Wednesday, October 17, 2012

Cities are the motor of economic growth

The Economist has an article this issue which states:
Differences in metropolitan populations may help explain gaps in productivity and incomes. Western Europe’s per-person GDP is 72% of America’s, on a purchasing-power-parity basis. A recent study by the McKinsey Global Institute, the consultancy’s research arm, reckons that some three-quarters of this gap can be chalked up to Europe’s relatively diminutive cities. More Americans than Europeans live in big cities: there is a particular divergence in the size of each region’s “middleweight” cities, those that teem just a little less than the likes of New York and Paris (see chart). And the premium earned by Americans in large cities relative to those in the countryside is larger than that earned by urban Europeans........ 
Cities today have a productivity do with ideas rather than costs. When one firm in a city comes up with a new technique, product or design, nearby firms may quickly build on it or hire its creator. One firm’s innovation boosts its own productivity but also spills over to other businesses. Companies that prefer seclusion cut themselves off from these “knowledge spillovers”.
 It made me wonder. The 50 largest cities in the United States are primarily responsible for the economic progress of the nation, and they vote Democratic. Most indeed are in blue states. Yet the largely rural red states have disproportionate power in the Senate and in electing the president. What does that mean for government support of the policies needed to develop our new industries and keep the nation economically strong?

Mitt Romney seems not to realize that our manufacturing industry is still strong, but it is strong in spite of paying good wages because we continue to increase worker productivity:

Source: Advanced Manufacturing Portal
The United States still leads in high technology manufacturing, but we also do well in services and our motors of innovation are increasingly in those related to the knowledge economy. And these are concentrated in urban areas!

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