Economics is no game...or is it? Interested students can now take an online course from The University of North Carolina at Greensboro that is a game. Econ 201 is an introductory Microeconomics course. And if you successfully complete the game, you earn credit. Robert M. Brown, Ph.D., Dean of the Division of Continual Learning at UNCG, explains the game at Campus Technology:
The game’s premise is that an alien craft crash-lands on a futuristic, post-apocalyptic Earth. In order to survive and create a prosperous society, the extraterrestrials must learn the basic principles of economics – from scarcity, savings, and investments to trade, foreign aid, and sustainable growth. The game covers the same concepts as the face-to-face micr'economics course at UNCG, but also integrates interdisciplinary concepts from history, ethics, math, biology, and anthropology.
Brown calls gaming "problem-based learning," and argues that this course, unlike other intro courses, forces students to apply "newly learned theory."
Take a look at the game by clicking here. And read Brown's article in Campus Technology here
(HT: Brad DeLong)
Lisa Barone of Small Business Trends strongly recommends that business owners David Mihm's Local Search Ranking Factors--just updated this week for 2009. Mihm's report is a comprehensive guide to all things search, built on a new study of Google Maps, interviews with the heads of Google Maps and Yahoo Local, and surveys of top "bloggers and practitioners."
From Barone's testimonial:
One of the most interesting things I got from David’s guide was the growingimportance of getting local citations for your Web site. Citations are mentions of your business name and address on other Web pages. That means in order to rank well in local search you should be reaching out to the many local organizations around you and letting them know your business exists. Get a mention from your Chamber of Commerce, from local blogs, local directories and resource sites, your school board association and anywhere else local business information is found. These citations are relatively easy to get (small businesses owners love helping one another out) and they’re very powerful to the local search algorithms.
Read Barone's full post here.
When he couldn't persuade bankers to lend to impoverished people in his native Bangladesh, Muhammad Yunus started Grameen Bank. Grameen Bank pioneered the practice of giving very small loans to very poor people without requiring collateral (or lawyers)--what we now call microcredit. Microcredit grew rapidly as a practice--as both an antipoverty strategy, and as a business strategy for bnaks like Grameen. And Yunus and Grameen Bank were recognized in 2006 with the Nobel Peace Prize. The Wharton School invited Yunus to give its commencement address this year, and according to the New York Times, he told graduates that the global economic crisis provides an opportunity to reshape the underlying financial structure and "shake things up in a positive way that will lead to permanent social change."
He spoke with Knowledge@Wharton and talked about founding Grameen, the future of microcredit, and how his for-profit bank was able to make an impact where so many aid groups were unsuccessful:
Kai Fallon and Kathryn Edwards of the Economic Policy Institute point out that there are six states that are among the top 10 in unemployment, percentage point change in unemployment since 2007, and job loss since 2007. The hard-hit half dozen: California, Indiana, Michigan, North Carolina, Nevada, and Oregon.
California, Indiana, Michigan, Nevada, North Carolina, and Oregon. A common theme in many of these states is that manufacturing represents a large part of the state economy. Before the recession began, four of these states (Indiana, Michigan, North Carolina, and Oregon) were well above the national average in terms of manufacturing jobs. As that industry declined, these state economies were unable to shift gears quickly enough and move workers to other jobs. As evidence of this, in these four states manufacturing jobs made up 14.6% of the total jobs, yet represent 41.2% of the total jobs lost since the recession began.
Look at EPI's comparison of unemployment in these six states to the national average:
Read the full post from Fallon and Edwards here.
General Motors is likely to file for Chapter 11 bankruptcy early next week. This might have come as a shock a decade ago, and yet any bad news for the automaking giant raises few eyebrows today. So what is to become of the US automanufacturing business now? In the latest Wired Magazine, Charles Mann suggests we are entering a new age for the industry. One that will reward smaller, innovative companies--much like what happened in the comuter industry three decades ago:
If a domestic auto industry is to survive, it will have to incorporate and encourage breakthroughs from outsiders like Transonic. Automakers will need to transition from a vertical, proprietary, hierarchical model to an open, modular, collaborative one, becoming central nodes in an entrepreneurial ecosystem. In other words, the industry will need to undergo much the same wrenching transformation that the US computer business did some three decades ago, when the minicomputer gave way to the personal computer. Whereas minicomputers were restricted to using mainly software and hardware from their makers, PCs used interchangeable elements that could be designed, manufactured, and installed by third parties. Opening the gates to outsiders unleashed a flood of innovation that gave rise to firms like Microsoft, Dell, and Oracle. It destroyed many of the old computer giants—but guaranteed a generation of American leadership in a critical sector of the world economy. It is late in the day, but the same could still happen in the car industry; it just has to harness our national entrepreneurial spirit to develop the next wave of auto breakthroughs.
Read Beyond Detroit: On the Road to Recovery, Let the Little Guys Drive here.
Jobless claims dropped 13,000 last week, according to the Labor Department, but still 623,000 pink slips were handed out last week. Nobody feels that pain more than the people losing their jobs. But clearly this is a difficult time for a lot of managers. Robert Sutton, of Stanford's Graduate School of Engineering, studies management and organizations, and he has an article in this month's Harvard Business Review on how to manage in tough times. He writes that it is hard to be a good boss, even in good economic times:
It’s challenging in part because of an unfortunate dynamic that naturally arises in relationships of unequal power. Research confirms what many of us have long suspected: People who gain authority over others tend to become more self-centered and less mindful of what others need, do, and say. That would be bad enough, but the problem is compounded because a boss’s self-absorbed words and deeds are scrutinized so closely by his or her followers.
And, as Sutton explains in this McKinsey Quarterly video, the dynamic gets even more toxic in bad economic times:
You can read a transcript of the interview here. And read How to be a Good Boss in a Bad Economy here.
The English Premier League took a hit on the field pitch yesterday when FC Barcelona of Spain's top soccer football league topped Manchester United to win the Champions League--Europe's top honor. But Aaron Patrick and Dana Cimilluca write in today's Wall Street Journal that the Premier League is taking a much bigger hit in the wallet. Over the past two decades, the league rose to match its name, and became the premier soccer league in the world, regularly attracting the best footballers from arond the globe with huge contracts. The growth of the British economy fueled the sporting ambition. But times have changed, rapidly:
Today, thanks to Britain's deep recession, the league must spend its off-season grappling with falling ticket prices, ailing corporate sponsors and financially distressed owners. Unlike teams in the NFL, Premier League clubs are almost entirely unregulated: There is no salary cap, players are freely traded, and league administrators have no control over who buys and sells clubs. Given such wide latitude, some owners racked up big debts during the credit boom, both on buying the clubs themselves and recruiting expensive, on-field talent. Analysts fear the owners who spent big will now be whipsawed by the downturn and forced to make deep cuts.
Patrick and Cimulluca point out that since this is a global recession, there aren't many clubs in other countries who can take advantage of the Premier League's debt woes. So the quality of play may not suffer all that much. For the sake of attendance, it can't. The league has raised ticket prices, on average, 10-15 percent a year. This year, most clubs will not take the risk of alienating fans with the usual price hike, but they still will struggle for revenue, which is expected to fall an estimated 5-10 percent according to the article.
Read English Soccer's Morning After here.
Here's a strong two on two matchup from D7: All Things Digital conference. Tech journalists Walt Mossberg and Kara Swisher in the Wall Street Journal corner. Biz Stone and Evan Williams in the Twitter corner. The four of them try to get to the core of the matter: what's the future hold for Twitter, and how will Twitter affect the future:
Business economists anticpate the end of the recession will come by the second half of the year, according to the latest National Association of Business Economists (NABE) outlook survey. While the outlook for the rest of the quarter is bleak--economists in the survey predict another 1.8 percent drop in GDP--we might see small growth through the rest of the year. The survey predicts 1.2 percent growth in the second half. Sean Snaith, director for the Institute for Economic Competitiveness at the University of Central Florida, discusses the NABE survey and economic recovery with NABE VP Lynn Reaser, and Shaun DuBravec, an economist with the Consumer Electronics Association. Click here to watch the video:
Mark Thoma calls attention to two interesting pieces today on unemployment. John Schmitt, Hye Jin Rho, and Shawn Fremstad of the Center for Economic and Policy Research have a short comparison of unemployment rates of OECD (Organization for Economic Cooperation and Development) nations. They write that the current decade has shown some weakness in the US economic model:
The case for the superiority of the U.S. model was always
exaggerated.2 For one thing, it tended to ignore the relatively lower
performance of the U.S. on broader quality-of-life measures like the Human
Development Index.3 But even when limited to differences in unemployment, the
case for the U.S. model was overstated. From the 1990s on, the United States
did have lower unemployment rates than several large European economies, such
as France, Germany, Italy, and Spain,4 but many smaller European economies with
large welfare states and high levels of labor-market regulation regularly did
as well or better on unemployment than the United States. In 2000, for example,
at the peak of the late 1990s economic boom, when the U.S. unemployment rate stood
at 4.0 percent, Austria (3.7 percent), the Netherlands (2.8 percent), Norway
(3.4 percent), and Switzerland (2.6 percent) all had lower unemployment rates
than the United States; and rates in Denmark (4.3 percent) and Ireland (4.2
percent) were not far behind.
So that was in 2000. The authors go on to point out that the 2007 numbers look even worse for the US:
The University of Arizona's Lane Kenworthy doesn't take issue with the report's findings, but he does think that it might be better to look at employment rates--"the share of working-age people (age 15 to 64 is the standard) that are employed"--rather than unemployment. He writes that a comparison of OECD employment rates for 2000 and 2007 show the US in the "middle of the pack rather than at the bottom."
What’s happened since then? Employment rates aren’t updated as regularly as unemployment rates, so recent trends are more difficult to judge. The data below are the best I can do at the moment. They show percentage change in the number (not share) of people employed from the fourth quarter of 2007 to the fourth quarter of 2008, and for a few countries to the first quarter of 2009. Our economy has lost more jobs — 4.5%, or about 6.5 million jobs — than most others. (see right).
Read the CEPR analysis here. And Kenworthy's post here.
Venture capitalist Fred Wilson, principal of Union Square Ventures, is among the most active participants in social media. So he understands better than most the power of the Internet to both build up and knock down industries. He spoke recently at Google's Mountain View, CA offices about this power--"disruption." The most contemporary example of a "disrupted" industry is the news industry, and newspapers in particular. Several daily papers have shut down their printing presses so far this year. And the biggest papers are having trouble figuring out what to do with upstarts like Twitter and Facebook. Wilson shows this slide in his talk to illustrate how quickly Twitter has grown in unique visitors on the Web:
In the talk, Wilson considers what industries might be next. Consumer finance, education, and energy top his list. Here's his talk:
Wilson's slides are all available here.
The World Economic Forum on Africa is set to begin two weeks from tomorrow in Cape Town, South Africa. Ngozi Okonjo-Iweala is Managing Director for the World Bank, and will co-chair the forum. In looking ahead to the forum, she says the biggest challenge facing African leaders during the economic crisis is to "maintain the reform momentum that they had before the crisis":
Paul Collier writes in The Guardian that what African leaders need to do now is prepare better for the next "commodity boom." Collier writes that the eruption of the global economic crisis brought an end to the continent's second commodity boom in forty years, and once again most leaders failed to take advantage of their natural resource income to build sustainable economies. So Collier calls on leaders to take the next step and prepare for the end of the crisis, when natural resources may once again provide opportunity:
Transforming assets beneath the ground into sustained prosperity for ordinary citizens requires integrity and astuteness. Without integrity the assets get looted, and without astuteness they get squandered. Neither is easy to achieve, but integrity is at least easy to understand. TheExtractive Industries Transparency Initiative (EITI) is an international standard to which governments can make a commitment. Introduced in 2003, it was the right place to start in the struggle to break with the past. But it would be the wrong place to stop: integrity is not enough.
Collier goes on to praise the Natural Resource Charter, which a group of economists, political scientists, and lawyers have put together. We will watch in two weeks to see whether this is part of the "reform momentum" that Okonjo-Iweala referenced.
Read Preparing for Africa's Boom here.
If the Case-Shiller Index has you feeling down (like home prices), the Conference Board's Consumer Confidence Index might give you reason to feel a bit better. It seems to have picked up the spirits of the markets. The index is now at 54.9. That's up from 40.8 in April. Lynn Franco is the director of the Conference Board's Consumer Research Center, and she puts this number in context:
After two months of significant improvements, the Consumer Confidence Index is now at its highest level in eight months (Sept. 2008, 61.4). Continued gains in the Present Situation Index indicate that current conditions have moderately improved, and growth in the second quarter is likely to be less negative than in the first. Looking ahead, consumers are considerably less pessimistic than they were earlier this year, and expectations are that business conditions, the labor market and incomes will improve in the coming months. While confidence is still weak by historical standards, as far as consumers are concerned, the worst is now behind us.
Read the Conference Board's release here.
Housing prices continue to go down at record levels, according to the S&P/Case-Shiller Home Price Indices out today. The National Home Price Index had its largest annual decline in the 21-year history of the Case-Shiller Indices, dropping 19.1 percent from March, 2008 to March 2009. David Blitzer, chair of the Index Committee for Standard and Poor's, says the all areas are showing annual drops, but some have been hit much harder than others:
All 20 metro areas are still showing negative annual rates
of change in average home prices with nine of the metro areas having record
annual declines. Seventeen metro areas recorded a monthly decline in March,
with Minneapolis, Detroit and New York posting record monthly declines. On a
positive note, nine of MSAs are reporting a relative improvement in year-over-year
returns and nine of the 20 metro areas saw an improvement in their monthly
returns compared to February. Furthermore, this is the second month since
October 2007 where the 10- and 20-City Composites did not post a record annual
decline. Based on the March data, however, we see no evidence that that a
recovery in home prices has begun.
Nationally, prices are about where they were in the last quarter of 2002, and down 32.2% on average from the second quarter of 2006 (the peak, according to the Case-Shiller Indices):
The Phoenix, Las Vegas, and San Francisco metro areas suffered the worst annual declines at 36.0%, 31.2%, and 30.1% respectively. Denver, Dallas, and Boston are at the other end of the spectrum, posting declines of 5.5%, 5.6%, and 8.0% respectively. Minneapolis had the largest monthly decline in the history of the indices as home prices there dropped 6.1% in March. And as the Case-Shiller summary report points out, the data for New York and Detroit paints a very telling picture of how different cities have fared if you take a longer view.
For March, Detroit and New York also reported their largest monthly declines, returning -4.9% and -2.5%, respectively. The performances of these two MSAs represent the extremes of the national boom/bust scenario. The New York index is still up 73.4% from January 2000, though down 19.7% from its June 2006 peak. The Detroit index is 29.0% lower than in January 2000. Detroit home prices are back to their mid-1995 levels.
Read the report here.
Greg Mankiw writes textbooks, he has the ear of policy makers as former chair of the Council of Economics Advisers, and he connects with the hoi polloi through his blog. But his day job is teaching economics as a professor at Harvard. He writes in a New York Times op-ed that the global economic crisis has not drastically altered the teaching of introductory economics. But he does outline four ways in which "the teaching of basic economics will need to change," given the events of the last few years:
The role of financial institutions;
The effects of leverage;
The challenge of forecasting;
and The limits of monetary policy:
The textbook answer to recessions is simple: When the economy suffers from high unemployment and reduced capacity utilization, the central bank can cut interest rates and stimulate the demand for goods and services. When businesses see higher demand, they hire more workers to meet it.
Only rarely in the past did students ask what would happen if the central bank cut interest rates all the way to zero and it still wasn’t enough to get the economy going again. That is no surprise; after all, interest rates near zero weren’t something that they, or even their parents, had ever experienced. But now, with the Federal Reserve’s target interest rate at zero to 0.25 percent, that question is much more pressing.
Read Mankiw's That Freshman Course Won’t Be Quite the Same here.
Graduation season is in full effect. Business school grads, facing a job market they likely never imagined when they started work on their MBAs, are getting a lot of advice from commencement podiums. When Stephen Ross stepped up to speak to graduates of the business school that bears his name--the Ross School of Business at the University of Michigan--he referenced how different the scene was at last year's graduation:
After Dean Dolan asked me to
give this address, I read his address from last year and found it to be
humorous and light which reflected the time we were in. Everything was growing
in unprecedented fashion, people were optimistic. We were awash in cash and
everybody thought it would last forever.
Ross made most of his billions in real estate. The Related Companies--Ross's real estate firm--has developed some high profile projects, like the Time Warner Center in Manhattan. And while the last year has been a rough one in Ross's main line of work, he had a successful first year as owner of the Miami Dolphins, so perhaps that is why he was able to strike an optimistic tone with the newly minted MBAs in Michigan:
I actually believe you are lucky to be graduating in this environment. The business environment you are entering is not the same one you anticipated when you enrolled here. These times provide opportunities for bold and insightful action. It’s particularly exciting if you look at the world through a new prism. The economic systems are undergoing fundamental changes. We are not destined to return to the old ways of doing business. So, while experience is still helpful, your inexperience might actually be a competitive advantage. Open minds, energetic thinking, new horizons – that is the order of your new day.
Watch Ross's address by clicking here.
If there was any doubt as to how restaurants are doing in this recession, a few recent developments have made the struggles of dining establishments clear. Last week's National Restaurant Association Show--its 90th annual show--drew just 54,000 attendees. That's a 24 percent drop from last year. And the cable tv news station TV1 found in a poll that half of New Yorkers have stopped eating out.
Monica Bertran of Bloomberg spoke about the challenges for restaurants with Julia Stewart, chairman and CEO of DineEquity. DineEquity owns Applebees and IHOP, and Stewart tells Bertran that the restaurant is probably paying the price for overbuilding during the last decade. But she is optimistic that things are turning around:
Meanwhile, New York restaurateur Danny Meyer tells the Wall Street Journal's Katy McLaughlin that many eateries will have to accept lower margins, as he has. And he expects more and more higher end restaurants to close in the coming months, as the economy just isn't supporting expensive meals:
I don’t think there’s going to be sustainable demand for restaurants that force you to spend hours there. Long tasting menus will continue to be elected by some but cannot be legislated by the restaurant. We’re going to have more bistros and trattorias. People will have luxury items—caviar, foie gras, truffles—less frequently, having done without them for a year and a half, but they will come to appreciate them more because it won’t be at every bar and grill in the city.
Read A Future with Fewer Reservations here.
Kevin Youkilis had three RBI yesterday as the Boston Red Sox beat the New York Mets, and he is off to a strong start as one of the top players in Major League Baseball. But this is not a Boston-centric post to brag about the Sox moving into first place. Rather, Youkilis is the centerpiece of this John Authers Financial Times video explaining what baseball can teach investors about strategy. The key lesson: Framing. Authers says, "If you frame an issue wrong...you may well miss something that is hidden in plain sight."
Click here to watch the video.
Top Chief Financial Officers have earned their keep through this recession as the credit crunch has put a lot of companies in tight spots. IF the recession does end in the coming months, CFOs will have to shift gears and help steer companies through a whole new set of challenges. McKinsey Quarterly offers up ten questions to consider for this next phase. For example, question 2: Have you restructured enough?
A weak economy makes it easier to implement unpopular operational changes and divestitures: companies have more leverage over suppliers, unions and regulators are more cooperative, and employees understand the need for change. When the economy strengthens, these advantages will quickly vanish. CFOs should challenge their colleagues to examine how much more restructuring might be undertaken to secure a company’s cost position for the medium term.
And question 9: Do you know what risks a recovery might bring?
Risk management and contingency planning are typically better at highlighting day-to-day issues than at anticipating major shifts. Yet an economic turnaround could bring a number of structural changes, some relatively predictable and with far-reaching effects. How well, for example, do you understand your company’s exposure to major currency or commodity price movements? Do you know whether the health of channels, customers, or suppliers might create substantial structural change or whether your company is prepared to deal with high levels of volatility that may continue even as a recovery builds?
Read the full list and get into the conversation here.
Weekly numbers from the Department of Labor show unemployment close to nine percent. The Wall Street Journal's David Wessel looks at the numbers and pulls out a key stat: 3.7 million Americans (more than 25 percent of the total unemployed) have been out of work for more than six months. He says the challenge now is "to keep those people from dropping out of the work force alltogether":
The Bureau of Labor Statistics calls people who are available to work and have looked for work in the last 12 months, but not in the last four weeks, "marginally attached to the labor force." They don't show up in the unemployment statistics. "Discouraged workers" are a a subset of "marginally attached workers." "Discouraged workers" are people who haven't looked for work because they believe there are no jobs available. This is the category Wessel says we need to keep from growing. So far, not so good. The number of "discoiraged workers" rose 70 percent between the first quarter of 2008 and the first quarter of 2009. The number is now at 717,000. The overall number of "marginally attached" workers reached 2.1 million at the end of the first quarter.
Read the Bureau of Labor Statistics paper, Ranks of Discouraged Workers and Others Marginally Attached to the Labor Force Rise During Recession.
President Obama announced new CAFE standards this week. For cars and light trucks up through model year 2016, according to the standards, the Corporate Average Fuel Efficiency should reach 35.5 miles per gallon. In his speech, the President said the new standards would--in addition to reducing CO2 emmissions--eventually save consumers money, and create jobs:
The fact is, everyone wins: Consumers pay less for fuel, which means less money going overseas and more money to save or spend here at home. The economy as a whole runs more efficiently by using less oil and producing less pollution. And companies like those here today have new incentives to create the technologies and the jobs that will provide smarter ways to power our vehicles.
Keith Hennessy, senior economic adviser to President George W. Bush, looked at analysis the National Highway Traffic Safety Administration did in 2008, and noted that the Obama plan looks like a scenario the NHTSA drew up. And in that scenario, there is a cumulative job loss of nearly 50,000.
Over at Baseline Scenario, James Kwak works up some supply curves to address this issue. The argument that aggressive CAFE standards costs jobs is based on the straighforward notion that cars cost more to build, the price goes up, causing demand to go down, and then fewer cars get made. The Obama plan assumes that cars will cost, on average $1300 more (they also estimate that the average fuel savings over the life of the car will be more than double that--but it is less clear the impact that has on the consumer decision at time of purchase). Kwak draws that up like this:
But Kwak writes that this argument neglects the fact that the car now is more fuel efficient:
That’s good, and it means that people will be willing to pay more for it. In other words, the demand curve shifts outward, so at equilibrium, quantity will be Q2, which is somewhere between Q0 and Q1. Q2 will still be less than Q0; otherwise, the free market would have come to that equilibrium by itself. (If people valued the increased fuel efficiency at $1300 or more, the industry would already have done it, at least according to a pure free-market argument.) So things are not as bad as in the picture above.
Kwak also says the cars are more expensive because there is moe "stuff" going into the cars. Someone has to make that stuff, so even if fewer cars are sold, that in itself doesn't mean fewer jobs. For the full detail of Kwak's argument, you need to go to his post at Baseline Scenario. The NHTSA report Hennessy refers to is available here.
The New York Review of Books held a crowded panel as part of the PEN World Voices Festival. Senator Bill Bradley, Niall Ferguson, Paul Krugman, Nouriel Roubini, George Soros, and Robin Wells filled a stage and discussed The Economic Crisis and How to Deal with It. A lot of bloggers and economists (and econobloggers, for that matter) have highlighted the talk for the jousting between Krugman and Ferguson--Brad DeLong, for example, backs up Krugman in a post today. But the talk was much more. There are several good summaries available, like this one from Jane Ciabattari. The folks at PEN have made audio of the full event available. You can listen or download an mp3 here.
And you can hear an excerpt (with slides) below:
The House Energy and Commerce Committee burned the midnight oil again last night debating climate-change legislation. Committee chair Henry Waxman (D-CA) wants the bill out of committee by Memorial Day--this coming Monday--according to David Fahrenthold of the Washington Post. Whatever the details of the bill turn out to be, Cap and Trade provisions will be at the center.
Marketplace's Paddy Hirsch explains exactly how cap and trade works, in this Whiteboard video:
Meet Cap 'n Trade from Marketplace on Vimeo.
The Wall Street Journal leads today with the news that Mexico's economy saw significant contraction in the first quarter--GDP dropped 8.2 percent from a year ago and 21.5 percent annualized quarter-on-quarter. The news came in a week when Germany and Japan also showed severe contraction.
The four economies are tightly bound, and the Journal's Bob Davis says US consumers drove the decline:
All three countries depend on exports to the U.S. But they have nose-dived as U.S. consumers cut back purchases of autos, electronics and other goods mass produced abroad. For the first three months of 2009, U.S. merchandise imports declined about 30% to $352.5 billion compared with the same period a year earlier. Mexico's ties to the U.S. are particularly strong because of the North American Free Trade Agreement, and Mexican auto production in the first quarter fell 41% from the year before.
And bear in mind the H1Ni/swine flu fears didn't start to hit Mexico's tourism trade and overall economy until after the end of the first quarter.
Read the full article here.
In 2008, the world's urban population passed its rural population for the first time in history. And, according to a United Nations study, there is no turning back:
Between 2007 and 2050, the world population is
expected to increase by 2.5 billion, passing from 6.7 billion to 9.2 billion
(United Nations, 2008). At the same time, the population living in urban areas
is projected to gain 3.1 billion, passing from 3.3 billion in 2007 to 6.4
billion 2050 (see figure at right). Thus, the urban areas of the world are expected to absorb all the
population growth expected over the next four decades while at the same time
drawing in some of the rural population. As a result, the world rural population
is projected to start decreasing in about a decade and 0.6 billion fewer rural
inhabitants are expected in 2050 than today. Furthermore, most of the population growth
expected in urban areas will be concentrated in the cities and towns of the
less developed regions. Asia, in particular, is projected to see its urban
population increase by 1.8 billion, Africa by 0.9 billion, and Latin America
and the Caribbean by 0.2 billion. Population growth is therefore becoming
largely an urban phenomenon concentrated in the developing world.
Just a quarter century ago, the world's urban population was just 40.9 percent of the total global population. And these last 25 years were the height of globalization--so what happened? Or, as Harvard economist Edward Glaeser writes on the New York Times Economix blog puts it, "If the world is so flat, then why are cities growing so quickly, especially in the third world?"
Glaeser--answering his own question--points to the nature of the global economy as one that is built on technology. While new technology makes it possible in the information economy to work from anywhere, humans thrive on interaction, and we place great value on proximity:
Globalization and technological change have increased the returns to being smart; human beings are a social species that get smart by hanging around smart people. A programmer could work in the foothills of the Himalayas, but that programmer wouldn’t learn much. If she came to Bangalore, then she would figure out what skills were more valuable, and what companies were growing, and which venture capitalists were open to new ideas in her field. The information flows that come from proximity might also help to build the relationships that would enable her to create her own start-up. A remarkable number of information-technology start-ups in India were formed by partners who connected in Bangalore.
Read Glaeser's post here. (Hat tip to the either early-rising or late-to-bed Mark Thoma for highlighting Glaeser's piece while we were asleep).