Future thrills

The worlds urban population is now about 3.3 billion, and is expected to rise to about 5.3 billion in 2040. The proportion of urban-dwellers is about 45-55%, and there seems to be no reason to be pessimistic about this. 

The World Bank in its Wold Development Report argues that this has wast economic advantages. It is also connected to rising standards of living and better efficiency in agriculture and manufacturing. Gradually the standard in the cities and in the countryside will converge as they both become more efficient. This process has taken place before in western cities, and are now progressing to cities in many developing countries. 

Cities are created as a consequence of trade. Market towns trade agricultural produce, secondary cities produce and trade industrial goods, big cities design, make and sell everything, including services. Examples are the new big cities in China.

This has been made possible by cheap transport which has made possible a flow of intermediate products and clustering of skills. Consumers flock to the places where assembled products can be bought, together with financial services. People are migrating to economic opportunity!

Countries without big cities may fall outside this development. Urbanization should be encouraged and there should be no pockets of trapped people. Therefore let cities grow by developing markets and improve infrastucture. Advanced cities must spend money on waste and crime to keep up the positive effects. 

see link: http://www.worldbank.org/wdr2009

Paul Krugman has shown the effects of economies of scale on trade patterns and on the location of economic activity.

How are we affected by globalization? What are the effects of free trade? Why do increasing numbers of people flock to large cities, while rural areas become depopulated?

In the context of both foreign trade and economic geography the objective is to explain what goods are produced where. Theories of economic geography also attempt to specify the forces whereby labor and capital become located in certain places and not others. Foreign trade is based on differences among countries: technology, labor, capital, but at the same time intra-industry trade has expanded. Krugman introduced an entirely new theory of international trade. It was intended to explain the occurrence of intra-industry trade and was based on an assumption of economies of scale whereby mass production diminishes the cost per unit produced.

Consumers appreciate diversity in their consumption and we see a growing number of brands. It seems as if we opt for diversity and variation in our consumption.

According to this model, each producer, working under increasing returns to scale, becomes more or less a monopolist in terms of his own brand, even though he is subject to sharp competition from other brands.

Such a model can be used to show that foreign trade will arise not only between countries which are different, but also between countries which are identical in terms of access to technology and factor endowments. Moreover, it can be demonstrated that extensive intra-industry trade will occur. In fact, it becomes advantageous for a country to specialize in manufacturing a specific car, and to produce it for the world market, while another country specializes in a different brand of car. This allows each country to take effective advantage of economies of scale, thereby implying that consumers worldwide will benefit from greater welfare due to lower prices and greater product diversity, as compared to a situation where each country produces solely for its own domestic market, without international trade.

Economic geography deals not only with what goods are produced where, but also with the distribution of capital and labor over countries and regions.

A comprehensive theory of location of labor and firms is developed. Krugman assumes that although trade is possible, it is obstructed due to transport costs. But otherwise, labor is free to move to the country or region which can offer the highest welfare, in terms of real wages and diversity of goods. Firms’ location decisions imply a trade-off between utilizing economies of scale and saving on transport costs.

This was evolved into the so-called core-periphery model, which shows that the relation between economies of scale and transport costs can result in either concentration or decentralization of communities.

Regional imbalances arise and most of the population will be concentrated in a high-technology core, whereas a small minority will inhabit the periphery and live off agriculture. Such a mechanism could underlie the explosive urbanization witnessed today throughout the world, with rapidly growing megacities surrounded by increasingly depopulated rural areas.

This is not necessarily the only possibility, however. Under different conditions the forces which give rise to decentralization will dominate. This promotes somewhat more balanced development.

(Extract Nobel Prize paper 2008)

New TV sets have networking connections and consumers are increasingly finding their entertainment and information choices on the Internet.

Online-video services will now be available on new lines of high-definition TV sets from several manufacturers. Major consumer-electronics companies will sell TV sets that come with software to call up Web content on TV sets using ordinary remote controls. This will have consequences for business models in the entertainment industry.

 Users will be more receptive as Internet connections become a standard feature of more ordinary gadgets: TV sets, high-definition movie players and videogame consoles.

Many people have become comfortable using their PCs as TV sets,  watching YouTube or streaming favorite TV shows. It could therefore be the other way around: PCs/Macs are becoming the complete carriers of netbased content, with multiple sized screens and massive web-functionality. Maybe the notion of TV as such will gradually disappear?

Libraries of online content will be important – may be with everybody sharing it all and using what you pay for.

Initially it may – for many – be necessary to create a standard way for Web services to be unobtrusively offered up on TV sets.