Globalisation and the resilience of a city

Globalisation has always been a process of far-reaching and often unexpected change, as well as geographical shifts in power, and this is reflected in the rise and fall of great cities. What lessons can we draw for the future?

Today, more than ever before, the world is characterised by increasingly fast and deep transformations, boundless interconnectedness and pervasive interdependencies. The consequences are unprecedented levels of complexity, growing uncertainty and widespread lack of confidence in the future. The only real constant seems to be continual change. But importantly, as in the past, this incessant moving and globalising world does not only bring new risks and threats, but also promises a whole range of new opportunities.

To be winners in this relentlessly transforming environment, there is little option other than to accept the challenges change brings, become fully involved in shaping change and, where this is not possible, be flexible and innovative enough to adapt to new circumstances. From a policymakers perspective, this applies to countries and regions, as well as to cities. Globalisation is not a phenomenon of modern times. Applying the term to the relevant world economy at any time results in the possible distinction of at least six different phases of globalisation over the past two to three thousand years. First, an early period which–in an Eurocentric view–covers the whole time span from the golden age of Athens, under the leadership of Pedicles in the 5th century BC, to the end of the Roman Empire after the 4th century AD. Second, the period of the heyday of Venice in the Mediterranean region as well as of the Hanseatic League in North and North-Western Europe in the late Middle Ages. Third, the early colonial age starting with the voyages of discovery of Portuguese and Spanish and ending with the maritime dominance of the Dutch.

Fourth, globalisation on a world-wide scale with intense intra-European rivalries and the incessant geopolitical, economic and military rise of England from the middle of the 18th century. Fifth, the first half of the 20th century with the globalisation of war and between the two World Wars an illusory boom in the 1920s as well as the Great Depression in the early 1930s. And sixth and finally, the period at the end of which we may possibly find ourselves now, namely globalisation as an American led offensive towards economic growth and prosperity, at least for those regions of the world which became for whatever reasons an integral part of it.

Each of these six phases of the globalisation process is characterised by a considerable widening and deepening of international exchanges, greater economic interdependency and a growing breadth, intensity and complexity regarding the political economic and social implications. In addition, all six phases have been marked by distinct shifts in the economic and financial centres of the world economy.

In the ancient world it was Athens and then Rome which held the dominant position in the world economy of their time. About 700 years later the heydays of the North Italian city-republics began. Once Venice had asserted itself against Genoa in 1380, the lagoon city was the economic centre of the Mediterranean area and became by far the richest city in the then relevant world. In contrast to the hegemonistic model of the South, the developments around the Baltic and the North Sea evolved towards a multipolar configuration of which the core group included about 60 cities, with Lübeck, Hamburg and Bruges among the most important.

The successful exploration activities of the Portuguese and the Spaniards in the 15th and 16th century not only resulted in expanding the reach of European influence and trade to the Americas and Asia, but also in shifting the geographic gravity of international economic relations from the Mediterranean and the Baltic Seas to the Atlantic. The Flemish port of Antwerp then became the economic and financial hotspot of the world economy for some 60 years until it was displaced for a brief time by Genoa. But from the middle of the 17th century the hub of the world economy –in economic and financial terms–shifted to Amsterdam.

If the 17th century could be called the Dutch century, the 19th century was England’s. Its maritime superiority, its industrial and technological leadership and its huge possessions overseas made Great Britain the first superpower of the modern times, with London the new centre of the world economy. But by the First World War and even more so during the Second that centre shifted again, with New York trumping London at the helm. The United States would dominate global finance but also the industrial sector. As a consequence, this formerly highly protectionist country now felt strong enough to push for a new world economic order, based on free multilateral trade and an international monetary system anchored in the US dollar.

The extent of participation in the globalisation process and the distribution of related benefits and costs have always been uneven. Looking through history, it appears that dynamic and innovative cities, particularly trading ports and financial centres, always benefited more than the countryside. As regards cities, but also with respect to countries and regions, it is always the same patterns which distinguish the winners and the losers.

The winners are normally characterised by stable governmental and administrative structures, a reliable legal and regulatory framework, high economic and social dynamics, a well educated and disciplined work force, a more or less stable currency, and in the case of a hegemonic country by political and military power. In addition to these general patterns, there is always a set of specific economic and social policies which enhance economic growth and wealth creation. These include liberal settlement and immigration policies, support of universities and research institutes, and last but not least, a creative, intellectual and culturally rich environment.

As regards the losers, apart from war and tribal disputes, the most common reasons for decline or lagging behind include one or several of these: a corrupt government; a society that perceives change as a threat rather than an opportunity; economic and societal rigidities which hamper adapting to political, economic or technological change; domestic policies which do not take sufficient account of international economic interdependencies; a pursuit of policies which have been successful in the past, but are no longer adequate; inadequate physical and social infrastructure; low educational and health standards; and last but not least, a major financial crisis or serious social unrest.

Athens never recovered from the Peloponnesian Wars. On top of problems at its borders, Rome fell because of inadequate governance, wide-spread corruption and social unrest. Venice, even before it suffered from war, declined economically due to overregulation of both the spice trade and textile production and by ignoring international economic interdependencies. Lübeck and Antwerp lost out because they did not adapt to changing economic and technological circumstances. Genoa and Amsterdam illustrate the disastrous impact of a sequence of several severe financial crises.

London is one of the very few cities in the world that has benefited from globalisation over the centuries. But its influence has weakened after two World Wars and the loss of geopolitical and military weight together with the end of the British Empire, in which society had become increasingly rigid and conservative. Nowadays, as regards New York, the question is whether after the most recent global economic and financial crisis–the third this city has generated, after 1857 and 1930–ongoing shifts in world economic power structures will one day end its dominance.

Another perhaps less celebrated example of a city that has constantly thrived by taking advantage of the globalisation process for around one thousand years is Hamburg, today a veritable cutting-edge motor of Germany’s economic success. Hamburg has served as a trading hub at the crossroads between the North Sea and the Baltic Sea region for a millennium. Around 1320 it became the centre of European beer production, and its exports went to Russia, the Netherlands, England and even Portugal. It then dominated European textile trade and became a gateway to Central and Eastern Europe. In the 17th century it emerged as the hotspot of the European sugar industry, and by the late 19th century the city had become the leading trade and financial centre on the European continent and the third biggest sea port in the world after London and New York.

Today, Hamburg is the most important noncapital city in the European Union and the wider European Economic Area, in terms of both population and GDP. And despite the loss of shipbuilding and the oil industry, it is still the number one industrial city and trading centre in Northern Europe, including Germany. In terms of economic activity, it is the world’s third most important location for the production and maintenance of civil aircraft. Alongside Rotterdam it operates one of the two leading European container ports. It is the home of Europe’s biggest copper smelter and a leader in new energy technologies. And despite all this industrial activity, the city remains a pleasant place to live, winning high scores in lifestyle rankings.

Hamburg offers four lessons for policymakers everywhere. First, it shows that even a secondary place with no geopolitical and military power can be a major, long-term, beneficiary of the globalisation process. Second, it demonstrates how important permanent change in economic and social structures is to being a winner in globalisation. Third, it illustrates that lasting success in the globalised world requires a set of policies which–apart from providing a general economic and social climate that is conducive to creative investment and risktaking– embrace international openness and competition. And finally, there is the clear message that policymakers can succeed in making market processes compatible with overriding political goals without durably impeding the functioning of markets and entrepreneurial activity.

We live in unsettling times, and past trends are proving to be a far less reliable guide than they used to be for charting a course of action. Adopting familiar game plans, reinforcing standard procedures and implementing strategies that were so successful in the good old days of the second half of the 20th century no longer guarantee viable solutions.

Michalski, Wolfgang (2011), Capitalising on Change in a Globalising World: A View from Hamburg, Murmann-Verlag, Hamburg.

©OECD Observer No 290-291, Q1-Q2 2012

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