A Lesson from Detroit

At Project Syndicate, Sanjeev Sanyal argues that the collapse of Detroit has something to teach emerging economies — especially China. The “post-industrial urban model … strongly favors generalist cities that can cluster different kinds of soft and hard amenities and human capital,” he proposes. This has striking implications for the prospects of urban development.

As it transformed itself into the “factory of the world,” the share of China’s urban population jumped from 26.4% in 1990 to around 53% today. The big, cosmopolitan cities of Beijing and Shanghai have grown dramatically, but the bulk of the urban migration has been to cookie-cutter small and medium-size industrial towns that have mushroomed over the last decade. By clustering industrial infrastructure and using the hukou system of city-specific residency permits, the authorities have been able to control the process surprisingly well.

This process of urban growth, however, is about to unravel. As China shifts its economic model away from heavy infrastructure investment and bulk manufacturing, many of these small industrial cities will lose their core industry. This will happen at a time when the country’s skewed demographics causes the workforce to shrink and the flow of migration from rural areas to cities to slow (the rural population now disproportionately comprises the elderly).

Meanwhile, the post-industrial attractions of cities like Shanghai and Beijing will attract the more talented and better-educated children of today’s industrial workers. Unlike rural migrants heading for industrial jobs, it will be much more difficult to guide educated and creative professionals using the hukou system. The boom in the successful cities, therefore, will hollow out human capital from less attractive industrial hubs, which will then fall into a vicious cycle of decay and falling productivity.

Stories like Detroit’s have played out several times in developed countries during the last half-century. And, as the fate of Mexico’s northern towns suggests, emerging economies are not immune from this process.

That is why China needs to prepare for this moment. Rather than building ever more cookie-cutter industrial towns, China needs to refit and upgrade its existing cities. As its population begins to shrink, it may even be worthwhile to shut down unviable cities and consolidate.

(Via Zero Hedge)

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