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OECD advocates stronger local government
and closer links between neighbouring cities

By Andrew Stevens, Deputy Editor

16 January 2007: The increasing and unchecked trend towards urbanisation now affects most societies, not just the leading economies. Questions of economics and governance are increasingly metropolitan in nature, to the point of underlying most national debates. A study by the Organisation for Economic Cooperation and Development (OECD) has considered both the benefits of urbanisation and the imbalances within the national policy-making process that hinders economic growth. While the study hails the agglomerative effect cities have on regional economies, it also points to a number of deficiencies in how growth is being managed.

The OECD study, Competitive Cities in the Global Economy, is clearly an important contribution to our understanding of the urbanisation process taking place alongside globalisation and the distinct tendency towards glocalisation. It draws together a number of recent territorial reviews of OECD member states and their efforts to provide governance for their metro regions. While the more negative facets of city living in the developing world, such as poor housing and low incomes, are increasingly to the fore in urban debates, the study's concentration on the world's leading economies within the OECD renders it somewhat exclusive and imbalanced as a global study. Even so, it's not as if the more successful urban centres in the world are not without their own share of pernicious issues, as the study itself attests.

In terms of its evidence base, the OECD itself encompasses 78 metro regions of 1.5m or more inhabitants, the majority of which play a leading and guiding role in national economic activity. The study points out that Budapest, Seoul, Copenhagen, Dublin, Helsinki, Randstad-Holland and Brussels concentrate nearly half of their national GDP whilst Oslo, Auckland, Prague, London, Stockholm, Tokyo, and Paris account for around one third. Perhaps more illustratively, it acknowledges the majority of metro-regions in the OECD have a higher GDP per capita than their national average and higher labour productivity and many further tend to have faster growth rates than their countries. Securing recognition of this fact at the national level and aligning the political process towards intuitively balancing the needs of cities with their economic function is indeed a challenge to be faced.

The study points to a number of self-evident features of the benefits of agglomeration. Such economic units "allow large metro-regions to attract global or regional corporate headquarters, offer a wide range of choice in resources and concentrate more specialised business services and infrastructure." This is also born out by the correlation between size and income as a share of GDP. Metro-regions are also best placed to offer both diversity and specialisation, with the concentration of R&D capacity in urban areas leading to premium innovation, the study pointing out that 81% of patents registered in the OECD membership are filed by applicants from urban regions. Both physical and human capital is at a premium in such regions, where demographics and infrastructure is optimised. This would appear to vindicate the claims made by commentators such as Prof. Richard Florida, whose creative class theory argues that urban centres which get diversity and innovation right are best placed to enjoy the economic benefits of globalisation.

Those are the merits of metro regions. The study also points to a number of specific examples where some metro regions do not enjoy the untrammelled economic success of others. Some metro regions lag behind the national average, such as Berlin, Fukuoka, Lille, Naples and Pittsburgh, though these have long been known to enjoy 'basket case' status among city economies (Naples, Pittsburgh) and often for historic and unusual circumstances (Berlin). While metro regions offer considerable benefits, their tendency towards concentrating pockets of long-term worklessness cannot be understated, particularly in deindustrialised regions, with one of third of metro regions reporting unemployment rates above the national average. The attendant effect of this is to render acute the presence of poverty and exclusion as urban phenomena. As the study points out, this is not only experienced in less-advanced and more obvious examples such as Mexico City (a relatively recent member of the organisation) but also deindustrialised Detroit, Lille and Rotterdam, as well as suburban London and Paris. The appeal of cities through the benefits of community and labour markets for immigrants leads to the exacerbation of this exclusion. It goes without saying that where economic disadvantage is particularly acute, the crime rate correlates directly.

Though most would regard these as obvious and self-evident, metro regions have deficiencies, which reach beyond the excluded and present themselves as universal phenomena. All metro regions suffer from ageing infrastructure, which means high usage and high maintenance costs are not leading to improvement and all forms pollution are increasing.

Having analysed the characteristics, performance and function of metro regions across the OECD, the study makes a number of recommendations to policy makers in member states. It asks that we consider 'Are metro-regions the causes of economic growth or its consequence?' Two immediate actions that policy makers can undertake to alter mindsets around urban growth phenomena is to move beyond the sterile dichotomy of centre v. periphery and for increasing cooperative networks between metro regions and other cities and towns, with more programmes to disperse innovation capacities (eg. in the education sector). It also asks that some metro regions accept they will lose out to the world leaders in new technologies and to find other niches as alternatives.

It contends that population concentration, while a source of economic dynamism, is not conducive to quality of life concerns, as outlined above. The study asks that we see such concerns as being integral to economic success, rather than viewing economic performance as its sole indicator. Though advocating a more sustainable approach to development is hardly radical, the study does consolidate best practice from the world's leading metro regions, from Seoul's harnessing of green space to London's Congestion Charge. It also challenges the belief that culture-led regeneration is passé or unproven, citing the landmark developments in Bilbao and Kitakyushu as positive examples of how branding can attract new residents and, ultimately, foreign investment.

The study poses several avenues for the good governance of cities, based on the principles of stronger leadership (especially through new functional bodies), collaboration, flexible networking among neighbouring city governments and the support of local populations to ensure institutions enjoy popular legitimacy (especially through visible leadership). In particular it warns against imposing top-down reform on cities from the national level and calls for an assumption that power and resources should be always be decentralised. This envisages striking a balance between the national and the city level, with a call for local government finance to be better adapted to the needs of metro regions. While it understandably envisages a primary role for business in continuing economic success, it does caution against allowing multinational corporations to squeeze SMEs out of economic activity at this level and to protect against privileged lobbying and market distortion.

This work takes place alongside the growing tendency away from regional equalisation schemes and moves towards encouraging more fiscal decentralisation and ending dependency on central government. The study acknowledges this yet underscores the role of inter-metropolitan equalisation as a means to mitigate against both urban sprawl and income disparities. A recent study by the UK Treasury as part of its efforts to evaluate future government policies against a backdrop of globalisation and the emergence of India and China as significant economic powers found that many corporations cited the burden of the UK's planning laws as a significant factor in determining investment location options. Yet an earlier report for the Centre for Cities, a think tank headed by a former Treasury official, argued that the UK has increasingly looked to the US for its urban policy agenda, despite US cities' economic performance being negatively outweighed by concerns over sprawl and social inequality. Their report suggests that while the UK's urban agenda might learn from the European experience as a more applicable template for reform, the political will does not exist to sufficiently resource city governments to move in this direction. This study suggests that the answers are not located on any one continent or group of economies, but are in fact entirely global. As such it can be viewed as a landmark study and will hopefully be the first in the realisation of a comprehensive global urbanisation agenda.

The OECD was founded in 1961 as the successor to the Organisation for European Economic Cooperation (better known as the Marshall Plan). Its 30 member states share a commitment to democratic governance and the market economy. The OECD provides policy analysis and exchange of information on regional development, regional competitiveness, urban development, rural development, multi-level governance and regional statistics and indicators.

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