Cities play a new economic role in the global economy, becoming economic territories in their own right. Urbanisation is a defining phenomenon of this century, and today, more than half the world’s people live in cities (World Bank Group, 2009). It is an economic force known as ‘agglomeration’ that drives urbanisation, and therefore, offers a platform to study how place growth and competitiveness occurs.
Economic agglomeration occurs when firms are attracted to a place to take advantage of the specialisation and scale and skilled workforces are attracted to the diverse employment opportunities and social offerings that a city offers. This relationship between firms and skilled workforces creates new ideas (innovation) and new businesses (through spill overs of ideas) that enable productivity gains, the creation of new jobs and increases income for its citizens (World Bank Group, 2015). Thus cities become a powerful force in driving economic development.
| Agglomeration refers to a dynamic system where firms and people are drawn to co-locate close to one another, and as a result, these places become more productive, driving long-run growth. There are two main sources of agglomeration: urbanisation economies and localisation economies (Maynard, 2017).
Urbanisation economies refers to benefits that firms in a number of different industries receive from population and infrastructure clustering. Specifically economies of scale that can be gained from by being located close to one another. An example of this is a shopping centre (Maynard, 2017). Localisation economies refers to the benefits that firms in the same industry gain from being located close together. These include labour pooling and knowledge spill overs. An example of this is an industrial cluster such as silicon valley (Maynard, 2017). |
The Challenge
In the State of Western Australia, Perth is a primate city. That is, Perth is more than twice as large, in terms of both population and productivity, as the next largest city (Rosenburg, 2017). Primacy is a significant issue because it does not harness the economic potential of other areas and creates uneven growth (including living standards).
Addressing uneven growth is a hard task. You simply cannot push growth around and evidence suggests that shifting industries and government agencies is ineffective (Centre for Cities, 2017). Instead, regional or uneven places need to be supported to stimulate agglomeration forces if they are to grow and create sustainable communities. The alternative is quite simple, people and business will continue to be drawn to Perth and other agglomerations that offer more opportunities[1].
The Opportunity
Each place is different, and therefore, each place’s response should be different. Thus the agglomeration ‘levers’ for each place will need to be based on a places own unique growth opportunities and constraints.
A top-down approach to development of places often fails to develop the specific workforce skills and business competitive advantages of place that enables to grow. Thus, places must create place based strategies:
- develop the skills that facilitate their business base that enable productivity and innovation;
- develop their export sector which brings in wealth and indirectly creates new jobs,
- stimulate industrial clusters to harness collaboration, labour pooling and spin offs; and
- support disadvantaged people to enter the economy (Centre for Cities, 2017).
Places will need to establish collaborative partnerships with business, academia and government to drive the agenda across sectors. Places will also need to build their capabilities to the right identify opportunities, attract or raise investment, and take responsibility for the achievement of their communities development needs.
[1] Noting that some businesses may still remain where there is economic opportunities however those communities will need to be largely externally serviced e.g. workforce/good and services.
Growth Economics 