I RECENTLY read a recent editorial from the South China Morning Post, entitled “China’s urbanization has fuelled economic growth, but without redirection it will come at a cost.”
In the article, this particular quote stood out for me, “The Chinese leadership is facing up to the reality that some small cities and towns are doomed to die, and resources have to follow the flow of people into big cities.”
China has been aggressively pumping a lot of capital into urbanization, so much so that they have built “Ghost Cities” (newly built cities with no one living there). The assumption is that urbanization leads to increasing productivity, which leads to more growth. A man in an office or a factory is assumed to be more productive than a man on a farm or rural factory.
This isn’t always the case, and people rarely worry about the costs of urbanization. For starters, it depopulates rural areas, concentrates capital in the cities and, in the case of China, removes certain political pressure valves.
As people move to cities, they begin to yearn for higher standards of living, and if they can’t get it, they begin to grumble. If the situation gets worse, they might take to the streets.
Furthermore, urbanization does not always lead to economic activity. A man who moves to Manila may increase his consumption, but it won’t necessarily increase his productivity.
Finance Professor Michael Pettis stated it best in a Tweet: “Urbanization is actually a cost, not a source of growth, and it is only economically justified if there are jobs in the city that cause an increase in productivity that exceeds the cost of urbanizing workers. Just building a lot of apartments, roads and subways may have made sense when the productive demand for workers was very high, but it never made sense as a way to create productive demand for workers.”
Urbanization is not synonymous with high added value economic activity, and in the coming post-COVID world, we may not even need to go to cities. Work can carried out online. Moreover, recent trends point to de-urbanization and the diffusion of capital and labor out of cities. And as far as I’m concerned, that’s a good thing./PN
