(PCC) Program on Chinese Cities – Thoughts on Overseas Travels Series
Authors: Xiaohe Ma,
Researcher, Former Vice Dean at the Macroeconomic Research Institute, Development and Reform Commission of China, and visiting scholar in the Department of Regional and City Planning at the University of North Carolina.
From 1860 to 1913, the total economic output and per capita GDP of the United States surpassed those of the UK, positioning it as the world’s foremost economic power for over a century, an unshakable position[1]. Here, the author observes and studies the economic and social structural changes in America from the perspectives of urbanization and economic growth, seeking insights applicable to China.
1. The Second Industrial Revolution was the catalyst for America’s emergence
The Industrial Revolution, which began in the 1760s, allowed Britain to industrialize earlier and become the world’s economic powerhouse from the mid-19th to the early 20th century. However, as British industrial products continuously flowed to the rest of the world, the U.S. also entered a period of modern economic growth, beginning to catch up with and eventually surpass Britain. Indeed, following Britain’s Industrial Revolution, U.S. economic growth accelerated from the 1820s, with annual GDP growth from 1820 to 1870 at 4.2%, compared to Britain’s 2.05%; from 1870 to 1913, U.S. GDP grew annually by 3.94%, compared to Britain’s 1.9%; from 1913 to 1950, the U.S. GDP grew annually by 2.84%, with Britain at 1.19% (Table 1).
In 1820, the U.S. per capita GDP was only 73.6% of Britain’s; by 1870 it had risen to 76.6%; and by 1913, the U.S. per capita GDP exceeded Britain, at 1.08 times Britain’s level (Table 2).
The U.S. GDP in 1820 (calculated in 1990 international dollars) was only 34.6% of Britain’s; by 1913, it had reached 1.08 times that of Britain. By 1920, the U.S. GDP had reached $88.393 billion, over four times that of Britain (Table 3)【Based on economic growth data released by the U.S. Department of Commerce in January 2016 and statistical data released by the UK’s National Statistics in February 2018, the U.S. GDP in 1870, both in total and per capita, had surpassed that of the UK. In that year, the U.S. GDP was $7.737 billion compared to the UK’s $5.935 billion; the U.S. per capita GDP was $194, compared to the UK’s $190】.
From Table 3, it can be seen that from 1820 to 1900, the U.S. economy experienced a period of rapid growth, the sustained high growth laying the foundation for surpassing Britain to become a global superpower. By 2015, the U.S. GDP had reached $17.94 trillion, 6.21 times that of Britain, with a per capita GDP of $55,781, 1.26 times that of Britain’s. After surpassing Britain to become the world leader, no other economy has overtaken the U.S. for more than a century.
Industrialization and urbanization were the two main pillars supporting America’s rise and dominance. Initially, industrialization drove urbanization, which in turn further promoted industrialization. From the economic growth process in the U.S., before 1820, the U.S. was still an agrarian society with 90% of the population living in rural areas, where agriculture dominated the industrial structure, resulting in a very low national GDP growth rate. According to statistics, from 1500 to 1820, the U.S. national GDP grew annually by only 0.8%. After 1820, the U.S. economy began to accelerate, and the 100 years from 1820 to 1920 were when the U.S. overtook Britain and rose to prominence on the world stage. However, the critical period for America’s rise to become a world power was from 1870 to 1920, during the second industrial revolution, marked by the discovery and widespread application of electricity. Industries such as textiles, agricultural processing, mining, oil and electricity, chemicals, steel, construction, electrical appliances, automobiles, and machinery manufacturing in the U.S. developed rapidly, and industrialization progressed quickly. In 1859, agriculture still accounted for 56% of U.S. industrial output, manufacturing 33%, and services 11%; by 1890, U.S. industrial output had begun to surpass agriculture; by 1899, agriculture’s share in the industrial structure had dropped to 33%, manufacturing rose to 53%, and services to 14%. During this stage, the dominant industry promoting rapid economic growth in the U.S. was manufacturing. In 1860, U.S. industrial output was fourth in the world; by 1894, it had jumped to first. By 1913, U.S. manufacturing output had rapidly increased from 0.8% of the world’s total in 1800 to 32%, while British manufacturing output had decreased from 23% in 1880 to 13.6% in 1913. Also in 1913, U.S. industrial output in coal, pig iron, steel, automobiles, and electricity generation was all first in the world.
2. The fastest period of economic growth coincided with rapid urbanization
The rapid development of U.S. manufacturing and the rapid progress of industrialization also accelerated urbanization. Unlike agricultural development, industrial, especially manufacturing, development requires the geographical concentration of capital, labor, land, energy, and other resource elements. The geographical concentration of these resources inevitably leads to population agglomeration, which in turn promotes urbanization. At that time, one of the most dynamic factors contributing to America’s successful economic growth was the transfer of labor. On one hand, a large number of rural laborers moved from agriculture to industry, especially to the manufacturing sector; on the other hand, tens of thousands of immigrants came to the U.S., directly entering the manufacturing sector. Here are two sets of data to illustrate the point: in 1820, the U.S. workforce’s employment share in agriculture was as high as 70%, with only 30% employed in industry and services; by 1890, the agricultural sector’s employment share had dropped to 38%, with the industrial and service sectors’ employment share rising to 62%; by 1910, the industrial and service sectors’ employment share had further increased to 82.9%, while the agricultural sector’s employment share had dropped to 17.1%. Another set of data shows that tens of thousands of immigrants supported the development of U.S. manufacturing. From 1840 to 1914, 24 million immigrants came to the U.S., a significant number of whom directly entered the manufacturing sector; by 1920, over half of U.S. manufacturing workers were immigrants and their descendants.
A large influx of labor into the manufacturing sector brought about population concentration in space, greatly promoting American urbanization. U.S. urbanization is highly correlated with industrialization. Before 1820, with agriculture dominating, the U.S. economy grew very slowly, and urbanization progressed slowly. From 1790 to 1820, the U.S. economy grew annually by about 0.8%, during which the urban population’s share of the total population only rose from 5.1% to 7.2%, an increase of only 2.1 percentage points over 30 years; after 1820, with the accelerated transformation of the industrial structure, the economic growth rate significantly increased, and urbanization made new progress. By 1870, the share of the U.S. urban population had risen to 25.7%, an increase of 18.5 percentage points over 50 years, an annual increase of 0.37 percentage points. After 1870, the second industrial revolution occurred, and the U.S. took the opportunity to develop into a manufacturing powerhouse, leaping to first in the world in economic size. This period was also precisely when U.S. urbanization developed the fastest; from 1870 to 1920, the share of the U.S. urban population increased from 25.7% to 51.2%, with the urban population beginning to exceed the rural population; during these 50 years, the U.S. urbanization rate increased by 25.5 percentage points, an average annual increase of 0.51 percentage points.
After completing industrialization and becoming a developed economy, the U.S. urbanization process did not stop but slowed down. From 1920 to 1970, the U.S. urbanization rate increased from 51.2% to 73.6%, a 22.4 percentage point increase in urbanization level over 50 years, an average annual increase of 0.448 percentage points. From 1970 to 2017, the U.S. urbanization rate further increased to 82.06%, with the urbanization level increasing by 8.46 percentage points during this period, an average annual increase of 0.18 percentage points (Table 4).
3. Characteristics of U.S. Urbanization
Urbanization is an inevitable process for a country moving toward modernization. Urbanization not only promotes the transformation of industrial structures but more importantly, fosters a civic society and builds an olive-shaped social structure dominated by the middle class. For an economy, the urbanization process has both commonalities with other economies and unique characteristics. In the case of the U.S., its urbanization has the following features.
(1) U.S. urbanization is highly coordinated with industrialization
U.S. urbanization is neither like the excessively advanced urbanization of some Latin American countries nor the delayed urbanization of some Asian countries. U.S. urbanization follows industrialization under the leadership of a free market economy and synchronizes with each stage of industrial transformation to promote population aggregation in towns. In the process of industrialization, the flow of capital, labor, and land to manufacturing promotes population agglomeration, which in turn advances urbanization, and urbanization supports industrialization; when industrialization ends, urbanization is also essentially complete. Urbanization is highly related to industrial transformation and economic development, reflecting the coordination between U.S. urbanization and industrialization. In a traditional agrarian society, urbanization progresses slowly; when manufacturing dominates economic development, urbanization accelerates; when the output share of services exceeds manufacturing and becomes the leading industry of economic growth, the level of urbanization is relatively high. The U.S. urbanization process shows a pattern of slow to fast and then from fast to slow. After the U.S. had become a developed economy, the increase in urban population share slowed down, but the growth of urban population did not stop.
We can also see the dynamic relationship between U.S. urbanization and industrialization from another angle. From Table 5, it can be seen that in all years, the U.S. per capita GDP is significantly higher than the average level of high-income countries, but the urbanization rate is close to the average value of high-income countries. Conversely, in upper-middle-income countries, Brazil’s per capita GDP is also higher than the average of similar countries, but Brazil’s urbanization rate not only far exceeds the average of similar countries but also surpassed the urbanization rate of high-income countries in the 1990s.
(2) From the early development of small towns to large cities, then to urban agglomerations (belts), later advocating “smart growth” for cities
Data in Table 6 shows that in the early stages of economic development, U.S. small towns developed quickly, with larger cities developing only after the 1850s. For example, in 1790, there were 22 U.S. cities with populations of 2,500 to 24,999, accounting for a total of 68.6% of the entire U.S. urban population; cities with populations of 25,000 to 249,999 had only 2, accounting for only 31.4% of the urban population; there were no cities with a population of 250,000. By 1920, the number of cities with populations of 2,500 to 24,999 had grown to 2,435, with their total population share of the national urban population dropping to 30.27%; cities with populations of 25,000 to 249,999 had grown to 262, with a population share of 31.3% of the urban population; cities with populations over 250,000 had grown to 25, with a population share of 38.5%. That is, by 1920, 69.8% of the national urban population was concentrated in cities with populations of over 25,000. Since the 1920s, when the share of U.S. urban population exceeded that of rural population, the number of large cities further increased, and the size of large cities further expanded; by 2017, there were 53 U.S. cities with populations over one million.
After World War II, with improvements in transportation roads, communications, and other infrastructure, as well as an increase in household car ownership and adjustments to the industrial structure of urban areas, a new urban development pattern emerged. A large influx of low-income populations into urban areas prompted some wealthy and middle-class residents originally living in urban areas to move to suburban areas of large cities. The concentration of populations in suburbs and the relocation of manufacturing brought about a robust demand for construction and commercial services, causing changes in the spatial layout of industrial structures. Consequently, small towns around large cities developed randomly. The development of small and medium-sized towns around large cities is essentially a further extension and expansion of urban functions because these small towns are closely connected with large cities in terms of industrial structure, infrastructure, and public services. The shift of urban populations to suburbs promoted the extension of urban functions, further expanding urban size, and forming several urban agglomerations (belts). Currently, there are several large metropolitan agglomerations (belts) in the U.S., distributed along the East and West Coasts and the Great Lakes area. It is worth noting that these changes occurred when the U.S. urbanization rate rose from 60% to 75%, during which the population density in inner cities of large cities decreased, while the population density in suburbs increased. In the 1990s, facing urban expansion and “sprawl,” various sectors of American society reached a consensus to support “smart growth” for cities, including protecting urban open spaces, setting development boundaries, developing compact cities, promoting green transportation, coordinating regional planning, implementing resource-sharing measures, etc. The Clinton administration even allocated substantial special funds to encourage and support local governments to implement “smart growth” for cities[6].
(3) Balanced development of infrastructure and public services is a necessary condition for urbanization development
In the process of advancing urbanization, the U.S. system does not restrict population mobility, and thus the balanced development of infrastructure and public services plays a key role in facilitating population movement. The U.S., known as the “nation on wheels,” vigorously built a railway network, constructed a large number of highways, and continuously improved urban roads, water supply and drainage, electricity, and communication networks, which can both increase the population carrying capacity of cities and reduce the cost of population movement. At the same time, the construction of infrastructure and provision of public services in the U.S. show almost no difference between regions, cities, and urban-rural areas, which also provides convenient conditions for balanced urban development.
It is noteworthy that a sound social security system, providing housing, medical care, education, employment, and other guarantees for low-income groups and mobile populations, also facilitates population movement and urban settlement. For example, during the 1930s-1940s, the government built 22 million units of low-cost apartments for low-income residents. To address the shortage of urban housing, the federal government also provided loans to local governments to construct low-rent housing, offering credit guarantees and financial subsidies for housing purchases for disadvantaged groups. Furthermore, in the early stages of urbanization, the government invested in education to help urban residents improve their cultural levels and enhance their employability. As early as the 1850s, the northern states in the U.S. had implemented free education for elementary and secondary education. In the late 19th century, the U.S. began establishing free education for all, and in the mid-1960s, the U.S. introduced the Elementary and Secondary Education Act and the Higher Education Act, providing substantial government assistance to low-income groups and underdeveloped areas. At the same time, the government also supported private education through tax incentives and other policies.
Additionally, in the early stages of urbanization, the government constructed large-scale projects to increase urban employment opportunities, helping low-income groups and mobile populations find jobs. For example, from 1929 to 1933, facing the Great Depression, the Roosevelt administration implemented a series of large construction projects, including transforming central cities and ports, renovating slums, initiating housing construction, etc., creating millions of jobs.
It is particularly important to emphasize a series of institutional arrangements when the urbanization rate exceeded 50%. In 1935, the U.S. government enacted the Social Security Act; after the urbanization rate exceeded 70%, the Food Stamp Act was announced in 1964, and the Medicare Act was implemented in 1965. The establishment and continuous improvement of these protection systems also provided a robust social safety net for urban vulnerable groups, creating basic institutional conditions for population mobility and urbanization advancement.
4. Lessons from U.S. Urbanization for China
Through comparative research on U.S. urbanization, it is found that both now and in the future, China’s rise requires not only industrialization but also new urbanization. Advancing urbanization needs to focus on solving the following issues.
(1) Seriously address the issues of uncoordinated urbanization and industrialization, and lagging urbanization development
From the level of economic development, China’s actual per capita GDP has reached $9,377, the level of a typical upper-middle-income country. However, as of 2017, the average urbanization rate of upper-middle-income countries had reached 65.45%, while China’s permanent resident urbanization rate was 58.52%, and by household registration population, only 42.35%. No matter which measure is used, China’s urbanization rate is clearly low. Even just from the perspective of addressing China’s current economic structural imbalances, China should accelerate urbanization. Advancing urbanization first requires breaking through institutional bottlenecks. On one hand, the urban-rural dual household registration system and its associated social welfare system that restrict population movement should be abolished as soon as possible, especially in all cities (towns) outside megacities, which should quickly relax conditions for outsiders to settle. On the other hand, accelerate the establishment of a public cost-sharing mechanism for the urbanization of agricultural transfer populations to reduce the cost of farmers moving to cities.
(2) Accelerate solving the problem of imbalances in infrastructure and public services between regions, urban and rural areas, and towns
Another major obstacle to China’s urbanization is the huge gap in infrastructure construction and public services between different regions, cities, towns, and rural areas under the existing fiscal and tax system arrangements. For example, in some towns in the eastern coastal areas, the standards of infrastructure construction for roads, water, electricity, gas, and networks almost exceed those of developed countries, but the infrastructure level of some towns in the central and western regions is still quite backward, especially the gap between rural and urban areas is even greater, with some rural areas still facing difficulties in walking, using electricity, using water, and affording medical care, among other issues. Farmers still enjoy policy benefits in medical care, pensions, education, employment, and poverty relief at a “broad coverage, low level” stage. China’s economic development level has already entered the ranks of upper-middle-income countries, and the next step is to advance toward developed economies. Farmers, mobile populations, and residents of underdeveloped areas should enjoy public services commensurate with the level of economic development. The central government should allocate necessary public resources to eliminate the gap in infrastructure and public services between regions, urban and rural areas, and towns, which is conducive to promoting people-centered new urbanization.
(3) For resource-scarce China, the best choice is to initiate an early “smart growth” plan for towns
In 1998, when China’s per capita GDP reached the World Bank’s lower-middle-income country standard, the government, in response to the Asian financial crisis, supported urbanization, which was still less than 35%, with investment-driven and government-led support for the primary land market. Since then, many cities have purchased large amounts of land at low prices, relying on old city renovation and new city development, widening roads, expanding urban squares, creating city parks, constructing industrial parks, planning and constructing city landmarks, etc., expanding city boundaries in a “pancake” style, resulting in land urbanization far outpacing population urbanization. However, like Japan and South Korea, China is also an East Asian country with a large population, scarce resources, and high ecological pressure. Blindly promoting “pancake” style urban expansion will lead to a massive waste of land resources and environmental disasters. In the future, the government should support local implementation of “smart growth” plans for towns, scientifically plan urban spaces, set urban development boundaries, promote green public transportation, implement resource-saving sharing actions, and focus on the urbanization of agricultural transfer populations to develop compact urbanization.