Over the past thirty years, we have seen an increased concentration of people in urban settings globally. In 1990, only 43% of the world population lived in cities, but by 2015 the number had grown to 54.3%, and it is expected to rise to around 66% by 2050, according to the UN’s World Urbanization Prospects.
This trend has been a boon for economic development worldwide. Cities concentrate investments, infrastructure, innovation capacity, and competitive advantages. Such concentration is especially important in the age of globalization, when leading firms and top human talent settle in highly connected urban areas. Cities in advanced economies, for example, are around 50% more productive than their outlying areas, and the urban advantage is even more pronounced in emerging economies, according to a composite index produced by urban development expert Richard Florida.
As we move to a knowledge and innovation-based economy, cities will become even more important engines for emerging economies. Cities, not nation states, have the right size and density to bring together the firms, industries, people and skills to facilitate innovation and the development of new technologies. Places like London and New York, for example, have clustered the leading firms and workers in areas like finance, and Los Angeles has done the same for the creative arts. Why haven’t the main metropolitan areas in Latin America been as successful?
Urbanization without growth?
Latin America has its fair share of emerging hubs—São Paulo and Santiago are pioneers in building innovation ecosystems—and up-and-coming places like Guadalajara and Bogotá are consolidating their industrial capacity and evolving into modern metropolises. Some of the region’s larger cities, such as Mexico City and Buenos Aires, are also centers of its economic activity. But these places could become more effective engines of growth if the particular challenges of urban development are properly addressed.
While clustering can drive growth, it does not necessarily promote wellbeing. In advanced economies, the astounding success of some cities has unleashed intense competition for urban space, and driven up housing and other prices, preventing many from gaining full access to key urban amenities.
In the developing world, the situation is even worse. One in eight people around the world live in slums. At least 110 million of these are in Latin America and the Caribbean, according to UN Habitat. Often located at the margin of metropolitan areas, the large majority of people in these shantytowns lack access to basic services like clean water, electricity or sufficient housing.
Far from offering a pathway to opportunities, these slums often become poverty traps, as people are packed in vulnerable housing, disconnected from productive economic activity, and often partially excluded from basic services. In Latin America, there is abundant talent and entrepreneurial spirit, but to unleash the full potential of Latin Americans, the basic infrastructure needs to be in place.
Making Cities Work for Development
Talented and ambitious people are already flowing to our cities in search of opportunity. To make sure they actually find it, most cities in Latin America and the Caribbean will need to build new infrastructure. Functional streets could connect people in slums to other areas of cities, as well as facilitate the provision of other forms of physical infrastructure—such as power lines, water and sewage. More important, cities need to focus on offering functional transit systems, with strategic investments to facilitate connectivity.
Places like Bogotá and Curitiba, for example, have implemented low-cost, high-performance bus rapid transit systems in recent decades. More recently, cities like Guadalajara have experimented with light rail transit, as a more efficient and environmentally friendly alternative to congestion. And some innovative solutions, such as cable cars, have seen a revival as a cheap way to connect high-altitude parts of Medellin, Rio de Janeiro, and Mexico City, to the main urban neighborhoods. This is welcome progress, but as cities grow in size, increased investments will be required.
Beyond physical infrastructure, urban development requires a policy toolbox to encourage density and facilitate affordable housing. A study of around 8,600 municipalities in Latin America found that the cost of service provision rises considerably as cities become less dense.
Curitiba, for example, has implemented an integrated development plan since 1965, which prioritizes a compact, mixed-use style of development. Today, commercial developments, parks, and other areas of town are seamlessly linked by transit and improve inhabitants’ quality of life, while using around 25% less fuel than average same-sized cities. Mixed-used neighborhoods also promote street life and foster human-level interactions, along with development that prioritizes people over cars.
These are essential developments, but they need to be expanded and extended to other cities and countries. Urbanization is relevant to most areas of economic development policy. Urban governments and development agencies in Latin America need to start taking it more seriously.