Why the wealth of the nation lies in our biggest cities

Rates of new business formation in Edinburgh are below the average. Picture: Getty

In 2007, right about the time Steve Jobs was unveiling the iPhone, the world quietly passed a historic milestone. For the first time ever, more than half its population lived in cities, up from a mere one-twentieth two centuries before. In the years since, the global urbanisation rate has continued to rise, and is expected to reach some two-thirds by the middle of the century. Homo sapiens may have evolved on the savannah, but we have become an urban species.

The fact that cities, which represent just one per cent of the planet’s habitable landmass, have come to so dominate our world is perhaps unsurprising. After all, they have been the epicentres of our greatest achievements, from the birth of democracy in ancient Athens, to the flowering of mathematics in medieval Baghdad, to the digital revolution in Silicon Valley.

The reason for that is simple. Cities, in bringing people together, unleash humanity’s potential to be more than the sum of its parts. Five millennia ago, the first city-states of Mesopotamia drew dispersed communities together to develop the irrigation systems needed to support growing populations. From there, humankind developed systems to help us cooperate in large numbers, from religions to governments. We also began to divide ourselves into increasingly specialised occupations, becoming more productive. And, by sharing ideas, we began to invent all manner of technologies, from written language to the wheel, which would lay the foundation for the standard of living we enjoy today. Indeed, for a clear testament to the power of cities as engines of ideas, look no further than Edinburgh’s own history at the centre of the Enlightenment.

In recent centuries, the often slow and erratic story of human progress has accelerated, thanks to the twin engines of industrialisation and globalisation. Cities have been central to both. Without the likes of Manchester and Glasgow, the industrial revolution would never have gained momentum. From the late 18th century, those cities drew together workers from rural areas and businesses eager to put new inventions like the spinning jenny to work. The proximity of factories to one another allowed businesses to stay abreast of the latest technologies and access the engineering expertise that was not yet widely available. Since then, industrialisation has never occurred without urbanisation.

Cities likewise provided the building blocks for globalisation. As far back as the Bronze Age, cities acted as the connecting points of the early trade system that developed around the Eastern Mediterranean. The Silk Roads, which stretched from China in the East through India and Persia all the way to the Roman Empire, were linked by an extensive chain of cities. Today, cities such as London, New York and Shanghai are the gateways of globalisation. They not only serve as physical conduits via seaports and airports, but are also host to the multinational offices, financial institutions and professional services firms that facilitate international trade. It is cities that make possible the fast-flowing stream of goods, money, people and information on which the global economy relies.

The recent surge in remote working has led some to imagine that the city may soon become a relic of a past era in which humanity was held hostage by its need for physical proximity. That is doubtful. The knowledge economy thrives on physical proximity. Creativity still relies on physical interactions and serendipitous encounters. And most knowledge jobs are apprenticeships, meaning workers, especially early on in their careers, benefit from observing and engaging with their more experienced colleagues.

Cities are, therefore, here to stay. Yet they are also at the centre of a growing list of threats. Many countries around the world are now confronted with populist movements built on rage over deepening inequality. To understand the roots of that resentment, we must look to cities. While industrial heartlands have languished in the wake of globalisation and ongoing technological change, London, Paris and other global metropolises have thrived. Their size makes them a magnet for knowledge workers – and especially the young – who are drawn in by wide-ranging job opportunities, cosmopolitan atmospheres, and plentiful romantic opportunities. At the same time, those cities are beset by deepening economic divides of their own, thanks to grossly unaffordable housing and egregiously unequal schooling, among other ills.

Existential threats also loom. It would be naïve to imagine that Covid-19 will be the last pandemic we will face, or even the worst. After centuries of remarkable progress combating infectious diseases, the tide is now turning against us, driven in no small part by the increased density and greater scope for global transmission brought about by rapid urbanisation. When the next pandemic inevitably strikes, cities will either magnify the peril or stop it in its tracks, depending on how well we prepare.

So too with climate change. Around 90 per cent of the world’s urban areas are coastal, placing many cities at risk of being engulfed, especially as storms become more severe. Paved surfaces not only ease the movement of flood waters, but also magnify heat, raising city temperatures above the countryside.

We are at a pivotal moment, beset by multiple crises. Cities are either where we will overcome them, or where we will succumb to them. That is the argument of our new book, Age of the City.

This is no less true in Scotland than elsewhere. The prognosis for the nation’s economy in the years ahead is not comforting. Productivity has been stagnant for a decade. North Sea oil is in decline, yet its economic substitute remains unclear. Compared to the rest of Britain, Scotland is underinvesting in research and development and falling behind on intellectual property creation.

The reinvigoration of Scotland must start with its two major cities, Edinburgh and Glasgow, which together account for close to two-thirds of the nation’s GDP. Both have advantages to work with, including comparatively affordable housing and free university education delivered by excellent institutions. Edinburgh has a world-class public transport system and a vibrant arts scene, boosted by its famed Fringe Festival. In fact, in a recent study by Totaljobs, a hiring platform, it topped the list of Britain’s cities for overall quality of life.

What Edinburgh needs is more innovative companies. Rates of new business formation are below the average for British cities, according to PwC, a consultancy. Venture capital investment in the city was a meagre £220m in the past 12 months, compared with £15.5bn in London, according to data provider Dealroom. Cambridge and Oxford received £725m and £1.4bn, respectively. Luring a few so-called anchor companies to the city would be a good start. Just witness how Microsoft’s move to Seattle in 1979 set the stage for the city’s transformation. Persuading strategy consultancies and investment banks to set up satellite offices would also help, given these firms often act both as professional stepping stones for ambitious graduates and talent feeders for start-ups.

Unfortunately, there are no silver bullets. Cities are the work of generations. That makes it even more important to start now.

Age of the City: Why our future will be won or lost together, by Ian Goldin and Tom Lee-Devlin, is out now, published by Bloomsbury at £18.