Global Cities Initiative, São Paulo, Brazil

The Metropolitan Future of Brazil and the United States

Editor’s Note: During the Global Cities Initiative’s international forum in São Paulo, Bruce Katz delivered remarks on metropolitan areas and their potential to power national economies worldwide. The remarks were written by Katz and Julie Wagner.

The Metropolitan Future of Brazil and the United States
(This presentation is also available in Portuguese)

Good morning everyone.  It is a pleasure to be back in Sao Paulo with JP Morgan Chase, our partner in the Global Cities Initiative.  I am grateful for their support and leadership.

I first want to thank Governor Alckmin and Mayor-elect Haddad for their participation today and we fully welcome the opportunity to work with both of them and the city and state in the coming months and years.

This has been an extraordinary week for our delegation of mayors and business, civic, and university leaders from 10 major American cities and metropolitan areas.

We have seen firsthand the proud history and infectious energy and vibrancy of this great city and macro-metropolis.  We are grateful to Luiz Felipe D’Avila and the Centre for Public Leadership for co-sponsoring this forum today. We also owe a debt to others who have hosted and guided us this week—the State of Sao Paulo, particularly the State Secretariat for Metropolitan Development, Insper, the Commercial Association of Santos and the Port of Santos and the Brazil-U.S. Business Council, and the U.S. Embassy and Ambassador Shannon.

As Aod said at the outset, São Paulo is the first stop outside the United States in our five year Global Cities Initiative.  That is a deliberate choice.   The relationship between the United States and Brazil is a critical one.  Despite barriers, the economic and social ties between our two countries are strong and growing stronger.  Trade is booming.  Investment is up.  Tourism and business travel have never been higher.  And the recent state visits by presidents Obama and Rousseff send a clear signal that this is a partnership of the highest order. 

Yet there is hard work to do in both our countries. The U.S. and Brazil are undergoing major economic transitions. By global standards, both of us under-perform on exports, far trailing other countries.  The U.S. is shifting slowly back towards a more productive, sustainable economy after our worst downturn in 80 years; Brazil is moving forward towards a more open, outward looking economy.

Against this complex backdrop, our delegation comes bearing a simple proposition. The answers to national challenges lie, in great part, below the national level.

We live in a century where cities and metropolitan areas are driving national economies and the global economy. The U.S. and Brazil have 84 and 85 percent of our respective populations living in our cities and metropolitan areas … and these communities generate 91 percent of the GDP in the U.S. and 88 percent of the GDP in Brazil.  There is, in essence, no American or Brazilian—or German or Chinese—economy; rather our national economies represent networks of powerful city and metropolitan economies.

 Today, I will make three main points.

As the world urbanizes, cities and metropolitan areas have emerged as the engines of national economies.

As our economies globalize, cities and metropolitan areas act as the centers of international trade and investment.

To prosper today, cities and metropolitan areas need to drive their economic destiny.  In our federal republic, where power is shared across national, state and local governments, that requires new thinking about who does what. 

But, first things first; we cannot put forward a metropolitan playbook without first understanding what a metropolis is.  And the best way to do that is from the ground up.

On the right side of the screen you see the São Paulo metropolis, 20 million strong, 10th most populous in the world.

On the left side of the screen you see Chicago, Mayor Daley’s hometown, with a population of 9.5 million, 26th largest in the world.

Both of these metro areas cluster around core cities but cover large land masses and encompass multiple jurisdictions.

The São Paulo metro is more than 8,000 square kilometers in size, with more than half of your population living in the city proper and the remainder residing in 38 other municipalities.  

Chicago is close to 19,000 square kilometers in size with one third of the population living in the central city and the remainder spread across, incredibly, three states, 14 counties encompassing hundreds of separate municipalities and townships.

The assets São Paulo and Chicago need to compete nationally and globally are spread across their regions:

Clusters of workers;

Key colleges and universities;

Major hospitals and health care facilities;

A network of urban green space; and

The infrastructure—roads, rail and transit and airports—needed to move people, and freight

In other words, metro areas are the natural, organic geographies of the economy, clustered around central cities for sure, but also benefitting from the assets offered by satellite cities and suburban, exurban and rural areas.   

With that background, let me start with an irrefutable observation: cities and metropolitan areas are the 21st century engines of national economies.

Since 1950, the world’s urban population has more than quadrupled in size.  Now sized at 3.6 billion people, it is expected to surpass 5 billion by 2030.

In 1950, 29 percent of the world’s population lived in cities and their metropolitan areas.  By 2009, the share surpassed 50 percent. By 2030, urban settlements will harbor more than 60 percent of the world’s population.

In many respects, the world is becoming more like us.  The United States and Brazil are two of the most highly urbanized countries with city and metro concentrations surpassing those of both mature economies in Germany, Britain, and Spain and emerging economies like China, India, and South Africa.  

Cities and metros do not just house people; they power economies.  Today Brookings released our annual Global Metro Monitor that tracks the economic performance of the world’s top 300 largest metropolitan economies.

Incredibly, we find that these metropolitan areas house a little under one fifth of global population but generate nearly half its total output.  Put simply: Metros around the world punch way above their weight.

Why are they so powerful? 

Because they cluster and connect firms, large and small, with ports and airports, transport and energy infrastructure, and a broad range of supportive institutions that supply skilled labor, advanced research and customized capital.    And when that happens, productivity improves, entrepreneurship rises, employment and wages increase.   

The dominance of metros holds true for both our countries, which house 13 and 76 of the top 300 global metros, respectively.

Your thirteen top metropolitan areas are home to one third of Brazil’s population, concentrate half of Brazil’s manufacturing output and your population with college education and account for 56 percent of national GDP and 63 percent of financial services output.

These metros range from Sao Paulo, 11th largest economy in the world, to Baixada Santista, 295th largest.    

Eleven of your metro areas are state or national capitals; this state is home to three of the 13 large metro areas.

Metro São Paulo takes its place among the world’s most populous and economically powerful metros.

You are home to one tenth of Brazil’s population, account for one-fifth of Brazil’s GDP and generate 57 percent of the GDP of this state.

For America’s part, our top 76 metros form the real heart of the U.S. economy. 

Housing 61 percent of our population, they concentrate a majority of our manufacturing output, gather our most educated people, and generate more than 68 percent of our national GDP.

They also make an outsized contribution on financial services and the production of patents. 

In the U.S., the top 76 metros range from New York, L.A., and Chicago to less well known communities like Allentown, Little Rock, and Harrisburg.

This leads to my second point: as economies globalize, cities and metropolitan areas act as the centers of international trade and investment.

Metros and trade are inextricably linked, and have been for millennia.   The Silk Road that connected Asia, Europe, the Middle East, and Northern Africa.   The Hanseatic League that grew from Hamburg and Lubeck to include 170 cities that monopolized trade in Northern Europe between the 13th and 15th centuries.  The great Italian city-states of Venice, Pisa, Genoa, and Amalfi.   

These historic networks offer essential lessons:

As a recent Brookings report concluded:

“Trade is essential to metros—it is how they grow their economies. And metros are essential to trade—they provide the specialization and market access that facilitates exchange among producers and consumers.” 

The top Brazilian and U.S. metros are our nations’ logistical hubs, concentrating the movement of goods and people by sea and by air.  In Brazil, 61 percent of foreign waterborne trade, measured by tonnage, passes through the seaports of the top metros; in the United States the equivalent share is over 66 percent. Passenger travel is even more concentrated; in both countries, close to 82 percent of international air travel passes through the airports of the top metropolitan areas.

Significantly, the top cities and metros in both our countries are magnets for foreign direct investment, particularly “greenfield FDI” where foreign entities invest in new facilities or expansions of existing facilities rather than just purchase domestic companies. 

From 2003 through September 2012, Brazil’s 13 accounted for 77 percent of greenfield FDI projects in Brazil and 59 percent of the jobs created through this key growth vehicle.  The top 76 U.S. metros also accounted for 77 percent of Greenfield FDI projects and 70 percent of the jobs created.

Brazil’s 13 are responsible for a third of all national goods exports; the share is substantially higher for the top U.S. metros.  Brookings research on U.S. exports shows that our top U.S. metros dominate the trade in manufacturing and services … and, given their edge in sectors like chemicals, consulting and computers, are on the front lines of commerce with China, Brazil, and India. 

In sum, our research has shown the collective centrality of our top cities and metros to the trading position of our nations. 

Yet metro economies do not exist in the aggregate; they have distinctive starting points and vary considerably in their trading prowess and intensity.  What makes São Paulo special on the global stage—your distinctive offer, your special investment potential—is different from what defines and drives Rio or Curitiba or Salvador.

São Paulo is Brazil’s premier global metropolis and the numbers reflect that.  Your metro houses 10 percent of Brazil’s population but:

  • Your airports handle 26 percent of all passenger traffic in Brazil and 33 percent of all air cargo.
  • Your macro metro neighbor, Santos, which we visited yesterday, is the busiest container port in South America and 43rd in the world.
  • You are Brazil’s largest metropolitan exporter, producing 27 percent of all metropolitan exports of goods
  • And from 2003-2011 you received 19 percent of all greenfield FDI in Brazil … in fact, more FDI than New York, LA, Chicago, Houston and San Francisco combined.

You trade with the world’s most prosperous cities, in the United States and elsewhere, but in particular ways given your distinctive industry clusters and sectors.

Given your substantial concentration in financial services (with 19 of the 25 top international banks present and the world’s third largest financial exchange), you interact naturally with New York and Miami in the U.S., London, Madrid, and Frankfurt in Europe and Shanghai, Tokyo and Hong Kong in Asia.

Despite the outward movement of industry, you still serve as Brazil’s main global platform for advanced manufacturing sectors like automotive, linking you closely with Detroit in the U.S., Milan and Stuttgart in Europe, and Nagoya in Japan.

The shape and structure of your economy puts São Paulo in an exclusive club of “global cities,” a definition drawn in the 1990s when the process of trade, investment, and globalization was seen as empowering a few command and control finance metros of the world.

But today, our notions of “globalizing cities” are more expansive, recognizing that all cities are fueled, to different degrees, by global investment and connected, in distinctive ways, via global commerce and exchange, global product and labor supply chains. 

The energy cluster in Rio finds common interest with the energy cluster in Houston through investments by Exxon Mobil, Chevron and Petrobras … and then further with energy firms in Amsterdam, Dar es Salaam, and Bogota.

Campinas’ hi-tech sector naturally links with the hi-tech cluster in San Jose’s Silicon Valley via elite universities, advanced R&D institutions, and global tech giants like IBM, Hewlett-Packard and Dell … and then further with tech clusters in Tokyo, Bangalore and Dublin.

As headquarters of Embraer, São Jose  dos Campos links via supply chains to Palm Bay, Florida, Harbin, China and Lisbon, Portugal.

In short, a new global map is being drawn in the world, not of nation to nation trade but of metro to metro exchange.

That leads to my final point: To prosper in the global economy today, metros need to drive their global economic destiny.

We have a three part playbook:

The playbook starts at home, with cities innovating locally to exploit their distinctive competitive advantages in the global economy.

In the U.S., cities and metropolitan areas are acting with intentionality in the aftermath of the Great Recession to devise and implement what we call “metropolitan business plans.”  The purpose: build on their distinctive competitive advantages in the traded sectors of the economy, given the crippling effect on housing and consumption.

The elements of business planning are fairly simple and straightforward

Each metropolis does a market assessment of their unique economic profile and potential … what goods and services they trade, which nations they trade with, where trade trends are likely to head given market dynamics here and abroad. 

Armed with this information, metros then set goals and objectives that build on their distinct advantages, devise strategies to meet those goals and establish metrics to gauge progress.

All these efforts are undertaken by a consortium of corporate, government, university and civic institutions that cut across jurisdictions, sectors, and disciplines and “collaborate to compete” globally.

Let me give you an example of how these business plans are helping cities and their metros grow jobs and restructure their economies.

Los Angeles, represented here by Mayor Antonio Villaragoisa, has devised an ambitious plan to grow exports by identifying and proactively supporting export ready firms in leading trade sectors like aerospace, computers, professional services, and film and television.  The L.A. system of trade is moving from a story of fragmentation, where no clear institution defines or drives decision-making, to a reality of coordination and collaboration, responsiveness and flexibility under one Los Angeles Regional Export Council.  The result: More firms will export more goods and services to more places producing more and better jobs.

We believe business planning holds great potential for São Paulo and other Brazilian metros.   Obviously, fixing the basics is a critical first step for economic growth: safe streets, quality schools, efficient transport and sound governance.  But a business plan might focus on increasing foreign direct investment in infrastructure necessary to reduce congestion, improve mobility, and enhance accessibility to jobs. 

The key is not what you focus on … but to decide your focus based on evidence and in a collaborative manner and then to hold yourself accountable through continuous assessment and measurement. 

Having innovated locally, cities must network globallycreating and stewarding close relationships with trading partners in both mature economies and rising nations.

The new global reality is leading to intricate networks of trading cities which grow together by linking together and learning together.

These networks obviously start with firms and ports that do business with each other.  

But, over time, networks extend to supporting institutions—governments, universities, business associations—that provide support for companies at the leading edge of metropolitan economies.

The city of Houston and the city of São Paulo, for example, executed a formal agreement earlier this year that commits each city to increase commercial relations, intensify scientific and technological connections, and facilitate information to tackle shared challenges.

Enterprise Florida, the principal export and investment organization in that state, opened an office in São Paulo in 2011 to help Florida companies expand trade.  APEX-Brasil, Enterprise Florida’s Brazilian counterpart, has its only U.S. location in Miami’s free trade zone.  There it executes projects like providing clean and renewable fuels to IndyCar, the American based auto racing body. 

The Ohio State University and the University of São Paulo have partnered to support the exchange of students and collaborative research.  Areas of recent focus: natural and mathematical sciences, medicine, and teacher training.  In 2014 Ohio State anticipates opening its third “Global Gateways” office in the world in São Paulo to further capitalize on these linkages.

Here is the simple message: We can see a network of trading cities emerging right here in São Paulo and it is a future characterized by multi-layered relationships across multiple dimensions and disciplines, interests and institutions. 

Finally, having innovated at home and networked globally, cities and metros must advocate nationally for federal and state policies and practices that will support metro growth.

Metros are engines, but they do NOT act alone.

Only national governments can set the rules of the road: enhancing access to foreign markets, enforcing trade agreements, opening up borders to immigrants and protecting intellectual property.  They can also help match domestic firms with potential global customers, provide export promotion support, and commit resources to modernizing logistics hubs.

As the world evolves as a network of trading cities, it is only natural that cities become more articulate and aggressive about the support they need from higher levels of government. 

In the United States, cities have found a receptive partner in the Obama Administration.  Key federal agencies—the International Trade Administration, the Ex-Im Bank, the Small Business Administration—have been central partners in guiding business plans with a particular focus on boosting exports.

Similar alliances could be built here.  As part of the Global Cities Initiative, the ESADE Business School mapped the trading system in São Paulo.  Their research clearly shows the central role of your federal and state governments in advancing the internationalization of your economy.  True success will come when these higher level entities align closely with your distinct assets and advantages.

Going forward, the advocacy of cities must extend beyond accessing the export promotion and finance programs of federal and state governments.  They must get to the heart of the matter.

The United States has had a North American Free Trade Agreement in place for 20 years with our partners, Mexico and Canada.

We have recently concluded important Free Trade Agreements with Colombia, Panama, and Korea.

President Obama was in Southeast Asia this month discussing the possibilities of a Trans-Pacific Partnership.

The 2011 Agreement on Trade and Economic Cooperation signed by President Obama and President Rousseff provides a platform to build on.

As they have expressed, we need a new vision for our Hemisphere … and for our two countries.

We are both growing with healthy demographics.

We both have an enormous pool of natural assets.

We both have a shared imperative to reorient our economies.

Empowered with the right policies, enabled with the right frameworks, we have the potential to grow together this century, powered by our major population and economic centers.

So that’s our playbook:

Innovate locally.  Network globally. Advocate nationally.

Let me end where I began. 

From the beginning of time, cities have been centers of commerce, formed along the roads and routes of trade. 

And so it is today.

The cities of our nations are powering our nations.

They are giving physical shape to the globalizing economy, seamlessly integrating the exchange of people, goods, services, energy, capital, ideas, and culture.

The promise of the Global Cities Initiative broadly is to capture and channel this energy into lasting, sustained networks and partnerships.

Our pledge as we leave here today is to work with you, partner with you, and ensure that the United States and Brazil bind together not just as two nations but as living, vibrant, powerful networks of trading cities and metropolitan areas.