Get the Balance Right!

Urban network sustainability

Interest in systematic design relations has led Ronald Wall to study global relations between cities and corporations as an indicator of progress and success. In this way he studies global and local development as an integrated system. This approach of competition and performance produces an interesting perspective on the concept of sustainability. In Wall’s view the future of urban development will depend on an integrated approach which connects dynamic urban issues ‘within’ particular cities to knowledge of how they interact ‘between’ each other. The development of this model could serve as a useful tool for decision-making at all levels of governance and planning.

Economics is essentially about the behavior of people, how they interact with each other to survive and the impact of this upon the world’s limited resources; sustainability is primarily about optimizing this phenomenon. The former concerns a self-organized, unplanned process, while the latter is more related to planned, normative interventions. Today, economics has become more global than ever before; the current housing credit crisis clearly underlines the extreme interdependence of our world. The demise of just a handful of banks and multinationals has led to the world’s worst economic recession since the Great Depression of the1930s. Banks worldwide have reported $600 billion of credit related losses and much of the industrialized world is in recession due to tighter credit and surging oil prices. As giant firms like Lehman Brothers, Bear Stearns, Merrill Lynch, Goldman Sachs and Morgan Stanley have gone bankrupt, been swallowed up by other firms or nationalized, their impact on capital and the behavior of consumers, producers and investors is clearly evident, e.g. the recent bankruptcy of Iceland and the Dutch rescue of ABN-AMRO and Fortis. In this light we see that despite the popular theory about the declining importance of the nation-state, in fact governments still play an important role. In just two weeks the US government nationalized its two largest mortgage giants, Fannie Mae and Freddie Mac, and took over the world’s largest insurance company AIG. This makes it clear that globalization has not only led to greater economic interdependence, but also to increased economic vulnerability. The result of this is that the economic performance of nations and their cities are strongly related to the transnational networks of multinationals, international trade and capital flows. In turn, sustainability is about getting this system’s balance right.

The word ‘sustainability’ (‘Nachhaltigkeit’) was first used in 1712 by the German scientist Hans Carl von Carlowitz, but the notion of sustainability as a ‘normative’ concept only truly developed during the first phase of the Industrial Revolution with the ‘Principle of Population’ by economist Thomas Malthus (1798). It was in this period that trade and its subsequent inter-city networks started to flourish, progressing gradually towards today’s interdependent world city system. The expansion of world trade in the 20th century has contributed significantly to global population rises, escalating consumption and the consequent international concern for social and ecological degradation. For instance, the ‘Limits to Growth’ published by the Club of Rome argued that the world’s economy ‘could not continue to grow infinitely’.[1] This led to the formation of the Bruntlandt Report and Agenda 21, leading to a worldwide perception of the interrelation between equity and ecology. The result has been a sophistication of the concept of sustainability, firstly through awareness of the increasing scale and impact of urban interdependence, secondly, through the gradual development of advanced methods and techniques to measure sustainability, and thirdly, through the increased confluence of science, policy and development.

Despite all this, today’s most advanced methods are still unable to empirically measure sustainability as an integrated global urban system. Cities and regions continue to be treated as isolated, unrelated units, devoid of external influences. Luckily, other areas of science, such as macroeconomics and economic geography, have recently developed tools to empirically measure the interaction ‘between’ cities and the overall structure of the global system. My research combines these different scientific fields into a theory of ‘urban network sustainability’. I argue that cities should be considered as parts of an integrated urban system and that sustainability should be measured as the interdependence of social, economic and environmental factors. Lastly, based on knowledge from the first two points the interaction between governments and corporations should become more effective, tying municipal, national and global policies together. As evident in the current credit crisis, the common thread between nations is transnational corporate activity. Because these economic networks concern the production and consumption of a globalizing world, they significantly influence the utilization of resources, the fate of cities and the ultimate impact upon the environment.

Contemporary globalization posits that multinational corporations (MNCs) form the basic unit of global production and integration and many are in fact wealthier than most developing countries.[2] MNCs are characterized by their power to coordinate and control the operations of other firms in other international cities resulting in direct cross-border investment in which a degree of control over firms and cities is achieved. This trend originated in the 1960s ‘golden age’ of economic growth when foreign direct investment grew at twice the rate of global GNP and 40% faster than world exports.[3] It enabled firms to compete to gain access to markets, share costs, risks and uncertainties, gain access to new technologies and pool resources and rationalize production.[4] The result was a transnational urban system in which MNC headquarters and their various subsidiaries have been strategically placed at locations on the global transportation and communication networks utilizing external services, labor market skills and proximity benefits. This has produced a ‘world society’ which has legitimized the penetration of foreign interests into less developed countries.[5]

Although the reach of transnational integration is evident, the distribution of corporate networks remains persistently skewed[6]; firms create a division of international labor that reflects the hierarchic division of labor within those firms themselves.[7] Because MNCs centralize high-level decision-making and advanced production in only a handful of cities, the majority of the world is generally relegated to lower levels of economic activity. The notion of territoriality is best encapsulated by the selective, geographical imbeddedness of capital because it requires the existence of high densities of fixed, secure and largely immobile social and physical infrastructures.[8] This means that only well endowed cities will attract MNC headquarters and the consequent financial benefits this brings to these fortunate cities. In this light, it is interesting to investigate the uneven distribution of clustered economic activities in the world and how these places are interconnected. To better understand the invisible structure of the world economy, it is important to understand how cities are organizationally connected[9] by financial power relations and how this determines the individual urban characteristics of each city. In this way the impact of the local upon the global and vice versa can be empirically measured.

Several studies have already explored worldwide economic networks based for instance on foreign direct investments[10] or inter-corporate directorships.[11] I use data concerning the shareholding relationships (investments) between the top 100 MNC headquarters[12] and their various subsidiaries across the globe (2007 data) as representing the primary chain of global economic power. By mapping this data the spatial configuration of the world’s economic backbone is revealed (Figure 1) resulting in 9243 corporate investment connections. These connections are the financial shareholds (investments) between the headquarters and their subsidiaries and in aggregate strongly determine the total turnover of these firms. By adding up the turnover of all firms depicted in the diagram, it was found that this represented approximately 50% of the combined GNP of OECD countries in 2007. It is evident that the distribution of corporate shareholds investments between nations is still polarized into the three core regions of North America, Europe and Pacific Asia. In fact these regions claim 98% of all outwardly directed power relations over other nations. Furthermore, these areas claim 82% of all incoming relations, revealing the dependency of the world upon these cores. A clear North-South divide persistently exists: Africa, for instance, accounts for a mere 1% of MNC investments. Examining Europe more closely, where Paris and London form the primary cores of the EU economy, we see how complex these economic networks are.

Figure 1: (Top) GIS Map of Top 100 Global Multinational Headquarters and their Subsidiary Networks. (Bottom) Zoom in on Europe.

The unevenness of the data is further demonstrated in the graph below (Figure 2). On the Y-axis we see the total number of investments held by the 2557 cities in the dataset while the X-axis represents the ranking of these cities. This is known as the Rank-Size Rule or Zipf’s Law. It is immediately clear that only a handful of cities hold the vast majority of global shareholds. The four most powerful cities (top-left) are New York, Paris, London and Tokyo. This statistical phenomenon, known as a power-law, was discovered by Robert Gibrat in 1931 and helped form the first universal theory of how firms grow to unequal sizes[12]; according to economist Robert Axtell ‘it is the most robust statistical regularity in all the social sciences’.[13] Furthermore, a power-law characterizes many complex ‘real-world’ networks, such as social networks, computer networks, neural networks and epidemiological networks. In power-law relationships only a few nodes act as ‘highly connected hubs’ and the more connected a city is the higher its future probability of obtaining new connections. This is known as ‘preferential attachment’ and it means that the likelihood a multinational will form a new business relationship with another firm, is far more likely with a hub city like New York than with a less connected city like Seoul, for example. In the global corporate network 25% of investment connections are held by New York, Paris, Tokyo and London, meaning that these four global cities have extreme authority over worldwide corporate developments. This is remarkable considering that 2557 cities are represented in the dataset. Thus these four cities are both the strength and Achilles’ heel of the world city network, a fact clearly underlined by the recent collapse of stock exchanges in these cities. This conforms to power-law theories which state that if the hubs of a network system are immobilized, the whole system collapses.

What does this have to do with the urban sustainability? The table below (figure 3) shows an analysis in which corporate investment connectivity has been correlated with indicators of urban performance. Four urban variable categories are used, namely economic, environmental, social and infrastructural indicators. Each of the 2557 cities has a value for their corporate investment connectivity as well as a value for their urban performance, measured by the thirteen given indicators. In a correlation analysis the statistical coherence between for instance connectivity and GDP per capita of each city is measured. The values found in the table are a measure of the strength between corporate connectivity and one of the thirteen indicators. Statistically correlations between 0.6 and 1 indicate very strong coherence. The scores are exceptionally strong. We see for instance that the more economically connected a city is, the higher is its economic output and subsequent human development. Its ability to integrate with other world cities is noticeably dependent on the efficiency of its local business, the higher education levels of its people, the status of its infrastructure, the attractiveness of the city and its urban communication and technological levels. Furthermore, it is also evident that the more connected cities are, the greater their energy consumption and consequent pollution. Hence strong corporate connectivity is beneficial to a city’s prosperity, but detrimental to the environment. Although correlations do not prove causality between variables, they do exemplify the strong interdependence between urban development and global economic reach. It is therefore arguable that for a city to improve its performance it must improve its global connectivity which consequently means further liberalization of trade and investment. Thus as provocative as it may sound in today’s perilous economic climate, freer and more flexible markets will arguably do more for the world economy than protectionism.[14]

So far it has been demonstrated that a city’s ability to develop socially, economically or environmentally is strongly related to its degree of corporate interdependence with other cities. This means that a city’s capacity to interact with the world enables prosperity for its citizens. Inversely, a city’s level of development ensures its competitive ability to attract international corporate relations. Whichever way you look at it, the more connected a city is, the higher the statistical probability (preferential attachment) that it will continue to provide and sustain future generations. However this only addresses the fate of individual cities and does not take into consideration the sustainability of the entire global urban system. Therefore when discussing sustainability we should be clear about whose sustainability we are talking about. This means defining whether we are discussing ‘relative’ or ‘absolute’ sustainability! Recalling the unevenness of the world economic network, represented in the previous GIS map and the power-law graph, it is interesting to ponder what absolute global sustainability might mean. The diagram below (figure 4) represents an abstraction of our current global economic network (left) and a hypothetical extreme of an evenly distributed network between cities (right). In the first case the majority of inter-urban investments are held by a minority of cities, forming a hierarchic core, semi-periphery and periphery division of the world. Although the core cities are more connected to each other and subsequently have a high level of urban performance, the vast bulk of cities are either poorly connected or not connected at all with the unfortunate result that these generally more populated cities are socially, economically and environmentally deprived. In the second diagram an extreme, hypothetical urban network is postulated in which all investments between cities are evenly distributed. According to the previous results this would also mean that they would all exhibit equal levels of urban development. Although an attractive Utopian model, it is nevertheless not likely that such a completely balanced world could ever come into existence. This is because economic growth is always based on the scarcity of resources and the subsequent competition this triggers between cities in their quest to survive. So even if it were possible to provide for everyone equally, this equilibrium would not last long, as scarcity is not static because human needs are contextually different and continuously evolving in search of novelty. This always leads to urban differences which produces competition between cities.

A sustainable world in absolute terms is impossible. Cities and their surrounding regions can never supply equal amounts of physical and social resources. For this reason populations can never be quantitatively, nor qualitatively equalized. The result is continued differences in supply and demand and the consequent variation of trade between cities. However an improved model somewhere between the two given extremes is conceivable in which the diversity and intensity of economic relations to unconnected and weakly connected cities is improved. This means rejecting the contemporary, skewed system and attempting to reach the highest level of evenness possible. There is much current controversy in economic theory about whether world development is diverging or converging. Many developmental economists argue that because poorer economies tend to grow faster than richer ones, that eventually all economies should converge in terms of per capita income and productivity.[15] Others stress that economic inequality has not significantly changed over the last forty years[16] and that the developed world still overwhelmingly dominates world trade. Recalling the GIS map and statistics above, US and EU hegemony, with moderate Japanese and Chinese activity, is inescapable. The rest of the world simply does not significantly participate in the core global economy. Some economists predict that the rapidly emerging markets in the developing world will lead to a change within the existing world order. It is said that these economies are growing unexpectedly fast and that their consumerism is becoming far more intense; as they get richer demand rises dramatically, particularly for energy and industrial commodities. For instance, in 2007 China alone accounted for one-third of the increase in global oil demand. In this sense these experts expect that the rise of various emerging markets will break the existing disproportionality of our world, creating resilience to the vulnerability of the world’s richer corners. The old-boys hegemony with its free market capitalism, free trade, deregulated domestic finance and its triumph of markets over governments, is supposedly coming to an end.[17] Accordingly, Western finance will become reregulated and governments will again become more involved with market activity by extending their global reach, increasing subsidies, fixing prices, managing food security and banning exports of certain products. Lastly, it is said that the US will lose its key position as economic and intellectual authority in our world.

We should be skeptical about such assertions, judging by the evident disproportionality in my own analysis and the fact that emerging economies are suffering equally from the plummet of the developed world’s stock markets.[18] Furthermore, even if emerging markets lead to a relative shift in world order, this does not necessarily mean that global sustainability will improve in absolute terms. A rise in the East might simply mean a decline in the West, but the inequality will be roughly maintained. If new emerging markets can expand without doing so at the cost of the already existing ones however, then absolute sustainability in the world will certainly be improved. Thus if there was ever a time for a new multilateralism, then today, the biggest financial crisis since the 1930s, is surely it. Although the often heralded vision of an extremely ‘equal world’ is not likely in absolute terms, the severe unevenness of today’s global economic network can be challenged. This can be achieved by improving relative sustainability which is far more probable, manageable…and even urgent today.

Only a handful of cities control the world economy and this has led to an extremely uneven urban system. It has produced a severe vulnerability in the world economy, as our current economic crisis has made obvious. Sustainability, by my definition, is (relatively) a city’s degree of corporate interdependence with the world and (absolutely) the degree of overall interdependence. Unfortunately today’s connectivity is mainly concentrated between cities of similar urban status and this is the main problem! To improve global sustainability powerful cities need to diversify the number of cities to which they connect. This means preparing more cities to collaborate, compete and connect with each other. This will not be detrimental to the already fortunate cities, as they can still hold similar total numbers of total connections. Increasing the diversity of economic activity in the world will subsequently lead to a higher degree of evenness. Seeing that only a handful of cities hold almost all the planet’s economic power, these cities can adjust their trade and investment policies to diversify the number of cities with which they connect. The more new cities that participate in the world economy, the more these cities will reap the benefits for their own citizens. This will enable more and more cities to collaborate, compete and innovate within the global system which will improve the overall social, economic and environmental performance of these cities. This is good for two reasons. First, by spreading opportunity, the skewness of the absolute system decreases; secondly, as cities become more diversely connected they will become far less vulnerable because their opportunities and risks will be far more spread. This might have a downside however. More cities will flourish and urbanization will spread more intensely across the planet. Environmental degradation will rise, as we see now with China’s urban development. Hence socio-economic sustainability clearly remains at odds with environmental sustainability. The only thing that can solve this dilemma is a new form of global policy which attempts to regulate population levels and develop and implement environmentally superior technologies. Thus pursuing a sustainable world is a multidimensional task requiring the development of globally agreeable governmental policies, the adjustment of worldwide corporate interdependence, the management of human demand and resource supplies and the effective innovation and utilization of efficient technologies. The solution therefore requires both technological, but especially sociological breakthroughs. Both are vital to economic growth, prosperity and the dynamic sophistication of human development. Where faith in technology is quite commonplace today, an evolution of trust and cooperation between different nations seems more urgent than ever. A rise in trust will lead to an increase of the variety of our association with others thereby decreasing economic uncertainty and vulnerability. This means engaging with the intricacies of our world and not resorting to protectionism. In this sense I disagree with theories that perceive a sustainable world as a reduced, modest society which mirrors medieval or Edo-ages. Such theories tend to ‘diminish the complexity’ of our world to a static, simplified state of equilibrium, one in which human progress and mankind’s age-old thirst for novelty is numbed. Instead, I believe that humanity has to learn to ‘live with complexity’ and not avoid it. Humanity has been gradually progressing ‘forwards’ since time immemorial – there is no way back! A sustainable future world will become more dynamic and intense than it is today; and it will depend on both social and technological ingenuity to perpetually get the balance right!

Understanding cities as interdependent parts of a competitive globalized world economy and how to improve their relative performance within this framework serves as an interesting perspective to the development of the concept of sustainability. In this view the future of urban development will depend on an integrated approach which connects dynamic urban issues ‘within’ particular cities, to knowledge of how cities interact ‘between’ each other. In this way the ‘invisible hand’ of global economics can relate better to the more tangible world of urban planning. In this sense urban planning and economics are both ‘spatially imbedded’ disciplines. The development of such a ‘global’ sustainability model will serve as a useful tool for decision-making at all levels of governance and planning. In this context the future decision-maker will program, plan and design a city with sound knowledge of how this relates to that city’s existing position and relations within the global network. This will increase the city’s probability of success. Such decisions will concern a future urban plan which should strengthen existing ties between that city and its partner cities. Considering that a future sustainable world will increasingly depend on the diversity of inter-urban relations, the future decision-maker will be equally engaged in seeking new cities with which to connect. This will make her/his city more robust and lead to a higher diversity of novel programs within that city as well. The increased diversity of socio-economic relations will improve trust between cities and nations and hence the level of global interdependence. Thus ultimately the more cities adopt this relative approach to planning, the higher the overall impact will be on the absolute sustainability of our world.

Counter-Histories of Sustainability