prosperous they consume more energy, which means they consume more carbon. For a given increase in GDP, countries can consume less energy by building up relative to building out. People who live in the city instead of outside it typically use far less carbon because they use public transport, they drive shorter distances, and they occupy smaller apartments.


If the great growing economies of India and China on their own, keeping their populations constant, see their per capita emissions rise to the levels seen in the sprawling United States, then global carbon emissions are forecast to rise by 130%. If they stop at the levels seen in wealthy but hyper-dense Hong Kong, global carbon emissions go up by less than 30%. We therefore all have a lot to gain if India and China build up rather than build out. We need to recognise that low density, suburban living on the city edges, is a recipe for increased carbon emissions.

Conclusion

I am an economist.  I believe in freedom.  I believe in choices.  I do not believe that people shouldn’t have the right to live surrounded by nature if they want to live surrounded by nature.  I know that part of my talk could be construed as saying that I think everyone should live in a city. I am not anti-rural. However, I am in favour of a level playing field. We should recognise the importance of cities for growth, for jobs, for prosperity and we should allow people to exercise choice and move to cities to take advantage of the incredible opportunities that they provide.

Phenomenal things have happened when humanity has worked together in cities. Our ability to solve problems collectively is simply incredible. That will not change.  That is not going to go away.  And as such I cannot but have a tremendous amount of hope that, in fact, South Africa will continue to grow, will continue to be a better place because of the magical things that happen in cities like Johannesburg.

Embracing urbanisation and committing to solving its problems is the only path for humanity to take in the 21st century. Urbanisation brings with it enormous challenges but the right response is to meet those challenges and make sure our cities are as liveable and comfortable as possible so that they continue to serve as generators of growth, prosperity, creativity and promise.

Discussion

 

Each of the CDE organised events in which Professor Edward Glaeser participated was marked by extensive audience participation, with Professor Glaeser providing detailed responses to questions. Key issues that emerged and a summary of the responses are provided here.


 
Local autonomy and accountability

Decentralisation is important because it facilitates experimentation.  In many cases no one really knows what the best policy is. We are not exactly sure of the right way to deliver entrepreneurial training or which vocational skills are exactly right. The answers will emerge if cities become laboratories of experimentation.  Accountability can also be increased if autonomy is conditional. In the US, if a local authority is underperforming, it can lose its mandates.  For example, Detroit lost its mandate to perform a lot of functions because it went bankrupt. That is an important check, but, at the same time, some degree of local autonomy is crucial.

Who should city governments be accountable to?

City governments should firstly and primarily be accountable to their residents. I could not be a bigger fan of Indian human capital and of Indian talent. Yet, Indian governments are rarely put forward as models to be emulated. I know of no country in which the cities are more controlled by agriculturally-dominated state governments than India.  Mumbai is dominated by Maharashtra and Bangalore is dominated by Karnataka. In every case, the rural residents are overrepresented, sometimes by as much as ten to one, in the state legislatures.  So city governments are deeply constrained and essentially run by state governments that view the cities as resources to be exploited for their rural constituents. The one exception is of course Delhi, which governs itself as an autonomous district.

Urbanization and sprawl

In South Africa the rural areas are quite urbanized and there is a lot of sprawl in our cities. Is there an economic model in which the current sprawl in South Africa’s can be seen as an asset?

 

Rural urbanisation and the growth of cities are a related but not an identical phenomenon. We want to be thinking about how to lift up the main cities because, after a while, they lift surrounding areas up. We should also be reflecting on the fact that many of the urban townships are congested. The legacy of sprawling townships could, in fact, become an asset if they become centres of interaction and entrepreneurship. I am not sure that even if South Africa had the ability to redesign townships and the urban layout from scratch, that it would be a good idea to do that. It is preferable to do the best with what you have got rather than invent insurmountable planning problems.

 

Further, in new urban areas it is best to proceed incrementally rather than copy the monumentalism of a place like Dubai. It is better when planning a new town or a suburb, that you grid it, meaning you lay down street spaces over the entire area of settlements and that you create and maintain the legal authority to protect that grid. That means you’ll have a space to pave even if you’re not ready to pave now; the space to put down pipes, even if you’re not ready to put down pipes now. Protecting the grid allows you to develop slowly, providing services as the need for those arises.

Should government encourage densification?

Should government implement policies to encourage densification?

 

My view about this comes back to choice. It is never a good idea to force anyone to live in a skyscraper.  What I am in favour of is reducing the regulations on developers who want to build taller towers in places where that makes sense.  I am in favour of deregulating. At the same time, one has to be careful that deregulation does not impose unwarranted costs on the public sector. Up to a point, people have to bear the costs of the decisions they make. So it may be the case that a developer has the right to build a housing complex on the very edge of a city, but that developer cannot then argue that the public sector is necessarily obligated to pay for the infrastructure that would make such a housing development economically viable.  I do not think that is, in any sense, what deregulation means.

Must government provide public goods like education?

Must government be the provider of public goods like education?

 

I’m a big advocate of the public responsibility for ensuring that children get educated.  However, I’m not an advocate for the public being the only provider of education.  Certainly, in the US, many of our greatest educational successes have been in the form of charter schools, which are typically not-for-profit, non-public entities. They randomise who gets in and those children who are offered a place often experience enormous benefits. I am not in favour of replacing a robust, competitive urban market of schools with a public monopoly. Some of America’s public school problems can be summed up by the following analogy: imagine if New York City replaced all of its restaurants with a single, large public canteen. One can imagine what would happen to the quality of the food. That is exactly what New York City did to its public school roster.  That being said, I would never dilute public responsibility for schools.  Every child is a public responsibility.  The public needs to figure out the right way to provide quality schooling, which usually implies a combination of private and public provision.

Mega-city projects to provide housing for the poor?

Should government undertake mega-city projects to provide housing for the poor?

 

Let me be unequivocal on this – backyard shacks, yes, mega cities, no.   Certainly the track record, both in the US and in Latin America, of tearing up existing small-scale barrios or favela–type neighbourhoods and replacing them with large-scale projects outside the cities has not worked and bad things have often happened. People are removed from jobs; a lot of poverty becomes concentrated in one area, and existing structures are disturbed. These types of interventions tend to replace existing landlords – who have been taking care of the areas for which they are responsible – and put a large responsibility on the public sector in their place. The public sector rarely takes on this responsibility in any kind of effective way. I think this is a very bad model, and the model in which current land-holders rent out backyard shacks to incoming migrants is preferable. It also facilitates entrepreneurship in the poorer parts of the city. As the city gets richer, shacks will be upgraded and replaced with better housing units over time.

The city and immigration policies

What is the role of the city when it comes to immigration policies?

 

I believe very strongly that immigrants are good for cities, and cities are good for immigrants. When you examine the phenomenon of immigrant entrepreneurs in the US, both historically and more recently, the share of American patents that are being created by people who are not originally American is huge.  It’s not that immigrants are crowding out jobs. Instead, they more often create jobs through their initiative and creativity.

Multinationals and local entrepreneurship

Should South Africa seek to attract large multinationals into our cities, or is it better to promote smaller, home-grown entrepreneurship?

 

It is not the case that big companies, like the mining companies that have often invested in South Africa, are unimportant.  They bring in global skills and link into global activities, and those roles are important.  At the same time Johannesburg needs to cherish its smallest entrepreneurs in a variety of different ways to make sure that they have opportunities to invest and grow.  What I am suggesting is that whatever is done to promote larger-scale firms is coupled with a passion for the smaller scale as well. Ideally, many of the people who get training from an incoming multinational will one day be able to start their own firm in a similar field.

 

An agenda for growing local entrepreneurship must be widely communicated. Some of those who are selling apples right now might be selling something bigger tomorrow. They might be the next big thing once mining stops. The history of natural resource-based economies is that the resources don’t last indefinitely so the key is to invest the wealth generated from those resources into things that do last – like human capital and infrastructure. Human capital is not just about education. It is also about expanding entrepreneurial capabilities and other difficult to define skills.  However I don’t think any of us know how to teach entrepreneurship very well. It’s a very hard thing to teach.

What are the right taxes for financing cities?

There is a lot to be said for local property or land taxes, and it is not unreasonable to tax prime downtown real estate. In areas where rights are poorly defined it is very difficult to impose these types of taxes, though.

 

One of my favourite models is to finance infrastructure by charging for the property development opportunities that emerge around the rail or roads that are publicly built.  MTR, the Hong Kong Rail System, allowed private developers to build very big skyscrapers on top of their transit systems, and the resulting revenues have been enough to pay for the whole service.

 

In general, thinking about creative ways to finance development is important, but getting as close as possible to a beneficiary-pays model is a good idea. If the beneficiary is the property owner, then it is a good thing. If the beneficiary is the car driver, it is also a good idea to make her pay.

How can we create and nurture innovation platforms?

I believe there are lots of creative ways in which we share information.  Bostonians have a “Where’s my bus app.” They have several that they can use, which will tell them where there buses are. The reason they have these apps is not that the city government paid for some private producer to do it, but because people went out there themselves and developed this system. Within two weeks, there were three competing apps telling you when your bus is going to show up and someone figured out how to monetise this innovation through advertising.  These software developers were not completely altruistic, but it reminds us that there are lots of interesting ways of getting things done, other than a public official saying: “I am going to write you a big cheque to solve this problem for me.”

 

This is part of what makes cities so important – a lot of peer-to-peer exchanges of information take place. A lot of the knowledge generated in cities emerges spontaneously, in a decentralised way, driven by markets and private incentives. Cities have always been good at permitting the free flow of ideas.

Developing world cities and lessons for SA

Which developing world cities provide the best lessons for South Africa?

Different cities provide different lessons. If you want to look at infrastructure, Shanghai looks very impressive, but it’s also incredibly expensive and often very poorly aligned with the needs of its citizens.  It may be better to look at cities like Santiago in Chile, where infrastructure was designed in a way that was much more human-centred.  Santiago is also a place where public private partnerships have worked well, which has not always been the case in other cities.

 

For crime prevention, it is worth looking at Medellin, which went from being the murder capital of the western hemisphere to being a safe and pleasant city.  Medellin has also been the place which has a remarkably innovative building community.  High-end plastic products, mass-produced, that are then potentially stackable are used to help with housing.  One can add an extra floor to a house in a shanty town area without causing major disruptions.

 

The traffic congestion pricing in Singapore is incredibly efficient, ensuring that the second densest country on the planet has roads that move effortlessly during rush hour. This works because they have time-of-day tolling. The second thing to learn from Singapore, is that large concrete public housing projects can work. But you must also remember that these have been an abject failure in almost every other country where they have been tried. Singapore has only been able to pull this off because it is such a remarkably well-run place. This is the reason why learning best practice from Singapore is dangerous – it is a place with enormous wealth and enormous governmental capacity, vastly more than in my own country, the US.  If you’re borrowing something from Singapore, you must make sure that it is something that you have the income and the governmental capacity to pull off.


In this interview by Siki Mgabadeli of ENCA and Moneyweb, Ann Bernstein and Edward Glaeser answer question, discussion key issues, and present the most important themes of these presentations.

Sithole Mbanga of the South African Cities Network responds to Ed Glaeser’s presentation

Concluding remarks: Ann Bernstein

 

South Africa faces two vital challenges in dealing with its appalling unemployment figure. These are how to get to higher growth, and how to make that growth much more labour intensive. Many economists are thinking about growing the national economy, but they do not think enough about where that growth takes place.

The best opportunities for increased growth and employment in South Africa are to be found in her cities. Cities are South Africa’s future.

Growth needs to come through urban-led development, in which both the private and public sector have an important role to play. There is no future in rural poverty. All over the world, people have moved to cities to take up the better set of opportunities these urban environments offer. It is a choice we want to create for the millions of poor South Africans that are stuck in places where there are no jobs and no prospects.

That does not mean we ignore the rural areas. South Africa has never had an economic strategy for the rural areas and it’s about time we did. But unless there is an economic reason for why a region or town should grow and create jobs, we should ensure good education and health and then enable people to move closer to where the economic opportunities are. And developing a clear strategy on how government is going to maximise the economic future of people in rural areas is very different from telling people what to do.

Cities are going to get a lot bigger, mostly from natural growth and partly from urbanisation and immigration. South Africa needs all the foreign skills we can get. This human form of foreign direct investment will help us build our cities, provide more entrepreneurial talent, help train more and more people so that we can maximise the enormous energy and potential of urban growth. We have seen what can happen when perception and policies on migration and urban development go wrong – the terrible violence earlier this year and previously demonstrates that the consequences for individuals, families, small firms and the local economy are terrible. CDE has done a lot of work on making very practical proposals on how South Africa should improve our migration and refugee policies. This process can be enormously beneficial for the country but it needs effective and enthusiastic management.

Cities are places where lots of things come together. It’s where you have to think about human capital and who holds the responsibility and accountability for making sure that more and more South Africans get a better education and learn more skills. Combining effective urban management, with skills development, innovation and less regulation will allow South Africa’s cities to lead the country in its quest for growth and provide pathways out of poverty and unemployment.


Questions Questions2 SitholeMbangaResponds GlaeserMakesAPoint

Cities and the economy: Heartbeats of growth

FM Edition: IF you’re a small business wanting to get connected to electricity, it will take you five procedures and 333 days in Nelson Mandela Bay, or 226 days in Johannesburg – but just three procedures and 18 days in South Korea.

Business and cities: The magic of interaction

FM Edition: HARVARD economist Edward Glaeser visited SA last week. While here, he advocated the view that urbanisation should be embraced. The reason? Cities stimulate human interaction and creativity – and with that better business, more jobs and wealth.


Cities drive greater innovation, says Harvard professor

The success of any city depends on the ability of its citizens to share ideas and influence each other, says Harvard University economics professor Edward Glaeser.

Glaeser

Photo gallery: In order to view the event pictures, hover your cursor over the image above to use the gallery controls. Pictures: CDE




Op-ed: The future is urban, we should take advantage of it

Click to enlarge

8 May 2014. Ann Bernstein for Business Day. Read this article at BDLive.

WHY are SA’s policy makers so ambivalent about urbanisation? Take, for example, the election manifesto of the African National Congress, which devoted considerable space to promises of rural development, but barely mentioned cities beyond the recognition that housing policies need to be fine-tuned. Nor is this silence confined to a manifesto intended, surely, to secure rural votes. The National Development Plan also devotes insufficient attention to the important role cities could play in transforming SA’s economy and prospects, concentrating more on local government than urbanisation and urban growth.

One of the defining features of apartheid was its commitment to keeping black people out of the cities, so this ambivalence is surprising. It is all the more so because our cities are the best platform for accelerated economic growth that SA is likely to find. Cities are the most powerful engine for economic growth ever devised.

For thousands of years, human labour generated value of the equivalent of about $2 a day. Today, income of this level would be regarded as extreme poverty. In many countries nowadays, human labour generates a hundred times this value and more every day. This is what Oxford’s Paul Collier describes as “the miracle of productivity”, directly linked to the rise of cities.

Big cities generate dramatic improvements in residents’ productivity because the concentration of large numbers of people allows firms to achieve economies of scale, and enables specialisation in the production of goods and services. The results explain why per capita incomes are almost four times higher in those countries where a majority of people live in cities than in countries where a majority of people live in rural areas. The rise in productivity associated with urbanisation also explains why there are few examples of rapidly growing economies that are not also rapidly urbanising.

Given this record, SA’s policy ambiguity on cities is a grave mistake. Already, nearly 60% of the country’s gross domestic product is generated in the six largest metros although they are home to less than 40% of the population. The six largest metros of Johannesburg, Cape Town, eThekwini (Durban), Tshwane (Pretoria), Ekurhuleni (East Rand) and Nelson Mandela Bay (Port Elizabeth) are also responsible for a disproportionate share of SA’s growth, with their economies having grown at an annual average of 3.8% between 1996 and 2011. This is nearly double the output growth in small towns and rural areas, which averaged just more than 2% a year.

The relative dynamism in SA’s cities explains why people move to them.

The rate of urbanisation, however, is slower than many people expected in the 1980s and 1990s. Nearly 30 years after the legal abolition of influx control, SA remains relatively underurbanised. About 60% of South Africans live in urban areas, compared with about 90% of Brazilians.

The relatively small size of our cities and the fact that there are still many South Africans who could conceivably move to them is an opportunity our policy makers should seize to accelerate growth and create the economic opportunities that are not available in most sparsely populated rural areas.

SA’s most pressing need is to create millions of jobs. Dynamic, entrepreneurial cities can do this and, given SA’s status as being relatively underurbanised, policy makers should be doing everything they can to encourage more effective urban management and urbanisation. With cities becoming more efficient engines for faster economic growth and job creation, household incomes and individual quality of life would rise, and generate more jobs for an expanding urban-born population and migrants.

To create large numbers of jobs, our cities need to find niches in the global economy for goods and services. Because transport costs are critical in determining the cost competitiveness of local industries, coastal cities may be better suited to creating large manufacturing industries. Cities in the interior must find niches for higher value-add, lower-volume goods and services where unit transport costs are less significant.

There are, however, some challenges on which cities can and must act:

• South African cities’ competitiveness is slipping as infrastructure comes under pressure and key institutions of governance decay. This must be reversed.

• The spatial legacy of apartheid raises the costs of transportation for workers; it also hampers business development in townships, where low density and limited infrastructure inhibit entrepreneurship and expansion of firms. This challenge needs a creative, practical response.

• In addition to seeking to densify cities, infrastructure and settlement policies should focus on turning housing into productive assets that generate income. Backyard shacks should be included in municipal plans as a necessity for now. Policies governing RDP housing should be reviewed to enable owners to use their homes for rental purposes, as places for business or an asset against which to raise a loan.

• Cities should play active roles in education and skills development within their boundaries. This could require policy changes to enable individual cities to shape education and training policies to their needs.

Cities must lower the costs of doing business and create an environment for economic growth and productivity that builds upon the urban advantages of agglomeration, competition and innovation. Taking advantage of the dynamic of urban growth and increased urbanisation is an opportunity and a challenge. Cities lack the institutional capacity and legal authority to pursue the individual policies that might fit their specific needs.

SA’s future is an urban one. The country needs to focus far more attention on “the where” of economic growth.

How we govern and manage cities so as to maximise our potential for inclusive economic growth will determine the next phase of SA’s development. National policy makers need to provide the environment and local powers required to create cities of hope, opportunity and entrepreneurship.

SA’s prospects for growth and development hinge on events, trends, perceptions and dynamics in the metros. Urban crime, urban transport, urban joblessness, urban politics and perceptions will be most important in determining SA’s future. This insight must determine the priorities of national leaders. The country’s economy depends upon a successful approach to the large cities and the National Development Plan must balance its focus on rural land reform with significant initiatives in big cities.

SA’s future depends upon the metros becoming more globally competitive and more inclusive of the many young people desperate for jobs. National policies need to be assessed for their effect on the metros. Urban strategy needs to become a much higher priority for government. At the same time, metros need to understand their own importance and put concerted effort into persuading national players of their roles in national economic development. These large cities are the drivers of economic activity and dynamism, and policy makers ignore their needs at their — and our — peril.

Bernstein is executive director of the Centre for Development and Enterprise. This article is based on a new report, Cities of Hope: Young people and opportunity in SA’s cities.

 

 




Video: Cities: the opportunity (Finweek TV)

Prof Paul Collier, director of the Centre for the Study of African economics at Oxford University, speaks about the opportunities in building the city. 27 June 2013




LEARNING TO LISTEN: Communicating the value of urbanisation and informal settlement upgrading

 

In an exploratory investigation, CDE looked into what role strategic communication can play in the process of informal settlement upgrading and promoting the value of urbanisation.

From the research and input generated at a workshop of experts, CDE developed a short-term case study using different methods of communication to engage with an informal settlement and the surrounding community.

This publication details the recent history and key issues related to urbanisation and informal settlement upgrading in South Africa and Latin America as well as the importance of strategic communication for development. Read the executive summary above or read the full report online here.

 

DOWNLOAD EXECUTIVE SUMMARY DOWNLOAD REPORT




Building coalitions for growth

22 July 2005
CDE has recently completed a study of growth challenges facing Bloemfontein and Welkom, the two most important cities in the Free State. The research included a survey of key stakeholders in both cities in order to record their perceptions of the development issues facing them and their localities. The study was born out of concern for development prospects outside the country’s main metropolitan areas.

September 2004 brought dramatic confirmation that there is cause for concern in South Africa’s heartland. In that month 4 500 protestors closed the main N3 highway from Johannesburg to Durban at Harrismith in the Free State to highlight their anger about poor service delivery as well as corruption and nepotism in the local council. Similar outbreaks of angry and at times violent protest have continued intermittently in the Free State ever since, and have also spread to other parts of the country. Our research findings lead us to argue that although the flashpoints for these outbreaks are invariably some aspect of municipal delivery, the problems are wider and deeper, involving important preconditions for economic growth.

Sustainable improvement in people’s lives depends on sustainable economic growth, especially in the heartland towns and secondary cities that are out of the metropolitan loop and away from the coastal tourist belts, the two places where such growth is concentrated.

For this to happen it is important for every local government and chamber of commerce in the land to understand the factors that drive development in the 21st century.

Some places grow because they have natural resources or lifestyles that attract investors and entrepreneurs. These are the lucky places, like Welkom 40 years ago, Johannesburg a century ago, or Cape Town or the Garden Route today. Some places grow because they perform an important economic function at a particular time in technological development – Chicago at the heart of the American Midwest, Bloemfontein in the mid 20th century as an important service centre to agriculture and a central railway junction for the country.

However, some places develop despite their lack of natural attraction or specific economic function. These places develop through visionary leadership grounded in effective co-operative programmes of development. An interesting and inspiring example for South Africa is Atlanta, Georgia, in the United States. Here is a city that has no natural economic attraction or physical features and was a fairly minor railway junction in the early 20th century. What Atlanta did have was vision, leadership and confidence. It declared itself to be an international convention centre city seven years before it had a license for an international airport, and it actively recruited the large headquarters of multinational companies through providing a business-friendly environment and the energetic and compelling reality of black and white leadership committed to Atlanta’s growth and receptivity to international and local business. Today Atlanta is a world-class city and a centre of growth and opportunity for millions of people.

Atlanta developed a ‘growth coalition’ sufficiently representative of different interests in the city to work, and through a succession of different political leaders, sustained this vision long enough to achieve tremendous success.

The real lesson of Atlanta’s growth coalition is that if you are lucky growth just happens but if you are not, you can make it happen.

Our interviews with civic and business stakeholders in Welkom and Bloemfontein revealed that there is at least a superficial grasp of the need for partnerships to make growth happen. Their responses made frequent – almost ritual – reference to the need for ‘inclusiveness’ and ‘consensus’. But they also revealed a lack of real common understanding of the needs for development and the absence of a common language of growth. The research findings suggested that local business organisations are too concerned with political priorities at the expense of growth and developmental initiatives, while local political leadership does not fully understand what is needed if the private sector is to create jobs.

Something that would help would be for the president and his key economic ministers to communicate downwards to local government their clear understanding of the realities of development in the 21st century. When they say that jobs will be created predominantly by the private sector, they need also to point out what this means for urban political leadership in the heartland. Unless there is a true meeting of minds between urban government and private entrepreneurs and a deep understanding of what investors and businesspeople need in order to risk money, South Africa’s urban places will never create the conditions for a truly expansionary economy outside the metropolitan areas.

Leadership is vital but we have to recognise that it needs more than rhetoric to encourage it and even good leaders cannot turn decline or stagnation into growth by sheer will. A supportive policy environment is equally important to give local stakeholders the incentive to make growth happen. CDE’s research report makes numerous policy recommendations. Among the most important are:

  • A cities development fund, as part of an overall urban development strategy, would be a way for government to stimulate energy, ambition and initiative in our cities and get return on national investment.
  • National business organisations should make growth their number one priority and recognise that growth means more than the metropoles and is crucial in the smaller cities and larger towns.
  • Responsibility for diffused growth has been unduly concentrated where capacity is weakest, in local government or in inappropriate national departments; stronger roles for the key national economic departments and more facilitative provincial government are needed

Away from the resources and buzz of the metropolitan economies, growth poses uphill challenges, but leadership and supportive policy can level the going. They will certainly be needed to equip the Free State – and other ‘heartland’ areas to participate creatively – and above all competitively – in the global economy.

This article is based on the CDE publication ‘Growth and development in South Africa’s heartland – silence, exit, and voice in the Free State (July 2005).

 

– Ann Bernstein and Jeff McCarthy




South Africa’s heartland – how to achieve growth and development

24 July 2005
Under current conditions, there is little prospect of achieving enhanced economic growth and development in Bloemfontein and Welkom or many other cities and towns across the country, according to a new report from the Centre for Development and Enterprise, released in Johannesburg today.

“There is a missing link in development strategy in South Africa, namely genuine trust between public and private sectors and a collaborative mindset” says Ann Bernstein executive director of the CDE.

CDE’s report is based on research and extensive interviews with civic, business and government leaders in the Free State, particularly Bloemfontein and Welkom. CDE argues that although there are plans at local and provincial levels, there is a lack of synergy between public and private sectors and the absence of a common language or understanding of economic growth.
Local business organisations are too concerned with political priorities at the expense of growth and development initiatives, while local political leadership does not fully appreciate what is needed if the private sector is to create jobs.

It is outside the major metropolitan areas, in the places that are “halfway to everywhere” , that development policies are most rigorously tested and deficiencies exposed. CDE believes that its findings and recommendations are of nationwide, rather than merely Free State significance.

Local municipal and business leaders need extra confidence, vision and co-operation to come up with urban economic growth strategies under tough global conditions. SA needs much more economic growth if we are to meet the needs of the more than 30% of the population that is unemployed. Growth has to be diffused more widely than just in the major metropolitan areas, as well as a few tourism-driven coastal and other urban centres. In order to achieve that, we need to address key issues and questions.

In Bloemfontein, a comparison of the 1996 and 2001 census results show a city where total population has risen from 603 704 to 645 441. The African proportion has increased with other population groups static, except for whites who are leaving. Economic growth is stagnating, unemployment is rising in conjunction with a ‘brain drain’ of young educated people.

Of all these features the decline in the white population is most arresting. If the census data are accurate (debatable) and current trends continue, there would be no whites left in Bloemfontein by 2016. This is unlikely to happen because there are significant institutions (legal, educational) as well as investments that are relevant to them. However the decline in white numbers in recent years is dramatic – 5% per annum between 1996 and 2001 – partly attributable to intra-national relocation and international migration.

Over the past decade, foreign investment in manufacturing (textiles) within the region has declined. The substantial erosion within the sector is due to relocation of production to Lesotho where the labour regime is less regulated and authorities wholeheartedly welcome foreign investment.

In Welkom, both population and confidence are shrinking. On most economic indicators it is (or is the leading part of) the consistently worst performing urban area in South Africa, a feature mitigated slightly by some economic dynamism, in selected ‘new economy’ areas. One trend in Welkom’s recent history is so dominant that it dwarfs all others – the decline in cost-effective gold mining, which has meant the loss of the original economic base on which the town was founded. The result has been that unemployment in the urban core of Welkom is about 20% and it is surrounded by a thick and extensive settlement belt in which the rate has increased to over 46.5%

Both case studies show how difficult it is to adapt to challenges and overcome vulnerabilities to changing trajectories of economic development. Welkom has been a boom and bust place, vulnerable to the downward cycle of commodities as they approach exhaustion or become more expensive to extract. For Bloemfontein it is no longer enough to rely on being a service centre to a political and economic unit whose relevance can no longer be taken for granted. More efficient forms of communication and the re-ordering of time and space that goes with them, make sure of that. Expectations are low and actions correspondingly modest. The ambitious, black and white, vote with their feet.

A collapsing heartland has serious implications for the poverty stricken rural areas which rely on them for infrastructure and opportunity as well as for metropolitan engines of the economy, not least through accelerating migration to these already often under serviced areas

CDE has developed practical proposals for the country’s towns, cities and regions outside South Africa’s metropolitan areas.

These include:

An intensive political and information campaign by senior government economic ministers directed at local political leaders / officials about the realities of economic growth in the 21st century and the importance of creating an enabling environment for private sector investment. Says Bernstein: “When the cabinet says that jobs will be created predominantly by the private sector, they need to point out what this means for urban political leadership in the heartland.”

The development of an economically based national urban strategy (led by the President’s office) that provides guidelines on how to deal with rapid urbanization; more effective management of cities and towns so as to maximize their economic potential; and how to manage the timing, sequencing and balance between the infrastructural requirements for economic growth and long neglected basic service provision.

A competitive cities development fund, as part of an overall urban development strategy, would be a way for government to stimulate energy, ambition, and initiative in our cities and get a return on national investment.

National business organisations should make economic growth their number one priority, and recognise that growth means more than the metropoles and is crucial in the smaller cities and larger towns.

Responsibility for diffused growth has been unduly concentrated where capacity is weakest, in local government or in inappropriate national departments; stronger roles for the key national economic departments and more facilitative provincial government are needed. It is by no means clear that responsibility for local economic development should be vested in the department of provincial and local government.

A training programme carried forward by experienced business organisations is needed for cities and towns: this should foster understanding of economic growth, competition, and building growth coalitions, and should be aimed not just at officials and politicians but at business people too.

A research programme should be launched on the reasons for the weakening of local growth coalitions in South Africa, and strategies should be suggested for reversing this negative trend.

The CDE argues that participating effectively in the global economy requires a new mindset – daring to be different, non-provincial, challenging conventional development orthodoxy and above all celebrating competitive regional and global linkages.
As Bernstein says: “Equipping and facilitating the Free State – and other ‘heartland’ cities and towns – to develop these qualities is a major national challenge.”

 

– CDE