In a recent video conference lecture, Ex-Vice (and still wannabe) President Al Gore said; “in the next 40 years, there will be more building than in the previous 3,000 years.” In this of course he saw great environmental risks. Global financiers on the other hand should see huge opportunities. When most of the world’s 3.54 billion rural population decide to move into the cities, a massive shift in their expectations occurs. Think about it. These ex-villagers will want clean, hot water on tap, not the stagnant kind from the well. They will require grid-tied electricity and air-conditioning, not a smoke-filled hut. And above all, they will demand a space to call their own, probably a car and plenty of good places to shop.
Urbanisation 1.0 which accompanied the West’s industrial revolution in the 19th Century was trivial compared to the scale and speed of what is happening today. Even by 1900, just 220 million of the world’s people, 13 percent, were living urban lives. That’s why Urbanisation 2.0 – the 21st Century version – is a mega-trend that can’t possibly be ignored and is one that investors must embrace.
For sure, the infrastructural challenges are enormous; bringing transport, housing, energy and water to a few billion people for the first time. Naturally, there are those who would say this can’t or it shouldn’t be done. They should be ignored. Progress, ultimately, is unstoppable. The pertinent question to ask though, is how can it be done, financially?
At the micro level, these new – but poor – urban slum dwellers, will eventually want loans, credit and insurance. On housing at least, you can forget them taking out 25 year mortgages. In 2001, prize-winning Peruvian economist Hernando de Soto argued very persuasively in his book ‘The Mystery of Capital’ that what was lacking in developing nations were legally enforceable property rights and that’s what kept them poor. In other words, because most of the world’s poor have no formal ownership deeds, they are unable mobilise those assets – be they businesses, property or livestock – to use as collateral against debt. Micro-finance then, has the potential to go a very long way from here.
Transport is another area fraught with huge difficulty. In China, cities with a few million people are being erected in mere years and national vehicle ownership is forecast to rise from 30 million to 140 million by 2020. Already they have 16 of the world’s 20 most polluted cities, principally due to exhaust fumes. To their credit, the Chinese are working on this furiously, no doubt motivated by the possible embarrassment of choking athletes at next year’s Olympic Games in Beijing. It is however a universal problem and there can only be three solutions; cleaning up personal transport, increasing public transport and reducing urban density. My guess is that the most likely outcome is that as oil prices drift upwards, markets will deliver the first and politicians will talk up the second while quietly endorsing the third, by expanding the suburbs.
But can you plan for efficient future cities?
The West unfortunately does not have a great deal to teach the developing world in planning. Urban design as a profession is at least 2,000 years old. Today’s municipal planners dream wistfully of Timgad, a perfectly symmetrical, self-contained grid-laid Roman town in Algeria built in 100 AD. Instead they have given us the likes of Milton Keynes in the UK, one of the world’s first ‘New Towns’ and by common consent, a soulless failure. Looking back, it would have been far better to expand London. So the lesson for planners is this; urbanisation works at its best where scaleable infrastructure is put in place, first and citizens are given maximum choice to expand from the existing hub, second.
The future city of the West in 2040 will have resolved many of those issues that currently elude us; clean air, reliable public transport and effective municipal government. Between now and then in developing world cities, all of these will probably get worse before they get better. But catch up they will. Competing in the global economy is like a race without a finish. And only those cities which offer both good economic prospects and a high quality of life will stay ahead. So take a long bet on cement, bricks and mortar. Urbanisation 2.0 has only just begun.
Dan Lewis is Research Director of the Economic Research Council. www.ercouncil.org