What’s your city’s competitive advantage?

By Anonymous

During our discussion of city developments over the last few class periods we determined that in order to evaluate a certain development approach we needed to know what goal we were optimizing for. However, in my mind, we neglected a more basic discussion of the theory describing why cities exist and how they have historically been formed. Instead, our approach was mostly along the lines of “Lots of people are moving to cities, so we need more cities. Resources are limited, so we need sustainable cities. Go.”

We skipped two fundamental questions: a) What makes a city a city? and b) What’s your city’s competitive advantage?

From an investor and entrepreneur standpoint both those questions need to be answered to predict the success of a venture. Part a) involves some less tangible characteristics such as sense of community and togetherness that derives from investments in education, health, government, fairness and family. I believe businesses and corporations can have some influence over these factors but it is more a role for government. Instead, I’d like to focus on b) What’s the city’s competitive advantage? Doing so can help entrepreneurs identify business opportunities and investors assess the risk of an investment.

I’m not an anthropology major, but my theory goes a bit like this: Cities represent clusters of people that settle and organize around some kind of common resource. For example, some cities organize around some geographic characteristics such as rivers, mountains, bays, and valleys. Other cities organize around a natural resource such as oil, coal, lumber or people. And yet other cities form around a knowledge resource such as textiles, furniture, universities or bureaucracy. In drafting a development plan, the first stages have to reflect how the new city will use its resources as its competitive advantage.

I think KAEC and PMH illustrate two different types of resources nicely. For example, KAEC’s major resource around which to organize was its port. Therefore any plan that neglected the port would not be successful. However, the problem with a “port and laborers” only approach is manifest in the name of the city: King Abdullah Economic City. The high profile of the project causes a tension that distracts the developers from the city’s core competitive advantage. Hence, the planners made large initial investments in golf courses and residential developments. PMH, on the other hand, leveraged its primary resources of location (reclaimed land in HCM city) by investing in residences, office buildings and retail locations.

If the development approach is matched to the existing resources, I believe the initial stages of building a new city are met. However, in order to make that effort permanent and sustainable, the question “What makes a city a city?” becomes relevant again. As a recent Planet Money episode on the oil fields of North Dakota illustrated, without the intangibles of culture and a sense of community any of these new city developments is bound to be unsustainable. [1]

[1] Turning a boom town into a real town; http://www.npr.org/blogs/money/2013/01/08/168871212/episode-428-turning-a-boomtown-into-a-real-town

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3 thoughts on “What’s your city’s competitive advantage?

  1. By Anonymous

    I emphatically agree that discussing a) What makes a city a city? and b) What’s your city’s competitive advantage? are two fundamental questions we should be addressing. The author posits that there are three primary reasons why people cluster around a region:

    1. Geographic characteristics
    2. Natural resource
    3. Knowledge resource

    I especially like that the author acknowledges that knowledge is a specific type of resource, especially since this helps to describe how many places that are otherwise undesirable to live become cities (such as Singapore which lacks even drinking water as most of it comes from Malaysia).

    My response will aim to share a few stories and a historical perspective, and then ask some big questions that address the author’s central questions on the premise of cities.

    Story 1
    Before business school, I had the privilege to travel across 19 states on a roadtrip of our great country. This roadtrip made me more patriotic than I ever felt before. Driving across mountains and valleys made me truly believe the “America the Beautiful” spirit. In fact, I was pleasantly surprised that even in some of the poorest states in the nation, the highways were well maintained, EZ Pass worked in every state, and even as a single female travelling alone, there was nowhere I felt unsafe. During this trip, I spent two days in a rural community two hours outside of Asheville, NC, where I saw some of the grittiest poverty I’d ever seen in the United States. In this part of the Appalachia, residents lived amongst themselves. There was no road to reach them – they either had to hike 2.5 miles down to the main road and then drive 30 miles to reach the nearest town, or they had a special off-roading vehicle they built from parts they collected to get to the main road easier. They might talk to five people at most in an entire year, almost exclusively their kin. Their primary source of income was welfare checks and selling a plant they harvested from their land to pharmaceutical companies. As I talked to the residents, I remember thinking: why, in this great age of massive urbanization do places like this in America still exist?

    Story 2
    My freshman year of college I had the opportunity to travel to Singapore for a cultural exchange program. I fell in love with the people, hospitality, and island. The following year, I wrote a paper on Singapore’s economic development from 1960s to present. I emailed the general contact form on the Economic Development Board’s (EDB) website, and within 24 hours, someone reached out to me to help me with my research request. Within 72 hours, I was cc’ed on an email with 8 other EDB officials on how they might best help me. One week later, I was given an opportunity to interview them during two hour conference call, for which they set up the call and gave me terrific instructions (this was before ubiquitous, free conference calls, when they likely paid for me to be given a U.S. access number). Following the call, they sent me a copy of a book by Lee Kuan Yew. Talk about service! I remember thinking, I wonder how long would it take for any U.S. government agency to reply to me as a student simply wishing to know more about economic history?

    Historical Perspective
    For most of history, individuals could not escape the Malthusian Trap long enough to generate the population growth that leads to larger cities. As Gregory Clark argued in Farewell to Alms, for most of history, the Malthusian Trap was very real: new technology increased productivity and food resources, but this was offset by increasing population which needed more food resources (which could not be generated fast enough to keep up with population growth) and therefore, for most of human history, population was constant until the Industrial Revolution. And since population was limited, so too was the development of cities. Babylon was sixty- to eighty-thousand people during the ancient times. Through the middle ages and renaissance, Rome had at most fifty-thousand people.

    What does this all mean? (aka Getting out of the spiral)

    • Cities form when there is enough technological or other innovation to increase productivity and spur population growth that encourages people to form together as civil society and form rule of law, currency, commercial trade, and other properties of cities and civilization (historical perspective).

    • Cities don’t create poor people, poor people move to cities (story 1). When people living in the rural areas finally can no longer survive in the backcountry, and/or they seek the economic opportunities that are made possible by cities by mere virtue of cities clustering together many forms of economic activity, this is how the roots of urbanization happen.

    • Cities prosper when they have or create competitive advantage (story 2). For a nation like Singapore which lacks natural resources for all-intensive matters, their willingness to work with international partners, take cold calls, and uphold the highest standards of public service for their officials is unique in a world where many of the fastest-growing countries have the most unfriendly business environment, eg, India.

    The big questions:

    • Are organically-developed cities a thing of the past or an opportunity for the future? With all our talk of planned development (KAEC, Masdar), is there still opportunity for citizens to be converging towards organic settlement? (historical perspective)

    • What obligations do cities have to look out for its least enfranchised members (story 2)? Do we uphold a Rawlsian Justice notion cities and design them to help the weakest member of society, or do we purpose them for the economically great and mighty?

    • What can we do about cities that lack comparative advantages? To what extent is the developed world responsible for helping poor, uneducated, land-locked nations without natural resources to develop? The author of this post describes KAEC and PMH as having ports and other natural resources. However, this is not a privilege enjoyed by all areas. Do we direct people toward saying, “this is not a viable sustainable city…please move elsewhere” and leave many parts of the earth deserted? If so, would this create an earth where the majority of the population lives along coastlines and there is little population elsewhere?

    Final thought:

    For most of history, there has been a free movement of people. People immigrated, we explored new lands. With increasing barriers to mobility through immigration and citizenship restrictions imposed by the U.S. and many members of the EU, how will this affect the movement towards cities going forward?

  2. I like the dea of focusing on a “competitive advantage” for cities.

    As you briefly mentioned in your first point, cities are largely about communities. Many people don’t move to cities for any specific reason- they live there because they were born there and their family lives there. They work in businesses that are close to home. Even if the MBA class of 2013, one of the more geographically mobile groups of folks I’ve ever met, I constantly hear people talk about location and wanting to be near the family as a primary factor in their job search.

    If you take it as a given that people would rather be near their families than not, that’s a strong argument for expanding existing cities- and whatever cluster they were built around- rather than building new cities.

  3. By John Macomber

    Indeed we did approach it that way! Quite accurate paraphrase.

    Cluster theory is powerful. Assuming that I’m allowed to expand the length of this course, we could borrow some of Michael Porter’s work from the EC course, “Microeconomics of Competitiveness: Firms, Clusters and Economic Development” http://www.hbs.edu/coursecatalog/1260.html. (Seminal 1990 HBR article http://hbr.org/1990/03/the-competitive-advantage-of-nations/ar/1). It would not have made sense to replicate that course too much, but the core concepts could be shared so that we are not whistling in the dark without that background when the “go” command is called out.

    The fourth component of the approach, not mentioned in the first paragraph of the post, is “governments are stuck.” This is not always true but it sure seems to be the case in say Italy or the USA this week. So purely looking at competitive advantage as if government actors are then going to proceed to make a rational long view decision based mostly on the welfare of citizens and with copious funding does not fit (if they are “stuck).” I liked the authors acknowledgment, then, that potential investors and businesses should be doing this analysis on the cities and sectors and cells…so that they can invest where the forces (if you will allow another Porterism) are favorable. “Doing so can help entrepreneurs identify business opportunities and investors assess the risk of an investment.”

    As far as what makes a city? Other posts are trying to develop that idea. Cities are organic and they are the products of feedback loops and untraceable systems. One hope is that some application of the tools of finance, business, design, and policy can help to influence that cycle of land, labor, and capital from Econ 101.

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