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The functional world city system
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References
Fu-chen Lo and Yue-man Yeung
In the last two decades of the twentieth century, it has become more evident that the process of globalization has become part of our daily lives. Choosing between domestic and foreign products, living with foreign neighbours or looking for a job abroad, facing a floating exchange rate and concerning ourselves with the global debt crisis or European Union integration, all reflect aspects of the globalization process. The world economy has changed in fundamental ways, particularly in the past few years, such that its driving force, its cutting edge, and its operating modes are being rapidly restructured and reshaped. A new international division of labour, with an accent on globally integrated production and the transnational corporation, has dawned. The multinational corporation, which rose rapidly during the 1970s, has now become common in every corner of the world. Global factories, global manufacturing production, and global financial networks and producer services have given new substance to global dimensions of economic production processes and the way in which countries and cities can contribute to them. Indeed, world cities, following the original proposition by Friedmann and Wolff (1982), have spawned a spate of provocative and original studies. At a recent meeting to review the status of research in world cities, it was declared that the world city hypothesis had become a paradigm, after noting the intellectual force that the idea appeared to have generated (Friedmann, 1993).
Although this volume can be situated in the context of world cities, its primary conceptual underpinning is global economic restructuring and how cities in the Asia-Pacific region have been responding to it. In this process, it is undeniable that certain large cities, especially world cities, have reaped the largest dividends because of the functions and services they provide, making them a class of their own and facilitating their wealth accumulation.
A central thesis of this study is the new concept of the functional city system. A functional city system is a network of cities that are linked, often in a hierarchical manner based on a given economic or socio-political function at the global or regional level. For instance, a worldwide network of airline hubs, global banking and financial headquarters, branches, and their networks, and even an Islamic network of cities, including pilgrim flows, can all be considered functional city systems. A given functional city system thus does not necessarily include certain cities with the same size population, nor will it coincide with an entire national urban hierarchy. The collection of different functional networks of a city serves to define that city's external linkages with the world economy and its status within the world city system. A city grows in importance if it performs effectively and efficiently a number of key functions that another one does not. It is submitted that this functional city system may more accurately depict the present evolving relations between cities in dynamic and interdependent interactions in a changing global economy, in preference to the hitherto popular formulation of cities in core-periphery, dependency, and linear relations. In contrast to the essence of the core-periphery theory, under the present regime of a highly integrated and evolving global economy the boundaries between the core and the periphery have become blurred. It is no longer necessary to subscribe to the simple concept of North-South dependency, because some of the multinationals from newly industrialized countries in the traditional South have started to penetrate cities in the North. These functional city systems are superimposed on a city, woven together into a mutually reinforcing, interdependent web. Cities are thus no longer defined by population size, but rather are defined by the operation of their externally linked functions. For example, Singapore serves as a hub of several functional networks, including imports and exports, telecommunications, international airlines, and international finance, thereby determining its extensive external linkages. In the present borderless economy, it is the acquisition and accumulation of functions that can determine the centrality and role of a city in the world economy.
The functional world city system
Since the thirteenth century, the historical roots of the present functional world city system can be traced through at least four periods of development. The first period began, with the elements of a world system in place, in the thirteenth century (Abu-Lughod, 1987). The system was centred around a number of central places and port cities that linked the old world from Europe to the Orient through seven or eight interlocking subsystems. The long-distance trade conducted through cities via sea or land routes was a new-found source of wealth, additional to the traditional source of wealth derived from the agricultural hinterland. It was a period of thriving economic development and scientific and cultural achievements in well-established and efficiently administered empires ranging from China and India to Ottoman Turkey. In the thirteenth and sixteenth centuries, Hangzhou and Constantinople (later renamed Istanbul) were the largest and most flourishing cities in the world. Indeed, the Eastern dynasties and empires dominated any semblance of a global economy up to the sixteenth century, with their cities playing pivotal economic roles and displaying greater wealth and continuity than the states and regimes that rose and fell around them. In Europe, Venice and Genoa, then Seville, Bruges, and Amsterdam, and later London successively rose in importance as they became significant centres of trade and industry. Similarly, the fortunes of Baghdad, Cairo, Constantinople, Malacca, and Hangzhou waxed and waned according to the importance they commanded in trade and economic production. Religion often played a major role in Arab trade as Islam was part of the trade when it was extended to parts of the Orient. There is little doubt that the key cities in these early centuries were the linchpin of an inchoate global economy.
Rather than Europe, it was the Eastern empires, particularly China, that appeared as more likely candidates to effect innovatory economic change and lead the world (Marcus, 1986; Knox and Agnew, 1989). However, China's inward-looking policies after its successful exploratory sea voyages during the Song and the Ming dynasties did not capitalize on an obvious early advantage to expand economic opportunities overseas. Similarly, the Arab world failed to develop merchant capitalism, although whether or not Islam was a barrier to the accumulation of capital is subject to debate. The crucial reorganization of the world system occurred between 1250 and 1400, which can be attributed to systematic geopolitical and demographic causes that tipped the balance in favour of Europe (Abu-Lughod, 1987). Meanwhile, spectacular European successes in maritime explorations in the sixteenth century, followed by equally breathtaking achievements in the Industrial Revolution in the eighteenth century, saw the rapid ascendancy of European power and wealth. A new set of cities emerged to serve this new world order, thus marking the beginning of the second period of the world functional city system.
The main thrust in this second phase of the world economy was the evolution of a new spatial division of labour based on higher technology capable of devising industrial production processes that were machine driven and more efficient than manual power, while the supply of raw materials and markets for manufactured products lay in less developed countries. An exploitative economic relationship was developed between European countries and a number of trading empires spreading across the tropical and equatorial parts of the world. Advances in the Industrial Revolution enabled European nations to exploit internal and external economies of scale for developing new products and for acquiring wealth. It was industrial capitalism at its best from the European standpoint. To dramatize the effect of the Industrial Revolution, it has been shown that in 1700 the population of Europe's colonial empire was only 10 per cent of its own population, and the volume of its imports from those colonies amounted to about 0.1 million metric tonnes. By contrast, in 1940 the population of the colonial empire, both formal and informal, was 200 per cent of the population of the countries concerned, and the volume of imports from the colonial or semicolonial sources reached 70 million metric tons (Bairoch, 1988:506). The growing wealth and importance of cities in Europe and North America stimulated the growth and emergence of very great cities in these regions during this period. By 1820-1830, London had replaced Peking as the largest city in the world. At the same time, "colonial" cities had been founded in a number of developing countries, many sited at locations with port facilities so that they could be connected in the global economy. New transportation technology in the railway and steamboat industries enabled markets, resource areas, and factories to be connected despite their great physical separation. This mode of industrial capitalism erected on the foundation of unequal exchange persisted until the twentieth century, when the United States and later Japan also joined the Europeans in such development because of their having acquired the necessary technology to exploit new markets, labour, and energy. The world economy came into being, consisting of a core, defined by relatively high incomes, advanced technology, and diversified production, and a periphery characterized by low incomes, primitive technology, and undiversified production (Knox and Agnew, 1989:85).
The colonial world economy began to crumble after World War II, with one country after another in the developing world gaining independence during the 1950s and 1960s. This ushered in the third period of the global economy in which national development, political independence, and industrialization loomed large in many developing countries as they pursued their own style of development. The extent to which developing countries succeeded in generating true economic growth varied widely, with African countries faring the worst and Asian countries the best, and Latin American countries in between. Some successfully adopted industrialization for import substitution, but most remarkable was the export-oriented manufacturing that some East Asian countries vigorously pursued with outstanding effect. Transnational corporations from developed countries and effective policy incentives such as the development of export-processing zones in developing countries each played a major role in reshaping a manufacturing production pattern worldwide. More than 60 per cent of manufactured exports from developing countries are now sold to developed countries (Knox and Agnew, 1989:263), as the product cycle and comparative advantage have made it propitious for many production plants to be located in developing countries. The differential rate of development in developing countries during this period was accompanied by the rise and rapid growth of mega-cities in these countries; many were superimposed on and expanded from their colonial roots but others derived their rapid growth from a period of indigenous national development. Brasilia, Mexico City, Seoul, Bombay, and Bangkok are some of the cities that have grown rapidly as a result of national development policies. Taken together, the numerous mega-cities in the developing world not only outnumber their counterparts in developed countries but have themselves become vital links in the new global economy.
During the post-war period, the United States dominated the global economy with its military might, economic power, and technological leadership. Under the United States' hegemony, mass production linking to mass consumption, or simply "Fordism," was developed to perfection. The European Economic Community also emerged as a major economic force. The old production paradigm, with an emphasis on raw materials and locational advantages, was being replaced by one highlighted by the mobility of capital and technology mediated by transnational corporations. Opportunities were maximized in resource utilization, labour pools, and consumer markets in different parts of the world, in particular in developing countries. Major metropolitan areas in developed and developing countries were reshaped and repositioned in a more interconnected and interdependent global economy.
Since the Industrial Revolution, long waves of economic structural changes can be recognized (Van Duijin, 1982). Each long wave is dominated by an underlying techno-economic paradigm that pervades the economy and provides the overall scope of the production structure. Briefly, the previous paradigm shifts involved the movement from early mechanization to steam power and railways, to electrical and heavy engineering, and then during the 1930-1990 period to Fordist mass production, named after the technological process for mass-market production being developed in the United States. During this period of the Fordist techno-economic paradigm, major cities in industrialized nations became centres of growth for super- and hyper-consumer markets, financial services, and new technology. Increasingly these world cities became centres of hierarchical control of multinational affiliates around the globe. The speed and flexibility of air and automobile transportation allowed the world city greater power and influence over government and business.
The Fordist wave coincided with the post-World War II industrial development of much of the third world. The availability of relatively cheap resources permitted a build-up in production capacity, leading to mass production and consumption. The increasing interdependence of the North and South was brought about by cross-border movements of raw materials, goods, capital, and technology. Consequently, the world cities began to assist in the process of globalization of national economies. During this period, developing nations industrialized through import substitution financed by the earnings of primary products, oil, timber, and other natural resource exploitations. The sharp decline in the relative prices of commodities vis-à-vis manufactured goods in the early 1980s further aggravated the import-substitution industrialization in many developing countries based on the old paradigm. The crossroads of the old and new paradigms is evident in many industries where there is increasing technological fusion of the past and emerging paradigms. The innovative combination of traditional mechanization with electronics is producing a new generation of factory automation, robotics, and numerical control machine tools. In office automation, the digitalization of telecommunications has rejuvenated traditional products and other telecommunications equipment. A similar attempt is being made in the introduction of new materials and robotics in the automobile industry. These streams of new technologies are beginning to transcend a broad cross-section of industries in the old Fordist mass production paradigm. Developing countries trapped under the old regime are becoming less competitive, while Japan and the Asian newly industrializing economies (NIEs) are very focused on the next generation of technologies. Those world cities that are able to tap the new, rapidly growing, knowledge-intensive industries have been able to rise in global prominence and therefore play a role in the world city system. The future power of a world city will be in its capacity to identify and formulate policies on the basis of new technologies that are likely to transform the existing paradigm.
The fourth and present period is signalled by structural adjustment of the global economy, which began with a new wave of technology in the third quarter of the twentieth century and has accelerated during the past few years. It is characterized by economic links beyond national territories, with the globalization of economic activities. It is a global shift on a large scale, in which the former straightforward core-periphery relations are being transformed into more complex and fragmented production processes that slice through national boundaries (Dicken, 1992). Several mega-trends, as chapter 2 reveals, have conspired to restructure the global economy and create new opportunities. The new phase of international division of labour occurring in this period has led to a gradual decline of manufacturing production capacity in industrially advanced economies, which increasingly specialize in service industries. For instance, 69 per cent of the US GNP is now dominated by service industries. Technology, particularly in telecommunications, new materials, biotechnology, and new energy sources, has become a key factor in shaping the pace and nature of the global economy. A network of world cities or global cities forms the vital links upon which the world system rests. A hierarchy of these cities can be identified depending on the range of key functions they perform.
During the 1980s and 1990s, the global economy has experienced a series of economic structural adjustments triggered by the relative decline of the once-powerful industrial centres of the United States, the European Union, and more recently Japan and by the rise of rapid industrialization in several developing countries. This has changed the configuration of mega-cities and defined new conditions for their transformation towards the twenty-first century. In a global economy that couples spatial dispersal with economic integration, new roles are being created for world or global cities, as command posts of the world economy, as financial centres, as production sites, and as consumer markets. World cities are not mere outcomes of a global economic machine, but rather the loci of key structures of the world economy itself (Sassen, 1991).
Within the framework of the recent global economic restructuring and the acceleration of globalization tendencies following the conclusion of the Cold War, this book is aimed at a systematic appraisal of the internal and external factors as they affect individual cities and national urban systems within Pacific Asia. Pacific Asia, which is synonymous with the Western Pacific Rim, includes the countries in East and South-East Asia. It is recognized that many of the indices that would measure globalization influences at the national or city levels are not published or easily constructed. Consequently, proximate indicators are often used and data are incomplete and unsatisfactory. Be that as it may, the project participants used a number of variables to measure a range of influences not just confined to the economic sphere.
The book is divided into three parts. Part 1 examines the functional linkages of the Asia-Pacific region in two chapters, which establish the conceptual and overall background in which the changing urban system in the region can be better understood and later chapters can be related. In particular, the mega-trends that have an effect on globalization processes are highlighted. The interplay between global structural adjustments and the role of cities is illustrated for Pacific Asia. What this book lacks is a systematic examination of the nature and pattern of financial flows within the region and their relations to the world cities in the region. As an illustration of changing functional linkages, Peter Rimmer has detailed the recent innovations in transportation and telecommunications in the region and the way in which cities are shifting in importance and centrality. A new trend appears to be emerging, giving enhanced importance to certain large cities that have benefited from economies of concentration and infrastructure investment.
Part 2 surveys the extent to which globalization has affected individual cities as well as national urban systems in eight chapters. These cover most countries along the Western Pacific Rim and reflect their differential responses to the shifting global economy and their own changing positions within it. The relationships between the economic structural adjustments experienced in individual countries, on the one hand, and globalization forces and urban transformation, on the other, are reflected in a number of cases that have been selected for this study.
The clearest expression of the changing roles of a city in the region over time can be seen in Tokyo. Three stages of development may be distinguished. In the 1960s, Tokyo clearly emerged as a national magnet in the Japanese economy, to which population and development were drawn. Then, in the 1970s Tokyo developed and strengthened with greater contributions to the national economy by developing itself as a financial, telecommunications, and transnational corporation centre. At the same time, decentralization of its manufacturing capacity, while keeping central managerial functions, began to be evident within Japan. However, its full integration as a world city emerged only in the 1980s, when Tokyo developed a new division of labour and industrial restructuring by relocating manufacturing production to cities abroad, particularly in the Asia-Pacific region, again retaining key central managerial functions and R&D within Japan. The comparative advantage of Tokyo and cities within the Asia-Pacific region was being capitalized in the process. Japan emerged as one of the leading economies in the world. Tokyo's status as a world city grew as a consequence, for it had become increasingly integrated with the global and regional economies. Its importance within the Japanese urban system has also increased, as it has become a giant urban agglomeration of more than 30 million inhabitants within its daily commuting distance.
The recent development of Seoul and Taipei further epitomizes the regional response to economic globalization and the seizing of new economic opportunities as the Asian NIEs are in a position to seek development beyond their shores. In both cases, labour-intensive manufacturing has been decentralized to offshore locations, such as countries in the Association of South East Asian Nations (ASEAN), coastal China, and, recently, Viet Nam, where labour and other costs of production are lower, leaving capital-intensive types of production within their countries. The urban pattern within South Korea and Taiwan, however, has shown some interesting contrasts. Within South Korea, Seoul has emerged as the overarching urban agglomeration and the problem has been to halt Seoul's unwanted growth since the 1980s. In Taiwan, on the other hand, Taipei has grown at a more subdued pace, with the southern port city of Kaoshiung exerting a countervailing effect to give rise to an urban corridor across the island from north to south. The kind of urban concentration exhibited in Seoul is absent in Taiwan.
Looked at in a regional context and over time, Japanese offshore industrial relocation to the Asian NIEs in the 1960s and 1970s may be viewed as the first wave of regional economic development. Similar developments in the ASEAN countries in the 1970s and 1980s constituted the second wave. In the 1960s and 1970s, ASEAN countries had limited manufacturing development in import-substitution industries. Rapid economic development actually began in 1985, with the Plaza Accord and the remarkable appreciation of the Japanese yen. Japan was anxious to relocate its manufacturing production abroad within the region in order to maintain its competitive edge. This was followed by a similar appreciation of their currencies by South Korea and Taiwan in 1986 and 1987. They, too, were keen to maintain their export manufacturing competitiveness and needed cheaper locations from which to do so. ASEAN countries presented just the right mix of conditions for this offshore manufacturing to take place. As a result, foreign direct investment in ASEAN countries increased sharply and this facilitated a major economic restructuring of these countries from being commodity exporters to manufacturing exporters in the 1980s. Structural reorientation also occurred in the early 1980s, when commodity prices collapsed, hence providing the ASEAN countries with timely and critical relief from their previous over-dependence on primary commodity exports for their national income. This new infusion of growth impulses has given renewed strength to their large cities. Thus Bangkok, Kuala Lumpur, and Jabotabek have grown rapidly and in new functions. By virtue of their traditional and new-found importance, they have become well articulated with the new global economy. However, within these urban agglomerations, it is their fringe areas that have experienced the fastest rates of growth and the most rapid physical transformation. These areas have relatively more land and somewhat less stringent regulatory controls on manufacturing-related growth and investment by transnational corporations. The rapid growth and transformation of these urban fringe areas are components of physical and social change that have not been adequately dealt with by the governments concerned.
In contrast to the other ASEAN countries, the Philippines has been experiencing slow rates of growth for decades. Political instability and other problems have not made the island nation attractive to foreign investment compared with its neighbours, which experienced massive foreign investment particularly in the second half of the 1980s. In fact, because of economic stagnation, sustained emigration and labour migration to the Middle East countries have occurred for two decades. Consequently, Manila has been bypassed by some of the positive effects of globalization, and until recently persistent neglect of social and economic infrastructure has resulted in the deterioration of the quality of life, particularly for the urban poor.
The third wave of regional economic development refers to foreign investment and development in the coastal regions of China since the mid-1980s. The opening of China to the world for a new style of development began in 1978, with the adoption of an open policy and economic reforms, initially with the establishment of four Special Economic Zones in Guangdong and Fujian. This was accelerated in the late 1980s, with the end of the Cold War, as similar development was pursued in other coastal areas of China, such as in Dalian, Qingdao, Shanghai (Pudong), and other port cities in north China. However, the focused and accelerated development along the coastal region has led to heightened economic and social disparity between the coastal and interior parts of China, with grave implications for policy formulation and the future. The coastal region's visible success and attraction have generated massive rural-urban and urban-urban migrations that have led to waves of floating population, variously estimated at 50-80 million, from less developed inland provinces and the rural areas within the coastal provinces. These population surges have created new opportunities as well as challenges for the coastal cities. China's coastal cities are being integrated with the economies within the Asia-Pacific region and increasingly with the world, but no world city in a functional sense has yet emerged to date.
Part 3 examines the phenomenon of urban transformation in Pacific Asia in a new climate of economic globalization at different scales. First, the expression of a borderless economy may be found in the Singapore Growth Triangle, in which the participating countries of Singapore, Malaysia (Johore), and Indonesia (Riau Islands) have displayed excellent economic complementarities. There is a clear division of labour, and population movement within the area is strictly controlled by territorial boundaries. Thus accelerated economic development takes place, within a controlled environment, and population movement is seemingly not a problem.
The Hong Kong-Zhujiang Delta represents another variant of the borderless economy, in which ever closer economic integration is occurring between Hong Kong and the Zhujiang Delta. Obvious economic disparity exists between Hong Kong and the delta region, but the lucrative symbiosis between the two lands is a powerful economic motivation for greater integration. This trend of closer economic integration will become even stronger in the future as Hong Kong is due to return to Chinese sovereignty in 1997. Although the region includes Macau-Zhuhai, it is really Hong Kong's economic and cultural influence over a large delta region that looms large in its current and future development. Many urban centres in the delta, including Guangzhou, are drawn to Hong Kong like a star cloud. The whole region, with Hong Kong providing key leadership in services, market information, and infrastructure, is growing rapidly and is a physical and economic entity to be reckoned with in the years to come. It has been forecast to become a huge urban agglomeration of 40 million inhabitants in the twenty-first century.
Finally, a bird's-eye view of the region seems to suggest the possibility that a large-scale urban corridor stretching between the Tokyo area and north-east China via the two Koreas is yet another borderless economy at an advanced stage of development. This extended urban belt connects four major megalopolises in North-East Asia and includes some of the most developed parts of Asia in terms of infrastructure provision, technology and economic power. In the present climate of political détente, visionary plans for improved connectivity between the countries have been proposed, such as an underwater link between Pusan in South Korea and north Kyushu in Japan. Other more modest plans include the development of a bullet train within South Korea. All these can only improve the physical and social infrastructure for the benefit of all cities and their inhabitants concerned. The urban corridor is, in a sense, a forerunner of what the urban future will be like for other parts of the coastal region in Pacific Asia.
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