The other 'middleweights': new hopes for old cities in the West
A bold future may await rust belt cities in North America and Europe if asset manager Pippa Malmgren's vision of smart manufacturing hubs and recent research on revitalised industrial centres come to fruition.
Kerwin Datu
As many readers know, in March this year the McKinsey Global Institute released its study 'Urban World: mapping the ecnomic power of cities', which identified the 600 cities on the planet that collectively will generate 60 per cent of the world's GDP growth between now and 2025. While the megacities are the biggest attention-grabbers, it is the 'middleweights' of the developing world — cities from 200,000 to 10 million — that will generate the bulk of this growth.
An extraordinary opportunity for Western businesses to tap the world's fastest growing markets and newest consumers. But what are they going to sell them … financial products?
At last week's Risk Summit, an Economist conference in London, keynote speaker Pippa Malmgren of Principalis Asset Management laid out a scenario with exciting possibilities both for the future of production in Western economies, as wel as for the developed-world middleweight cities which feature less prominently in the MGI story.
When laid-off traders ask Malmgren where they will be in five years' time, she tells them 'you're going to Arkansas!'
A return to manufacturing
Malmgren believes that the current debt crisis is comparable in scale to the burden of war reparations on 1920s Germany, and that 'what we're seeing is a rewriting of the social contract' around the world. Modern economies are squeezed on one side by the pressure of the national debt on the social contract, as governments 'default on their citizens' to avoid defaulting on their creditors, and on the other side, record inflation. These pressures are answered in different ways in different regions: in the Arab world by revolution, in China and Asia by massive wage hikes, and in OECD countries by austerity and civil unrest.
As real wages sink in the US, and Asian wages rise, manufacturing is moving back to the West. And this is the other big opportunity for Western capital. As volatility tears through financial markets, 'investors need to invest in real entrepreneurs with operational leverage and margin management skills', people who (still) know how to make things and sell every unit for a profit, whatever the dynamics of inflation and debt. For Malmgren, Warren Buffett's investment in the chemicals manufacturer Lubrizol is 'effectively saying that manufacturing is a better inflation hedge than gold.'
This is good news for cities throughout the rust belts of the US and Europe that saw their industrial output dry up and head east a generation ago. But this time around, production and distribution will become much smarter, increasingly determined by sophisticated mathematical modelling. And who better to develop the algorithms for such models than traders from Wall Street or the Square Mile, many of whom will be squeezed out as financial speculation is tightened down. When laid-off traders ask Malmgren where they will be in five years' time, she tells them 'you're going to Arkansas!'
This needn't be grim as a Wall Street trader might imagine. Malmgren reminds us that as Western middleweight cities come to realise their new fortunes, the lifestyles available in these cities will blossom as well, with cheap property prices and access to the open spaces of the countryside, as manufacturing workers in Western Germany often enjoy.
Reawakening industrial cities
What this means is that there is the potential for the reinvention of midsize American and European cities as smart manufacturing centres catering to the global middle class. (There is some irony in that this is exactly what Chinese and Asian cities have been telling themselves in previous decades.)
The industrial corridor of Western Europe has been geared in this direction for some time, now it is the American midwest and the European periphery that should rejuvenate themselves. But what does it take to turn around a midsized city and position it for a smart manufacturing economy?
Research conducted by the London School of Economics and the Brookings Metropolitan Program on 'Phoenix Cities' such as Bilbao, Belfast and Leipzig in Europe, and Pittsburgh, Baltimore and Louisville in the US, suggest 'ten strands of action' that these cities have taken to recapture their former dynamism.
... there is the potential for the reinvention of midsize American and European cities as smart manufacturing centres catering to the global middle class. (There is some irony in that this is exactly what Chinese and Asian cities have been telling themselves in previous decades.)
Some of these are social, including a focus on building or attracting new skills within the local population, improving civic leadership and community participation within economic plans, and social inclusion projects targeted at lower-income segments. Some are environmental — renewing rundown neighbourhoods and neglected landmarks, reclaiming degraded and contaminated sites and containing sprawl.
In addition, developed-world middleweight cities need a big boost in infrastructure spending, both to improve mobility within them and to connect them to neighbouring cities, with works such as the new metros in Bilbao and Turin and new international air links for Belfast and Leipzig.
