The economic case for density: how Australia can fix its cities

Melbourne: probably not dense enough. Image: John O'Neill/Wikimedia Commons.

It was a time of extraordinary change. Cook had not long named New South Wales, the American Revolution was well underway, and in towns and cities of England, the Industrial Revolution was about to begin.

Rivers were taking industry out of cottages. Machines made possible through advancements in ironwork required greater scale, more people and more power, and so were being housed in purpose-built factories and mills adjacent to running water. Individuals who once were generalists, and who had owned production from beginning to end, became part of a process: specialists, narrowing what they did, becoming better at it, and producing more.

It was a process observed by the father of modern economics, Adam Smith. In his 1776 magnum opus The Wealth of Nations, Smith identified the key to increasing productivity as specialisation achieved through scale and density.

As populations swelled in cities, poets wrote of dark satanic mills, painters portrayed industry as hell incarnate, a new world formed of developed and developing nations. It was not the same scale nor pace as today, but it too was a period of great disruption.

Cities and the economy of us

Much has changed in the quarter of millennia since.


Whereas cotton from the fields of the Mississippi delta was the raw material of the industrial revolution, and gold caused the rush across the states of Australia, in advanced economies, the raw material is us. It is our ability to generate work with our heads and not with our hands, our mind and not with what is mined, our knowledge and innovation capacity that is the main source of wealth.

Rivers are no longer the driver of density: they’ve been replaced by the location of skilled workers, a steady flow of graduates, and the need to be close to likeminded firms. Specialisation which once took place within firms now takes place across firms, through clustering, benefitting through economies of agglomeration. Machinery to produce more tangible goods and drive economies of scale has been replaced by how efficiently we transport ourselves in and out city districts, producing more intangible goods.

These days we talk less of scale and specialisation, and more of cities as the manifestation of Smith’s fundamentals for a productive economy. Rightly so: as Dobbs, Woetzel and Manyika say in No Ordinary Disruption, with each doubling of population every city dweller becomes on average, 15 percent wealthier, more innovative, and more productive.

Half the planet’s population are city dwellers, but they generate three-quarters of the world’s GDP. In Australia, that figure rises to 80 per cent: it is one of the most urbanised countries in the world, with three quarters of the population living in cities of 100,000 people or more, compared to 68 per cent of Americans, 71 per cent of  Canadians, and 62 per cent of Brits.

So, there is some evidence that Australia’s prime minister Malcolm Turnbull is asking all the right questions with his newly formed portfolios on “innovation” and “cities”.

Cities and productivity

Yet not all cities are good productive cities. Africa has the highest average city density of all continents yet is nowhere to be seen on global productivity tables. India has 8 of the world’s top 10 densest cities – yet none of them are close to being the most productive.

In contrast Australia has some of the most productive cities in the world: Sydney, Melbourne and Adelaide placed 10th, 13th, 35th on GDP in the 2010 Global Urban Competitiveness report. Yet when looking at GDP per capita, this slips to 97th, 110th, 121st respectively; and on patent applications, it’s even worse, and those rankings are 281st, 237th, and 260th.

There are infrastructure problems, too. Enright & Petty declare in Australia’s Competitiveness: From Lucky Country to Competitive Country that Australia has “some of the worst exemplars of urban sprawl in the world”. The independent statutory body Infrastructure Australia estimates “congestion is likely to cost Australians $53bn by 2031.”

Meanwhile, in Mapping Australia’s Future, the independent think-tank, the Grattan Institute, found that residential patterns and transport systems mean that central business district employers “have access to only a limited proportion of workers in metropolitan areas”.

The lesson here is that good productive cities require planning. Policymakers and politicians need to encourage density to increase the strength and scope of agglomeration economies, to develop skills matched to jobs being created, to strengthen supporting the local economy that benefits from both.

Good productive cities require high connectivity, too. Leaders need to facilitate quality exchange through infrastructure and transportation – to connect firms with each other, to connect workers to firms, to connect consumers to the local economy, to build the economic competitiveness of human capital: the economy of us.

The better connectivity, the more exchange, the greater innovation, the greater productivity. This is why the 3m people living in Silicon Valley have an economy larger than the 90m living in Vietnam. It is what Venables from the London School of Economics described as the New Economic Geography – the value in interaction and exchange brought about by clustering of firms.

Innovation and the importance of exchange

“More densely populated cities are more attractive to innovators and entrepreneurs,” explain Dobbs, Wetzel, Manyika, “who tend to congregate in places where they have greater access to networks of peers, mentors, financial institutions, partners, and potential customers.” It is no coincidence that those who excel online and can locate anywhere in the world choose to neighbour offline, clustering in places like Silicon Valley, Bangalore, and Silicon Wadi in Tel Aviv.  

Face-to-face exchange has been necessary for innovation in cities “since Plato and Socrates bickered in an Athenian marketplace”, explains economist Professor Edward Glaeser in his book Triumph of the City.  “Innovations cluster in places like Silicon Valley because ideas cross corridors and streets more easily than continents and seas. Patent citations demonstrate the intellectual advantage of proximity.”

But innovation is about more than STEM graduates, the co-ordination of government and industry on R&D, the promotion of entrepreneurship: it is about cities that can develop and retain innovation through quality exchange; it is about cities where firms will choose to cluster because they can see the value in exchange and infrastructure is in place to facilitate it.


This is the fundamental difference between providing skills for ideas born elsewhere, or providing skills for cities where ideas are exchanged, innovation occurs, patents formed, and productivity increases.

It is why Malcolm Turnbull’s two new portfolios must be intrinsically linked for long-term economic growth. The more complicated the world becomes, the more value there will be in proximity to those who may have the answer; the more value there will be exchange with those who may have the answer; and the more value there will be in connectivity to those who may have the answer.

The more complicated the world becomes, the more it will value cities with answers.

The challenge is to make them Australian.

Kevin Keith is an Australia-based researcher who helped research Alastair Campbell’s book Winners and how to Succeed. He now works for the built-environment body Consult Australia.

 
 
 
 

How collecting food waste could slow climate change – and save us money

Cleaning up. Image: Getty.

Food waste is a global problem, and one that’s driving climate change. Here in the UK, the country’s biodegradable waste goes to a landfill, where it breaks down to produce methane, a gas that is roughly 30 times as bad as carbon dioxide.

And yet there’s a simple solution. With the exception of garden waste, which often contains lignin from woody matter, all biodegradable materials, including much of our food waste, could instead be processed in anaerobic digesters. This decomposition in an atmosphere devoid of oxygen produces biogas, which can then be used to generate heat and electricity.

This is more or less the same process that takes place in landfill sites, except that the biogas can’t escape from an anaerobic digester as it can from landfill – meaning the breakdown of the organic matter takes place in an environment that is enclosed and controlled.

The result is biogas consisting of 60 per cent methane and 40 per cent carbon dioxide, which can be burnt in order to generate heat or used as a fuel for vehicles. It could also be used to generate electricity after the biogas has been scrubbed, which can then either power the anaerobic digester or be exported to the national grid. The process also produces digestate, a solid and liquid residue that can be returned to farmland as a soil conditioner. The amount of biogas and the quality of digestate varies according to what feedstock is used in the digester.

This process is already widely used both across Europe – particularly in Denmark, Sweden, Germany and Austria – and elsewhere globally, particularly in India and Thailand. What's more, this move towards separate food waste collection is already happening in countries outside the UK, and its momentum is increasing according to the World Biogas Association. Already, major cities, including New York, Paris, Oslo, Copenhagen, Auckland, San Francisco, Mexico City and many others are regularly collecting food waste from their citizens. The decisions to do so are usually taken at city level, but enabling legislation from national governments assist in this.


At present the UK is lagging behind. Only 109 local authorities in England, about 33 per cent of the total number, collect food waste as of May 2018, according to the Anaerobic Digestion and Bioresources Association (ADBA). Yet making a separate food waste collection mandatory across the UK and running the food waste through anaerobic digesters, could supply enough biogas to generate 36 per cent of UK electricity, according to a 2007 Friends of the Earth report. This percentage could be increased again if food waste from restaurants, cafeteria and retailers was also collected. 

ADBA’s research also suggests that universal separate household food waste collections would trigger the construction of around 80 new anaerobic digester plants for food waste processing. This would add an extra 187 megawatts equivalent (MWe) of capacity, powering 285,000 extra homes – representing all the homes in a city the size of Glasgow. Data from WRAP suggests that further food waste collection from businesses would add around a further 10 per cent, depending on the quality of the feedstock collected and what exemptions were applied (for example, it might only apply to businesses collecting more than 50 kilograms per week or the lower threshold of 5kg).

A 38 per cent improvement in food waste collection from flats in Ealing alone could generate £26,000 of annual savings for the London borough, £28,000 in revenue for a local anaerobic digester (based on electricity sales to the national grid) and reductions in carbon dioxide emissions of around 270 tonnes, found Londoners Lab, a collaborative project consisting of Greater London Authority, University College London, Ferrovial Services Centre of Excellence for Cities and Future Cities Catapult.

ADBA has been campaigning on this issue for a while, but the good news is that the government finally signalled its intention to introduce separate food waste collections in its forthcoming Resources & Waste Strategy, which will ensure that all homes and suitable businesses in England will have access to food waste collections by 2023. The next step, following the government announcement, is a consultation, but it is widely acknowledged that additional funding would be needed by local authorities to achieve this, as the business case isn’t currently strong enough.