THE PATH to economic development lies in urbanisation. Cities are the powerhouses of economic growth, according to the annual World Development report from the World Bank, published today.
The report, Entering the 21st Century, argues that "localisation" will prove just as important an economic phenomenon as globalisation, and the Bank's own lending policies will focus increasingly on improving social welfare cities, for example through the provision of clean water and sanitation in urban slums, or schemes to reduce air pollution. There will be less emphasis on traditional World Bank projects such as huge dams and roads, and more on the direct improvement of welfare in population centres.
The report also argues for the decentralisation of government spending and decision-making to local authorities. Cities are challenging the monopoly of central government over policy making, according to Shahid Yusuf, the head of the team that wrote the report.
This devolution is more efficient when it works, although the report also concedes that local governments can easily become overburdened and unable to provide the necessary infrastructure and services. And, against the background of the tragedy in East Timor, it notes that: "demands for local autonomy can lead to ethnic strife and civil war".
It is hardly surprising that the World Bank has concluded it must change tack in its lending policies. The traditional lending for power stations, dams and roads has been tainted by past corruption and, even worse, ineffectiveness. The history of such projects is littered with technical failures as well as having helped line the pockets of corrupt dictators and their cronies.
What's more, environmental concerns about such big projects have played an important part too. The protest against construction of the controversial dam on the Narmada river in India will prove to have been a key turning point.
Under its president, James Wolfensohn, the Bank has started to try to learn the lessons of such failures. He has focused policies on raising people out of poverty, which sounds obvious but was never to the fore in the World Bank's previous, more abstract, focus on economic development.
If reducing the number of people in poverty is what matters, then it is obviously necessary to think about improving the quality of life in the squalid slums of the Third World metropolis.
In 1950 the number of people living in cities amounted to about 300 million in both the developed and developing worlds. By 2000 it will be 1 billion in the industrialised and 2 billion in the developing countries, or about half the world's population in total.
Economic growth is almost always accompanied by urbanisation. Economists have long noted that a skyline full of cranes, whether in London's Docklands or an emerging centre like Shanghai or Manila, is a good signal of rapid economic expansion.
Densely populated centres provide businesses with a pool of skilled labour, access to a network of suppliers and a ready market for their products. The process of globalisation is actually reinforcing some of these traditional advantages. …