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Are you interested in how urban evolution and entrepreneurial capitalism is connected?
Our debate today works with the book chapter titled Urbanisation and entrepreneurship in development: Like a horse and carriage? from 2018, by Wim Naudé, part of the Smart Futures, Challenges of Urbanisation, and Social Sustainability book, published by Spinger Nature.
This is a great preparation to our next interview with Bradford Cross in episode 398 talking about the importance and opportunities of entrepreneurial capitalism.
Since we are investigating the future of cities, I thought it would be interesting to see how entrepreneurial capitalism is connected to the future of cities. This chapter explores the interdependent relationship between urbanisation and entrepreneurship, suggesting that they act as primary drivers for economic development.
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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 2: we’re looking today at one of the most fundamental relationships in global development, the connection between urbanization and economic prosperity. The source material frames this pretty powerfully suggesting they go together like a horse and carriage. It underscores that no economy has ever developed without its people moving into cities. Those dense hubs where our entrepreneurs cluster and innovation thrives,
Speaker 1: right? And that relationship, while it’s undeniable, is precisely the point of contention for us today. The material, it shows us the correlation, but we really need to debate the causality and maybe more importantly. The sustainability. We’re asking whether entrepreneurial capitalism is the necessary and primary vehicle for successful urban development and critically for the future health of our massive growing cities. Or is it that the capitalist vehicle inherently creates damage that only strong governments can really fix?
Speaker 2: My position is, I think quite clear. Entrepreneurial innovation is the central, indispensable driver of urban growth. It’s the engine that actually starts the structural transformation. It pulls societies out of rural stagnation and delivers those measurable gains in wealth and wellbeing that define development.
Speaker 1: You might argue that while entrepreneurship might provide the initial spark, unmanaged entrepreneurial forces introduce some really severe pathologies, social, economic, and environmental, that inevitably undermine sustainability in the long run. For me, robust governance, strong institutions and infrastructure. Those are the true decisive factors that define whether a city thrives or just stalls out.
Speaker 2: So let’s start with the indispensable nature of the entrepreneur. The evidence shows a rock solid positive correlation. You can practically track a country’s urbanization progress just by mapping where its entrepreneurs are most active. Successful cities are consistently demonstrably more entrepreneurial. Let’s look at the mechanism described in the grease and no day model, because that’s what really reveals the causality here.
Speaker 1: The mechanism is vital. It posits that entrepreneurial startups, specifically these small household based enterprises supplying specialized services to larger formal firms. They are the actual vehicle. They create the new economic activity that shifts surplus labour from stagnant rural areas into these dynamic urban centres. Without that innovative bridge, so to speak, society just remains stuck. Exactly.
Speaker 2: The movement from rural stagnation requires that innovative push and the resulting societal transformation isn’t just about spreadsheets. It translates into profound human improvement. We see clear associations between this kind of urbanization and higher GDP per capita, sure, but also significant improvements in quality of life, like dramatically reduced deaths from communicable diseases. The entrepreneurial vehicle is fundamental to achieving core human development goals.
Speaker 1: I agree that the initial growth is associated with entrepreneurship. And look, the outcomes are often better than rural stagnation. Focusing solely on that positive correlation, I think overlooks the fundamental limitations and severe pathologies that rapid unmanaged, capitalistic urbanization inherently generates.
Speaker 2: Okay. Let’s drill down into that. When you say pathologies, what are the most damaging side effects we’re seeing in these hypergrowth cities, especially in the developing world?
Speaker 1: We have to look at the failure rate. A lot of migrants arriving in a new city don’t end up creating the specialized services your model requires. Instead, they’re forced into what’s called necessity self-employment. It’s survival economics. Really, this fuels a massive shadow economy, which is often largest in the fastest growing urban centres, and encompasses everything from basic street vending to truly destructive activities like illegal trade and human exploitation.
Speaker 2: But those are symptoms of an economy, failing to create the right incentives for productive innovation. The answer isn’t a throttle entrepreneurship, it’s to refine the environment so that high growth legal activities can outcompete the illegal ones. You fix the fuel lines, you don’t ditch the whole vehicle.
Speaker 1: You’re assuming the mar fixes itself, and I just don’t buy that. The pathologies extend beyond criminality. The source material details, how rapid growth creates these structural constraints that the market actively generates, but then can’t resolve on its own. We’re talking about massive negative spillovers, skyrocketing property prices, rent inflation, severe traffic ingestion, and of course huge negative environmental impacts like increased greenhouse gas emissions.
Speaker 2: Those are valid challenges I’ll grant you, but they are managerial problems. Not a fundamental indictment of the engine itself,
Speaker 1: but when congestion and rent prices rise by 80%, just by moving from a small city to a medium sized one, that cost acts as a massive dampener on the very productivity gains you’re championing. It chokes the city. The entrepreneurial energy created the density, but that same density now undermines its own economic gains that shows the inherent limit of the market mechanism, doesn’t
Speaker 2: it? I see why you’d think that, but let me offer a different perspective on this whole quality versus quantity of urban entrepreneurship. You criticize the shadow economy for providing undifferentiated consumer product. The policy quest has to be about creating an ecosystem with strong incentives for high growth, productive, specialized activities. That’s the real correction.
Speaker 1: That’s an interesting goal, but let’s look at the reality captured in the material. Cities and developing countries are characterized by large numbers of these informal undifferentiated enterprises. Necessity, entrepreneurship doesn’t just automatically transition into the productive, innovative type. In fact, the Model U champion. It suggests the shift from rural stagnation to successful urbanization requires an external input, an improvement in entrepreneurial ability, H and finance B, and that improvement isn’t generated organically by necessity. Entrepreneurs selling soda on a street corner, it requires external institutional inputs, better education systems, better financial market regulation, secure property rights. The market, if it’s left unregulated, does not guarantee the type of entrepreneurship needed for sustainable development.
Speaker 2: But those external inputs. The finance, the ability, the education, they are themselves funded and demanded by a functioning, growing, urban economy that’s driven by existing entrepreneurs. It’s a powerful feedback loop. You improve the business environment to attract and retain productive entrepreneurs. Which in turn fuels the tax base to pay for improved h and b, which then leads to more productive startups. It always points back to the dynamic market environment as the primary mechanism. Governance is the support system, not the driver.
Speaker 1: If entrepreneurial energy were truly the self-correcting force you claim it is, we wouldn’t be facing these existential later stage problems that the market seems to refuse to solve. I’m thinking especially about vulnerability and sustainability. We are looking at a future whereby the source materials own admission cities inevitably lead to increased environmental impact, showing a clear link between density and rising GHG emissions,
Speaker 2: and entrepreneurs are already proving they can generate and implement technologies to deal with exactly these vulnerabilities. Entrepreneurial energy is the source of adaptation. You worry about congestion. Look at transport apps like Uber that utilize existing infrastructure more efficiently. You worry about housing and the environment. Look at the El Mere Eco Village concept in the Netherlands. Driven by an entrepreneur planning to roll out sustainable self-contained communities across Europe. The market adapts and it adapts faster than regulation.
Speaker 1: Those examples are brilliant, but they’re niche adaptations. They aren’t systemic solutions for managing the aggregate massive costs of urbanization across whole regions. Look at sustainability itself, which the text describes as a wicked problem.
Speaker 2: Why wicked in this context?
Speaker 1: The wickedness is in its complexity. It involves multiple actors, conflicting goals, technical sophistication, but more importantly, it requires institutional entrepreneurship. We’re talking about influential groups having to challenge and initiate new regulations and governance structures just to create the conditions for those solutions to even scale up. A vertical farming company, for instance, is limited by zoning laws and ancient infrastructure. Solving that requires regulatory and political shifts, not just a good market entry strategy.
Speaker 2: Your conflating the need for infrastructure with the need for governance. I think yes, infrastructure provision requires sound, political decisions. The demand for that sound decision making and the technology to fulfill it. It comes from the dynamic private sector. When cities compete to attract the creative class, they have to improve quality of life, which naturally incentivizes entrepreneurs to innovate in vertical farming, clean energy, and better transportation. City governments themselves often become entrepreneurial governments. In this process, the adaptive capacity of the city is intrinsically entrepreneurial.
Speaker 1: That adaptive capacity is only part of the story, and focusing on future challenges brings us right back to history, which offers a pretty stark cautionary tale. Your side relies on the statistical success of these entrepreneurial hotspots. The 12 to 26% higher productivity we see in large cities, but we’re debating whether entrepreneurial capitalism is crucial for the future of cities based on past experiences and history tells us this dynamism can be temporary. If it’s unsupported.
Speaker 2: It’s a self-sustaining momentum. Built on a dynamic capitalistic foundation. The goal is to just keep that momentum going.
Speaker 1: That’s a compelling argument for its dynamism, but have you considered the possibility of complete decline in structural failure? The source specifically cautions that cities don’t only generate, they also degenerate. The decline of Glasgow is the perfect counter example.
Speaker 2: Glasgow was an industrial powerhouse.
Speaker 1: Absolutely. It rose during the 18th and 19th centuries through exceptional entrepreneurial efforts. It adapted brilliantly when it lost the tobacco trade by pivoting to cotton and then became the world’s major ship producer. It was for a time considered the best governed city in Europe, successfully channelling all that entrepreneurial energy. So what went wrong? After 1914, its long, slow decline set in the material states explicitly that despite the city’s robust entrepreneurial foundation, that dynamism was powerless to prevent its decline. It led to extraordinarily high unemployment and a century later the lowest life expectancy in the UK. This historical fact, it demonstrates that the success of entrepreneurial dynamism is temporary and can be neutralized by external shocks if it’s not buttressed by resilient institutional governance that’s capable of managing massive industrial transitions and social welfare.
Speaker 2: I see Glasgow not as a failure of the entrepreneurial vehicle, but as a failure of the supporting environment to foster new entrepreneurial ability and investment to adapt. The city failed to modernize its business environment. It stalled because it failed to generate the next wave of disruptive startups. When ship building became obsolete, the vehicle stalled because the fuel lines were cut off by protectionist policy and a failure to invest in h and b. The solution is always to reinject entrepreneurial dynamism,
Speaker 1: but why did the governance fail? To adapt to the shock? Why couldn’t the city, which you just said was considered the best governed in Europe, manage that transition? It just reinforces my position. The structural success of a city depends on building an institutional framework strong enough to withstand those shocks, whether they’re market, political, or environmental. Relying solely on the relentless optimism of market innovation is I think, inherently dangerous.
Speaker 2: Ultimately, entrepreneurship relieves the essential starting point and the continuous adaptive force for urban centres. It is the vehicle for structural transformation delivering improved GDP and health outcomes. While challenges like congestion and environmental strain are serious, the underlying model shows that improving business conditions and entrepreneurial ability unlocks the potential for urban growth. And modern entrepreneurs are already moving into sustainable solutions for these future challenges.
Speaker 1: And while entrepreneurial activity is correlated with urbanization and provides that initial lift, the historical evidence. The presence of severe negative externalities like congestion and GHG emissions, demonstrate that entrepreneurial capitalism is fundamentally limited. The true long-term determinant of urban health is the capacity of political and governance institutions to manage the destructive side effects of necessity based capitalism and rapid growth. The tragedy of Glasgow underscores that continuous entrepreneurial activity is just not sufficient. Without the foundation of sound, political decision making and institutional adaptation to manage those
Speaker 2: structural costs, the relationship between urbanization and entrepreneurship is clearly non-linear. It’s complex and highly context specific. Exactly.
Speaker 1: And given that the most interesting period in the world’s urbanization is still a calm. The urban population in the developing world is set to more than double by 2050. Understanding what combination of dynamic market forces and strong governance will secure that future remains an open, and I think a vital question for everyone.
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