Cities are engines of growth because they “manufacture” wealth. That is why rich economies are predominantly urban, and those economies that are largely rural are poor. Therefore the transition from a poor economy to a rich one depends on the transition of the majority of the population from being rural to urban. The scale and quality of the basic habitation unit determines the success of an economy. A large number of small villages is sufficient for poverty; a number of large cities is necessary for prosperity. Economic growth is both a cause and consequence of urbanization, as can be seen anywhere around the world.
The ingredients for wealth creation are well known and conveniently listed as land, labor and capital—they are called “factors of production.” If you have a good recipe, the ingredients yield a good product; otherwise the result is unpalatable even with the same ingredients. The recipe can be termed “technology.” Over time, through painful trial and error, good recipes have been discovered and is fairly cheaply available to anyone sufficiently motivated enough to make something useful out of the available ingredients. In some cases, however, the capital may be insufficient. Fortunately, in many such cases, capital can be borrowed.
To build the Designer Cities, the DeCis, we need land, labor, capital, and technology. The technology exists. Over the centuries people have figured out how to design and build efficient, effective, and pleasant cities. We do have the land and sufficient labor to get any job done—with a bit of training of the labor, of course. The capital is the last and most critical bit. We just need to shift our perspective and consider the city to be a massive factory for producing wealth. Once you do that, you immediately see that the money spent on building a city is not expenditure but an investment. Therefore if we demonstrate that the return on investment is positive in the case of a city, investors will go for it.
The most important bit is to bring all the factors of production and the technology together simultaneously. It essentially is the solving of what is called a “coordination problem.” If you can sequence the set of operations properly, you can build using the existing factors in such a way that every stage generates the wealth that you need to move up to the next stage. It is an upward spiral. If you do need to borrow for the first stage, you figure out some innovative financing mechanism.
The first stage is the acquisition of land. There are enough examples of how land can be the foundation upon which you can build vibrant communities. It is just a small step from that to building entire cities using the same method, as we will explore next.
[This is part five of a ten-part series. The previous post is Financing Designer Cities.]