Global urbanization: The dangerous delusion of economics

In recent debates about reforming capitalism, we observe a problematic tension between the social and the ecological. There are growing concerns about the social consequences of capitalism, which eerily remind me of Karl Polanyi’s political analysis of the ‘Great Transformation’: These social conundrums are increasingly driving the rise of populism worldwide. Many commentators explain them as the ‘losers’ rebellion’, such as the white male Trump voters in the US Midwest or the rural voters for Le Pen in France. As the eminent British economist Paul Collier writes in his recent book about capitalism, this mainly reflects a deep gap between the metropolitan regions and large cities on the one side, and the rural and small-town regions on the other side. He goes as far as to suggest a tax on the former to fund policy support for the latter. Indeed, many advanced countries suffer from this phenomenon of divergent regional development, translating into the rise of populism and confronting the urban educated elites with the people in the countryside and smaller cities and townships, literally invoked as ‘the people’. The migrant issue squarely fits into that picture, as most immigrants are attracted by the large cities where they see opportunity. Indeed, as Saskia Sassen analyses ‘global cities’, they typically manifest a social structure that mixes highly educated business elites with immigrants who work in the labour-intensive services sector. This picture feeds the paranoia about immigration in places where few immigrants factually live, such as in Eastern German regions.

Collier explains the economic divergence mainly in terms of the New Economic Geography, i.e. pointing at the multidimensional positive externalities working in the urban agglomerations, which was first elaborated by Alfred Marshall in his analysis of industrial districts. This implies that people working there are not more productive than people in the laggard regions because they have better skills, but because they are part of a networked collective, some people would call it ‘superorganism’. In that sense, they get supernormal salaries and profits which should be taxed. Now, my point is that this argument does not connect the social issue with the ecological. In political terms, most populists are also climate change deniers. Collier’s proposal to heal the social illness clearly bets on the remedy of growth: Let the laggard regions regain speed by relying on the continued growth of the urban avantgarde for funding subsidies for growth. He does barely mention climate change in his book. But this begs the decisive issue: What happens to the social conflicts if we need to restrain growth, while being faced with the consequences of climate change, such as increasing pressure on migration?

This shows that economics is not well-equipped for dealing with these issues. What is the deeper reason? I think, the wrong theory about the benefits of urbanization. The explanation for higher growth and productivity in cities is mostly based on the notion of immaterial benefits of information and communication in areas densely packed with people (‘positive externalities’). Edward Glaeser once spoke of the ‘triumph of the city’. Cities are more productive because urbanites are more creative and can act less constrained by others. At the same time, the physical concentration allows for more efficient production of infrastructure, it is alleged. Hence, you get growth almost for free, since what feeds growth is the ominous ‘manna from heaven’, new knowledge, which is just immaterial ideas.

As I have extensively argued in my 2013 book on economic evolution, this immaterial notion of knowledge and information is one of the most serious errors in modern economics. Unfortunately, this also infects policy proposals such as Collier’s on solving the social challenges of our times. If we look at the problem from the viewpoint of a scientific approach to the technosphere, we reach entirely different conclusions.

Cities are the core physical manifestation of the technosphere. If we want to understand their operations, we need to recognize that information generation and processing does not come for free but requires energy throughputs, independent from whether this processing is also remunerated in the currency of economics, i.e. market-generated factor incomes. One can make a radical move and approach the city as a giant distributed computer, made up by humans and their technological artefacts that process and embody information. Then we can directly employ the standard wisdom of computer science that all information also represents certain quanta of energy (Landauer’s principle). This is the case because the generation and processing of information requires the erasure of information which becomes obsolete. Erasure comes along with energetic costs. You could only avoid this if you assume a memory without limits, such that you can just accumulate obsolete information without costs.

Basically, the physical argument why information is conjugated with energy goes back to Maxwell’s demon. Well, the economic theory of growth and information is a relative of this fantastic figure that might sort out molecules in a box according to differential speed without incurring any energetic costs, thus working against the Second Law. For cities, economists assume something similar: A wizard creates and diffuses information without costs. In fact, no growth of information without energy consumption. Think of the growing speed by which artefacts embodying information become obsolete by ever increasing rates of innovation, or the increasing need to make up for physical depreciation of ever bigger and more complicated infrastructure. A modern skyscraper is in fact an embodied computer, and imagine what technological innovations means here in terms of growing energetic costs of refurbishing, maintenance and possibly wholesale renewal, because its skeleton and its information infrastructure are too densely integrated.

The news about the failure to reduce greenhouse gas emissions come in almost every day. I think that urbanization is the culprit, especially if you also consider the ramifications of urban development, such as the need for industrialized agriculture and food industry to feed the cities. And there are more specific structural issues. In his analysis of power densities of energy systems, Vaclav Smil has shown that there is a fundamental tension between ever growing urban concentration and the shift to renewables, because power densities on the demand and supply side do not match. Urban agglomerations are places of high power density, but renewables are distributed in space. Of course, you can imagine fancy engineering solutions: The Chinese want to feed the emerging megalopolis of the Pearl River Delta by solar energy generated in the Western provinces, via extremely large far-distance grids. Perhaps a better solution would be to follow the idea championed by the eminent sociologist Fei Xiaotong in the 1980s: Build on the vast network of townships and small cities that emerged in Imperial China in highly complex and dense regional market systems.

That brings me back to Collier’s suggestion. A tax on cities would be a part of the solution. The other part must be a comprehensive approach to urban decentralization and diversification, which aims at embedding urban dwellings into the local and regional ecosystems. We need a new paradigm of human settlement in the Anthropocene, and let the urban agglomerations contribute financially to the transition. That might create harmony between the social and the ecological.

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