The Why and How of Cities Worldwide Competing in a Race to Attract Investments

The Global Race Between Cities for Investments

Cities worldwide are in a global race for investments and this is being driven by economic, political, demographic, and social reasons.

Considering the fact that the future of the world would be urban and cities would be the engines of the global economy, it is not surprising that what we are witnessing is competition between cities in addition to competition between nations.

Indeed, even the competition between nations has the subtext of cities within them competing with other cities in the same country as well as cities in competition between other cities in other countries. What this means is that we are increasingly moving towards a model where cities would define living and working in the years to come.

The Case of Amazon

Recently the United States based Online Retailer, Amazon, announced that it was looking to build a second headquarters, and hence, invited bids from interested cities for the same.

The results were stunning as more than Seven Hundred applications were received by Amazon and the bids from the cities included several sops and concessions as well as tax breaks and incentives and subsidies.

Indeed, while this indicates a global race for investments between cities worldwide, it is not entirely surprising when one considers the fact that such cities have to attract investments for their very survival.

Demographic Reasons

For instance, urbanization is progressing at an exponential pace which means that the populations of cities worldwide are exploding due to the migration of people from poorer regions as well as due to expatriates from other countries.

This creates stresses and strains on the infrastructure of the cities in addition to requiring them to create job or risk social unrest.

So, the only way in which cities worldwide can hope to thrive or indeed, survive, is by attracting investments which would create direct and indirect employment.

The fact that global corporations such as Amazon create direct employment to people in the tens of thousands and more importantly, generate Millions of jobs indirectly due to the Multiplier effect is an incentive for the cities to woo and even offer unbelievable concessions to such firms.

Economic Reasons

Apart from this, cities worldwide are also in a race to attract investments due to the financial and economic reasons that include the objectives mentioned above as well as due to the potential to generate taxes and other sources of revenue.

For instance, when a global corporation locates its offices in a particular city, it directly employs people in the thousands and even tens of thousands. Such employment also results in indirect employment wherein the employees have to be housed as well as transported which means that jobs in the construction and transport sectors are created.

In addition, such people who are employed in the global firms spend on food, clothing, and entertainment which again lead to direct and indirect jobs as well as revenues for these sectors and the cities in general.

The Multiplier Effect

There is a term called the Multiplier that is at work here. This term is used to refer to the potential for multiplying the benefits from the direct gains which results in doubling or tripling of the indirect gains.

Thus, when a firm such as Amazon sets up its offices, it creates a chain effect wherein other firms as well as suppliers, vendors, and contractors thrive in the process thereby leading to gains all around.

This is the economic and financial rationale for the why of the cities attracting investments.

Political Reasons

Apart from this, there are political reasons as well which can be seen in the way in which local and regional politicians are often reelected on the basis of how much the cities have prospered under their watch and how well the people have benefited from the process.

Thus, one can see some Chief Ministers and other Regional Satraps at Global gatherings such as the World Economic Forum in Davos wooing the investors and vying with each other to make them invest in their cities.

Indeed, savvy regional and local politicians have become the norm rather than the exception due to globalization and the economic and financial benefits accruing from investments.

Social Reasons

A key driver for cities worldwide to attract global firms is also the social benefits of doing so. For instance, apart from the migrants, the so-called natives or locals also benefit from such investments by global firms and this creates opportunities for those political and regional stakeholders whose base is comprised of local residents and native populations.

While at times, this can lead to social tensions between the migrants and locals, when managed properly; it can bring all round prosperity that can create value for everyone.

Indeed, the fact that social tensions can be mitigated by expanding the “pie of opportunities” is an important driver behind the race for investments.

The Sheer Necessity of Survival

Lastly, it is indeed the case that for the reasons discussed so far, it is imperative and even necessary for cities to compete with each other for investments as otherwise, and their very survival would be at stake.

In addition, the fact that the future of the world would be urban means that there is an urgency and even desperation among the cities to attract investments due to the sheer threat of the cities collapsing in the absence of the “Oxygen of investments”.

To conclude, it is n longer the case that attracting investments by cities is a luxury and as this article explained, it is a dire necessity as well.

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