City State

By Ryan Streeter

A new generation of thoughtful scholars and policy wonks should get into ‘agglomeration economics’—a clunky expression for an increasingly important field.

Over the past two years, something utterly historic happened—and few of us noticed. For the first time in recorded human history, more than half of the world’s population has moved into a city or its environs from rural areas and small towns.

Considered historically, this process of urbanization has moved at lightning speed, especially in the past half-century. In 1800, Beijing was the only city in the world with more than 1 million people. London came second with a mere 860,000. Only 3 percent of the world’s population lived in urban areas. One hundred years later, industrialization in Europe and the United States prompted massive urbanization in the West, with Tokyo as the only non-Western city among the world’s ten most-populated cities.

But in the 20th century, things really took off globally. By 1950, 30 percent of the world’s population was urban and the number of cities with more than 1 million people had grown to 83. In the past 50 years, the global number of people living in large cities has quadrupled from 750 million to more than 3 billion. There are now 19 cities with more than 10 million residents.

The United States has continued to grow less rural and more metropolitan. One-third of Americans inhabit just 16 metro areas, and growing urban-suburban-exurban landscapes are home to the American economy’s chief engines.

While much of this recent growth is due to explosive rates of urbanization in Africa and Asia, the United States has also continued to grow less rural and more metropolitan. One-third of Americans inhabit just 16 metro areas, and growing (some would say sprawling) urban-suburban-exurban landscapes are home to the American economy’s chief engines.

Why have the people of the world so rapidly left behind their agrestic repose for the fast-moving, crowded life of the metropolis? While the jury is still out on the issue—few people have been studying it— there are some fairly obvious explanations. For one thing, a growing services economy has increased the importance of people clustering together. Knowledge spill-over, which is important to local economies dependent on innovation and services for growth, happens more easily when people are near one another.

Also, cities that rely on the continual creation of smaller firms to fuel their growth fare better over time than those that rely on a few large companies. It seems that entrepreneurial dynamism itself is related to drawing people together. Opportunity attracts entrepreneurs, who attract capital, which attracts more talented workers and entrepreneurs, and so on.

These trends will only continue to accelerate, both in the United States and abroad. By 2050, demographers predict 70 percent of the world’s people will live in cities and large metro areas.

Which brings us to an important point. While proponents of free enterprise and limited government in the United States have made important contributions to our understanding of urban issues over the years, they typically end up ceding the city as a unit of political interest and economic analysis to the Left. That needs to change for some obvious reasons. I can think of at least three:

By 2050, demographers predict 70 percent of the world’s people will live in cities and large metro areas.

First, cities rather than states will increasingly drive national economies. States that recognize this and adjust policy accordingly will get ahead. Those that continue to see cities as “their property” and use them as key economic drivers to support statewide redistribution will suffer. This interplay will have a lot to do with the dynamics of overall national prosperity.

Second, things like the cost of construction, traffic, and green policies in a state’s largest city, or cities, will begin to matter more to a state’s overall competitiveness than ever before. Whither the city goes the state.

Third, congressional maps will become more metro and less agrarian, meaning that the interests of metropolitan areas will increasingly dominate national policy debates.

These and other reasons suggest that a new generation of thoughtful scholars and policy wonks should get into “agglomeration economics”—a clunky expression for an increasingly important field. Newcomers to these issues might start with a new book edited by Harvard University’s Ed Glaeser. In the preface, Glaeser says the book is “meant to provide a sample of cutting-edge work on the economics of agglomeration.” As the future of American competitiveness and the increasing agglomeration of people in growing metro areas seem bound together for some time, its implications deserve examination.

Ryan Streeter is a senior fellow at the London-based Legatum Institute, and can be followed on Twitter here.