The Mystery of Cities

Shortly following the release of the bestseller The World Is Flat: A Brief History of the Twenty-First Century, I had the opportunity to work from Bangalore, the world-f­lattening centre of Thomas Friedman’s thesis about the end of geography in the internet era. This gave me an occasion to meet the founders and senior executives of Infosys, the 24/7 business software services company at the heart of Friedman’s argument. I wanted to hear their first-hand stories about why the centre of gravity for business process outsourcing (BPO) emerged in Bangalore, of all Indian cities, and of all places in the world.

Canadian geographer Mario Polèse would have been gratified to hear their answers. The ambition of his new book, The Wealth and Poverty of Regions: Why Cities Matter, is to explain the mysteries of why great things (or unfortunate ones) happen in very specific places like Bangalore, even in the age of advanced technology.

“Could your start-up have succeeded in Mumbai or Pune?” I asked Nandan Nilekani, who was CEO’s Infosys at the time.

“By no means,” he said with no hesitation. When asked to elaborate he mentioned the ample supply of technical talent and the city’s attractiveness to young people. He noted the availability of land for new industrial development and the lower costs.

Fellow Infosys founder and then-CFO Mohandas Pai explained that Bangalore is not a very old commercial city, so it did not have an established business culture. No entrenched business elite dominated the affairs of the city. The city had “a cosmopolitan outlook … It is a very open place.”

Kris Gopalakrishnan, another co-founder of Infosys and COO and president at that time, explained that in their early years most Infosys employees were from Bangalore’s South India region, but in due time they needed to recruit talent from other regions and countries. “Bangalore was an attractive place for people to come and live. It is a place that is open to outsiders,” he said, referring to the exclusive ethnic-communal politics in other parts of India.

These three captains of Indian industry were saying that things as subtle as atmosphere and local culture were fundamental to their business success. They were highlighting how intangible and immeasurable qualities of regions make them conducive to experiments and new ways of generating wealth and give them the economic means to remake the way the world works. Now, in The Wealth and Poverty of Regions, we have a full accounting of the mysterious forces that create world-changing geographies such as Bangalore.

Bangalore’s rise reflects two phenomena that have preoccupied urban geographers for decades, no less than the genome has puzzled medical scientists or unified field theory has puzzled physicists. Known by the unapproachable terms of “positive externalities” and “agglomeration economies,” they are the urban equivalent of animal magnetism. In his book, Mario Polèse exhaustively explores them as the “seven pillars of agglomeration” to explain how particular city districts, nestled within their larger city-regions, can create benefits and advantages far greater than the sum of a city’s homely, even dysfunctional parts.

Polèse begins his elaboration of the buildup of regions at the micro scale, considering the sources of economic dynamism at a crossroads or within a small urban district that can spur the growth of firms, industries and, with them, labour markets and then whole cities. He builds from this to a macro scale exploration of the larger regional geographies that define national and continental fortunes. He then closes with a thesis on the requirements for effective international development policy.

All cities, Polèse explains, share the same basic economic causes and effects. These are economies of localization (i.e., locating activities close together) and of urbanization (i.e., clustering lots of diverse activities together at scale). Polèse shows how these urban economies—usefully distinguished and defined in detail as economies of scale, proximity, diversity and concentration—combine with unique natural features and resource endowments, technology and infrastructure investments, national boundaries and market controls, and historical events to create quintessentially local and unique places. Every time he explains the status of another place—New York, London, Chicago, Paris, Montreal, the northern Mexico border, the North American west coast—he demonstrates again how the source code of geography combines with specific local and historical conditions to create a momentum of wealth or poverty.

There is something almost Darwinian about this tale, not unlike the way that laws of genetics and natural selection combine with local environmental conditions to create many kinds of finches. “Exceptions abound” is an insight that Polèse time and again repeats, and even elevates to the status of one of four “rules of regional growth.” “There are no universal outcomes,” he writes. Yet his primary point is that, in a world of exceptionality, there is always a clear and discernible logic of development that, if understood, can empower city and nation builders.

There is logic, for instance, behind Bangalore’s emergence (an example not directly explored in Polèse’s book) as a serial service centre for encampments of outsiders over the centuries. Bangalore started this role more than 500 years ago for traders at an important crossroads. Then it became a permanent encampment for armies in their forts and cantonments. The city’s strategic military function made it a natural location for the establishment of India’s major research institutions in their campuses and technical manufacturing industries in industry-specific townships. The city became defined by its campus and township form of specialized spatial development. The emergence of India’s first high-tech industrial township, Bangalore’s “Electronic City,” is thus part of a powerful historical momentum. The specialized demand of that township’s companies for fibre optic infrastructure—the first major network in India—provided the foundation for BPO industry growth.

But something further gave Bangalore a specialized advantage over other fast-growing, internet-aided, high-tech hubs such as Silicon Valley, Boston, Cambridge in the United Kingdom or Tel Aviv. Counterintuitively, the BPO industry at the heart of Friedman’s argument is not a source of advanced technological innovation. BPO firms break down the client’s systems requirements into bite-sized, simple programming and business process tasks that can be executed by young, relatively low-­salary software technicians. Rapid recruitment, training and management of thousands of these basic code writers for time-limited assignments are more important than technical prowess. Companies like Infosys are in many respects software piecework production lines and large-scale labour contractors for their multinational clients. Here is the geographical connection.

Not surprisingly, labour contracting and the devising of low-cost labour solutions constitute a core competency of south India. From agriculture to large construction projects to the region’s just-in-time textile manufacturing, hundreds of ingenious, industry-specific schemes for sourcing and training large numbers of workers in timely fashion and on flexible employment terms is an ancient source code of the region’s economic life. Bangalore’s BPO firms applied this regional cultural competency to address the new business integration needs of globalizing firms, thereby winning hands down against competitors in the highly regulated and more rigid labour markets of Europe, North America and Israel.

Meanwhile, The Wealth and Poverty of Regions also helps us understand why corporate and political leaders in California’s competing high-cost, suburban Silicon Valley are becoming proponents of mixed-use urban density. More advanced economies, Polèse explains, require the exchange of more complex information, more face-to-face trust to manage complex risks and transactions, and more specialization. Internet-enabled information exchange can aid but cannot serve these requirements. Doing so requires a geographic solution as much as technological ones. “For high-tech manufacturing and associated R&D activities,” he explains, “the forces pulling plants towards large urban centers will be stronger than those [like rising land costs and congestion] pulling in the opposite direction.” The municipalities and large corporations of Silicon Valley are therefore innovating with new kinds of micro­geography—where more diversity and concentration of special expertise can be hosted per square metre in forms of new California-style, dense urban development. The economic laws of regional advantage, in other words, drive the invention of new urbanisms.

In this respect, the first part of The Wealth and Poverty of Regions suggests an analysis not dissimilar to that of Jane Jacobs and her successors, who highlight the centrality of a rich notion of urbanism—embracing not only urban design but also the self-organization of distinctive, often specialist socioeconomic neighbourhoods and districts. But Polèse insists on a fuller, more complex picture. He balances the importance of urbanism with the influence of blunter forces that shape geography, such as national boundaries. If the wealth of regions was only about urbanism and city building, then Mexico’s economic growth would continue to concentrate in greater Mexico City. Yet growth has been fastest in the smaller, urbanizing regions of Monterrey and the Mexico-U.S. border, where costs for trading into the dominant U.S. market are the lowest. The northward pull of geography now connects Mexico’s largest internal market (Mexico City) with its largest continental market (the United States); its reverse impact is the continued impoverishment of Mexico’s southern states.

Here Polèse suggests an almost predictive utility of his approach, stating that “the shorter the distance between the [historical] national economic center and the [largest] trade partner border, the greater the area that will find itself left out.” He uses such general rules (always subject to exceptions) to explain the coastal concentration of African growth around their historical colonial port cities, and the counterpoint impoverishment of inland rural hinterlands. West Africa’s contemporary urban challenges, he explains, are greater than the gritty period of rapid urbanization in Europe and North America, because contemporary medical technology (i.e., reduced mortality) and telecommunications conspire with the economic pull of coastal cities to create extremely high rates of urban population growth.

Polèse’s book is pleasing for its lack of contemporary compulsion, à la The World Is Flat, toward simplified overstatement. He does not try to persuade readers that an extremely complex and chaotic world can be boiled down into one or two insights. Polèse’s ambition is different. He takes us on a journey of the geographies that define our world, using readable stories to highlight the laws of geography that he and fellow geographers have deciphered through decades of solid research and debate. The commitment to stating complexity like it is sometimes makes for a maze-like narrative, but it offers a very lasting reward. By the time you have finished, you have mastered what will surely serve as a timeless reference on place building and regional development, and even on decisions about where to start your career or locate your family.

But Polèse’s opus succumbs to seeming self-contradiction when his argument finally turns to questions of global development economics. Here, he attempts to establish a general rule explaining the relationship between economic growth and urbanization. In so doing he shifts from the geographer’s method, as an analyst of regional exceptionality, to the more generalizing modus operandi of the economist. He cogently argues why economic growth fuels urbanization: economic growth increases per capita income, reducing the percentage of household income spent on food. This increases the relative allocation of wealth to non-agricultural products, which are most efficiently and competitively produced in cities. The demand for non-agricultural labour increases relative wages in cities. This attracts urban migration and further increases household consumption of non-food items. So far so good.

But then Polèse seeks to discern the chicken from the egg. There is no statistical evidence, he argues in opposition to Jacobs’s thesis in Cities and the Wealth of Nations, to suggest that urbanization fuels or even increases economic growth. It is productivity (output per worker) that fuels growth, he argues, not urbanization. Here Polèse overlooks what I believe to be one of his most effective dissertations: how urbanization enables productivity improvements through the clustering of firms, the rich exchange of information and collaboration enabled through proximity, the diversity and specialization accessible in concentrated form at the urban scale, and so on. His search for a statistical correlation between urbanization and national per capita gross domestic product is disabled by a classic conceit of development economics—the same conceit that Jacobs sought to refute—that national boundaries are the appropriate geography in which to measure economic growth. Surely, a national average of low GDP growth and rising poverty can coexist with an urban average of economic growth in city-regions that increasingly extend across the artifice of national boundaries. The Mexico case makes this point.

Polèse concludes that economic development is more about institutions than about urbanization. “Cities are reflections of the societies that nurtured them, no more and no less,” he states. Yet few are the nations whose modern institutions—water and sewerage utilities, medical services, research universities—did not originate in the economic, social and political milieu of their cities. One can just as easily conclude that societies are the reflections of the cities that nurtured them, no more and no less.

Which is the lasting point, I believe, of The Wealth and Poverty of Regions. The irrefutable economics of urban organization are inseparable from industrialization and, as witnessed in Bangalore, from today’s globalization. Together they have become one process, the emergence of what can simply be called the economic geography of advanced industrial societies. This geography is not measurable in old categories like GDP. It evolves as contiguous, transnational urban megaregions and as transcontinental urban economic systems (otherwise known as globalized industries). Polèse’s work is a tour de force for the rebirth of geography, both as a popular topic and as a discipline for deciphering the vast changes in our world. One can only hope that this book is but a preface to a subsequent exploration of this new transnational urban-­industrial geography, for which we have few effective categories or concise words. Polèse has proven that he would be the right expert to take us on that journey.