Five years ago in “The Global City: New York, London, Tokyo,” I argued that these metropolises had emerged in the mid-1980s as a dominant force by serving as the link between the national and the global economies. And as more countries open up to international markets, their leading business and financial centers are starting to function as global cities, too. In the late 1980s we saw the emergence of Sydney, Toronto, Singapore and Seoul, among others. The 1990s added Mumbai, São Paulo, Buenos Aires, Mexico City, Chicago and Shanghai. Cairo, Dubai, Manila, Jakarta and Kuala Lumpur have come on in the past five years. There are now about 40 such cities, up from a handful in the mid-’80s. Their growing power is evident in spiraling downtown real-estate prices and incomes.
The shrinking of big-city populations has been both oversold and misinterpreted. Population is growing in some global cities, like Shanghai, London and Chicago. And in global cities where population is falling or stagnating, from New York to Manila, there is an inflow of highly educated 20- to 35-year-olds, along with an outflow of the very young and the old. What’s happening is a brutal triage: apartments that once held families now hold one single investment banker. And the space required by that single banker for offices, restaurants and shops can be two, three, four times more than that required by the family he or she replaces.
This is, in part, why the urban glamour zone is expanding in all these cities, often dramatically. Shanghai has built 5,000 high-rises in just the past seven years, New York has transformed Times Square from derelict to prime real estate, and despite more than a decade of warnings about its imminent demise, Hong Kong’s property market still has so much momentum, it’s continuing to eat up more of its famous harbor. In global cities, fewer people often means more intense economic activity. If anything, the elites who populate these glamour zones need more specialized services than ever, because the more countries one operates in, the more complex the challenges become. Indeed, one of the most powerful but overlooked forces in the world economy today is the simple fact that firms, from agriculture to finance, are buying more services. Consider that while U.S. output grew at a 4.1 percent rate from 1999 to 2003, the U.S. output for finance, insurance and real estate (FIRE) grew 7.6 percent overall, while FIRE sales to corporations grew 11.8 percent, and FIRE sales to firms in securities and linked trading grew 34 percent. Most economists have yet to pick up on the power of this trend, or what it means for big cities.
The general rule is that the most complex and international services (high-end law, accounting, finance and management) congregate in the center, while more standardized and national segments of those same services get farmed out to midsize cities. This pattern goes beyond the familiar case of back-office work. Thus Goldman Sachs has moved a whole series of more standardized jobs including automated mass trading to New Jersey and Connecticut, but is building what is probably the world’s largest private trading floor in the Wall Street area.
That helps explain the increasing wealth advantage of global cities. The growing number of multinationals–now almost 200,000, up from fewer than 20,000 in the 1980s–intensifies the competition in all foreign markets and the prices multinationals are willing to pay for the advantage in those markets. Those premiums go to global cities, because they are virtual monopoly centers for financial, legal and accounting innovations in the most complex segments of the knowledge economy. Deals like the recent acquisition by NASDAQ of a share of the London Stock Exchange, or the offer by the New York Stock Exchange for Euronext, don’t get done in Birmingham.
That’s why the earnings of high-level professional jobs have grown the fastest in global cities. For example, U.S. census and city data show quite clearly that the incomes of the top 20 percent are growing faster than the national average, and particularly fast in big cities. This income explosion accelerates the culling process displacing mid- and low-profit firms and households. Brutal this may be, but it is clearly a symptom of the rising power of global cities, not their imminent decline.
