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Are you interested in the economic potential of mid-sized cities?

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Our debate today works with the article titled Developing intermediate cities from 2021, by Andrés Rodríguez-Pose and Jamie Griffiths, published in the Regional Science Policy & Practice journal.

This is a great preparation to our next interview with Remco Deelstra in episode 378 talking about the economic potential and importance of mid-sized cities.

Since we are investigating the future of cities, I thought it would be interesting to see how these mid-sized cities could be part of the future of cities form an economic point of view. This article argues that the intermediate cities possess significant, often untapped economic dynamism and development potential.

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Welcome to today’s What is The Future For Cities podcast and its Research episode; my name is Fanni, and today we will introduce a research by summarising it. The episode really is just a short summary of the original investigation, and, in case it is interesting enough, I would encourage everyone to check out the whole documentation. This conversation was produced and generated with Notebook LM as two hosts dissecting the whole research.

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Speaker 1: So our discussion today, it really gets to the heart of a major challenge in global development planning. Where should nations put their money and policy efforts geographically speaking, to really boost economic growth and crucially reduce poverty? We’re seeing incredibly rapid urbanization across the globe. So getting this spatial strategy right is Well, it’s absolutely vital. And the central question we’re grappling with today presents a pretty clear choice. Should development strategies keep prioritizing the big players, the mega cities, to capture those traditional agglomeration benefits. Or should we consciously shift resources towards intermediate cities, those typically between 300,000 and 5 million people, viewing them as potentially more sustainable, maybe more equitable and efficient engines for growth and national balance. I’ll be making the case that these intermediate cities hold significant, often overlooked potential,

Speaker 2: and I’ll be taking the other side arguing that while intermediate cities or ics certainly have a role. The traditional focus on large metropolitan areas remains necessary, even foundational based on. Pretty established urban economic theory and just how mega cities function in the global economy. And look, I agree, the spatial question is critical, but the reason prevailing theories focus on the really big cities, your London’s Tokyo Shanghai’s is precisely because they offer this unmatched combination of agglomeration and density. This concentration creates deep economies of scale. You know, it speeds up. Knowledge sharing builds dense market links, allows for sophisticated specialization, sparks innovation, and ultimately drives the kind of massive productivity gains that countries need to compete globally. Historically focusing investment there has been seen as well, almost a prerequisite for national prosperity. The worry is if you spread resources too thin across smaller cities too early on, you might actually dilute the very concentration needed for that breakout growth. It could be seen as fighting prosperity, not poverty in a way.

Speaker 1: I understand that. Theoretical underpinning, I really do. The gravity of agglomeration economies is clear, but we have to look at the actual outcomes, particularly outside the high income countries. This dominant focus on mega cities often driven by those exact theories, hasn’t always led to growth spreading effectively. In fact, it’s often worsened regional inequalities and inequality within cities. And what’s more, there’s a growing body of empirical evidence now that seriously questions if bigger is always better, especially for economic growth in developing and emerging economies. Intermediate cities aren’t some niche side topic. There’s central to how people experience urban life globally. We’re talking about what, around 2,400 ICS worldwide.  An estimate suggest that by 2030, over 3.8 billion people, that’s nearly half the world’s projected urban population, will live in cities of this size between 300,000 and 5 million. The sheer scale demands our attention. Look at business. Nearly half of the Fortune Global 500 companies are headquartered in cities with fewer than 5 million people. That tells you something right. These places can support top tier globally competitive businesses.

Speaker 2: That Fortune 500 statistic, definitely food for thought regarding IC potential. I won’t dismiss that, but that potential often bumps up against some very real practical hurdles, even if ICS offer theoretical upsides. They often face significant constraints. Firstly, there are genuine knowledge gaps. We don’t fully understand the best policy levers to really spark sustainable growth in these specific kinds of cities. Secondly, there’s often systemic policy neglect. ICS tend to fall between the cracks. They’re not quite rural, not quite mega urban in the eyes of many policymakers. And critically, there’s a major resource gap. This stems from decades of policy bias where large cities attract the lion’s share of capital infrastructure projects. And let’s be frank. Political attention, what some call seeking political rents. So ICS often struggle to get the public investment needed to build capacity and compete regardless of their potential efficiency. For a long time, the model of a concentrated system with one dominant city was actively promoted because it was thought to force market connections and knowledge spillovers that benefit the whole nation. So what we’re really debating is redirecting scarce resources based on. Potential versus continuing investment based on proven if sometimes messy function. So let’s kick off the core debate there. With that fundamental function, large cities are pretty unequivocally the main hubs of global economic activity and the shift from rural to urban life almost regardless of the destination. City size is fundamentally linked with rising average incomes and falling poverty overall. The longstanding economic argument is that the productivity benefits you get from agglomeration in these huge centres. Typically outweigh the cost of density, the congestion, the pollution, and so on, especially because of the sheer speed at which they build scale, attract talent and foster innovation for developing countries. Achieving that scale quickly is often seen as well, non-negotiable,

Speaker 1: but that traditional view I’d argue really gets challenged. When you look closely at the reality outside the established high income nations. The assumption that scale benefits always win out. I think that’s fundamentally flawed in many emerging economies. You see in lots of developing countries, urbanization is happening at very low income levels, sometimes before widespread industrialization really takes hold, and that combination, rapid population growth, low incomes, maybe weak institutions, often leads to underdeveloped infrastructure and sometimes jobless growth. Where the city swells, but formal jobs don’t keep pace, and this is where scale becomes a major liability, not an asset. Many of these mega cities are arguably already way past their optimal, productive size. They’re grappling with chronic, really debilitating dis economies. Think severe pollution infrastructure that’s totally gridlocked, paralysing traffic congestion, huge pockets of spatial poverty. These problems fundamentally undermine whatever benefits that density’s supposed to bring. We’re not talking about temporary growing pains here. We’re talking about deep structural inefficiency.

Speaker 2: Just because cities like Cairo or Lagos or Mumbai have immense problems and they absolutely do, does that automatically mean they’re less productive overall than an intermediate city in the same country? I’m not convinced their sheer economic weight, the concentration of high level skills, it still often dwarfs what a smaller city can muster. Remember the historical path for many developed nations involved, enduring decades of pretty awful congestion and pollution while they built up their industrial base and institutions. So are these problems in inherent flaw of the mega city model itself? Or are they issues of governance and needing to catch up on infrastructure investment? I’d lean towards the latter. It’s not that concentration is wrong, it’s that managing it is incredibly hard.

Speaker 1: It is a problem of governance and infrastructure catch up, and that’s exactly why scale is so critical here. Mega cities and developing nations face enormous. Almost insurmountable struggles just to provide adequate public capital stock. Things like reliable electricity, clean water, affordable housing functioning, transport. Without those basics, how can you possibly capture the supposed benefits of agglomeration? If your commute takes two hours to go five miles because of congestion as it does in many places, where’s the productivity gain? It’s largely wiped out. Intermediate cities, on the other hand, offer a more manageable scale addressing traffic or waste management or extending infrastructure. It’s simply less complex, requires fewer resources and is potentially faster to implement in a city of say, 1 million people compared to 20 million. This manageable scale gives ICS a fundamental advantage in terms of governance and efficiency, which means potentially better use of scarce national resources. This potential for greater efficiency, I believe translates directly into social impact. Especially when we talk about reducing national poverty. There’s growing evidence suggesting intermediate cities can be more effective and efficient. In this role, they often serve as more accessible stepping stones for people migrating from rural areas or small towns, they’re physically closer. The cost of living is usually lower. The cultural jump might feel less daunting than moving to a massive, overwhelming metropolis, and we actually have some pretty compelling data on this. Specifically looking at the multiplier effect. An empirical study in Tanzania, quite detailed, found that creating one additional formal sector job in an intermediate city lifted on average 5.74 people out of poverty. Compare that to DRIs Salam, the largest city where one new formal job lifted only 3.36 people out of poverty. hat points to a significantly stronger poverty reduction impact per job created in those intermediate cities.

Speaker 2: That is a striking statistic from Tanzania, the 5.74 multiplier, you can’t really argue with that specific finding, but we do need to place it in context. Context against the goal of creating job volume. Large metropolises, even with a lower multiplier per job, are still typically the engines driving national income growth overall. They generate the largest absolute number of new jobs. So the risk here is about resource diversion. If we start shifting limited development funds primarily based on this marginal efficiency game and poverty reduction in ICS, do we risk undermining the sheer volume of economic activity in the primary cities? The activity that ultimately supports the national budget and funds all poverty programs, wherever they are. And this IC model, it’s not universally applicable or always the observed trend in successful growth stories. The whole idea behind prioritizing ICS is often about achieving deconcentration a more balanced, territorial development, but that runs counter to what we’ve seen in many places, like in central and Eastern Europe after the political transitions. There. The capital cities, the biggest metropolis, often grew much faster than the rest of the urban system. Their primacy seemed crucial for driving national economic integration and catching up. So the IC approach just isn’t a guaranteed silver bullet. Let’s maybe pivot back for a moment to what drives long-term prosperity. Human capital innovation, large metropolis, London, Paris, New York, Tokyo. They are undeniably the premier hubs for innovation for high-end services. They act like magnets pulling in the very top tier of skilled workers. This is the core of that consumer city idea that researchers like Ed Glazer talk about. Why? Because they offer unparalleled opportunities for specialization, access to deep financial markets, unique cultural amenities, that sheer concentration fuels the kind of constant high speed knowledge exchange that gives nations a competitive edge, especially in advanced sectors.

Speaker 1: I see it a bit differently. Yes, they attract the absolute top echelon perhaps. But intermediate cities I’d argue often provide a better overall environment for attracting and importantly, retaining the broader pool of skilled workers, especially young professionals, families, innovative businesses, who are looking for more than just hyper specialization. They want stability, affordability, quality of life. The trade-offs you have to make in mega cities are just becoming increasingly harsh for many, and you see the starkly in quality of life rankings. Intermediate cities consistently perform much, much better. Look at global liveability indices, places like Vienna, Zurich, Canberra. They’re always near the top. Why? Better affordability, less pollution, good amenities. Meanwhile, the massive, dense global cities, well London often ranks somewhere around 160 third for quality of life. Paris around 169th. They score poorly precisely because of the crippling traffic. The pollution, the sky high rents, the general urban stress. These aren’t just problems for the poor dis economies. Actively push skilled workers away or force them into incredibly long unproductive commutes. That ultimately chips away at the very competitive advantage the mega city is supposed to offer. If you can’t efficiently retain the talent you attract, that agglomeration dividend starts to shrink.

Speaker 2: I absolutely concede the point about poor quality of life rankings for many mega cities. It’s a direct consequence in many ways of the extreme density that we rely on for those agglomeration benefits. Quality of life. Rankings alone don’t automatically translate into economic dominance where the capacity to catalyse national development. Intermediate cities might be wonderful places to live, and we should absolutely support policies to make them so. But the sheer complexity, the deep specialization needed for certain cutting edge industries. That’s often very difficult, maybe impossible to replicate outside the structure of a global mega city. Their scale allows them to pool highly specialized labour and attract the vast amounts of capital needed for global market leadership in things like finance or advanced tech. A higher quality of life in Vienna is great, but it doesn’t change the fact that the overwhelming majority of global high frequency financial trading still happens in New York or London, not Vienna.

Speaker 1: But that’s exactly the point for the future, isn’t it? We’re entering an era where skilled workers, the very people driving innovation, are demanding a better deal from their cities. If the cost of living, the cost of doing business, the sheer friction of daily life in mega cities keeps rising because these dis economies aren’t managed, then even things like financial services might start to decentralize more than we think. Intermediate cities offer a potentially more sustainable model for the future, precisely because they might offer a better balance of urban costs and benefits, making them better places to retain talent long term. The empirical data like that poverty multiplier, the 5.74 figure strongly suggest ICS are crucial for achieving development that’s more balanced, more integrated, and ultimately more sustainable across the nation. Policy really needs to evolve beyond just the mega city mantra.

Speaker 2: So to wrap up my perspective, while intermediate cities clearly show significant potential. Especially regarding important social outcomes like poverty reduction and providing a higher quality of life, their actual ability to drive national development on a large scale is still seriously constrained. They face real world gaps in knowledge, in resources, and in policy Attention. Largely because of decades where the focus has been elsewhere, overcoming that systemic disadvantage requires massive sustained effort and investment. So yes, a comprehensive place sensitive approach that considers all types of cities is vital. But we shouldn’t underestimate the fact that large cities remain the primary engines of high volume growth and innovation. There’s still a foundational element of national economic prospects and policy can’t simply walk away from the proven, even if imperfect power of large scale agglomeration.

Speaker 1: And I think ultimately what this discussion really highlights is the need for much more sophisticated, integrated thinking about our territories. We have to recognize that different city sizes play different roles. Face different challenges and offer different kinds of efficiencies. Whether it’s the sheer economic scale of the mega city or the potentially higher efficiency of poverty reduction in an intermediate city, national potential gets left on the table. If our policies are too narrowly focused on just one part of the urban system, we need strategies that support the entire urban continuum, fostering connections and leveraging the strengths of all components, not just the biggest ones.

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What is the future for cities podcast?

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Episode and transcript generated with ⁠⁠Descript⁠⁠ assistance (⁠⁠affiliate link⁠⁠).