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What’s the biggest limit on city growth? (Hint: it’s not steel or cement)

Richard DobbsMcKinsey & Company

Richard Dobbs is a director of the McKinsey Global Institute and a director in McKinsey’s Seoul office.

Jaana RemesMcKinsey & Company

Jaana Remes, who is based in San Francisco, is a senior fellow at the McKinsey Global Institute, where she leads research on productivity, competitiveness, urbanization, and economic development.

The world is in the throes of a sweeping population shift from the countryside to the city. Underpinning this transformation are the economies of scale that make concentrated urban centers more productive. This productivity improvement from urbanization has already delivered substantial economic growth and radically reduced poverty in countries such as China. The growth of cities has the potential for further growth and poverty reduction across many emerging markets.

However, we are now seeing cases where the growth rates of some large cities have begun to slow. In addition, the increased complexity of large size can overwhelm the ability to manage. When this happens, cities can become disastrous mixtures of slums and gridlock, raising the question of whether there is a maximum size for a workable city. The view of the McKinsey Global Institute (MGI) is that there is, in theory, no limit set by technology or infrastructure to how big or how fast cities can grow — but only if business and government leaders are able to manage the increased complexity that comes with bigger city size.

Managing the opportunities and challenges of cities is both vital and urgent as global urbanization rushes ahead on a dramatic scale. The share of the world’s population living in cities has recently surpassed 50 percent. By 2025, we see another 1.2 billion people swelling those ranks—95 percent of whom will live in developing countries. The reasons for this rise in growth are not hard to fathom. Urbanization has been a cornerstone in the economic development of countries. South Korea’s economic miracle—an increase in real GDP per capita of more than ten times since 1960—was enabled by a surge in the urban population from around 25 percent to 80 percent of the total population. Urban centers foster the growth of higher-productivity jobs and industries and reduce the cost of delivering basic services. MGI research suggests that clean water and education, for example, can be delivered for 30 to 50 percent less in Indian cities than in rural areas. Urbanization also helps rural areas. The decline in rural population as a result of urban migration allows rural areas to improve productivity, which in turn raises rural income.

Does this imply that the future will be one of massive megalopolises spread across the globe? Theoretically, the answer is yes—there is no limit to the size of cities. In practice, however, the growth of most urban centers is bound by an inability to manage their size in a way that maximizes scale opportunities and minimizes costs. Large urban centers are highly complex, demanding environments that require a long planning horizon and extraordinary managerial skills. Many city governments are simply not prepared to cope with the speed at which their populations are expanding.

Already there are plenty of examples of dysfunctional cities across Africa, Asia, and Latin America. Without skillful management, cities become centers of decay, gridlock, crime, urban sprawl, slum housing, and pollution. The quality of life deteriorates and economic dynamism falters—scale diseconomies outweigh scale benefits.

These challenges are most acute in the megacities—cities with more than 10 million inhabitants. The world will see the number of megacities rise from 23 today to 36 in 2025. Some cities such as São Paulo and Shanghai could have GDP in excess of $500 billion by 2025, more than the GDP of Belgium or Switzerland today.

Latin-American megacities are already running out of steam. Mexico City and São Paulo have both run into constraints. As urban centers have expanded, they have “swallowed up” smaller neighboring towns—but these towns have remained outside the larger city’s jurisdiction. Fragmented political boundaries have diluted management responsibilities among mayors (often in multiple municipalities), state governments, and federal agencies. Planning and policy too often have not been coordinated among these players and typically don’t look far enough ahead. Ineffective local funding mechanisms resulting in infrastructure shortfalls and the growth of slums have only compounded these governance issues.

However, the decline of weakly managed large cities is neither inevitable nor irreversible. Cities can move decisively to tackle infrastructure gaps, improve planning, and foster high-productivity jobs. There are four principles of effective city management that urbanizing regions need to firmly establish:

  • First, successful cities need sufficient funding to finance their running costs and new infrastructure. Sources of funding could include monetizing land assets and levying property taxes, sales taxes, or user charges.
  • Second, cities need modern, accountable governance; many large successful cities, including London and New York, have opted for empowered mayors with long tenures and clear accountability.
  • Third, cities need proper planning that spans a 1- to 40-year horizon.
  • Finally, all cities should craft dedicated policies in critical areas such as affordable housing.

Regions that are not able to deliver against these principles should, where possible, shape the profile of urbanization. Urban migration that is dispersed across many cities rather than focused on a few is likely to be easier to manage and result in less stress for the biggest metropolitan areas. The good news is that much of the world’s urbanization will happen outside the megacities. While megacities will contribute around 10 percent of global economic growth over the next two decades, it is the “middleweight” cities (rapidly growing cities with population below 10 million) that will deliver the lion’s share of global growth. MGI research suggests that around 575 middleweight cities will generate roughly half of global growth.

Urbanization is an inexorable global force, powered by the potential for enormous economic benefits. We will only realize those benefits, however, if we learn to manage our rapidly growing cities effectively.

  • Zvi Eynan

    I am leaving in a relativly small city (Haifa/Israel) but I agree with statements listed in this article

  • matthew

    Dysfunctional cities in Africa, Asia, and Latin America? What about the United States? There are plenty of cities in America that are completely bankrupt, vacuous or on the brink of environmental collapse.

  • The view that cities drive productivity is an interesting inversion of a long-standing explanations of city growth: it was changes in agricultural practice and gains in rural productivity that precipitated large scale urbanisation in Europe and consequently its export to the new world.

    In today’s developing nations, parallel changes in land tenure and the application of tehnology to food and fibre production both drive households from the land and create the food surpluses that keep many – not all – of the migrants to the cities fed.

    And the expansion of sanitation and distribution infrastructure — often driven upwards by communities and NGOs in rapidly growing cities of squatters — helps keep them alive, perhaps even healthy, and maybe even productive.

    But city scale alone does not deliver productivity. There are many diseconomies (and now, maybe, speculative bubbles) associated with very large cities – with real (industrial) investment driven to the fringes and beyond.

    And that’s why we might look to decentralisation, medium-scale cities, networks of towns, and — within the megacities — urban villages as the way of the future. This doesn’t rely just on super skilled city managers. It also needs a healthy civil society. But that’s another story.

  • Population growth and urbanisation, in particular rura-urban migration appears to be key drivers city growht and complexity. These factors are strictly speaking outside the control of the city government. Even more important is that is the manner which the city respond to these factors in manner that optimises the benefits associated with the rapid urbanisation and growth. The notion of productivity in rural and urban areas being spawned by urbanisation is intutively appealing and indeed plausible. In developing countries however, there may be various constraints, like poverty ,inequality and low literacy levels that may negate these benefits. It may be intersting to see what role central governments can play in esuring that ubanisation ernegises the cities and enhances the productivity gains. I do not think that cties by themselves can be able to grow and be productive without the involvement and role of central government. Central government still hold sway in terms of fiscal revenue and powers in most ermeging and developing countries.

  • No, Cities don’t grow by masterplan. The thought that city planners should facilitate growth of cities that already have exceeded their carrying capacity is beyond madness. Instead, an active discouragement policy needs to be pushed to send newcomers back as fast as possible. Already, Cities such as calcutta and istambul do this. Today’s tents and huts tend to become tomorrow’s gangland slums as was demonstrated in sao paulo a few weeks ago. Maybe everyone that reads this article should read Gilman’s work on deviant globalization.

  • I think that governments must to innovate city’s management, and apply the news rules for global urban development.

  • BV Anand

    Dear Mr. Richard Dobbs and Mr. Jaana Remes,

    It is a well thought article and I appreciate the authors for articulating their thought very prudently.

    It is very unusual but seems to be very appropriate that most of the examples of Big Townships and Planned Megacities Cities are taken from the Communist (With Social Characteristics) Countries or from Capitalist (With Democratic Characteristics) or from Royal Family ruled Countries. Mega Cities and Mega Townships emerging from a democratic set up takes its own time and encounters many challenges before it is brought to ground, unless and until it is market driven or organically grown primate cities, since, Land, Natural Resources and Environment is a Scarce commodity. It means that if the Master plans proposals are implemented to an extent of atleast 50% (In case of Cities), it is considered as a successful Master plan.

    It is true that Urbanisation is happening at a greater pace, but Policies are generated in many countries is for Balanced development to avoid Mega Cities development. In case of India, the key theme seems to be Regional Development, but the bigger magnet- the Primate cities have a say due to its market/ landuse compositions.

    BV Anand
    Nandi Infrastructure Corridor Enterprise Ltd.,

  • A good introduction into the supply-side of the city growth equation. It would valuable to look at the same issues of finance, governance, planning and critical policy development – I’d add transportation to the mix – in the rural or non-urbanized areas as well. Understanding what is driving the demand for people to uproot themselves from their home, whatever that may be, and transport their entire family to a city for a perceived improvement in lifestyle is critical. The demand drives the supply, and it should not just be the numbers driving the conversation. I believe there is a solution that allows some of the population to remain in place, thus affording them the possibility of continuing to provide for their family while building a better home and opportunity for growth in place. The urban farming is one example of rural practices moving to the urban. Fostering a shift away from food production is certainly not the result we are looking for. Perhaps better transportation alternatives are a solution.

  • CYeon

    I agree with “the cities should solve critical questions, such as affordable housing”. In my opinion, the sustainable competitiveness of a city comes from whether the city can keep the talent and make the talent innovate and create the city’s future.

  • I would agree that this article is a good introduction to the supply-side of city growth. But I would also echo other concerns voiced about allowing numbers to drive the conversation.

    What concerned me most about this analysis is the conspicuous absence of people from the equation other than as simply consumers of jobs or housing or whatever else.

    Urban planning has now for generations ignored the fact that people, individuals, families actually need to live in cities, and have simply contented itself with creating spaces for economic innovation or growing housing markets with nary a glance given the notion that living a fulfilling life in an urban setting is more than having a job or a place to live.

    Any conversation about cities, be it their potential size, as economic drivers, or how best they can be organised and governed needs to recall that these are human eco-systems, and that for all the abstract discussion about them, people NEED to be the fundamental unit of planning. And again, this is more than jobs or sanitation or housing. It’s all of these things, and more.

    The real question we need to ask is how and indeed if, there are limits on the sizes of cities from the point of view of humans living there, not merely in terms of governance or economic management. How exactly, when faced with such huge pressures of urbanisation, will cities be able to create meaningful lives and experiences for all of their residents?

    I think we need to climb out of the airplane we are currently circling the city in from high above and start thinking about planning from the ground level, from the perspective of the people who actually inhabit these places we speak of so abstractly. If we can actually do this, I think we will inevitably come up with a much different assessment of what the biggest limits on city growth actually are.

  • Michael

    Unfortunately this article has failed to consider the most critical component to city expansion – SUSTAINABILITY. There’s not one reference to the limitations of the natural environment – a gross oversight. Unless the authors have a view that the Earth is a bottomless resource??

    Andrew Baxter touched on the right direction required which is the concept of eco-systems. I would add to Andrew’s insight that both HUMAN & ENVIRONMENTAL components form the primary substance of life – all other elements are purely tools to facilitate good stewardship of people and the natural environment.

    I look forward to intelligent discussion on this as bug cities cannot survive without the natural resources they depend on.

  • V. Croce

    It has been shown that urbanization rates of cities and megacities show a “peak” and a decline. The rate during decline might be positive or negative.
    Old World megacities show population decline because they have been evolutioning for centuries.
    In Latin America megacities like Mexico and Sao Paulo are showing stabilization rates but these are not different from the pattern already seen elsewhere in the world.
    In China/India/Africa, cities and megacities are springing up and therefore their urbanization rate is very high.

  • Jeys

    I liked this well thought-out article.
    I have lived in Indian cities of Bangalore, Mumbai, Hyderabad and Chennai. I have also done my major portion of schooling in Bangalore. I have seen it going from good to bad and then to worse. It has changed from once ‘Garden City’ to ‘garbage city’.
    In Mumbai, the affordable areas are largely congested, filthy and highly polluted whereas the unaffordable areas like south Mumbai is mush better to live in. Like mentioned in the article one major reason is the lack of proper planning. Another probable reason could be the attitude of the people living in the area. I think that city planning is so crucial an area that it should be left to the professionals to plan it for the people. Without proper planning and support equally from people as well as local government large cities will surely become unliveable and will have to give way to lower and mid-tier cities.

  • e.a.tsybina

    Dear authors and readers,

    I live in Moscow, Russia. We are used to considering Moscow and the neighbouring Moscow Region as a whole entity since economically and socially they are. Here are some facts about it.
    Official population (1 Jan 2009, Russian statistics bureau) – 16,5 million people
    Unofficial population (1 Jan 2009, Russian statistics bureau) – exceeds 20 million people (the number of people that are not registered in the region can only be defined approximately)
    Area – 45,8
    GDP – USD 321bn (2008, PWC), 15th in the world (20% of total Russian GDP)
    These numbers are bigger than those of Belgium.
    The cost of 1km of road – USD 700 million (5 Mar 2009, Troyka Dialog investment), twice as much as 1km of the Eurotunnel between the UK and France.

    The resulting problems are the following:
    Over 10% of Russian population live in Moscow, this number increases as a consequence of people’s flight to Moscow from other regions. I seriously doubt that this helps our rural areas, the rate of population employed in agriculture, fishery and farming has been declining every year from 2005 (9,7%, Russian statistics bureau) until 2008 (most recent, 7,8%, Russian statistics bureau). It is well known in the country that small town and rural population move to Greater Moscow and St. Petersburg, some people going to local regional centres.
    Real estate prices grow 7% every year. In 2007 Moscow was the city with highest living costs in the world (Mercer). Urbanization in Russia leads to an increase in living costs.
    The number of cars in Moscow is approaching 4 million (2010, Russian road inspection), the maximum average time of passing 10km is 5 hours (registered in 2009, result of a snowfall). People living in suburbs have to miss up to four underground trains (waiting time between trains 2 minutes) before they move through the platform and can enter a carriage. Most employers locate their offices in the centre, and people living in suburbs all over the Greater Moscow have to travel to work every day. Urban planning as we know it now (business core in the centre, private property around) clearly doesn’t provide a solution not only in Moscow, but in other big cities as well.

    to be continued.

    Our government has put some effort in moving people back to provincial towns and rural areas by providing tax benefits and building infrastructure, but so far these efforts have not brought significant results. People simply do not feel secure there and keep moving to big cities.

    Grounding on this I have a question – how can we stop the explosion of the few big cities we have and direct population flows in less conjested areas?
    We actually need urbanization(mostly for economies of scale, such as medical care and education availability), but this should not be done in the form of putting one big city in the middle of a field. The notion of a number of smaller cities makes sense, however, it doesn’t work for Russia.

  • Padhraic Moneley

    Cities become increasingly dysfunctional as they grow due to infrastructural feedback loops which arise as new layers of urban fabric are generated around a static centre.

    This process of “Urban Feedback” is characterised by a destructive cycle of redevelopment, with established patterns development interfering with the proper provision of new facilities and services for the expanded population.

    For a fractal based spatial planning system which is capable of resolving this conflict, whilst providing a framework for coherent open-ended settlement growth, why not check this out;

  • Jennifer King

    I appreciate this article in that it recognizes that in order to handle the expected growth in cities improvements in management (i.e., city planning) is required.

    The “management” of cities must be recognized as not always politically palatable as it may restrict people’s movement or freedom to some extent. Citizens may not be willing to sacrifice today’s freedom for the better-planned city of tomorrow. Education must be paired with city management to help the citizenry understand the reason for changing the status quo.

    Regarding the funding – this must be targeted to generate budgeted amounts plus a small cushion. Surplus funds may cause mission creep and bloat a city government, causing distrust in the citizenry. Additionally the funding mechanism (i.e., taxes) may run contrary to the fourth policy of establishing goals of affordable housing.

  • Large metropolitan areas have historically been centers of power and culture, attracting migrants from smaller towns and cities, as well as rural areas in hopes of achieving a better life. This phenomena gained traction after the Industrial Revolution, followed ebbs and flows, and reached its peak during the global commercial rampage of the past decade, when the number of “Mega” and “Global” cities increased manifold. However, with the ever changing economic, demographic and technological landscape, the dominant urban form of the future might not be the megalopolis, but its smaller cousin, the Mid-Sized City !

    As we speak, more than half the globe lives in urban areas.(See UNFPA 2007 report). As the world’s population increase rapidly to 8.3 billion people by 2030, one is tempted to envision hundreds of mega cities spawning across the globe.However, here is what the above mentioned report had to say about the future urbanites:

    “Contrary to general belief, the bulk of urban population growth is likely to be in smaller cities and towns, whose capabilities for planning and implementation can be exceedingly weak. Yet the worldwide process of decentralizing governmental powers is heaping greater responsibility on them. As the population of smaller cities increases, their thin managerial and planning capacities come under mounting stress.”

    Here are my top 5 reasons why I believe there is a silver lining around the future of mid sized cities, if we take action NOW to strengthen infrastructure and improve development policies:

    1. US is the premier trendsetter for urban growth patterns for Asian and African regions where a big chunk of future urban growth is likely to occur. Mid sized cities in the US are well poised for a turn around as technology brings greater opportunities to the people outside of major metropolitan areas. (Pittsburgh, PA is a great success story in the making of a rust belt city that has invested in technology, healthcare and education industries and is turning its economy around.) This trend has the potential to cause a global, snowball effect.

    2. Mid Sized cities provide a smoother transition from rural areas in terms of lifestyle and geographic distances (Your village is more likely to be near a “Madison, WI” than “New York City”) .

    3. Mid Sized cities are more affordable.

    4. Given their relatively smaller size, Mid Sized cities are politically and administratively more nimble and hence more likely to adapt to the decentralizing of Central Governmental powers worldwide, a phenomena forecasted as the next big geopolitical trend after the formation of nation states.

    5. Mid Sized cities have a smaller ecological footprint and can truly be configured as “Regional Organisms” , thriving on their immediate environs in a post carbon society.

  • Congratulation for this article. It give us somthing to thing about our next future. I live in Santiago (Chile) and not only for this city but for almost all cities in my country one of the mayor problems for working out a sustentainable growing plan is that autorities do not have the management tools nor the knowledges and skills to develop reasonable expansion programs. And considering that only a few weeks ago autorities aproved a new expansion area of one hundred million square meters for Santiago, a good plan is somethinh that we could use

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