UN-HABITAT Staff Training Urban Economy, Job Creation and Municipal Finance

2. UN-HABITAT Staff Training Urban Economy, Job Creation and Municipal Finance Michael A. Cohen The New School University, NY October 10-11, 2011

3. Contents • Global Formulation of the Urban • Why Cities Exist? • Urban Economic Competitiveness • Cities in the Midst of Global Crisis • UN-HABITAT and Urban Economy • Developing a Comparative Advantage for UN-HABITAT • Conclusion: Towards a New Operational Logic PRESENTATION TITLE, Date, VenueConference Name

4. Global Formulation of the Urban Urban debates continue to be framed in a highly global formulation of urban phenomena.

5. Global Formulation of the Urban – 1. Planning • Urban demographic growth will continue beyond primate cities to secondary centers. • Insecure land tenure is dominant feature of slum growth. • Urban planning regarded with increasing skepticism. • Urban plans and policies ignore local ecosystems. • Extension of urban infrastructure guided less by public policy than by private investment. • Urban density of central areas is declining.

6. Global Formulation of the Urban – 2. Legislation and Governance • Urban governance is weak due to scarce financial and technical capacity and a lack of national government attention. • Land markets affected by local regulations. • Weak management of urban externalities. • Cities lack financial base for long-term finance. • Poor management of urban land resources.

7. Global Formulation of the Urban – 3. Services • Urban water supply is a dual concern, with the marginal cost of water increasing in most cities and the lack of distribution to poor communities. • Urban sanitation is recognized as playing a key role in controlling water-borne diseases. • Urban safety and security is an increasing problem.

8. Global Formulation of the Urban – 4. Social Dimensions • Cities and towns remain destination of migrants. • Civil society organizations replaces public sector. • Urban gender differences not addressed by policies and programs. • Urban slum conditions deserve priority attention because poor living conditions undermine social welfare and labor productivity.

9. Global Formulation of the Urban – 5. Other • Large informal sector share of employment. • Many of these problems are reflected in intra-urban inequality. • Urban cultural and physical heritage deserve protection.

10. Global Formulation of the Urban - Observations Suggests a view of the city as: • largely independent of time and space • relatively static • ignoring other changes at different scales • failing to acknowledge impacts of change on cities through changes in prices, value, and costs • fundamentally unhistorical in its perspective • is relatively independent and insensitive to major external phenomena: global economic crisis, political change, local ecosystem collapse, or local disasters • does not acknowledge: dependency of local urban conditions on macro-economic or global financial conditions or, in reverse, impact of urban conditions on global and national patterns

11. This View of Cities • general absence of linkages and the continuing independence of this model of cities from economics or ecology • Urbanists have entered the city through the house and the bathroom, rather than through the place of work or income generation. • This reflects work by architects and planners and not enough attention by economists. PRESENTATION TITLE, Date, VenueConference Name

12. This View of Cities (contd.) • most, though not all, urban analysts are not seeing the larger context. • problematic in light of current global economic crisis and heavy impact on developing countries. • sharp decline in global demand for commodities and manufactured goods produced in cities. • contraction of many domestic economies during this period. • global economic crisis undermined period of historic high rates of economic growth. • terrible consequences for growing numbers of poor people living in cities.

13. Why Cities Exist? • Economies of Agglomeration: The Power of Density • Localization Economies • Urbanization Economies

14. Economies of Agglomeration • A move to density – cities are the most visible manifestation of scale economies. • Economic density - Few countries have grown to high income without large cities. • Cities grow through the agglomeration or clustering of economic activity (large central or commercial business districts, specialized areas, knowledge industries, etc.). • Occurs at all geographical levels • Depends on size of city, but also urban interactions • Makes possible labor pooling, labor diversity, higher employment opportunities • Growth in industries • Facilitates ease of communication, information, ideas • Facilitates producer efficiency and consumer variety • As location grows in size, costs fall, number of businesses and households rises

15. Population in Urban Agglomerations of More than 1 Million (% of total population) 1960 - 2010 Source: World Bank Indicators, at http://data.worldbank.org/

16. Urban settlements provide different services: • Towns facilitate internal scale economies • Cities facilitate localization economies • Metropolises generate urbanization economies

17. Economies of Agglomeration – Negative Externalities • Environmental effects • Congestion • Pollution • Crime • Pricing Power of firms • Lack of labor flexibility

18. Economies of Localization • Arises from a larger number of firms in the same industry and same place. • Economic interaction within industries • Come from input-sharing and competition within industry - geographically concentrated groups of firms linked by the technology they use, the markets they serve, the products and services they provide and the skills they require. • Competition increases productivity. • Proximity to similar firms influences the location decisions of firms.

19. Economies of Urbanization • Arise from a larger number of different industries in the same place. • Economic interaction between cities • Higher productivity leads to higher incomes, and higher prices • Come from industrial diversity fostering innovation. • Urban diversity fosters exchange of ideas, technology to provide greater innovation and growth. • Firms can share a larger pool of specialized works, risks, public goods, in-put suppliers. • Across-industry knowledge spill-overs.

20. Urban Economic Competitiveness • Constraints to Productivity • Supporting Productivity

21. Urban Economic Competitiveness – Global Trade The impacts of global trade • Since the 1970’s the share of trade of most developing countries has increased in GDP Trade in Services (% of GDP) 1960 – 2010 Source :World Bank Indicators, at http://data.worldbank.org/

22. Urban Economic Competitiveness – Constraints to Productivity • Infrastructure deficits, regulatory controls, lack of effective urban finance institutions, and mixed performance by local governments. • Intra-urban inequality itself • Skewed allocation of public investment has contributed to differences in quality of life and economic opportunities. • Example of Buenos Aires. • These patterns exist in all cities. • Intra-urban inequality cannot be blamed on multilateral financial institutions or international private sector. • Much intra-urban inequality is a local product.

23. Urban Economic Competitiveness - Supporting Productivity • Supporting productivity increases is a key issue in a period of economic crisis. • Investment in urban infrastructure is a high priority to support firms to sustain and growth employment: Lagos. • Investment in human capital • Support for entrepreneurship • G-20 discussions since 2009 have reduced their attention to urban employment even though most of the “demand” which governments wish to stimulate exists within cities. • Stimulus packages do not occur in cyberspace, they must be firmly rooted in places if they are to have discernable impacts.

24. Cities in Midst of Global Crisis • Hypotheses About the Global Crisis (2008) • Impacts • Changing Role of Governments

25. Hypotheses About the Global Crisis 2008 (I) • Reduction of credit would reduce investment, consumption, and urban employment, reducing aggregate demand and contracting urban economies. • This reduction would shift composition of urban economic activity away from manufacturing and lead to greater informality. • Worsening urban poverty and distribution of income. • Reduced commodity prices would push people off the land and into cities, leading to growing squatter settlements. • Food and energy prices would remain high and particularly hurt the poor.

26. Hypotheses About the Global Crisis 2008 (II) • Reduced production, trade, and consumption would reduce tax revenues and create a fiscal crisis. • Reduced expenditures for social services and infrastructure would lead to fiscal austerity and internally-imposed structural adjustment. • Municipal financial austerity would lead to deferred maintenance, increasing risk of infrastructure failure and macro economic vulnerability. • The results for urban form would be more slums, unlinked to infrastructure networks, more informality, less urban citizenship.

27. Evidence from around the world shows that these hypotheses were confirmed and continue to be confirmed in many countries

28. Impacts of the Crisis (I) • In China over 20 million migrant workers (3% of labor force) working in urban areas were laid off in late 2008, mostly from construction sector in cities and towns, and told to return to rural areas. • The Mexican economy was expected to shrink by 1.8% in 2009, with job losses between 160,000 and 340,000, mostly in urban areas. • The Cambodian textile industry, located in urban areas cut one worker in ten in 2008. • Workers in manufacturing plants for cars in Argentina and Mexico, aircraft in Brazil, and building sites in Peru were been laid off in late 2008 and early 2009.

29. Impacts of the Crisis (II) • OECD estimated 25 million unemployed people in member countries in 2009. Unemployment in Spain reached over 20 percent. • New York City lost about 100,000 jobs from August 2008 to August 2009, largely in the financial sectors, media, advertising, retail sales, entertainment, and tourism. • Countries beginning to have access to global financial markets, like Ghana and Sri Lanka, are now excluded, while countries with emerging local capital markets like Kenya, Nigeria, Malawi, Ghana, Uganda, and Zambia, felt the impact of sharply contracted credit.

30. Impacts of the Crisis (III) • Foreign direct investment in low-income countries fell by at least 20% from 2008 to 2009. • Heavy impacts occurred in the informal economy which makes up 60-90 % of the work force in various countries. Trade and work volumes declined by 65% for urban waste pickers, street vendors, and home-based workers. • More workers appeared in the informal sector, with an estimate of 55% more in a ten-city study. • Millions of households lost their homes in the housing crisis in the United States, leading to the establishment of tent cities or “Hoovervilles” in cities around the US.

31. Changing Role of Governments • Washington Consensus • Element of a new model • Strengthening role of the state: Promoting Employment • Industrial policy • Meeting human rights • Role of Cities: Infrastructure, Multipliers, Rules

32. UN-HABITAT and Urban Economy • Urban Economy • Job Creation and Income Generation • Municipal Finance

33. 1. Urban Economy • Urban economy in a regional perspective • Most developing countries face serious budgetary constraints and are in most cases unable to finance the existing backlogs even for public infrastructure. • Most devote a large share of scarce municipal revenues for the salaries of municipal employees: Dakar and Lagos. • International or domestic private financial sector are unlikely to provide finance for the needs of the urban poor: Kenya. • Productivity constraints in India.

34. 2. Economic Growth & Job Creation • National public sector employment policies are unlikely to generate jobs and incomes at a scale and rate commensurate with urban growth. • Need for a new local economic development policy • Many specialists on employment have been left to celebrate the positive features of the informal sector, without acknowledging its disadvantages • Debate about the informal sector and GDP growth • Successive summits on employment policies have not yet generated a set of policy recommendations or actions which have had much impact.

35. 3. Municipal Finance • Intergovernmental financial relations • Instability and unreliability at the local levels. • Property Tax • Is this a real tax revenue for developing countries? • Easier sources of urban collective revenue • Street addressing.

36. Suggestions • We need to examine more deeply in a comparative framework what is happening to capital and labor in relation to urban growth. • Capital and labor need to be linked together to generate urban economic multipliers which can help to create new kinds of employment. • The role of land and land policies necessarily is central to this process.

37. Developing a Comparative Advantage for UN-HABITAT: From Urban Services to Local Economic Development • From Cities Without Slums to Cities With Jobs. • Sustainable urbanization on a two-sided triangle?

38. Other Players in the International Community • ILO • UNESCO • World Bank • Regional Development Banks

39. Priority Areas • Urban Planning: Infrastructure / Rethinking Space • Spatial Inequality • Climate Change • Social Justice / Evictions

40. Conclusion: Towards a New Operational Logic • Processes • Products • Partners • Impacts • Outcomes

41. Credits • http://multigraffiti.blogspot.com/2011/04/urbanization.html • http://flywithfarebuzz.blogspot.com/2011/06/shanghai-chinas-largest-cultural-centre.html • http://www.chinaenvironmentallaw.com/wp-content/uploads/2008/09/shanghai-wfc.jpg • http://wheels.blogs.nytimes.com/2007/12/07/in-india-more-cars-going-faster/ • http://www.treehugger.com/tag/egypt • http://www.cartoonstock.com/directory/i/improve_productivity.asp • http://www.planetizen.com/node/35269 • http://www.huffingtonpost.com/2011/05/21/spain-protests-joblessness_n_865058.html • http://www.zoneasia-pk.com/zoneasia-pk/index.php?option=com_content&view=section&layout=blog&id=7&Itemid=55&limitstart=77 • http://en.ird.fr/the-media-library/scientific-news-sheets/359-vietnam-an-asian-miracle • http://africaunchained.blogspot.com/2010_07_01_archive.html • http://2.bp.blogspot.com/_VfdGlmUwjFQ/TEyWnz-61uI/AAAAAAAAGSk/fEKu_I9SE7w/s1600/nkiru.png • http://thelondonnigerian.com/?p=57 • http://en.wikipedia.org/wiki/File:Dakar-Ind%C3%A9pendance.jpg • http://travelsplendid.com/descopery/mexico-city-%E2%80%93-the-capital-with-many-museums/ • http://www.redesign-day.com/the-great-american-dream/ PRESENTATION TITLE, Date, VenueConference Name