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McKinsey Study Suggests Radical Shifts Among World Cities

Neal Peirce / Aug 30 2012

For Release Sunday, September 2, 2012
© 2012 Washington Post Writers Group

Neal PeirceSEOUL – While Americans duck under the sloganeering of the presidential campaign, the megatrends of the Big World outside our borders – population explosion, rising economic power blocs, impacted natural environment – are shifting at incredible speed.

Consider the new McKinsey Global Institute’s recent report – “Urban World: Cities and the Rise of the Consuming Class.”

On the surface, the message carries an array of positives. Not only is world population expanding at unprecedented numbers, it’s urbanizing at lightning speed, creating fresh opportunities.

Globally, cities are economic dynamos. They typically attract skilled workers and productive activity that triples per capita income over rural areas. With the opportunities that cities bring them, 1 billion people are likely to enter the global “consuming class,” virtually all in developing world metropolises, by 2025. Their activity and buying demands will have a cumulative upward impact of roughly $20 trillion a year on the world’s economy.

On top of that, the cities where the new urbanites live will likely be obliged to double their annual investments in buildings, roadways, water systems, ports and public buildings from today’s $10 trillion a year to $20 trillion a year by 2025. Businesses will have immense new opportunities; it’s reasonable to expect “a powerful and welcome boost to global economic growth.”

In net impact on the world, says Richard Dobbs, director of the Seoul-based McKinsey Global Institute, this economic transformation “will be larger than World Wars I and II, the Lehman collapse shock and perhaps the Internet cloud.”

For many millions, that can mean a dramatic shift from sheer subsistence living. Dobbs puts the figure quite low – roughly $10 in daily income – “when you have a refrigerator, maybe a TV,” and can start spending on other consumer products. The added purchases register a multiplier effect – each stimulates other economic activity. More and more city consumers – most dramatically in China and India – are hitting a significant “takeoff point” for major purchases and impact, typically when annual disposable income hits $20,000 a year or more.

Indeed, Asia has become the globe’s most powerful economic driver. Dobbs describes the way the geographic median spot of world economic activity has moved. From A.D. 1 (Common Era 1) until 1820, it was rooted in south central Asia by India and, especially, China (which historically considered itself “the Middle Kingdom” of the world). Then, sparked by the industrial revolution in England, the growth of Europe and the rapid settlement and industrialization of North America, the economic center moved westward. By 1950 it was a spot in the North Atlantic.

Then the center reversed course. By 2000, it had turned back eastward to a point over Scandinavia. That was just the start: By 2010, as urbanization accelerated in the Far East, the geographic center had taken a massive further step east (deep inside Russia). By 2025 it’s likely to be in Kazakhstan and still heading eastward, not too far from its 1820 position.

“Today it’s not the emergence of Asia,” says Dobbs: “It’s the recovery of Asia.” And why? “The Industrial Revolution that began in Europe, then spread to America, is happening in Asia,” drawing millions from countryside to cities, sparking massive economic growth and rising incomes for an exuberant, new, Asian middle class.

The McKinsey study identifies 600 dynamic global metropolises likely to lead the world economy to 2025 and beyond. Among them are an especially dynamic “Emerging 440″ cities – more than half in China alone – that will generate roughly half of global economic growth from now to 2025. Top U.S. and European cities aren’t excluded; they’re projected to add trillions in value by 2025. But the dynamism of the Far East, and to lesser degree Latin America, will clearly lead the world.

Yet a set of thorny issues rise side by side with this predicted global economic expansion led by Asia.

On one side the questions are economic: Where will the trillions in capital be found for a surging worldwide demand for new construction? McKinsey predicts cities will need to build 80,000 square kilometers of residential and commercial floor space – equal to the entire land area of Austria. Huge new container ports will be required to accommodate transport for consumer goods in global commerce.

There’ll also be massive demand for new energy supplies and for municipal water distribution facilities – perhaps $480 billion worth by 2050. Add in roadways for some 1.7 billion new cars that consumers are predicted to demand by 2030, vehicles that put bumper to bumper would cover the distance between Earth and the moon 10 times over.

And as worrisome as the capital demands are likely to be, another issue is even larger: What of our global environment? How stressed will it be by the gathering worldwide growth boom?

Next week’s column turns to that dilemma.

Neal Peirce’s e-mail is

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  1. Mayraj Fahim
    Posted August 30, 2012 at 10:12 pm | Permalink

    It depends on the institutional capacity. Please see:
    India in Transition
    World Class Cities Need World Class States
    Urban Journal: No Wonder Gurgaon’s Revolting

  2. JJ
    Posted August 31, 2012 at 12:32 am | Permalink

    Global warming will render this nil in the near future!

  3. Howard Wooldridge
    Posted August 31, 2012 at 8:16 am | Permalink

    Yes, please give us all the advantages and benefits of a planet with 10 billion people. BTW anyone calculated the water needs of 10B people? Several thousand already die daily from dirty water every day. What is an acceptable death toll??