Monday, April 23, 2012

U.S. Cities Continue to Drive Global Economic Growth, Innovation, According to Reports

Despite the attention given to emerging metropolises in the developing world, large U.S. cities will continue to power the global economy over the next 15 years, according to a new report. McKinsey and Company examined the economic performance of the 259 "large" U.S. cities, cities with populations of 150,000 or more. In 2010, these cities generated almost 85 percent of U.S. gross domestic product (GDP), making large cities more important to the U.S. economy than in Asia, Latin America or Western Europe. A separate recent effort to breakdown the qualities of successful entrepreneurial cities ranked eight U.S. metro areas among the top 25 global startup ecosystems.

Two U.S. cities, New York and Los Angeles, rank in the elite tier of cities with more than 10 million inhabitants. Accordingly, these cities contribute greatly to U.S. GDP. However, the U.S. mega cities do not seem to be decisive in the importance of cities in the U.S. economy. Instead, the remaining 257 large cities are the focus of the McKinsey report, which observes that these cities dominate the U.S. economy because they represent an inordinately high percentage of the U.S. population (80 percent) and have a significantly higher GDP than smaller cities and rural areas. The ability of these cities to compete at a global level will be key to American competitiveness through 2025, according to the report.

While individually the 257 "middleweight" large U.S. cities have had uneven and disparate paths over the past few decades, in aggregate they represent a remarkably diverse and robust set of regional economies. Differences in the growth patterns of cities seems to suggest that there is no single path to economic success, but the authors argue that local leaders are best positioned to create strategies at the regional level that can help cities find the unique mix of industries and collaborations that foster economic growth. They suggest that, because of the country's unprecedented reliance on large cities, the federal government find more opportunities to collaborate with regional partners in its economic development initiatives.

Another McKinsey report last year estimated that 2 billion people, a quarter of the global population, would live in the world's 600 largest cities in 2025. Today, only about 1.5 billion people (22 percent of the global population) live in these cities. In 2025, about 60 percent of global GDP will derive from the top 600 urban economies. McKinsey plans to issue an update of the Urban World report in the next few months.

A new index and research initiative is attempting to break down the various factors that turn a large city into a thriving bastion of new ideas, entrepreneurs and companies. The Startup Genome Project outlined 22 factors that set strong startup ecosystems apart from other cities, and that have positioned some regions at the forefront of innovation for decades. By identifying these factors, the project is attempting to distill the unique blend of strengths that give each of these ecosystems their character.

In a recent blog post, researchers began by laying out the top 22 global startup regions and the 22 factors. The top five startup ecosystems include Silicon Valley (San Francisco, Palo Alto, San Jose and Oakland), New York City, London, Toronto and Tel Aviv. Los Angeles is ranked sixth. Other U.S. cities on the list include Seattle, Chicago, Boston, Austin and Washington D.C.. Some of the factors include risk profile, product types and market types.

By combining these two lists and examining the factors at work in each city, the researchers are identifying why and how these cities succeed. For example, Silicon Valley stands out for its extremely high startup throughput, its plentiful early stage funding and its high risk entrepreneurs. New York entrepreneurs are also high risk, but more diverse and tend to focus on niche markets.

The Startup Genome Project plans to continue collecting data on the top 25 and other startup ecosystems, releasing regular mini reports on this phenomenon, and eventually a more comprehensive report on their work.

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