Metropolitan Regions are Dynamic Economic Engines of Global Prosperity and Quality of Life for Everyone

A Report to the Strategic Metropolitan Plan of Barcelona by
Dr. Marc A. Weiss, Chairman and CEO
Global Urban Development

June 2003

Why Metropolitan Economic Strategy is Now Essential for Every Nation and Urban Region

The plan for metropolitan Barcelona is an important example of a fast-growing worldwide trend. The most important geographic units of economic activity in the world today, other than the nation-state itself, are metropolitan regions. All across the world, in every country, more than half of the national income is generated by metropolitan regions. Indeed, these percentages range from an average of 55 percent in low-income developing countries, all the way up to an average of 85 percent in high-income developed countries. What is all the more striking about these statistics is that in every case the percentage of national income generated by metropolitan regions exceeds the percentage share of the national population that is urbanized. In the case of the low-income developing countries where urban regions account for an average of 55 percent of the national income, the urban share of the population averages 32 percent. In middle-income countries, the urban share of national income averages 73 percent, whereas the urban share of the population averages 50 percent. For high-income countries, the average urban contribution to national income is 85 percent, yet the urban proportion of the national population is 79 percent. This shows that the greater the level of urbanization in a nation the higher is its level of prosperity, and conversely, the more prosperous a county is, the more urbanized it is at the same time.

Take almost any city in the world, and its contribution to national prosperity substantially exceeds its percentage of the nation's population. Prague, the capital city of the Czech Republic, is a good example. It has 10 percent of the national population, 15 percent of the nation's workforce, over 20 percent of the national Gross Domestic Product (GDP), and more than 50 percent of the national tourist revenue. Cities all over the world, rich and poor, in developed and developing countries, on every continent, follow a similar pattern, whether it be Belgrade with 41 percent of the national GDP and 14 percent of the national population, or Bangkok, with 41 percent of the national GDP and 9 percent of the national population.

The reason for this disparity is because metropolitan regions are the only places that can combine the two most important elements for generating productivity and innovation, which is the main way that economies create value and compete in the global marketplace. These two elements are specialization and diversity. Only a metropolitan region can gather together a critical mass of people with highly specialized and advanced skills in knowing how to engage in particular productive activities, and only a metropolitan region can combine many different people with a wide range of highly diverse specialized skills, mixing together this wide range of skills to become both very productive and particularly innovative in developing and marketing new products and new production processes. Such a combination of specialization and diversity becomes even more vital than ever in today's new economy, which is characterized by three key features: 1) it is knowledge- and information-based; 2) it is technology- and communications-intensive; and 3) it is globally oriented.

Metropolitan regions are vital competitive geographic units of the global economy, major contributors to generating and sustaining prosperity and quality of life for every community and nation. These expansive urban-suburban-exurban areas are now the main battleground where competition is won or lost in developing new inventions, generating investment, jobs, trade, high value-added production, and enhanced incomes. Indeed, metropolitan regions represent the most vital sources of prosperity for every nation. Promoting productivity and innovation is essential for competitive success in the world economy, and metropolitan regions have become the leading generators of technological and organizational advances in the production and distribution of goods and services for the global marketplace. The main prescription for victory in global economic competition is to establish metropolitan centers of innovative activity, combining creative human talent with state-of-the-art equipment to incubate and foster technical advances in a wide range of interrelated products and production processes.

The principal reason for the growing importance of metropolitan economies in generating state and national prosperity is their essential character as the only geographic entities that contain, in relatively compact form: the critical mass of skills and resources; the necessary population density and concentration of market incomes; the range of specialized knowledge and institutions; the wide diversity of vitally needed facilities and services; and the fully developed physical and human infrastructure that are prerequisites for new ideas, products and production methods, technological and organizational innovations, and dynamic economic growth and investment. While rural areas can and do contribute substantially to overall economic well-being through agriculture, mining, natural resources utilization, and recreation, they cannot generate the extensive and competitive prosperity and quality of life for millions of people that emanate primarily from metropolitan regions. Only the metropolis has the fundamental assets that together can offer the unique combination of specialization and diversity that stimulates self-sustaining economic development and job creation, with the clustering and networking dynamic among many different firms, entrepreneurs, and institutions interacting in ways that spawn and accelerate growth of production and exports, and expansion and spreading of incomes and wealth.

The evidence is mounting on the essential national and international economic role of metropolitan regions, and it comes from a wide array of expert analysts. One such source is research performed by a highly respected economic analysis and management consulting firm, the Standard & Poor's DRI division of the McGraw-Hill Companies. These two studies, entitled US Metro Economies: The Engines of America's Growth, and US Metro Economies: Leading America's New Economy, document in statistical detail the overwhelming presence of economic activity in urban regions and its impact on overall growth in high-technology fields and throughout the national economy: "The geographic concentration of business and people in metro areas creates unique economic conditions that generate new industries, speed the diffusion of knowledge, spur technological innovation, and increase productivity. Metro areas have larger markets for goods and services, more specialized labor pools, and more extensive and sophisticated transportation and telecommunications networks than non-metro areas. These competitive advantages make metro areas the engines of US economic growth and the source of new high-technology industries. Today, metro areas generate more than 80% of the nation's employment, income, production of goods and services, and 94% of high-tech jobs and output....and are the gateway for 83% of US merchandise exports."

In addition, a steadily expanding group of scholars and experts in related fields such as economics, business, management, geography, planning, and public policy argue that as globalization advances and the speed and convenience of international transportation and telecommunications bring people and goods closer together, the strategic value of specific places becomes more, rather than less, important. This is because of the ability of highly skilled and educated entrepreneurs and professionals to locate where they want to be instead of where they must be, with a much wider range of choices available to them. For example, Professor Michael Porter of Harvard Business School, in his book, On Competition, emphasizes the growing tendency of corporations to concentrate their major activities in a specific "home base" located in metropolitan regions throughout the world: "When considering the globalization of competition, however, one must confront an apparent paradox: Although companies do indeed compete globally and inputs such as raw materials, capital, and scientific knowledge now move freely around the world, strong evidence shows that location continues to play a crucial role in competitive advantage...This geographic concentration of competitive advantage appears not only in established industries such as automobiles and machine tools but also in new industries such as software, biotechnology, and advanced materials...[G]lobal companies have indeed dispersed activities to many countries, but they continue to concentrate in one location a critical mass of their most important activities for each of their major product lines or businesses."

New York Times business columnist Joel Kotkin, in his recently published book The New Geography, makes a closely related point: "Decisions about where to locate businesses, for example - once dependent on questions of access to ports, roads, rails, or raw materials - are increasingly dependent instead on the ability to link often scarce human resources.... These changes profoundly alter the very nature of place and its importance by de-emphasizing physical factors...and placing greater emphasis on the concentration of human skills in dense concentrations of population.... The more technology frees us from the tyranny of place and past affiliation, the greater the need for individual places to make themselves more attractive. Surveys of high-technology firms find that among factors that drove their decision of where to locate, a 'quality of life' that would make the area attractive to skilled workers was far more important than any traditional factor such as taxes, regulation, or land costs."

Views emphasizing the increasing role of economic geography and the competitive advantages of metropolitan regions are strongly reinforced not only by numerous other academics, writers, and consultants such as Kenichi Ohmae, Rosabeth Moss Kanter, and Paul Krugman, but much more importantly, by many business executives, corporate real estate professionals, site selection advisers, and economic development location experts, all of whom primarily target metropolitan regions when they conduct and publish surveys of the "best places for business." Indeed, a detailed analysis of the business media and related publications clearly demonstrates that metropolitan regions are the most often analyzed geographic unit represented in national and international location ratings. Even when the title of the article is "the best cities for business," what the magazine or rating agency really is evaluating are metropolitan regions, not central cities.

The vital economic contribution of metropolitan regions is anchored by the major cities they encompass, which provide the constant stream of creative activity, interaction, specialization, and diversity that is essential for innovative ideas, methods, and products to develop and thrive. In the global economy of the 21st century, cities and metropolitan regions function primarily in seven distinct and essential ways to generate national prosperity. They are:

* centers of innovation and services, including advanced and highly specialized services
* centers of culture, sports, entertainment, conventions, and tourism
* centers of education, research, and health care
* centers of transportation and trade
* centers of manufacturing and technology development
* market centers
* workforce centers

Metropolitan Economic Strategy: A New Global Policy Initiative

Every metropolitan region experiences economic growth or decline, regardless of whether there are comprehensive plans or coordinated initiatives. Metropolitan regions function as fully integrated economies in terms of the production and distribution of goods and services, and they will function as such with or without a coherent economic strategy. A critical determinant of their success is the decision-making process of private sector executives, investors, entrepreneurs, and consultants making facility location commitments in the global marketplace, especially their evaluation of the synergy and attractiveness of metropolitan regions as centers of innovation that can provide businesses with a competitive advantage.

Unfortunately, regional economic growth often occurs in an uncoordinated and haphazard fashion, and consequently may be missing opportunities to produce greater investment, higher incomes, and more equitable distribution of the benefits of prosperity among people and places. Most regions do not have viable mechanisms for promoting metropolitan-wide economic development by creating a common vision, formulating a collective strategy, or jointly cooperating to implement major initiatives. Much of the contemporary debate centers on the impacts of regional economic growth, including whether growth is too fast or too slow, problems of fiscal disparities and geographic or social inequities, and harmful effects on environmental quality. This discourse is primarily about analyzing trends and reforming policies.

Metropolitan Economic Strategy, on the other hand, is a proactive organizing principle that directly depends on regional teamwork and citizenship. Such strategies are explicitly designed to bring together the public and private sectors across the entire region to formulate and carry out a coordinated set of targeted investments in people and places, consciously designed to enable businesses to grow, jobs to expand, and quality of life to improve. Each of the major constituencies - business, government, and community leadership - must closely collaborate for the metropolis to thrive economically, socially, and physically. In just the same way that communities, cities, counties, and states use economic development plans to guide their actions, so also must the many different communities and constituencies that comprise a metropolitan region farsightedly engage in such comprehensive planning and united action if they are to compete effectively and succeed in the global economy.

Teamwork: Creating Metropolitan Identity to Compete and Win in the Global Marketplace

The real "city" of today is the metropolis. Metropolitan regions are the most economically organic components of urban geography and demography affecting people's daily lives at the local level, and the main access points for individuals trying to thrive in the global economy. Yet the greatest barrier to regional coordination, cooperation, and collaboration is the lack of a common metropolitan consciousness and citizenship. Therefore, promoting teamwork by encouraging households and families to begin reaching beyond local political boundaries in pursuit of their common interests and goals of increasing prosperity and enhancing quality of life is essential for individual and collective success.

By emphasizing the interwoven economic destinies that bridge across families and communities within metropolitan regions, people can begin to see themselves as members of a cohesive economic team that is actively competing against other economic teams all over the world. Metropolitan Economic Strategy is thus vital for encouraging a unified sense of metropolitan purpose. It promotes "identity regionalism" - a common interest and a sense of mutual benefit that is much more powerful and effective than the typical "functional regionalism" organized around managing metropolitan public facilities such as airports, transit systems, parks, water and sewer systems, and other types of single-purpose governmental responsibilities.

The lack of political and cultural traditions that tie people together within a common metropolitan framework poses a major challenge for regions competing economically in the global marketplace. Governmental jurisdictions in which citizens exercise their right to vote are organized along local, state or provincial, and national or federal lines. Metropolitan regions transcend the boundaries of cities, towns, townships, villages, counties, special districts, and other public entities run by elected officials. Many of the world's metropolitan regions cut across provincial or state lines, and some even cross national borders. Therefore, the average person does not see himself or herself as an integral part of a metropolitan economy. Most senior corporate executives do clearly understand regional economic connections, because product markets and labor markets operate across the whole metropolis, as do most major institutions such as hospitals and newspapers. Companies make decisions regarding investment, production, distribution, and site selection based on the assets and qualities of the entire metropolitan area, even though their facilities are located within the administrative jurisdiction of smaller units of local government.

One important exception to the general lack of common metropolitan identity is college and professional sports, and, to a lesser extent, certain forms of arts and entertainment such as museums, orchestras, theaters, and parks. If one draws an invisible circle around an entire metropolis, one typically finds that everyone who lives and works within that circle is expected to "cheer for the home team." Competitive team sports is one of relatively few spheres of interest uniting cities, suburbs, exurbs, and rural areas, even transcending state and national borders. The challenge for 21st century global competitiveness in every country is for diverse urban populations to relate economically in the same way they identify as sports fans, and collectively support their "home team" by working together as citizens of a metropolitan economy to promote local and regional prosperity and quality of life. Given that the dynamic of metropolitan interrelationships represents how the global economy actually functions and regional vitality is truly maintained, it is only a matter of time before everyone recognizes this modern reality. A vital challenge is for metropolitan residents is to begin engaging in this new form of economic teamwork, clearly understanding that doing so will best enhance their opportunities to prosper in the international marketplace.

Four Key Elements of Metropolitan Economic Strategy: Investing in Fundamental Assets, Building Dynamic Industry Networks, Good Leadership and Governance, and Improving Quality of Life Through a Sustainable Environment and Equitable Economy

Good leadership from the public, private, and civic sectors is essential to bring together disparate groups, interests, and places into a coherent body with a shared vision and commitment to coordinated action. Such leadership can emerge from an economic crisis, as in Barcelona where job losses in the late 1970s served as the impetus for the successful bid to host the 1992 Summer Olympic Games and use it as the catalyst for developing a new, forward-looking economic strategy, or in Washington, DC, when a municipal budget deficit and reduction in federal government employment served as the impetus for an aggressive new strategy for diversification, growth, and community improvement. Leadership can also come from a vision of expanded opportunity in the absence of a perceived crisis, such as in Shanghai, with the Chinese government promoting investment in the city and surrounding region as the leading edge of national economic competitiveness in global markets, or in Austin, Texas, where dynamic business and government leaders turned a state capitol and university town into a world center of technological production. In either case, people must have a genuine desire and willingness to work together for improvement, and a belief and faith that working together in creating and carrying out a strategic vision will generate meaningful results and widespread benefits.

Once most of the major stakeholders have agreed to work together across an urban region, then the issue becomes how to do so most effectively to generate broad-based economic growth and increased quality of life. In order to formulate a good strategy, clear agreement on goals is needed, though the most important goal should always be enhancing prosperity for everyone and everyplace. Also needed is a very clear understanding of the market forces and institutions, because a strategy is a theory of cause-and-effect relationships that must be based on a realistic comprehension and thorough knowledge of what is actually occurring and how things truly operate. A strategy is not just stringing together a collection of specific projects or programs. There must first be a broader clarity about how to accomplish the planned results, and only then will doing major projects and programs become a necessary and vital aspect of the implementation process.

A good economic strategy consists of two key elements: 1) building from strength - investing in the fundamental assets and activities that make places more attractive and productive; 2) generating dynamism - promoting modern, globally competitive industry networks that accelerate the pace of innovation and growth. Investing in the fundamental assets shifts the focus away from narrowly defined economic development initiatives that rely on tax subsidies and other incentives. The biggest asset is people, and what makes them productive are investments in transportation and infrastructure that move people, goods, and information most efficiently and cost-effectively, investments in education and workforce development that make them more skilled and innovative, investments in research and technology to generate new ideas and products and processes that are highly valued in the world, investments in health and safety that make places worthwhile for living, working and visiting, and investments in the physical and cultural environment that make places more attractive, life more rewarding, and people more motivated to work and study hard. Thus economic strategy, as opposed to the conventional view of local economic development, involves all of the important aspects of public and private resources and institutions, and is necessarily comprehensive and broad-based.

In Akron, Ohio, the leaders of the urban region came together in an economic crisis with a metropolitan economic strategy that maximized the fundamental assets of the urban region. Faced with the loss of thousands of jobs in rubber tire manufacturing by the four major companies - Goodyear, Goodrich, Firestone, and General Tire - local leaders did not try to become another Silicon Valley and create an information and telecommunications industry. Instead, they recognized that "high technology" in today's world involves every type of product and production process, and that they could compete more effectively by focusing on their own areas of expertise rather than simply try to imitate what other places were already doing successfully. Akron, having developed synthetic rubber during the 1940s and 50s, recognized that they had a depth of knowledge in the field of polymers, the science and engineering of plastics and related synthetic materials. So they decided to invest more heavily in this unique specialization, and reinvented their region as the world center of polymer science and engineering, creating a whole new college and research laboratories at the University of Akron. They put together all the elements of such a metropolitan economic strategy - education, job training, research, financing, business assistance, facility construction, physical infrastructure, trade promotion, marketing, product development, industry network linkages, personnel recruitment, and much more - and they implemented it to the point of generating hundreds of new firms and thousands of new jobs in polymer-related activities. Metropolitan Akron's public and private leadership also diversified their economy through conventions, entertainment, recreation, and tourism, and thus improved the quality of life to retain and attract skilled workers and creative entrepreneurs. Akron's success is a good example of a major theme of Metropolitan Economic Strategy: "Be Yourself." The assets of an urban region or any other geographic entity will different from most others, and each economic strategy must be specifically tailored to maximize the value of the existing assets of people and place that are special to a particular culture and location.

The second major element of metropolitan economic strategy is to promote the growth of dynamic and innovative industry networks, also called clusters. Industry networks, as the name implies, draw upon a wide range of closely interacting businesses and institutions that supply each other with goods and services to produce specialized and competitive products and skills. The linkages are key to the success of an industry network, and they cut across the traditional industrial or sectoral classifications, because in this case an economic activity such as machinery production will include a much wider range of scientists, engineers, lawyers, accountants, bankers, insurers, architects, designers, and a whole host of related fields that enable machines to be manufactured and distributed with cost-effectiveness, technological efficiency, and market appeal, and to be sold or leased at a sufficient profit that will provide safe jobs and decent livelihoods for a large and growing population of workers and consumers. Industry networks that are the engines of prosperity in the new global economy can be in manufacturing or services, involving old or new technologies and products, from food and medicine to computers and cell phones. Each place will have to determine which industry networks will be most productive, innovative, competitive, and dynamic based on the fundamental assets of their particular population and location, such that polymer development will work for Akron and commercial shipping for Barcelona, but not the other way around.

To effectively grow industry networks or clusters, they must be tailor-made for the asset-base and business mix of each state and metropolitan region - one size definitely does not fit all. In this sense, the first key element - investing in the fundamental assets - and the second element - growing the dynamic industry networks - are deeply interconnected, and developing a comprehensive Metropolitan Economic Strategy involves the specific interaction between these two. Major assets such as international airports, universities, scenic waterways, or historic neighborhoods can promote the growth of a variety of industry networks if planned and developed as part of an effective strategic framework. In turn, each industry network will draw on a wide range of different assets, with no two networks necessarily having the same needs and priorities even in the same location. Every jurisdiction must build on its existing strengths, and create precisely targeted policies and incentives to generate investment and growth that makes the best possible use of its fundamental assets. It is important to emphasize that industry networks or clusters only give regions a competitive advantage if they are dynamic and growing. Competitive success in the new global economy comes through fostering innovation and productivity. Industry networks are key elements of Metropolitan Economic Strategy only to the extent that they can help generate rising incomes and employment through combining creative specialization with resourceful diversity. Simply identifying a state's or region's "clusters" will not do any good for strategic economic development if these clusters are unproductive, outmoded, or stagnating.

In formulating and implementing Metropolitan Economic Strategy, improving the physical environment and addressing social equity are integral to the overall prospects for success. This represents a change in paradigm from the traditional concept that economic growth and competitiveness does not involve environmental protection or poverty alleviation, with some people and policymakers still viewing these three concerns as incompatible. The progressive idea of the sustainable development movement is that the three concerns must be balanced against each other such that each one is taken seriously as an important societal and public policy goal. In today's global economy, where quality of life is the key to attracting and retaining skilled workers, and skilled workers are the basic building blocks of economic prosperity and competitiveness, improving the environment and addressing social equity are no longer luxuries to be traded off against economic growth. Indeed, they are now absolute prerequisites for achieving and sustaining growth of jobs and incomes, trade and technology. If a place has polluted air and water and terrible automobile traffic congestion and unmanageable sprawl, it may become an undesirable place for people live, work, and visit, and for companies to invest in and locate production facilities and personnel.

Similarly, if a place has high crime, social unrest, disease, and deterioration, it may become equally unattractive and undesirable for a quality workforce and thriving employers. The recent economic development plan for Johannesburg, Joburg 2030, acknowledged the vital economic importance of social equity and investing in disadvantaged people and communities when it listed the four major barriers to achieving economic success: high crime, physical dilapidation of the inner city and outer townships, HIV/AIDS pandemic, and lack of education of a large proportion of the workforce. In both Cape Town and Durban, South Africa, recently adopted economic development strategies include a significant focus on policies to raise incomes, increase jobs and business opportunities, and improve the quality of life for low-income families and neighborhoods. Cape Town calls it "Our Golden Thread": "It is not a question of choosing global competitiveness or the reduction of poverty - Cape Town will achieve both or neither. Reducing poverty will strengthen global competitiveness, and global competitiveness will permit reduction of poverty through economic growth and job creation." Singapore, for example, had done an exemplary job of recognizing that its greatest asset is its people, and that in order to have a well motivated and highly productive workforce, everyone must share in the fruits of prosperity. With the goal of economic and social equity in mind, Singapore moved from being a relatively poor British colony and seaport during the 1950s to virtually eliminating poverty in the four decades since becoming an independent nation (truly a "city-state"). The national homeownership rate in Singapore is now more than 90 percent, and housing, education, health care, and per capita incomes have all improved dramatically in one generation.

Another important challenge for Metropolitan Economic Strategy to succeed is that of governance. Even though urban regions are the main engines of growth, productivity, and innovation in the global economy, governments are not organized along such geographic lines. In most cases, with China as a notable exception, there are no general purpose governments with substantial authority and resources whose jurisdiction corresponds directly to the boundaries of metropolitan areas or urban regions. South Africa recently created metropolitan governments to end the legacy of apartheid and bring together under one jurisdiction the formerly "white" cites and "non-white" suburban townships, but even in those situations it is necessary to bring together a wide variety of local government jurisdictions, along with provincial and national government, in order to prepare and implement a Metropolitan Economic Strategy. In many places around the world, the population and workforce of urban regions cut across state and provincial boundaries, and in some cases, even national borders, thus compounding the governance challenge. Developing leadership that can build consensus and collaboration is a vital task. No strategy can succeed without good leadership. Also, coordination among numerous governmental units is only part of the challenge of governance. Public-private partnerships that include business and civil society along with government are equally essential.

In Washington, DC during 1997-8, we engaged in a massive effort to create a strategic economic development plan that has been very successful over the past five years in expanding jobs and capital investment, raising incomes, promoting development and renovation, increasing homeownership, and improving neighborhoods. This was a city-level plan, but one that took an explicit pro-regional approach. We studied the city's prospects in the context of its role in and contribution to the metropolitan economy, focusing on how to grow the overall regional pie and capture a larger slice of that expanding pie for the city and its residents. Many of the projects, such as the NoMa (North of Massachusetts Avenue) initiative that financed and built a new Metrorail transit station and bicycle/pedestrian path at New York Avenue and redeveloped a deteriorated and abandoned area of the city as a thriving technology, media, arts, and housing district, won support from regional business and government leaders outside the city because it improved metropolitan economic competitiveness. The NoMa story was a good example of "win-win" inclusiveness, as it brought together and benefited various levels of government, private business and developers, environmentalists, and low-income communities, which is why it was designated in 2002 by the United Nations as one of the 40 Best Practices to Improve the Living Environment in the world. Other city initiatives also had a metropolitan dimension, such as extending Metrorail service in the suburbs to make it easier for low-income city residents to obtain and travel to suburban jobs, and more attractive for suburban workers to move back into the city and enjoy the attractions of a more urban-oriented lifestyle.

Conclusion

During the past two decades, the City of Barcelona has demonstrated impressive and effective international leadership in transforming the urban economy from a declining manufacturing base to a diversified and dynamic new mixture of manufacturing and services. Now Barcelona is once again on the cutting edge in recognizing that it is no longer viable just to focus on the city, but instead the metropolitan region must work together to develop and sustain a thriving prosperity and quality of life for all. The new strategic plan for Metropolitan Barcelona is the first step toward creating a world-class Metropolitan Economic Strategy that will make the entire region, indeed all of Catalunya, one of the growth centers of Europe and the world in the decades ahead.