The Post-Industrial East Asian City Shahid Yusuf DECRG January 10 th 2005

What the Urban World is Coming to Less than a dozen major metro regions are responsible for much of East Asia’s dynamism and growth. These are cities such as Seoul, Shanghai, Tokyo, Hong Kong-Shenzhen, Guangzhou, Bangkok, Taipei, and Singapore. All are being subjected to the forces of structural and social change. Whether and how they sustain their economic tempo will be critical to the future industrial geography of the Region. The most interesting development story is now unfolding in Asia’s urban heartlands.

Urban Change in East Asia’s Leading Cities Technologies Industrial transitions Rise, retreat and migration of services industries Labor markets, demographics, and leisure

Technology and Urban Dynamics Technological Innovation principal determinant of industrial competitiveness and structure Key areas of innovation: integrated circuits, the internet, miniaturization, modularization, life sciences, energy, multimedia Impact of these technologies: rising R&D and skill inputs; greater capital intensity; short product life cycles; ease of outsourcing and off shoring making services tradable; reduced logistics costs; greater international production networking; most new products depend on research in multiple fields.

Industrial Transition Industrial geography more closely keyed to cost and loci of technological innovation Industry more footloose and shifts quickly from one location to another Mid and low tech, labor, land and resource intensive industries leaving large cities Remaining industries, are technology and skill intensive and depend on proximity to research facilities, teaching institutions, producer services, sources of skills and key final markets Labor coefficients for most industries are declining

Services Industries: Rise, Retreat and Migration Share of services in urban GDP climbing fast Main gainers: producer services, services associated with leisure and health, personal services, logistics, education, and research Major developments: gains in productivity in retailing, wholesaling, logistics, financial and non-financial services, IT industries. Outsourcing of labor intensive, administrative and clerical services. Decline in employment intensity in IT affected industries. Services also becoming more price sensitive and footloose. Danger of hollowing middle: menial jobs and high value adding jobs remain in big cities, others migrating.

Labor Markets, Demographics and Leisure Rising demand is for skills but mix of skills subject to change Openness of labor markets and circulation of skills from other parts of the country and abroad an advantage Openness supports heterogeneity, flow of new ideas and holds down average age of population, and sustains dynamism and entrepreneurship Rapid technological change, industrial turnover and falling labor coefficients leading to job mobility, multiple jobs, part time employment, new work modalities. Structural unemployment likely to rise Demographic, industrial and technological trends favor producer services, leisure industries and health care.

Cities in Transition Tokyo: Largest, most diversified, growing, technologically dynamic Hongkong: Strong in high value producer services and logistics, most industry has migrated; facing severe price competition; polarized labor market and great income inequality Shanghai: Highly diversified industrial city with increasing producer services and high tech activities. Income distribution fairly equal and population growing. On threshold of major changes.

What Must Transitioning Cities Do Industrial and services sector diversity keys to flexibility, growth and agglomeration economies Requires deep labor markets for skills. Depends on openness, strong university sector Major focus on R&D and innovation that feeds industrial cluster development Broad base of producer services to assist with entry and exit of firms: especially venture capital, legal, engineering, managerial, accounting, etc. Strong leisure industry, social amenities, low crime and clean environment vital for attracting and retaining high tech industry/skilled workforce Quality of other public and health services now almost a necessary condition. Examples of Tokyo, Seoul, Singapore, Hongkong Successful cities will continue to grow even if slowly and consolidate positions as regional or global hubs