The rise of the mega-city will change the global economy forever

In 1800, just 5pc of the world’s population lived in cities; the rest resided in small towns and villages. This year, 55pc of the world’s population will live in cities. The transformation has been dramatic; urbanisation and the rise of cities is one of the most important changes that humanity has undergone as it has become richer. The trend is set to continue, posing huge challenges in some areas but creating vast opportunities for those willing and able to seize them.

It is not just that we are now much more likely to live in cities – more and more of us live in extremely large urban conurbations. At the start of the 19th century, just one city had a population that was greater than 1m – Beijing. Today, there are more than 450, accounting for 22.7pc of the world’s total population.

The rise of the mega-city, defined as areas of continuous urban development, is even more striking: 40 years ago, just Tokyo and New York fell into that category, joined by Mexico City in 1975. Today, 29 mega-cities boast 10m or more people, accounting for 7.2pc of humanity. The largest, at 37.6m, is Tokyo, followed by Jakarta (30m), Dehli (24.1m), Seoul (23m) and Manila (22.7m). Some of the mega-cities are shockingly little-known in the West, at least among the general public, including Guangzhou-Foshan (which counts 18.3m inhabitants) or Nagoya (10.2m). There will be another 10 or so mega-cities in a decade’s time, with an extra six or so in two decades’ time, according to forecasts.

All of these facts and many more are drawn from The Problem with Mega-Cities, by Joel Kotkin and colleagues and published by Chapman University’s Centre for Demographics and Policy. While I tend to disagree with many of the book’s conclusions, and am more upbeat about cities than its authors are, it is chock-a-block with fascinating insights and statistics.

London was the smallest of the 29 mega-cities, with its urban region (which includes not just Greater London but a swathe of the home counties’ commuter belt) now home to 10.15m, compared with 10.98m for the Paris region. Crucially, however, London’s population grew at a much faster rate than any other mega-city in the developed world – more than 10pc over the past decade, against 8pc for Paris, 6pc for Los Angeles and just 3pc for New York. This week’s net migration figures suggest that London is continuing to expand at a very fast rate, a development which is bound to continue to put pressure on house prices at a time of still limited supply.

Britain’s capital city, which has regained much of its erstwhile commercial and cultural greatness, is a good example of how a mega-city drives growth, progress, jobs and prosperity in a wider national economy. But that is not true of every mega-city. A study from McKinsey points out that “contrary to common perception, mega-cities have not been driving global growth for the past 15 years”.

In the US, New York, despite its recent renaissance, has nevertheless been in continuing relative decline, with corporate headquarters and the centre of economic gravity shifting to places such as Texas. Despite the triumph of Silicon Valley, California is in trouble, as a result of political incompetence and terrible anti-market and anti-business policies.

Being a mega-city is not enough: you also need the right economic policies. One of the greatest problems in London, but also in New York, San Francisco and elsewhere, has been over-regulated property markets that have pushed up prices and squeezed out the middle classes, triggering a political backlash. Many cities fail to get the infrastructure right, creating immense transport problems. Crime and educational failure can be rife. Mega-cities in the emerging world, where almost all of the population growth and urbanisation is being concentrated, suffer especially badly from such intractable issues.

On balance, however, the likes of Harvard’s Ed Glaeser are right: cities are where the action lies, even though many people find the countryside a more pleasant place in which to reside. They facilitate the intensification of the division of labour and knowledge, the specialisation and the trade that fuel progress. Glaeser argues that globalisation and technology have increased the “returns to being smart”, in other words education and enterprise, and that this is most manifest in large, international metropoles. The increasing returns to scale from urbanisation may partly be eroded by technology but the general principle will remain. Expect the rise of the mega-city to continue in the years and decades ahead.

AA’s shake-up

It is hard not to feel sorry for Chris Jansen and Andy Boland, who are leaving the AA where they were respectively CEO and finance director.

Jansen joined just eight months ago; he was brought in to work for the firm’s previous private equity owners but the accelerated flotation changed his role pretty dramatically.

Taking top jobs is risky - and this helps to explain why senior bosses are paid so much. Some corporate governance activists are upset at the fact that executive chairman Bob Mackenzie will now be running the group day to day; the rest of us will merely shrug. As to shareholders, they are relaxed about the management changes; Aviva’s David Lis, one of the City’s most powerful fund managers and the second biggest investor in the AA, is wholly supportive of the management shake-up. The bigger question for the AA is what happens when RAC, a powerful and potentially more polished competitor, lists. Shareholders will find it easier to compare both groups – and the pressure will be on the AA to up its game.

Tech warriors

Britain's technological superstars mustn’t sell themselves short. CSR, the expert at the “internet of things”, was right to reject a bid that might have valued it at up to $3bn. It is vital that British firms don’t allow themselves to be sold at a discount relative to their US counterparts.

In general, we need to see more ambition from the UK’s tech scene: attitudes have improved over the past few years but it remains the case that Brits are all too often content to make a few million, rather than a few billion.

allister.heath@telegraph.co.uk