PhD: “The industries of the future”

The aim of this study is to improve long-term economic outcomes for any metropolis’s growing perimeter suburbs. By understanding both the nature of economic growth in these peri-urban locales, and the assorted approaches to economic development, a framework for realising long-term prosperity is this project’s denouement.

The Growth of Cities

For those who reside in cities the lived experience is invariably one of growth, of an increasing number of people who reside in the metropolitan area. This observation is unsurprisingly supported by the United Nations. The “World Urbanisation Prospects” report, published by their Department of Economic and Social Affairs, demonstrates that currently over half of the world’s population live in cities. They further describe the trajectory of this growth with the following projection: that this proportion will grow to two-thirds by 205o.

There are two consequences of this urban population growth: the city’s economy changes, and the area of land upon which the city resides increases. Storper cites examples of major global cities to buttress the claim that the structure of the economy changes as cities grow. New York and London, for example, repositioned themselves away from manufacturing and its stagnation and decline toward more “New Economy” industries as the cities grew. With respect to a city’s geography, Storper states that metropolitan areas across the world are continuing to increase their land mass as this trend of urbanisation continues unabated.

Nallari et al further develop this theme of the impact of population growth upon geography by reflecting upon what happens during the process of urbanisation. That as agricultural land shifts to urban usage there is naturally an increasing population density which in turn leads to economic agglomeration and growth. Nallari et al also go on to describe the changes in the economic structure as cities grow: from a dominance of agriculture, to manufacturing and finally to an economy based on services sector.

A second observation that those who live in cities make is that the construction of economic and social infrastructure needs to accompany this population growth. The result of ignoring this support for population growth is that living conditions stagnate or even degrade. An observation that is also made by three significant global institutions. The United Nations highlight this with a call for policies to manage urban growth that pay attention to the accessibility of infrastructure and social services. The OECD frames this challenge in terms of avoiding welfare losses and maximizing potential synergies. The World Bank describes this problem as a set of concerns that city leaders have regarding the economic challenges and quality of life for their citizenry.

A synthesis of these two observations is at the heart of this study. A research project that aims to understand the development of economic infrastructure in growth zones. More specifically, the study is focused on the growth zones that are located near the perimeter of the metropolitan area.

The changing nature of growth

Related to the population growth of cities is the nature of economic growth. Self-evidently, economic activity occurs in metropolitan areas. An observation, supported and examined over many decades, based on the phenomena that the agglomeration of labour drives economic productivity.

Further, the nature of this economic activity changes over time. Supporting Nallari et al’s description of the changing structure of the economy as cities grow, Adeney of the Reserve Bank of Australia 2018 described these changes. Adeney showed that the value of the production of goods fell from about 40% of the Australian economy in the early 1960’s to about 25% in 2015 with the value of business services rising from less than 10% to 25% over the same time frame.

With respect to the range of jobs that are available, particularly those in cities, she notes that:

“Occupations that require higher-level cognitive skills, such as systems analysis, persuasion, originality, written expression, complex problem-solving and critical thinking have become increasingly important in recent decades.”

A similar pattern of structural change in the economy is occurring on a global level. Aggregating relevant information available to the United Nations, Memedovic and Lapadre found that during the 35 years from 1970 the service sector rose from 52% of world production to 68%, agriculture fell from 10% to less than 4% and industry from 38% to 29% over the same time frame.

They described the relationship between urbanisation, that is the population growth of cities, and the changing nature of economic growth. Over the last century as people have moved to urban centres, labour intensive manufacturing gave way to more sophisticated manufacturing as domestic income improved and capital was accumulated. Which in turn drove the growth of skill and technology intensive sectors.

At a theoretical level, the understanding of this phenomena of agglomeration, or the geographic concentration of resources, has deepened since the 1970s. At a practitioner level, policy responses have similarly shifted as theoretical considerations of the elements of economic growth have developed. In his 2013 economic development tome, “Keys to the City”, Storper surveys a broad range of “soft” fields of science that have to do with economics, innovation, sociology and politics to establish that there is a panoply of factors that shape the nature of growth in a city.

Associated with these responses are people like: Barca, the EU advisor on regional policy; Buxton, an Australian urban planning expert; and Glaeser, an American economist, who collectively relate a subset of Storper’s factors to economic development approaches.

And as the structure of economy will continue to change, the place of strategic foresight methods in the development of proactive policy responses is relevant. As Buxton et al have demonstrated.

The knowledge economy and urban growth

As the authors of reports for both the Reserve Bank of Australia and the United Nation International Development Organisation stated observe, urban economies are shifting toward industries that are more skill and technology focused which subsequently require workers to possess higher-level cognitive skills.

Romer’s observation is salient in this milieu of the unabated and growing demand for those who possess high-level mental capabilities. He understands the centrality of knowledge to economic growth: “long-run growth is driven primarily by the accumulation of knowledge by forward-looking, profit-maximizing agents”.

Chadwick et al examination of the changing nature of the geography of knowledge intensive work highlights the importance of the factor of knowledge in the growth of cities.

KIBS (knowledge intensive business services) by their very nature tend to be high value-added activities, and rapid growth in KIBS therefore helps to boost the overall productivity and competitiveness of the areas in which they are located, quite apart from the indirect effects on the productivity of their clients. It is therefore no surprise that there appears to be a strong correlation between the areas experiencing the fastest growth of KIBS and the fastest growth of GVA per capita”.

Thus, there is a dynamic that applies to Romer’s “accumulation of knowledge”. One component of this “knowledge economy” dynamic is Chadwick et al’s “application of knowledge” (through the vehicle of knowledge intensive business services). A second component is the “distribution of knowledge” (which is the method through knowledge is made available in order for it to be applied), with the third leg of the knowledge economy tripartite being the “production of knowledge”.

In their 2009 report analysing how regions grow, the OECD determined that patenting activity (which is analogous to the knowledge economy’s “production of knowledge” component) is associated with economic growth over multi-year periods. Further, they ascertain that industry sectors that can be classified as “knowledge intensive business services” and “high technology manufacturing” (both related to the “application of knowledge”) are similarly associated with economic growth. And in a similar manner is the mechanism for “distribution of knowledge”.

The three components of the knowledge economy can be seen in the following quote from the aforementioned OECD report.

“Average productivity, in turn, depends on technology, labour skills, production capital and infrastructure. All of these factors can be mobilised through regional infrastructure investment policies, through education and training to promote higher skill levels; and through research and innovation to create more efficient production technology.”

There were similar findings by Rothwell et al for the Brookings Institute. One of the findings described in their study of the USA’s 366 metropolitan areas was the positive association between where patenting activity (reflecting the “production of knowledge” components) occurred and productivity growth. A second finding, this one related to the “distribution of knowledge”, also describes a positive association between the volume of collaboration in an area and its economic outcomes.

The fundamental link between economic outcomes and knowledge was also canvassed in a World Bank volume that detailed strategies for building knowledge economies. Referencing Romer’s related assertion, the report details the causal relationship between the level of knowledge that is accumulated by a country and its future economic growth.

An expression of this relationship can be found in the “knowledge economy clusters” that conform to the Triple Helix Model. Where the components of the model – academia, business and government – in aggregate reflect the operation of the knowledge economy tripartite.

This research project is aimed at understanding the same relationship between knowledge and growth, but rather than at a country level the focus is more granular. Its aim is at understanding this relationship at a metropolitan level, specifically at the sub-level of expanding perimeter suburbs. That is, to comprehend the dynamic of economic growth in the context of peri-urban locales.