Hamish McRae: Never mind the eurozone – what really matters is the urbanisation of the world

To sustain and improve their services, most cities will need to be able to do better with less

Let's stand back. The long agony of the eurozone will grind on awhile yet. The long slog of correcting UK finances will grind on too. But while they matter tremendously to us, these issues are small in the broader scheme of things.

Click HERE to view graphic

When they write the economic history of the first decades of this century the focus instead will be on the shift of activity to Asia and the rapid urbanisation of the world.

The first of these themes has received wall-to-wall coverage and for good reason: what China or India does has a profound impact on the rest of us. But urbanisation has been covered more unevenly, with emphasis slanted towards the problems that it creates rather than the benefits and opportunities it brings. A new paper by McKinsey Global Institute, Urban World – Cities and the Rise of the Consuming Class, focuses on the latter and deserves a wider audience.

The starting point is that economic growth is closely associated with urbanisation. As countries get richer more people move into cities. This relationship is shown in the chart, with the level of urbanisation on the horizontal axis and GDP per head on the vertical one.

As you can see, all the lines slope upwards and to the right, though the pattern is slightly different in different countries. Thus Brazil has reached a very high level of urbanisation while still at middle-income wealth levels, whereas Japan and Italy have high GDP per head while retaining one-third of their population in the country or small towns. The UK is unusual in that urbanisation peaked in 1939. And the sharp-eyed among you will have noted that wealth per head in China now is roughly the same as it was in Britain in 1939, while India has roughly the same as Britain in 1860. That is something that makes you think.

The theme of the study runs like this: About one billion people will enter what McKinsey calls the global consuming class by 2025, who have what one might call a modest, middle-class prosperity. Of this billion, some 600 million will be in 440 cities across the emerging world, and will generate half of the global growth to 2025. Only 20 of these will be megacities with a population of 10 million or more, and the rest will be medium-sized cities with a population of 250,000 upwards to the low millions.

Such rapid growth will create stresses because rapidly growing cities need huge investment in infrastructure. But cities are also part of the solution, partly because people are more productive if they live in them than if they stay on the land, and partly because it is cheaper to provide for people's needs if they are clustered together. That investment also will be a driver of growth, for they need to double their physical capital: homes, roads, schools, offices and so on.

These cities will also be a huge market for consumer goods. When people reach middle-class living standards they initially tend to want to buy more physical goods, household appliances, electronic kit, eventually motor cars. Once they have all this, then they tend to shift their purchases towards buying services –financial, travel, entertainment and so on.

The pattern of spending is also determined by the population's age. For older people in cities such as Shanghai much of the consumer market is for replacement or higher-quality goods. For places with younger populations, such as Lagos, the demand is more for products for babies and children.

These cities need a lot more buildings. McKinsey estimates that between now and 2025 they will have to build almost as many new residential and commercial buildings as the entire stock of buildings that exist at the moment. These cities will need a lot more water, a lot more power, and a lot more ports and other facilities. Managing this well will be an enormous challenge and municipalities will need help from the private sector to do so.

McKinsey thinks we in the West have rather ignored these opportunities, thinking still in terms of countries rather than urban agglomerations, and I think that is probably right. But my own concern is more that we still see urbanisation as a scourge rather than a blessing.

There is no doubt that the growth of shanty towns on the edge of these new cities is ugly and standards of urbanisation in much of the developing world could be improved. But we do forget that people move to cities because they offer a better life than would be available if they stayed on the land. Besides, just because a place looks a physical mess does not mean that it is a social mess, as anyone who has studied shanty towns in India will know.

Indeed, the problems of cities in the emerging world are very different from those in the developed world. In the latter the problems are usually concerned with the need to boost slow growth, rather than how to adapt to rapid growth. But there is one common factor, summed up by McKinsey here: "To sustain and improve their services, most cities will need to be able to do better with less. Involving the private sector can help bring in expertise as well as intelligence about what constraints may be limiting their growth in a particular city and how to overcome them."

I would go further. How will the 10 billion people who will inhabit the world in 2050 have reasonable living standards without putting too heavy an environmental burden on the planet? A big part of the answer will be to make these new cities function better. The challenge is to make high-density living safe, pleasant and satisfying.

There are examples of cities that work well. Tokyo, the world's urban agglomeration, is also the safest. Detroit, the centre of a metropolitan area of more than five million people, is one of the most dangerous in the US.

What matters will be whether the majority of those 440 cities that will generate half the world's growth will be well-run or failing ones. And all this is much more important to the world than what happens to the euro.

Arts & Entertainment
The Honesty Policy is a group of anonymous Muslims who believe that the community needs a space to express itself without shame or judgement
music
News
Waitrose will be bringing in more manned tills
newsOverheard in Waitrose: documenting the chatter in 'Britain's poshest supermarket'
Life & Style
life
Arts & Entertainment
Back in the suit: There are only so many variations you can spin on the lives or adventures of Peter Parker
filmReview: Almost every sequence and set-up in The Amazing Spider-Man 2 seems familiar from some earlier superhero film
VIDEO
Arts & Entertainment
Jack Gleeson as Joffrey Baratheon in Game of Thrones
tv
Life & Style
Father and son: Michael Williams with son Edmund
lifeAs his son’s bar mitzvah approaches, CofE-raised Michael Williams describes the unexpected joys he’s experienced in learning about his family’s other faith
Arts & Entertainment
Ian Anderson, the leader of British rock band Jethro Tull, (right) and British guitar player Martin Barre (left) perform on stage
musicJethro Tull frontman leads ‘prog rock’ revival
Sport
Gareth Bale dribbled from inside his own half and finished calmly late in the final to hand Real a 2-1 win at the Mestalla in Valencia
sport
Arts & Entertainment
Who laughs lass: Jenny Collier on stage
comedy... writes Jenny Collier, the comedian whose recent show was cancelled because there were 'too many women' on the bill
News
House proud: keeping up with the Joneses now extends to children's playhouses
newsLuxury playhouses now on the market for as much as £800
News
news
Life & Style
Stir it up: the writer gets a lichen masterclass from executive chef Vivek Singh of the Cinnamon restaurants
food + drinkLichen is the surprise new ingredient on fine-dining menus, thanks to our love of Scandinavian and Indian cuisines
Extras
indybest
Arts & Entertainment
Ken Loach (left) and Mike Leigh who will be going head to head for one of cinema's most coveted prizes at this year's Cannes Film Festival
filmKen Loach and Mike Leigh to fight it out for the Palme d'Or
News
The academic, Annamaria Testa, has set out on her website a list of 300 English words that she says Italians ought to stop using
newsAcademic speaks out against 'Italianglo' - the use of English words in Italian language
Have you tried new the Independent Digital Edition iPad app?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

1st Line Helpdesk Engineer Apprentice

£150.00 per week: QA Apprenticeships: This company has been providing on site ...

Telesales & Sales Support Apprentice

£221.25 per week: QA Apprenticeships: This company is a well established Inter...

Client Relationship Manager - SQL, Python

£40000 - £50000 per annum: Harrington Starr: Client Relationship Manager - SQL...

**Financial Services Tax**

£35000 - £50000 per annum: Pro-Recruitment Group: Take your chance to join the...

Day In a Page

How I brokered a peace deal with Robert Mugabe: Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC

How I brokered a peace deal with Robert Mugabe

Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC
Video of British Muslims dancing to Pharrell Williams's hit Happy attacked as 'sinful'

British Muslims's Happy video attacked as 'sinful'

The four-minute clip by Honesty Policy has had more than 300,000 hits on YouTube
Church of England-raised Michael Williams describes the unexpected joys in learning about his family's Jewish faith

Michael Williams: Do as I do, not as I pray

Church of England-raised Williams describes the unexpected joys in learning about his family's Jewish faith
A History of the First World War in 100 moments: A visit to the Front Line by the Prime Minister's wife

A History of the First World War in 100 moments

A visit to the Front Line by the Prime Minister's wife
Comedian Jenny Collier: 'Sexism I experienced on stand-up circuit should be extinct'

Jenny Collier: 'Sexism on stand-up circuit should be extinct'

The comedian's appearance at a show on the eve of International Women's Day was cancelled because they had "too many women" on the bill
Cannes Film Festival: Ken Loach and Mike Leigh to fight it out for the Palme d'Or

Cannes Film Festival

Ken Loach and Mike Leigh to fight it out for the Palme d'Or
The concept album makes surprise top ten return with neolithic opus from Jethro Tull's Ian Anderson

The concept album makes surprise top ten return

Neolithic opus from Jethro Tull's Ian Anderson is unexpected success
Lichen is the surprise new ingredient on fine-dining menus, thanks to our love of Scandinavian and Indian cuisines

Lichen is surprise new ingredient on fine-dining menus

Emily Jupp discovers how it can give a unique, smoky flavour to our cooking
10 best baking books

10 best baking books

Planning a spot of baking this bank holiday weekend? From old favourites to new releases, here’s ten cookbooks for you
Jury still out on Manchester City boss Manuel Pellegrini

Jury still out on Pellegrini

Draw with Sunderland raises questions over Manchester City manager's ability to motivate and unify his players
Ben Stokes: 'Punching lockers isn't way forward'

Ben Stokes: 'Punching lockers isn't way forward'

The all-rounder has been hailed as future star after Ashes debut but incident in Caribbean added to doubts about discipline. Jon Culley meets a man looking to control his emotions
Mark Johnston: First £1 million jackpot spurs him on

Mark Johnston: First £1 million jackpot spurs him on

The most prize money ever at an All-Weather race day is up for grabs at Lingfield on Friday, and the record-breaking trainer tells Jon Freeman how times have changed
Ricky Gervais: 'People are waiting for me to fail. If you think it's awful, then just don't watch it'

Ricky Gervais: 'People are waiting for me to fail'

As the second series of his divisive sitcom 'Derek' hits screens, the comedian tells James Rampton why he'll never bow to the critics who habitually circle his work
Mad Men series 7, TV review: The suits are still sharp, but Don Draper has lost his edge

Mad Men returns for a final fling

The suits are still sharp, but Don Draper has lost his edge
Google finds a lift into space will never get off the ground as there is no material strong enough for a cable from Earth into orbit

Google finds a lift into space will never get off the ground

Technology giant’s scientists say there is no material strong enough for a cable from Earth into orbit