Why Europe’s capital cities are pulling away from their countries – and what we can do about it

European productivity: blue is high, red is low. Image: CER.

Europe’s capital cities are much more productive than smaller cities and towns: the average metropolitan worker produces about 50 per cent more output than workers elsewhere. The divide between capitals and everywhere else is growing, too. Europe risks becoming as divided as the US, where the economic and cultural fault-lines between the coastal ‘elite’ and the Rust Belt were one reason why Donald Trump won the presidency. At the Centre for European Reform, we’ve put together a model which explains what is behind this divergence Europe. It also points to some possible solutions.

Reason number 1: Europe’s largest cities, like black holes, have a kind of gravitational mass. Some of you may remember the gravity equation from high school: take two objects, multiply their masses together, and divide that by the square of the distance between them. We did the same equation with all of Europe’s regions, and the bigger economic heft of most capital cities make workers there more productive.

We have good theories about why that’s the case: cities allow companies, especially those producing high-value services that don’t need large factories, and workers to cluster together. Companies get the benefit of a large pool of potential workers, and can select the most productive ones for jobs. They can also cut the costs of services and goods that they need, because there is plenty of nearby competition between other firms seeking to supply them. With so many companies to choose from, workers can more easily find one that fits their skills. Result: higher productivity.

What’s a bit more interesting, though, is that how densely populated a region is doesn’t matter very much, but being close to other successful regions really does. Rural Surrey isn’t just a commuter dormitory full of antique shops, but has lots of productive businesses. That’s because it is easy to get to London by train. Berlin is the only European capital that is less productive than the rest of the country. It is still overcoming the legacy of the Berlin Wall and communist rule in the East, but it is also a long way from the heartlands of the German economy in the West.

Reason number 2: Regions with big graduate populations are more productive. If the graduate share of, say, Rome’s population rose by 1 per cent, then our model predicts output per worker would rise by around 0.4 per cent. That link between higher education and productivity has been on the rise, too. Back in the year 2000, 1 per cent more graduates would have meant 0.2 per cent more productivity.

We can’t be sure if graduates are becoming more productive, or whether they have been moving to places that are already productive. But we have good reason to suspect it’s mostly because graduates have been increasingly moving to capital cities (and other productive places). The graduate population has risen faster in most European capital cities than in the rest of the country – bar Brussels, for some reason.


Reason number 3: The older the population, the less productive the region. That link has been growing over time, too. That’s probably because Europe is ageing so rapidly, and retired people buy a lot of consumer services, like day trips, shopping and social care, which tend to involve jobs with low productivity. And, because many young graduates move away – and often abroad, if they’re from Central and Eastern Europe – we’re seeing a slow process of geographic sorting, with younger, more highly educated people clustering together.

So what should we do about it? The solutions are fairly straightforward, but they require quite a lot of public investment. First, Europe needs to bring rich and poor places closer together, with better transport and communications links between successful cities and peripheral towns. This way, the economic reach of the successful cities is widened, with smaller towns offering cheaper office space and housing that’s within reach of the metropole.

Second, post-industrial conurbations – think of the Ruhr area and Northern England – have the potential to become highly productive hubs themselves. But in order to get there, governments need to invest in universities and research centres in places like Essen, Duisburg, Manchester and Leeds, which will help to draw in a highly educated workforce.

Third, all young people should have some tertiary education. The pan-European expansion of university education in the 1990s and 2000s raised labour productivity. It’s wrong to think that there’s no point educating everyone beyond a certain point: that argument was made in the 1800s against universal primary education and in the early 1900s about secondary. In a services-dominated economy, people need to be highly numerate and literate to get good jobs – and it may be worth reforming humanities degrees to give people who take them a head for numbers.

These policies will be familiar to CityMetric readers: they’ve been suggested many times before. But action’s now quite urgent, given sluggish growth outside the metropoles, as well as Europe’s increasingly nasty politics.

John Springford and Christian Odendahl are economists at the Centre for European Reform.

 
 
 
 

How China's growing cities are adapting to pressures on housing and transport

Shenzhen, southern China's major financial centre. (Photo by Daniel Berehulak/Getty Images)

In the last 40 years, the world’s most populous country has urbanised at a rate unprecedented in human history. China now has over 100 cities with populations greater than a million people, easily overshadowing the combined total of such cities in North America and Europe. 

That means urban policy in China is of increasing relevance to planning professionals around the world, and for many in Western nations there’s a lot to learn about the big-picture trends happening there, especially as local and national governments grapple with the coronavirus crisis. 

Can Chinese policymakers fully incorporate the hundreds of millions of rural-to-urban migrants living semi-legally in China’s cities into the economic boom that has transformed the lives of so many of their fellow citizens? The air quality in many major cities is still extremely poor, and lung cancer and other respiratory ailments are a persistent threat to health. Relatedly, now that car ownership is normalised among the urban middle classes, where are they going to put all these newly minted private automobiles?


Yan Song is the director of the University of North Carolina, Chapel Hill’s Program on Chinese Cities and a professor in the school’s celebrated urban planning department. She’s studied Chinese, American, and European cities for almost 20 years and I spoke with her about the issues above as well as changing attitudes towards cycling and displacement caused by urban renewal. This conversation has been edited for length and clarity.

American cities face very different challenges depending on which part of the country they are in. The Rust Belt struggles with vacancy, depopulation, and loss of tax base. In coastal cities housing affordability is a huge problem. How do the challenges of Chinese cities vary by region?

Generally speaking, the cities that are richer, usually on the eastern coastal line, are facing different challenges than cities in the western "hinterland." The cities that are at a more advantaged stage, where socio-economic development is pretty good, those cities are pretty much aware of the sustainability issue. They're keen on addressing things like green cities.

But the biggest challenge they face is housing affordability. Cities like Beijing, Shanghai, Shenzhen, and Hangzhou are trying to keep or attract young talent, but the housing prices are really, really high. The second challenge is equity. How do you provide equal, or at least fair, services to both the urban residents and the migrants who are living in the city, to alleviate some of the concerns around what the government is calling “social harmony?” 

Then the cities in the hinterland, typically they are resource economies. They are shrinking cities; they're trying to keep population. At the same time, they are addressing environmental issues, because they were overly relying on the natural endowments of their resources in the past decades, and now they're facing how to make the next stage of economic transition. That's the biggest divide in terms of regional challenges.

These urban centers rely on migrant workers for a lot of essential services, food preparation, driving, cleaning. But they live tenuous lives and don't have access to a lot of public services like education, health care, social insurance. Are Chinese policymakers trying to adopt a healthier relationship with this vast workforce?

The governments are making huge efforts in providing basic services to the migrants living in the city. They're relaxing restrictions for educational enrollment for migrants in the cities. In health care as well as the social security they are reforming the system to allow the free transfer of social benefits or credits across where they live and where they work [so they can be used in their rural hometown or the cities where they live and work]. 

In terms of health care, it's tough for the urban residents as well just because of the general shortage of the public health care system. So, it's tough for the urban residents and even tougher for the migrants. But the new policy agenda's strategists are aware of those disadvantages that urban migrants are facing in the cities and they're trying to fix the problem.

What about in terms of housing?

The rental market has been relaxed a lot in recent years to allow for more affordable accommodation of rural-to-urban migrants. Welfare housing, subsidised housing, unfortunately, skews to the urban residents. It's not opened up yet for the migrants. 

The rental market wasn't that active in previous years. But recently some policies allow for more flexible rental arrangements, allowing for shared rentals, making choices more available in the rental market. Before it was adopted, it’s prohibited to have, for example, three or more people sharing an apartment unit. Now that’s been relaxed in some cities, allowing for more migrant workers to share one unit to keep the rates down for them. You see a little bit more affordable rental units available in the market now.

I just read Thomas Campanella’s The Concrete Dragon, and he talks a lot about the scale of displacement in the 1990s and 2000s. Massive urban renewal projects where over 300,000 people in Beijing lost homes to Olympics-related development. Or Shanghai and Beijing each losing more homes in the ‘90s than were lost in all of America's urban renewal projects combined. It didn't sound like those displaced people had much of a voice in the political process. But that book was published in 2008.  How has policy changed since then, especially if people are more willing to engage in activism?

First of all, I want to make a justification for urban renewal in Chinese cities, which were developed mostly in the ‘50s and ‘60s. At the time, [in the 1990s] the conditions weren’t good and allowing for better standards of construction would inevitably have to displace some of the residents in older settlements. In my personal opinion, that wasn't something that could be done in an alternative way.  

Still, in the earlier days, the way of displacing people was really arbitrary, that's true. There wasn't much feedback gathered from the public or even from the people affected. In the name of the public interest, in the name of expanding a road, or expanding an urban center, that's just directed from the top down. 

Nowadays things are changing. The State Council realized they needed more inclusive urban development, they needed to have all the stakeholders heard in the process. In terms of how to process urban development, and sometimes displacement, the way that they are dealing with it now is more delicate and more inclusive.

Can you give me an example of what that looks like?

For example, [consider] hutong in Beijing, the alleyway houses, a typical lower-density [neighbourhood] that needs to be redeveloped. In the past, a notification was sent to the neighbours: “You need to be replaced. You need to be displaced, we need to develop.” That's it. 

Nowadays, they inform all different sorts of stakeholders. They could include artists' associations, nonprofits, grassroots organisations that represent the interests of the local residents. Then they [the citizens groups] could say what they really want to preserve. “This is what we think is really valuable” and that will be part of the inputs in the planning process. Some of the key elements could possibly be preserved. They  [the authorities] also talk about the social network, because they realized that when they displace people, the biggest loss is the social network that they have built in the original location. So, it's not only conserving some of the physical environment, but also trying to conserve some of the social network that people have.  


(STR/AFP via Getty Images)

Speaking of urban renewal, there was a big emphasis in the ‘90s and 2000s on highways. A lot of auto-oriented development in Beijing, following more of a Los Angeles than New York model. There's this quote I saw from Hong Kong architect Tao Ho, during the 1990s development of Pudong in Shanghai, warning against replicating “the tall buildings and car-oriented mentality of the West." 

In the ’90s or the first decade of the 21st century, most cities in China were still making mistakes. When I was a student, in the late '90s, I was translating for the American Planning Association. At the time, Beijing was still taking out the bike lanes and the planners from APA were telling them: “No, don't do that. Don't make that mistake." 

In the past decade, that's not occurring anymore. It has been happening [adding bike lanes] for a couple of years in Beijing, Shanghai, Shenzhen. More attention has been given to improving the service quality of green transportation, upgrades to buses, the bike lane system, and so on. 

As China got richer, bikes became a symbol of poverty and, like you said, urban planners began removing bike lanes. Cities like Nanjing and Shanghai considered banning bikes from the central city entirely. 

For a long time, bike lanes were abandoned and the road surface was more devoted to the car. But in the past few years this has been changing, more road space has been given to bus rapid transit and to bike lanes. The attitude giving precedence to the private car is giving way.

Another thing they are trying to do is behavioural change, teaching younger generations that biking is cool, creating a new set of values that's more sustainable. In some major cities, you see educational campaigns, posters around the cities, [saying] bicycling is really cool. 

A recent paper you worked on looked at air quality in Chinese cities and found they are still struggling. The paper cited a study suggesting “that Chinese cities face the worst air quality across different cities around [the] world based on an extensive research of 175 countries.” Your paper recommends transit-oriented development and significant green outdoor space. Is that something you see policymakers adopting?

Yes, definitely, although with regional variations still. The eastern and southern cities are seeing more policies toward transit-oriented development. They are adapting smart technology too. For example, Hangzhou, which is the model of smart cities, the tech tycoon Alibaba installed sensors on every single traffic signal there. Then they were using technology to change the light, so when they detect a higher volume of traffic, they streamline the green lights and the red light wouldn't stop the cars, so there are less carbon emissions at the intersections. They showed that there was a reduction of up to 15% emissions. 

What about in terms of parking policy? How are policymakers trying to deal with the influx of cars in these cities? Are there parking minimums like in many American cities?

I was visiting Hangzhou in December, their “Smart City” headquarters there. They were trying to use technology to let people know where there's parking, so they don't have to drive around, which increases carbon emissions. In other cities, like Shenzhen, they were increasing the parking fee in the downtown by 50 yuan, or seven US dollars an hour. That's pretty high in the context of Chinese cities. It was 10 or 20 yuan before. So, just increasing the parking cost in the downtown area so that you discourage people from driving.

What are you working on now?

My new research is still on air quality. We had a really cool collaboration with a counterpart of Google Street Map. In China, that’s Baidu StreetMap. We asked the company to install another sensor on their cars when they take pictures. We added a sensor for air quality. So, we will know at a street level what are the current emissions by geolocation, by time. That will be really cool when we have all that data. 

Jake Blumgart is a staff writer for CityMetric.