Can the world’s megacities survive the new technologies of the digital age?

New York by night. Image: Getty.

Today, megacities have become synonymous with economic growth. In both developing and developed countries, cities with populations of 10m or more account for one-third to one-half of their gross domestic product.

Many analysts and policymakers think this trend is here to stay. The rise of big data analytics and mobile technology should spur development, they assert, transforming metropolises like Shanghai, Nairobi and Mexico City into so-called “smart cities” that can leverage their huge populations to power their economies and change the power balance in the world.

As technology researchers, however, we see a less rosy urban future. That’s because digitisation and crowdsourcing will actually undermine the very foundations of the megacity economy, which is typically built on some combination of manufacturing, commerce, retail and professional services.

The exact formula differs from region to region, but all megacities are designed to maximize the productivity of their massive populations. Today, these cities lean heavily on economies of scale, by which increased production brings cost advantages, and on the savings and benefits of co-locating people and firms in neighborhoods and industrial clusters.

But technological advances are now upending these old business models, threatening the future of megacities as we know them.

Manufacturing on the fritz

One classic example of a disruptive new technology is 3-D printing, which enables individuals to “print” everything from ice cream to machine parts.

As this streamlined technique spreads, it will eliminate some of the many links in the global production process. By taking out the “middle men,” 3-D printing may ultimately reduce the supply chain to just a designer on one end and a manufacturer on the other, significantly reducing the production costs of manufactured goods.

Will 3-D printing put you out of a job next? Image: Creative Tools/creative commons.

That’s good for the profit margins of transnational companies and consumers, but not for factory cities, where much of their transportation and warehousing infrastructure may soon become redundant. Jobs in manufacturing, logistics and storage, already threatened across many large sites, may soon be endangered globally.

In short, 3-D printing has transformed the economies of scale that emerged from industrialisation into economies of one or few. As it spreads, many megacities, particularly Asian manufacturing centers like Dongguan and Tianjin, both in China, can expect to see widespread disruption to their economies and work forces.

Decline of the shopping mall

The retail sector is experiencing a similar transformation. Shopping malls, for example, which once thrived in megacities, are now suffering from the advent of e-commerce.

The value proposition of shopping malls was always that their economies of scale were location-dependent. That is, for malls to be profitable, they had to be sited near a large consumer base. Densely populated megacities were perfect.

But as stores have moved online, megacities have lost this competitive advantage. While online shopping has not completely replaced brick-and-mortar retail, its ease and convenience have forced many shopping malls to close worldwide. In the U.S., mall visits declined 50 per cent between 2010 and 2013.

Cities in China, where the government has sought to build its national economy on consumption, will be hit particularly hard by this phenomenon. China has the world’s largest e-commerce market, and it is estimated that one-third of the country’s 4,000 shopping malls will shut down within the next five years.

As mobile technology continues its spread, accessing even the most remote populations, this process will accelerate globally. Soon enough, retail websites like Amazon, Alibaba and eBay will have turned every smartphone into a virtual shopping mall, especially if the dream of drone delivery becomes a reality.


The new work force: Robots, AI and the human cloud

Changes in the business world will also affect cities worldwide.

Thanks to artificial intelligence, or AI, which makes it possible to automate numerous tasks, both manual and cognitive, these days it’s goodbye, human bank tellers and fund managers, hello robots.

Even in jobs that cannot be easily automated, the digitised gig economy is putting people into direct competition with a global supply of freelancers to do tasks both menial and specialised.

There are certainly benefits to crowdsourcing. Using both AI and the crowdsourced knowledge of thousands of medical specialists across 70 countries, the Human Diagnosis Project has built a global diagnosis platform that’s free to all patients and doctors – a particular boon to people with limited access to public health services.

But by taking collaboration virtual, the “human cloud” business model is also making the notion of offices obsolete. In the future, medical professionals from various specialties will no longer need to work near to each other to get the job done. The same holds for other fields.

In a world without office space, traditional business and financial centers like New York and London would feel the pain, as urban planning, zoning and the real estate market struggle to adjust to firms’ and workers’ changing needs.

What would Tokyo be without its office space? ImageL Yodalica/creative commons.

Crisis in the making

At some point, all this change may end up meaning that economies of scale matter much, much less. If that happens, population size – currently the motor of the modern metropolis – will become a liability.

Megacities have long struggled with the downsides of density and rapid urbanisation, including communicable disease, critical infrastructure shortages, rising inequality, crime and social instability. As their economic base erodes, such challenges are likely to grow more pressing.

The damage will differ from city to city, but we believe that the profound shifts underway in retail, manufacturing and professional services will impact all of the world’s seven main types of megacities: global giants (Tokyo, New York), Asian anchors (Singapore, Seoul), emerging gateways (Istanbul, São Paulo), factory China (Tianjin, Guangzhou), knowledge capitals (Boston, Stockholm), American middleweights (Phoenix, Miami) and international middleweights (Tel Aviv, Madrid).

And because 60 per cent of global GDP is generated by just 600 cities, struggle in one city could trigger cascading failures. It’s conceivable that in 10 or 20 years, floundering megacities may cause the next global financial meltdown.

The ConversationIf this forecast seems dire, it’s also predictable: places, like industries, must adapt with technological change. For megacities, it’s time to start planning for a disrupted future.

Christopher H. Lim is senior fellow in science, technology & economics at RSIS, Nanyang Technological University. Vincent Mack is an associate research fellow in RSIS, Nanyang Technological University

This article was originally published on The Conversation. Read the original article.

 
 
 
 

“Stop worrying about hairdressers”: The UK government has misdiagnosed its productivity problem

We’re going as fast as we can, here. Image: Getty.

Gonna level with you here, I have mixed feelings about this one. On the one hand, I’m a huge fan of schadenfreude, so learning that it the government has messed up in a previously unsuspected way gives me this sort of warm glow inside. On the other hand, the way it’s been screwing up is probably making the country poorer, and exacerbating the north south divide. So, mixed reviews really.

Here’s the story. This week the Centre for Cities (CfC) published a major report on Britain’s productivity problem. For the last 200 years, ever since the industrial revolution, this country has got steadily richer. Since the financial crash, though, that seems to have stopped.

The standard narrative on this has it that the problem lies in the ‘long tail’ of unproductive businesses – that is, those that produce less value per hour. Get those guys humming, the thinking goes, and the productivity problem is sorted.

But the CfC’s new report says that this is exactly wrong. The wrong tail: Why Britain’s ‘long tail’ is not the cause of its productivity problems (excellent pun, there) delves into the data on productivity in different types of businesses and different cities, to demonstrate two big points.

The first is that the long tail is the wrong place to look for productivity gains. Many low productivity businesses are low productivity for a reason:

The ability of manufacturing to automate certain processes, or the development of ever more sophisticated computer software in information and communications have greatly increased the output that a worker produces in these industries. But while a fitness instructor may use a smartphone today in place of a ghetto blaster in 1990, he or she can still only instruct one class at a time. And a waiter or waitress can only serve so many tables. Of course, improvements such as the introduction of handheld electronic devices allow orders to be sent to the kitchen more efficiently, will bring benefits, but this improvements won’t radically increase the output of the waiter.

I’d add to that: there is only so fast that people want to eat. There’s a physical limit on the number of diners any restaurant can actually feed.

At any rate, the result of this is that it’s stupid to expect local service businesses to make step changes in productivity. If we actually want to improve productivity we should focus on those which are exporting services to a bigger market.  There are fewer of these, but the potential gains are much bigger. Here’s a chart:

The y-axis reflects number of businesses at different productivities, shown on the x-axis. So bigger numbers on the left are bad; bigger numbers on the right are good. 

The question of which exporting businesses are struggling to expand productivity is what leads to the report’s second insight:

Specifically it is the underperformance of exporting businesses in cities outside of the Greater South East that causes not only divergences across the country in wages and standards of living, but also hampers national productivity. These cities in particular should be of greatest concern to policy makers attempting to improve UK productivity overall.

In other words, it turned out, again, to the north-south divide that did it. I’m shocked. Are you shocked? This is my shocked face.

The best way to demonstrate this shocking insight is with some more graphs. This first one shows the distribution of productivity in local services business in four different types of place: cities in the south east (GSE) in light green, cities in the rest of the country (RoGB) in dark green, non-urban areas in the south east in purple, non-urban areas everywhere else in turquoise.

The four lines are fairly consistent. The light green, representing south eastern cities has a lower peak on the left, meaning slightly fewer low productivity businesses, but is slightly higher on the right, meaning slightly more high productivity businesses. In other words, local services businesses in the south eastern cities are more productive than those elsewhere – but the gap is pretty narrow. 

Now check out the same graph for exporting businesses:

The differences are much more pronounced. Areas outside those south eastern cities have many more lower productivity businesses (the peaks on the left) and significantly fewer high productivity ones (the lower numbers on the right).

In fact, outside the south east, cities are actually less productive than non-urban areas. This is really not what you’d expect to see, and no a good sign for the health of the economy:

The report also uses a few specific examples to illustrate this point. Compare Reading, one of Britain’s richest medium sized cities, with Hull, one of its poorest:

Or, looking to bigger cities, here’s Bristol and Sheffield:

In both cases, the poorer northern cities are clearly lacking in high-value exporting businesses. This is a problem because these don’t just provide well-paying jobs now: they’re also the ones that have the potential to make productivity gains that can lead to even better jobs. The report concludes:

This is a major cause for concern for the national economy – the underperformance of these cities goes a long way to explain both why the rest of Britain lags behind the Greater South East and why it performs poorly on a

European level. To illustrate the impact, if all cities were as productive as those in the Greater South East, the British economy would be 15 per cent more productive and £225bn larger. This is equivalent to Britain being home to four extra city economies the size of Birmingham.

In other words, the lesson here is: stop worrying about the productivity of hairdressers. Start worrying about the productivity of Hull.


You can read the Centre for Cities’ full report here.

Jonn Elledge is the editor of CityMetric. He is on Twitter as @jonnelledge and on Facebook as JonnElledgeWrites

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