How Cities and Connections have Surpassed Countries as Units of the World Economy
Economic discourse has historically emphasized nations as the default economic agent in the world economy. Under a Westphalian understanding of sovereignty, the nation-state rose as the pre-eminent actor on the global stage, assuming the representation of individuals within such communities. It was within this global structure, that the movement against mercantilist national policy birthed the seminal works of Smith and Ricardo, founding our understanding of economics. Disrupting this conventional mindset, however, is the tide of urbanisation that has concentrated global wealth. 65% of global GDP growth is predicted to be situated in just 600 urban areas, representing a shift in the balance of economic agency from a national to an urban focus. This trend is set to continue — 440 growth cities will be home to 60% of new urban consumers, accounting for a 10 trillion USD increase in annual consumption in said 440 cities. This introduces a compelling case for cities, and their connections, rather than nations to be considered the key units of the world economy.
The key factor behind this paradigm shift is the meteoric rise in the concentration of economic activity. Historically, cities have been local centres of political and economic activity, with city-states in ancient civilisations providing junctions of trade, employment and exchange of ideas. The shift to becoming regional and global power, comparable to nations, was sparked by technology. Today, this can be seen in the urban rate of growth in emerging markets compared to the national average, such as Jakarta, which experiences a 14% growth rate compared to 6% nationally. The advantage of cities is derived from a higher density of interaction and communication, leading to increased innovation, trade, and collaboration — 80% of US innovations, by number of patents, takes place in 100 metropolitan areas, whilst home to 65% of the population, whilst 5 metropolitan areas account for 80% of venture capital investment in the US.
Globalisation also plays an important role as cities act as “junction boxes” where global cities facilitate international trade, before acting as a hub for the region, such is the nature of the nested network model.
These city-to-city vectors are increasingly becoming integral to global economic infrastructure. Sassen, who popularised the term ‘global city’, argues that the vast majority of future international interactions take place within the firm-to-firm domain, and national boundaries are not obstructive to the operations of the firm — 11 trillion USD of sales were outside of firms’ own countries by 1999 even, when global trade was 8 trillion USD.
In emerging markets, most of the FDI is funnelled towards one or two main cities, demonstrating the future direction of growth in such developing regions. The potential mergers of stock markets, recorded by the GaWCgained significant traction, representative of what a report conducted by McKinsey dubs the “invisible financial infrastructure”, driven by the concentration of legal, financial and commercial expertise. These observations signify the trend towards global financial infrastructure being spearheaded by connections between global cities. It is the cities’ comparative advantage that drives mutual benefit from international trade, and these advantages allow for an increasing number of cities to become ‘global’, especially ‘middleweight’ cities, urban areas with 150,000 to 10 million inhabitants.
Moreover, the influence of these global cities are seeping into geopolitical realms previously dominated by national representatives. Summarising the 2012 Global Cities Index (GCI), AT Kearney observed the shift from state-state geopolitics “these cities [New York, Chicago, Washington D.C.] are becoming more important geopolitically than the United States as a country” and even US-China relations would be determined by “urban axes that bring together key cities”. The political landscape is going to be shaped by around 20 “strategic worldwide urban networks”, rather than the G2. This can be seen within the C40 initiative, where 90+ cities and mayors discuss the application of technologies, best practices, and cooperation between public and private sectors. Agreements reached in such talks have “exceeded those of intergovernmental negotiation”. This success can be contrasted with the Paris agreements, infamously graced by Trump and the US’ withdrawal. The “We Are Still In” campaign also sees 360 mayors working to match the agreement, contrasting the direction of the Federal government. City networks have also exerted influence upon international institutions. United Cities and Local Governments
lobbied for Goal 11 into the UN’s Agenda 2030, providing cities and communities sustainable development through the adoption of best local practices.
Still, nationstates still hold power through military capabilities, and legislative rule. Expenditure on defence has increased steadily since the 1990s, and 39% of the world’s GDP still resides within just China and the US. British journalist Misha Glenny argues that financial turmoil such as the 2008 crisis has “enabled alternative models to reassert themselves” referring to the increasing authoritarian stance of China and Russia. It is important to note, however, that power was able to shift Eastwards without the deployment of military might, and also the gradual decentralisation of legislative power.
Fundamentally, the key units of any economy are individual economic agents, and the legitimacy of any representation of individuals should reside within a manifestation of some form of social choice. Nations have long since dominated this sense of identity, and nationstates have had the power to govern, and to act as the manifestation of collective decisions. However, as cities become substantially more powerful than their nearby regions, they form their own distinct identities, and the socio-economic standing of the city and its host nation becomes vastly different. In light of the doubling of urban terrorist attacks, cities have taken measures to increase their own security, without national aid, expressing a sense of sovereignty separate from the nation state.
To accommodate this shift, direct investment towards increasing the capacity of urban environments is needed. McKinsey estimates that cities will require a physical capital investment of 20 trillion USD by 2025, to ensure the sustainability of densely populated environments, especially in emerging markets. Providing the physical infrastructure for the global economy and connecting urban centres is also crucial. Not only does this extend the urban environment but infrastructure can drive economic growth on its own. Our economic perspective should also separate urban and rural environments. Another layer of nuance should be implemented within economics — it seems somewhat crude to lump together the economies of urban and rural environments, and having metrics for either regions separately can allow us to analyse and develop solutions for both. Inequality is also shifting, as the global north and south erode away into history, whilst intracity inequality, and ‘inner city’ issues will be more prevailing. In a sense, inequality is more vertical than lateral.
Considerable empirical data has questioned the legitimacy of nations as key units of the world economy, instead it suggests that cities are the drivers of innovation and global interaction. Through the lens of nations, we are susceptible to downplay the relevance of cities, as it implies that rural and urban populaces have equal economic standing. Thus, it is imperative to recognize the inherent advantages, and emphasise the development of urban areas, for it is the site of the vast majority of economic activity.
2012 Global Cities Index and Emerging Cities Outlook. (n.d.). ATKearney.
The 2030 Agenda for Sustainable Development. (n.d.). Retrieved July 24, 2020, from https://www.uclg.org/en/issues/2030-agenda-sustainable-development
Cities, not countries, are the key to tomorrow’s economies. (2014, April 25). Retrieved July 24, 2020, from https://www.ft.com/content/0221bb6e-cb9d-11e3-8ccf-00144feabdc0
Clark, G. (2016). Global cities. Washington, D.C.: Brookings Institution Press.
Dobbs, R. (n.d.). McKinsey and Company.
Dobbs, R. (n.d.). Urban world: Cities and the rise of the consuming class. McKinsey and Company.
Dobbs, R., Smit, S., Remes, J., Manyika, J., Roxburgh, C., &
Restrepo, A. (2018, April 27). Urban world: Mapping the economic power of cities. Retrieved July 23, 2020, from https://www.mckinsey.com/featured-insights/urbanization/urban-world-mapping-the-economic-power-of-cities
ECONOMIC IMPACT OF AIRPORT OPERATIONS. (2017). LONDON: EMERALD Group PUBL.
The Evolution and Challenges of Security within Cities | UN Chronicle. (n.d.). Retrieved July 24, 2020, from https://unchronicle.un.org/article/evolution-and-challenges-security-within-cities
Florida, R. (2013, February 01). Innovation and the Wealth of Cities. Retrieved July 24, 2020, from https://www.bloomberg.com/news/articles/2013-02-01/innovation-and-the-wealth-of-cities
Florida, R. (2018, March 27). The Extreme Geographic Inequality of High-Tech Venture Capital. Retrieved July 24, 2020, from https://www.bloomberg.com/news/articles/2018-03-27/the-extreme-geographic-inequality-of-high-tech-venture-capital
Khanna, P. (2018, January 08). When cities rule the world. Retrieved July 24, 2020, from https://www.mckinsey.com/featured-insights/urbanization/when-cities-rule-the-world
Klaus, I. (2018, February 13). Perspective | Why cities dominate the modern world. Retrieved July 24, 2020, from https://www.washingtonpost.com/news/made-by-history/wp/2018/02/13/why-cities-dominate-the-modern-world/
Ritchie, H., & Roser, M. (2018, June 13). Urbanization. Retrieved July 23, 2020, from https://ourworldindata.org/urbanization
Robert Muggah. Published on Dec 21, 2. (2016, December 21). The nation-state strikes back. Retrieved July 24, 2020, from https://ipolitics.ca/2016/12/21/the-nation-state-strikes-back/
Sassen, S. (2001). The global city New York, London, Tokyo. Princeton (N.J.): Princeton University Press.
Sassen, S. (2019). Cities in a world economy. Los Angeles: SAGE.
Silver, C. (2020, July 07). The Top 20 Economies in the World. Retrieved July 24, 2020, from https://www.investopedia.com/insights/worlds-top-economies/
Robert Muggah, F. (n.d.). It’s cities, not countries, that will solve our biggest challenges. Retrieved July 24, 2020, from