(G)Localization and Global Cities

continued from » Port Economy

New York - Global City

The globalization of economy includes at the same time localization due to the fact that economy had to be made somewhere. Economy needs hubs to grow and spread. A combination of both is glocalization. This term involves globalized economic areas and the so-called global city regions as hubs in global networks.

To dive deeper into the issue of glocalization and global cities, one term appears very often that needs to be defined first – cluster: “Clusters are geographic concentrations of interconnected companies, specialized suppliers, and service providers; firms in related industries; and associated institutions in particular fields that compete but also cooperate”. (Porter 2002, p.144)

There are two different types of clusters. A first one is a connection of equal partners, and a second one is a connection of institutions with a lead firm.

Building clusters lead to several agglomeration advantages.

To be close to enterprises of the same or similar branch lead to specializing advantages like a specialized labor market, fast know-how-diffusion and cooperation among them, etc.

To be close to enterprises with different interests lead to combination advantages meaning a broad range of the labor market, closeness to important centers, etc.

These clusters end up in global city regions which are the “headquarters” of global networks.

Such clusters are in Silicon Valley (electronics etc.), in San Diego and Munich (biotechnology), in Helsinki (NOKIA), in Toulouse (Airbus), in Seattle (Microsoft), etc. In China, there are a lot of small factory clusters like in Qiaotou, Zhejiang Province for buttons, in Yiwu for socks, in Hang Ji for toothbrushes or in Sheng Zhou for ties. In the US, for instance, there are big factory clusters like in Pittsburgh for steel or in Louisiana for oil and chemistry.

The history of industry is marked by great clusters: Manchester (textiles), Pittsburgh (steel), Detroit (cars), Osaka and the Ruhr Valley (steel and metals), Louisiana (refineries).

The most important financial centers are London, New York and Tokyo.

Urbanization went or still goes hand in hand with globalization. There are different terms for such big and important cities: Megacities, global cities, etc.

What is a city?

The definition of city quite different from region to region: in Japan, to be called a city this place must have at least a population of 50,000 and in Switzerland, Greece or Malaysia a population of 10,000 is needed. In France 2,000 people are needed, in the US 2,500 and in Iceland just 200 people to speak of a city.

The level of urbanization was, in 2010, by 50.5% worldwide. The highest level is in North America with 82.1%, followed by Latin America and the Caribbean with 79.6% and Europe with 72.8%. In Oceania 70.2% of the population lived in cities in 2010. Asia (42.2%) and Africa (40.0%) are the only parts of the world where level of urbanization is below the global level.

Cities are connected with each other (growth by networking). There is also urban or regional competition, for example Osaka and Tokyo compete with each other, as well as Los Angeles and San Francisco or Shanghai and Guangdong, etc.

A megacity is defined by its population number. The UNPD (United Nations Population Division) defined it by at least 10 million people in 2004, but the number changes from time to time and from source to source. It seems to be a phenomenon of the “global south” or the so-called “Third World”.

Tokyo - Global City

Here are the world population prospects 2009:

01. Tokyo with 36.7 million people

02. Delhi with 22.2 million people

03. Sao Paulo with 20.3 million people

04. Mumbai with 20.0 million people

05. Mexico-City with 19.5 million people

06. New York with 19.4 million people

07. Shanghai with 16.6 million people

08. Calcutta with 15.6 million people

09. Dhaka with 14.6 million people

10. Karachi with 13.1 million people

11. Buenos Aires with 13.1 million people

12. Los Angeles with 12.8 million people

13. Beijing with 12.4 million people

14. Rio de Janeiro with 11.9 million people

15. Manila with 11.6 million people

16. Osaka-Kobe with 11.3 million people

17. Cairo with 11.0 million people

18. Lagos with 10.6 million people

19. Moscow with 10.5 million people

20. Istanbul with 10.5 million people

21. Paris with 10.5 million people

This list shows that there are just five cities from the “global north” (Tokyo, New York, Los Angeles, Osaka-Kobe and Paris). This aspect enforces the hypothesis that megacities are mainly situated in the “global south”.

So, what is a global city and what characteristics does it have?

Global Cities are, as aforementioned, hubs in economic networks. TNCs settle there due to the fact that the FIRE-sector (Finance, Insurance, Real Estate) dominates in these cities which are linked to each other, so they have “command and control functions”, according to Sassen (global city expert). The most important cities are New York, London and Tokyo with their huge financial sector including their stock market. (cf. Kinder 2003, p. 20)

Sassen hypothesized the term ‘global city’:

Multinational corporations and TNCs settle in a global city to become a global player on the world market. Global Cities are also locations for outsourcing of important functions like accounting, information and communication services, etc. These enterprises form agglomeration advantages that keep the city big on the market. Enterprises become more independent by outsourcing and don’t depend on certain locations (“footloose industries and urban competition”). Due to these agglomeration advantages, clusters are formed, and the cities get more important by being nodes in global networks. The big economic clusters also lead to disparities; on the one hand, more and more people suffer from poverty, on the other hand, rich people are getting richer. Economies like cleaners or sentries are growing side by side to the ‘big businesses’.

As aforementioned, enterprises use global cities as their headquarters for control and coordination:

“[…], the network of financial, legal, accounting and advertising firms […] handle the complexities of operating more than one national legal system, national accounting system, advertising culture, etc., and do so under conditions of rapid innovation. Such services have become so specialized and complex, that headquarters increasingly buy them from specialized firms […]”. (Sassen 2001, p. 90)

There is a ranking for global cities that classifies the importance of cities:

Very high importance is shown by the following cities: London, Paris, Milan, Frankfurt, New York, Tokyo, Chicago, Hong Kong, Los Angeles and Singapore.

High importance is shown by the following cities: Zurich, Brussels, Madrid, Moscow, San Francisco, Sydney, Seoul and Mexico-City, etc.

Medium importance is shown by the following cities: Amsterdam, Rome, Stockholm, Barcelona, Berlin, Hamburg, Munich, Boston, Houston, Washington D.C., Jakarta, Melbourne, Osaka, Taipei, Shanghai, etc.

As an example for a global city, here are some details about London, and the competition between London and New York.

Over 300 years, London has been and still is a central economic location:

“A trading culture has been maintained since the UK was the dominant trading country in the world in the 18th and 19th centuries”. (Cooperation of London 2005, p.9)

London has an enormously important financial center; many TNCs’ headquarters are situated in London, just like international institutes. The service sector has been rising rapidly. Also, London is the most important production center and an important transport hub. (cf. Gerhard 2004, p.5)

“[…] London today has several fairly strong manufacturing industries notwithstanding continuing overall losses. They are high-wage, high value-added industries, such as printing (tied to London’s leading industries: finance and producer services), the high-tech sector […], and the communications industries”. (Sassen 2001, p.211)

The London Stock Exchange is one of the three most important stock markets in the world, and in Europe London is the crucial point of stock market services (investment bank activities: 50% in Europe). (cf. www.cityoflondon.ac.uk)

The following illustration shows London’s connectivity. London is in the middle with 123 cities surrounding it. The scale at picture shows the connectivity between these cities and London. For example New York (NY), Boston (BS), Beijing (BJ) and Tokyo are highly connected with London, whereas Miami (MI), Auckland (AK) and Melbourne (MB) are highly under-connected with London.

London and New York are the key connection points meaning that the connectivity between these two cities and other cities are the highest; so New York and London are the most important global city hubs.

London's Connectivity

Illustration3: London’s connectivity (Source: http://www.lboro.ac.uk/gawc/rb/pracbr4.html)

London and New York have been fighting each other referring to their competition in economic importance. It is neck and neck.

During World War Two, New York rose ahead to the top spot, before London regained primacy by the end of the 1960s due to the Euro-Dollar-market and London’s deregulation (compared to New York which had more regulations back then). By the 1980s (under Reagan) New York struck back and reached the top so due to high interest rates drew into global funds, stock boom and deregulation. Meanwhile London was hurt by the weak pound, insurance collapse, etc. London regained the “pole position” after Thatcher ‘Big Bang’ in 1986 meaning that British banks were ‘cleaned’ which led to deregulation. In the 1990s, New York rebounded with a stock market boom before the NASDAQ bubble burst in 2000 (National Association of Securities Dealers Automated Quotations; biggest electronic stock market in the US), during that time New York was also hurt by Oxley-Sarbanes public disclosure. So, London bounced back in the 2000s due to developed derivatives (LIFFE which are in Chicago), spectacular growth in shipping, brokerage, accounting and law.