Come together: an aerial view of Nairobi's outskirts and suburbs. As the city's population swells, unemployment has risen to 60 per cent. Image: Frederic Courtbet/Corbis
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Petropolis now: Are cities getting too big?

As we confront the challenge of urbanisation, we can deploy technology with two different intentions.

Imagine if you lived in a place where                                
the cool breeze caresses your face as                               
you stare at the lush green landscape,                               
where birds sing as you walk by,                               
where you can fish by the lake,                               
where your neighbours share your lifestyle dreams,                               
where your kids can play outdoors safely . . .                               

Where is this idyll? Migaa – a 20-minute drive from the rubble of the Westgate shopping centre in Nairobi, Kenya – is a new development complete with a private hospital, conference centre, “shop till you drop” mall facilities and a 200-acre executive golf course. Natasha, a sales rep, talks me through the mid-range Tamarind Tree residences – fully serviced apartments with a lift and a concierge, high-speed internet, a roof terrace with a solar-heated pool and a bar.

“We also have a wall,” she tells me. Patrolled by armed security guards, it is a 12- kilometre-long electrified stone wall around the perimeter of the compound.

Migaa is one of several “premier gated cities” springing up around Nairobi, from the $14.5bn Konza Techno City to Tatu City, with its helipad and biometric ID system, unveiled last year by the Moscow-based Renaissance Partners in Cannes, France. Nairobi is not the only place this is happening: a pan-African trend to upgrade to the “smart city” of the future is emerging. Uganda’s capital, Kampala, has Kakungulu eco-city, with two malls, a 50,000-seater stadium and a golf course with seeds for the greens flown in from Florida. Accra, Ghana, has Appolonia. Lagos, Nigeria, has Eko Atlantic, “rising like Aphrodite from the foam of the Atlantic”. The Democratic Republic of the Congo, not to be outdone, has la Cité du Fleuve, emerging, like a “water lily”, on reclaimed land in the middle of the Congo River near the capital, Kinshasa. The mansion designs on offer include “palace-style Arabe” and “Mediterranean villa”. Elsewhere, there’s Masdar in the United Arab Emirates, Norman Foster’s eco-oasis in the desert, coming in with an estimated $20bn price tag for 40,000 inhabitants.

In South Korea, Songdo is already open for business. Described by Cisco as a “model for future cities”, Songdo has smart water, smart garbage (pneumatically sucked out of sight), smart parking with cars guided to empty lots, centralised blood pressure monitoring consoles, elevators you can order from your television screen and ubiquitous 52- inch plasma screens for high-definition video conferencing. Plus, a green space modelled on New York’s Central Park and a canal system inspired by Venice.

Then there are the ambitions of China. After a decade of rolling out the infrastructure equivalent of Rome every two months, China, according to the news agency Xinhua, now aims to step up the pace, with 100 model cities, 200 model counties, 1,000 model districts and 10,000 model towns by 2015. It’s Grand Designs on steroids. Yet will these urban dreamscapes work in reality?

If urbanisation is the defining trend of the 21st century, with 4.9 billion people predicted to be living in African and Asian cities by 2030 (the population of the world as recently as the mid-1980s), are we up to the task? Or is this the next real estate bubble, not sub-prime but super-prime, dressed up in the mushy atmospherics of eco-bling? There are three potential problems.

The first is the demand for jobs. Around the world, some 200,000 people a day leave the countryside – crops failing, the agricultural model broken – in a pattern of distressed migration that takes them to the slums. Nairobi’s population has swollen to around 3.4 million. The figures are unreliable but some 60 per cent of its population is estimated to be slum-dwelling, concentrated in just 5 per cent of the city’s space.

The challenges are patent. Nairobi is bursting. Its streets are jammed (the city recently rose to fourth in the world in IBM’s Commuter Pain Index), its services are crumbling. Business, in a vicious circle accelerated by the terrorist attack on the Westgate shopping centre, is leaving the city. As it leaves, it reduces still further the flow of tax revenue that, from roads to health to education, could transform public services.

Unemployment is at 60 per cent, with only 9 per cent (according to some estimates) in formal-sector unemployment. More than 500,000 new unemployed young people join the labour force every year; 90 per cent of the unemployed have no skills or formal training beyond primary education.

Why do the rural poor come to the city? For a woman such as Mama Felix, the owner of the Pink Lady hairdressing salon in the slum of Mathare, there’s a central answer – because that’s where the hope is. Braid by braid, customer by customer, she is working her way towards getting back the savings she lost to a loan shark. She has no running water and no lights. Half the money she earns goes out to relatives in the countryside. But she has some scissors, a mirror, an electric dryer and, above all, a market for her skills.

For all the “flying toilets”, Mungiki street gangs and illegal changaa breweries, Nairobi’s sprawling slums of Mathare, Kibera and Korogocho are concentrators not just of poverty but of opportunity. If the businesses move out to the new satellite city – if you move the engine that’s creating 45 per cent of Kenya’s GDP and economic opportunity 15 miles away – the migrants will follow and set up camp. You haven’t solved the underlying problem with a new city: you have just moved it on down the road. These new “smart” cities aren’t going to look like the architect’s model. They are going to have a lot of people camping in and around them, looking for jobs.

The second problem is the supply of jobs. Just how many will the smart city manage to offer? As part of its cultural life, Migaa, which is built on over 700 acres of a coffee plantation, will celebrate the rich heritage of that industry with the Coffee Museum, complete with digital displays and a café: a site for agricultural production transformed into a site for consumption and for the deployment of the development strategy known as “pacification by cappuccino”. As Slavoj Žižek notes in The Year of Dreaming Dangerously: “There is a wonderful expression in Persian, war nam nihadan, which means, ‘To murder somebody, bury his body, then grow flowers over the body to conceal it.’”

From its IT systems to the merchandise in its malls, the smart city risks being an import city, closed to local skills and goods, with a reduced capacity to develop or integrate local expertise in the supply chain. As a result, there’s the danger that it will become something close to an iPad city, a mesh of topdown, closed systems, both vulnerable and interdependent, with a deskilled local labour force that’s unable to repair or maintain it.

The smart city becomes a city that is only as good as its software, built for obsolescence. The impact of new cities such as Angola’s Kilamba, or China’s deserted Tianducheng (with its 108-metre-high “Eiffel Tower” and replica Champs-Élysées), is to create the throwaway city.

The third problem is what J K Galbraith called “the massive onslaught of circumstance”. Food price rises, which have already resulted in events from the tortilla riots in Mexico to the self-immolation of Mohamed Bouazizi in Tunisia, have been shown to have a direct link to civic unrest. As Henk- Jan Brinkman and Cullen S Hendrix wrote in a report for the World Food Programme: “Food insecurity, especially when caused by higher food prices, heightens the risk of democratic breakdown, civil conflict, protest, rioting and communal conflict.”

If the predictions of climate-change-driven drought and impacts on crop prices across eastern and central Africa hold true, the new smart city is facing a complex external environment, with several specific threats to the boundary wall: more people with more mouths to feed, facing higher food prices, with fewer jobs to help them afford it.

As a point of reference, it was in the Lower Shabelle area of Somalia – where drought struck and brought child mortality of 10 per cent – that the Islamist terrorist group al- Shabaab gained control. Resilience, the capacity to adapt and heal, not the opposite, is what the 21st-century city will need.

Done right, the smart city has the potential to provide affordable housing and construction jobs and help incubate a next generation of start-ups. Done badly, it’s a different story and has the potential to leave us with three problems: a broken countryside, swamped megacities and non-resilient new satellite cities.

In 2011, there were 23 urban agglomerations that qualified as megacities, which means that they had populations exceeding ten million inhabitants. By 2025, there are expected to be as many as 37 megacities. The challenge for Nairobi and all of these cities is a defining challenge for societal well-being in the years to 2050.

Is there another option, beyond the smart city, that might work? In Erik Hersman’s photograph, taken 60 kilometres outside Nairobi in the Savannah at the construction site for Konza, the contours of two potentially dystopian cities of the future can be seen. The first, implied in the deserted fields, is the decreasingly resilient megacity, the swamped “petropolis” of Nairobi. The second city, Konza, advertised on the billboard, is what is currently on track to be its replacement, the new smart city, “cyburbia”, the gleaming citadel, censored and sensored. This is the eco-city as escapist urbanism.

I s there a third city, beyond the dyad of old Nairobi and its glimmering cyburb of Konza? Is there a city where technology helps us not escape but address the looming crisis of rural African poverty? Is there a city where we could thrive?

“The fields,” said the poet Ben Okri, “are sprouting strange new mushrooms.”

The group standing in front of the perimeter gate are members of Nairobi’s iHub, part of a network of self-organising groups that now run 16 innovation spaces across the city. From the iHub to M:Lab, Nailab and 88mph, an alternative approach is forming, deploying technology not to escape the problems of distressed migration but to tackle the root causes.

M-Kopa, the brainchild of Nick Hughes, one of the founders of the mobile money transfer system M-Pesa, is an example. Across the globe, there are as many as 1.5 billion people without access to power, spending 40 to 70 per cent of their income on kerosene and firewood, with two million deaths a year from smoke inhalation and 150 million tonnes of carbon released annually.

M-Kopa set out to address these three problems by making solar home-lighting systems affordable and accessible to low-income consumers. In October 2012, M-Kopa partnered with Safaricom to launch the first ever “pay-as-you-go solar solution” using mobile money. M-Kopa takes the d.Light mobile solar light and puts a mobile chip in it. This has a big impact for users. Instead of having to buy the light outright, at a cost far beyond their range, Kenya’s cash-strapped poor can make an initial deposit of $30, then lease it, just like a mobile phone, for around 50 cents a day: less than they would be spending on kerosene or firewood.

Using M-Pesa, the mobile money transfer system, they pay instalments of 40 Kenyan shillings a day for 12 months, about 30 shillings less than the cost of paraffin and charging. In return, they get the M-Kopa system, comprising a base station with a solar panel, three lamps and a charging kit for phones.

And they don’t just get power. Using the chip, they can get micro-insurance, buy fertiliser and make micro-payments for productive equipment such as the KickStart agricultural hand pump, which, at the cost of $34, gives access to the underground water table, tripling the number of crops that local farmers can plant.

They get the basic needs that make it possible to stay out of the slums and succeed as a rural farmer. The essence of the approach is to use technology not to accelerate consumption but, as Ford did with the Model T, to transform productivity within a new group of the population. In one study, exam pass rates went up from 68 to 82 per cent and incomes per head from $160 a year to $1,600. For Mama Felix, it means more hours in the shop, lights for her family, phone-charging and mobile money transfers. It means the chance to move slowly out of poverty.

Does it make business sense? The poorest of the poor spend $36bn a year on kerosene alone. The market for M-Kopa is believed to be $1bn a year in Kenya. It is a market that is the opposite of the sub-prime. It is big, growing and, when you serve it, by raising user productivity and income, you expand it.

M-Kopa is part of a growing movement to use technology for development. Another Kenyan innovation, iCow, is a voice-based application for small-scale dairy farmers. It helps farmers trace the oestrogen cycles of their cows and also gives technical advice on animal nutrition, milk production and gestation. Users of the application have reported an increase in income of 42 per cent, with milk retention increased by 56 per cent. Meanwhile, MFarm, a Kenyan agribusiness company, has partnered with Samsung to launch a new tool that allows subscribing farmers to obtain real-time price information, buy farm inputs and find buyers for their produce.

The MFarm tool was founded by three Kenyan women who met through the iHub in Nairobi. Their idea, facilitated by a group called Akirachix, a community of over 200 tech women, was developed at the M:Lab incubator at Nairobi’s iHub and launched after they won a 48-hour boot-camp event and €10, 000 of investment.

It is early days but a pattern is emerging. “Technology,” says Kentaro Toyama, “is not the answer. It is the amplifier of intent.” As we confront the challenge of urbanisation, we can deploy technology with two different intentions. One is vertical, isolating ourselves in gated smart cities from the crises affecting the poor. The other is horizontal, harnessing technology to empower smart citizens, with the goal of making both the rural and the urban work.

Leo Johnson is the co-author, with Michael Blowfield, of “Turnaround Challenge: Business and the City of the Future” (Oxford University Press, £20). For more information, visit: turnaroundchallenge.org

MILES COLE
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The new Brexit economics

George Osborne’s austerity plan – now abandoned by the Tories – was the most costly macroeconomic policy mistake since the 1930s.

George Osborne is no longer chancellor, sacked by the post-Brexit Prime Minister, Theresa May. Philip Hammond, the new Chancellor, has yet to announce detailed plans but he has indicated that the real economy rather than the deficit is his priority. The senior Conservatives Sajid Javid and Stephen Crabb have advocated substantial increases in public-sector infrastructure investment, noting how cheap it is for the government to borrow. The argument that Osborne and the Conservatives had been making since 2010 – that the priority for macroeconomic policy had to be to reduce the government’s budget deficit – seems to have been brushed aside.

Is there a good economic reason why Brexit in particular should require abandoning austerity economics? I would argue that the Tory obsession with the budget deficit has had very little to do with economics for the past four or five years. Instead, it has been a political ruse with two intentions: to help win elections and to reduce the size of the state. That Britain’s macroeconomic policy was dictated by politics rather than economics was a precursor for the Brexit vote. However, austerity had already begun to reach its political sell-by date, and Brexit marks its end.

To understand why austerity today is opposed by nearly all economists, and to grasp the partial nature of any Conservative rethink, it is important to know why it began and how it evolved. By 2010 the biggest recession since the Second World War had led to rapid increases in government budget deficits around the world. It is inevitable that deficits (the difference between government spending and tax receipts) increase in a recession, because taxes fall as incomes fall, but government spending rises further because benefit payments increase with rising unemployment. We experienced record deficits in 2010 simply because the recession was unusually severe.

In 2009 governments had raised spending and cut taxes in an effort to moderate the recession. This was done because the macroeconomic stabilisation tool of choice, nominal short-term interest rates, had become impotent once these rates hit their lower bound near zero. Keynes described the same situation in the 1930s as a liquidity trap, but most economists today use a more straightforward description: the problem of the zero lower bound (ZLB). Cutting rates below this lower bound might not stimulate demand because people could avoid them by holding cash. The textbook response to the problem is to use fiscal policy to stimulate the economy, which involves raising spending and cutting taxes. Most studies suggest that the recession would have been even worse without this expansionary fiscal policy in 2009.

Fiscal stimulus changed to fiscal contraction, more popularly known as austerity, in most of the major economies in 2010, but the reasons for this change varied from country to country. George Osborne used three different arguments to justify substantial spending cuts and tax increases before and after the coalition government was formed. The first was that unconventional monetary policy (quantitative easing, or QE) could replace the role of lower interest rates in stimulating the economy. As QE was completely untested, this was wishful thinking: the Bank of England was bound to act cautiously, because it had no idea what impact QE would have. The second was that a fiscal policy contraction would in fact expand the economy because it would inspire consumer and business confidence. This idea, disputed by most economists at the time, has now lost all credibility.

***

The third reason for trying to cut the deficit was that the financial markets would not buy government debt without it. At first, this rationale seemed to be confirmed by events as the eurozone crisis developed, and so it became the main justification for the policy. However, by 2012 it was becoming clear to many economists that the debt crisis in Ireland, Portugal and Spain was peculiar to the eurozone, and in particular to the failure of the European Central Bank (ECB) to act as a lender of last resort, buying government debt when the market failed to.

In September 2012 the ECB changed its policy and the eurozone crisis beyond Greece came to an end. This was the main reason why renewed problems in Greece last year did not lead to any contagion in the markets. Yet it is not something that the ECB will admit, because it places responsibility for the crisis at its door.

By 2012 two other things had also become clear to economists. First, governments outside the eurozone were having no problems selling their debt, as interest rates on this reached record lows. There was an obvious reason why this should be so: with central banks buying large quantities of government debt as a result of QE, there was absolutely no chance that governments would default. Nor have I ever seen any evidence that there was any likelihood of a UK debt funding crisis in 2010, beyond the irrelevant warnings of those “close to the markets”. Second, the austerity policy had done considerable harm. In macroeconomic terms the recovery from recession had been derailed. With the help of analysis from the Office for Budget Responsibility, I calculated that the GDP lost as a result of austerity implied an average cost for each UK household of at least £4,000.

Following these events, the number of academic economists who supported austerity became very small (they had always been a minority). How much of the UK deficit was cyclical or structural was irrelevant: at the ZLB, fiscal policy should stimulate, and the deficit should be dealt with once the recession was over.

Yet you would not know this from the public debate. Osborne continued to insist that deficit reduction be a priority, and his belief seemed to have become hard-wired into nearly all media discussion. So perverse was this for standard macroeconomics that I christened it “mediamacro”: the reduction of macroeconomics to the logic of household finance. Even parts of the Labour Party seemed to be succumbing to a mediamacro view, until the fiscal credibility rule introduced in March by the shadow chancellor, John McDonnell. (This included an explicit knockout from the deficit target if interest rates hit the ZLB, allowing fiscal policy to focus on recovering from recession.)

It is obvious why a focus on the deficit was politically attractive for Osborne. After 2010 the coalition government adopted the mantra that the deficit had been caused by the previous Labour government’s profligacy, even though it was almost entirely a consequence of the recession. The Tories were “clearing up the mess Labour left”, and so austerity could be blamed on their predecessors. Labour foolishly decided not to challenge this myth, and so it became what could be termed a “politicised truth”. It allowed the media to say that Osborne was more competent at running the economy than his predecessors. Much of the public, hearing only mediamacro, agreed.

An obsession with cutting the deficit was attractive to the Tories, as it helped them to appear competent. It also enabled them to achieve their ideological goal of shrinking the state. I have described this elsewhere as “deficit deceit”: using manufactured fear about the deficit to achieve otherwise unpopular reductions in public spending.

The UK recovery from the 2008/2009 recession was the weakest on record. Although employment showed strong growth from 2013, this may have owed much to an unprecedented decline in real wages and stagnant productivity growth. By the main metrics by which economists judge the success of an economy, the period of the coalition government looked very poor. Many economists tried to point this out during the 2015 election but they were largely ignored. When a survey of macroeconomists showed that most thought austerity had been harmful, the broadcast media found letters from business leaders supporting the Conservative position more newsworthy.

***

In my view, mediamacro and its focus on the deficit played an important role in winning the Conservatives the 2015 general election. I believe Osborne thought so, too, and so he ­decided to try to repeat his success. Although the level of government debt was close to being stabilised, he decided to embark on a further period of fiscal consolidation so that he could achieve a budget surplus.

Osborne’s austerity plans after 2015 were different from what happened in 2010 for a number of reasons. First, while 2010 austerity also occurred in the US and the eurozone, 2015 austerity was largely a UK affair. Second, by 2015 the Bank of England had decided that interest rates could go lower than their current level if need be. We are therefore no longer at the ZLB and, in theory, the impact of fiscal consolidation on demand could be offset by reducing interest rates, as long as no adverse shocks hit the economy. The argument against fiscal consolidation was rather that it increased the vulnerability of the economy if a negative shock occurred. As we have seen, Brexit is just this kind of shock.

In this respect, abandoning Osborne’s surplus target makes sense. However, there were many other strong arguments against going for surplus. The strongest of these was the case for additional public-sector investment at a time when interest rates were extremely low. Osborne loved appearing in the media wearing a hard hat and talked the talk on investment, but in reality his fiscal plans involved a steadily decreasing share of public investment in GDP. Labour’s fiscal rules, like those of the coalition government, have targeted the deficit excluding public investment, precisely so that investment could increase when the circumstances were right. In 2015 the circumstances were as right as they can be. The Organisation for Economic Co-operation and Development, the International Monetary Fund and pretty well every economist agreed.

Brexit only reinforces this argument. Yet Brexit will also almost certainly worsen the deficit. This is why the recent acceptance by the Tories that public-sector investment should rise is significant. They may have ­decided that they have got all they could hope to achieve from deficit deceit, and that now is the time to focus on the real needs of the economy, given the short- and medium-term drag on growth caused by Brexit.

It is also worth noting that although the Conservatives have, in effect, disowned Osborne’s 2015 austerity, they still insist their 2010 policy was correct. This partial change of heart is little comfort to those of us who have been arguing against austerity for the past six years. In 2015 the Conservatives persuaded voters that electing Ed Miliband as prime minister and Ed Balls as chancellor was taking a big risk with the economy. What it would have meant, in fact, is that we would already be getting the public investment the Conservatives are now calling for, and we would have avoided both the uncertainty before the EU referendum and Brexit itself.

Many economists before the 2015 election said the same thing, but they made no impact on mediamacro. The number of economists who supported Osborne’s new fiscal charter was vanishingly small but it seemed to matter not one bit. This suggests that if a leading political party wants to ignore mainstream economics and academic economists in favour of simplistic ideas, it can get away with doing so.

As I wrote in March, the failure of debate made me very concerned about the outcome of the EU referendum. Economists were as united as they ever are that Brexit would involve significant economic costs, and the scale of these costs is probably greater than the average loss due to austerity, simply because they are repeated year after year. Yet our warnings were easily deflected with the slogan “Project Fear”, borrowed from the SNP’s nickname for the No campaign in the 2014 Scottish referendum.

It remains unclear whether economists’ warnings were ignored because they were never heard fully or because they were not trusted, but in either case economics as a profession needs to think seriously about what it can do to make itself more relevant. We do not want economics in the UK to change from being called the dismal science to becoming the “I told you so” science.

Some things will not change following the Brexit vote. Mediamacro will go on obsessing about the deficit, and the Conservatives will go on wanting to cut many parts of government expenditure so that they can cut taxes. But the signs are that deficit deceit, creating an imperative that budget deficits must be cut as a pretext for reducing the size of the state, has come to an end in the UK. It will go down in history as probably the most costly macroeconomic policy mistake since the 1930s, causing a great deal of misery to many people’s lives.

Simon Wren-Lewis is a professor of economic policy at the Blavatnik School of Government, University of Oxford. He blogs at: mainlymacro.blogspot.com

 Simon Wren-Lewis is is Professor of Economic Policy in the Blavatnik School of Government at Oxford University, and a fellow of Merton College. He blogs at mainlymacro.

This article first appeared in the 21 July 2016 issue of the New Statesman, The English Revolt