The Urban Paradox: A Challenge for Nations' and The World's Economy and Sustainability

Lamia Kamal-Chaoui

Head of Urban Development Programme

Regional Competitiveness and Governance Division, GOV Directorate, OECD

The acceleration of urbanization has strengthened the weight of large cities, or metropolitan regions. Today, more than half (53%) of the total OECD population lives in predominantly urban regions. The OECD contains 78 metro-regions with 1.5 million or more inhabitants, which tend to concentrate an important part of their national economic activities. For instance, Budapest, Seoul, Copenhagen, Dublin, Helsinki, Randstad-Holland and Brussels concentrate nearly half of their national GDP whilst Oslo, Auckland, Prague, London, Stockholm, Tokyo, and Paris account for around one third. More importantly, most OECD metro-regions have a higher GDP per capita than their national average (66 out of 78 metro-regions) and higher labour productivity (65 out of 78 metro-regions) and many of them tend to have faster growth rates than their countries.

Yet the growth capacity of metro-regions should not be overestimated, as metro-regions are not always synonymous with success. In fact, metro-regions also have important negative externalities.

Congestion costs are particularly prominent in recently and rapidly developing metro-regions in OECD countries, but also in such long-established major cities as Paris, Tokyo and London, and even in some parts of such less densely populated regions as Helsinki and Stockholm.

Poor-quality infrastructure may also arise in some metro-regions because of high maintenance costs. This is most likely to be seen in areas with concentrations of social housing, or in areas where economic activities are associated with noise and other unwanted environmental effects.

Mega-cities might feature diseconomies of agglomeration. Bigger means richer until a certain threshold (around 7 million), i.e. the correlation between metro-region size and income becomes negative.

Cities contribute the most to climate change as they worldwide consume 80% of the world's energy and are responsible for approximately 75% of all heat-trapping greenhouse gas emissions. Direct sources of greenhouse emissions in cities include energy regeneration, vehicles, industry and the burning of fossil fuels and biomass in households.

Competitiveness. Increasing role of large cities: what should policy makers do?

A more sustainable spatial approach enhances a city's livability and attractiveness. Examples of such strategies include the development of green areas (Seoul), multi-nodal approaches (Melbourne), as well as road pricing or congestion charges (London, Stockholm, Singapore). Urban renaissance strategies based for instance on developing cultural assets in depressed areas (Glasgow, Bilbao, Cleveland and Kitakyushu) help to attract creative and innovative populations, promote tourism and territorial branding and can be a major component to attract FDI.

Intra-metropolitan equalisations are used to combat negative effects of urban sprawl and deal with income polarisation. These mechanisms are implemented by a number of metropolitan governments (e.g. Istanbul, Tokyo and Seoul), as well as in some highly fragmented metro-regions (e.g. Minneapolis-St. Paul). In France, the central government provides an additional grant to municipalities that accept a form of intra-metropolitan equalisation scheme.

National equalisation schemes aimed at redistributing resources from richer to poorer regions are a commonly debated and controversial issue. In some cases, some elements of expenditures are not taken into account such as higher labour costs (e.g. Stockholm), higher land costs (e.g. Helsinki). In other cases, municipalities with high tax capacity receive more equalisation transfers (e.g. Amsterdam). Equalisation schemes can also create disincentives to increase tax efforts, which is not beneficial to metro-regions with their large efforts to collect tax revenues (e.g., Seoul).