Episode 6: Big cities after COVID: boom or bust?

Transcript: Season 1, Episode 6: Big cities after COVID: boom or bust?

Caitlin Dean: Welcome to Living Beyond Borders, the podcast from Citi Private Bank and GZERO Media that examines the risks and opportunities in our rapidly changing world - from global politics to economics and what it all means for you. I'm Caitlin Dean, head of the financial and professional services practice at Eurasia Group.

When you hear the phrase city of the future, you might immediately envision a scene from Blade Runner or Minority Report, or of course the old standby, The Jetsons — where George Jane, Judy Ellroy and Astro cruise around Orbit City in their flying car — in the middle of the 21st century.

Jane Jetson: Oh, that must be Judy's ride.

Ricky Rocket: Hey Judy, let’s flash out. We’ll be late for school.

Judy Jetson: Hi, mom. Bye, mom.

Jane Jeston: But, Judy. Hey, where are you going with that space board?

Judy Jetson: Ricky Rocket is taking me to school.

Jane Jetson: Well, I know dear, but on a space board?

Judy Jetson: Sure!

Caitlin Dean: When The Jetsons first premiered on television in 1962, the 21st century seemed as far away as Mars. And the thought of flying cars and robotic house cleaners was a reach. Today, many of those fantasies have become — or starting to become — a reality. In 2020, more than half the world's population currently lives in cities. By 2050, that percentage will climb to 68% — adding more than 2 billion people to places that might already be bursting at the seams.

Some predictions about the future have panned out and cities of today are huge centers of innovation and industry. But with that growth has come some challenges and today's global hubs are under strain. Just as they have created some issues we couldn't have foreseen, these mega cities might also be the key to finding solutions to problems as diverse as climate change and income inequality.

So, what will the city of the future look like, and how will it be sustainable for people and the planet? I'm joined now by Ida Liu, Head of Citi Private Bank North America. Welcome Ida.

Ida Liu: Thank you so much, Caitlin. It's a pleasure to be on.

Caitlin Dean: And Alexander Kliment, Senior Editor of Signal — GZERO Media’s global affairs newsletter. Hi Alex.

Alex Kliment: Hey Caitlin. Good to be with you.

Caitlin Dean: Ida, I want to start with you. As someone in the financial sector, what are some of the biggest trends you're focusing on when it comes to cities? Both in the U.S. and elsewhere?

Ida Liu: Well, Caitlin, at Citi Private Bank, a third of our clients globally derive their wealth from real estate. So, we certainly get a very strong view from our real estate clients as it pertains to trends globally. In North America, in fact, the high-net-worth and ultra-high-net-worth communities that we serve are very much concentrated in major cities, such as New York, San Francisco and LA — but also in growing cities, such as Seattle and Atlanta.

And in fact, six of the top 10 ultra-high-net cities in the world are located in the United States, including New York, San Francisco, L.A., Chicago, D.C., and Dallas. And the vast majority of our ultra-high-net-worth wealth will remain concentrated in these particular cities.

We saw record populations in cities, pre-COVID because of the convenience of living close to work in schools and conveniences associated with living in major metropolitan hubs. But while there's been a temporary outflow of individuals and families to suburbs, research shows that most residents are not moving out of the urban centers permanently. Although, we are keeping a very close eye on what the remote work environment does to city hubs and the ability to work from any location globally. So, I think the question will become — how much of the aspects of city life that draw people in can be met remotely? I anticipate some but not most.

Caitlin Dean: Alex, what are some of the broad trends that you have your eye on?

Alex Kliment: Yeah, I mean, I think this question of what cities look like and how they come out of the pandemic is really critical right now for a number of reasons. One of which is that a lot of what the pandemic has done has been to both illuminate and exacerbate some of the underlying problems of inequality, lack of access to healthcare and all of these things that are in many ways, acutely urban problems.

And so what I'm interested in is the ways not only that coming out of the pandemic — how do cities sort of pandemic-proof themselves and make themselves nice places to live for people, so that they don't leave and go to the countryside. But also, what role can cities play in addressing these many social and economic problems that the pandemic has thrown such a harsh light on?

Caitlin Dean: A handful of cities in the world have really become economic powerhouses boosted by the finance and tech industries. How has the growth of cities as creative clusters changed the economic and political landscape?

Alex Kliment: Well, in the United States in particular, over the past 30 years, you've seen the rise of what the urbanist, Richard Florida, calls the creative class in our cities. And the creative class encompasses people who work in technology, finance, white-collar knowledge jobs, basically — who have flocked to cities over the past several decades — cities, which, in many cases prior to that had been suffering post-industrial decline, right? The cities were revitalized in a lot of ways when people from the so-called creative class came to them in search of the amenities and proximity and economies of scale that Ida mentioned at the top.

Now, on the one hand that has massively increased the prosperity of our cities, but it's also had two negative effects. The first is that inequality has increased massively within cities — as poorer non-knowledge economy, folks are priced out, or see their neighborhoods gentrified — to use a controversial term.

And the other is that the political polarization between cities and the countryside has increased. We've all seen the electoral maps of the United States in which every election, the U.S. or increasingly, every election the U.S. is basically a sea of red with some blue islands in it. And those blue islands are urban enclaves.

In part, cities have always been a little bit more to the left. Labor unions in the earliest 20th century got their start in cities. but more recently it's about this kind of sorting — where people with higher education levels or more progressive or have cosmopolitan views, particularly on issues like immigration or other things, have tended to cluster in cities where those values are intrinsic to urban life.

And so there's been a separation between cities and the surrounding areas, or the rural areas, both in terms of economy and economic power, but also in terms of culture. And that's reflected in politics. And it's not just in the United States. I mean, if you look at the U.K., London voted against Brexit.you look at the recent Polish elections it is basically liberal cities versus ultra-conservative, rural areas in a fight for national power. Even in Russia, Vladimir Putin is least popular in Moscow and St. Petersburg where the so-called creative classes is strongest. So, you've seen this kind of division economically between cities and outlying regions, but also culturally and politically. And that's something that we struggle with a lot in the U.S., but not just here.

Caitlin Dean: Ida, what are your thoughts on that?

Ida Liu: Over time, we've definitely seen urbanization result in economic growth in human development. Cities have historically been areas where entrepreneurship, innovation, have thrived with a diverse and well-educated labor force and a large number of businesses providing employment opportunities. Given where we are today, the concentration of economic activity in metro areas has meant that some areas are being disproportionately hard-hit from the impacts of COVID.

New York City, Los Angeles County, Chicago Cook County, the central counties of the nation's three largest metropolitan areas representing 17% of the nation's economic activity were the three hardest hit areas from the COVID pandemic in the United States.

But politically, we must keep in mind that urban planning must be done and continue to be done in very thoughtful ways. I think proper policies, rules, and regulations will dictate how our cities of the future look. And this conversation is absolutely crucial because we must prepare how the makeup of our cities can change in the future. Hopefully, for the better.

Caitlin Dean: Ida, you alluded to some of the flight from cities, and we've all seen the headlines about big cities being canceled, New York is over. Alex, do you see truth in that as well?

Alex Kliment: Well, I'm biased on this question cause I'm a New Yorker. So I have to say, I think you'd be foolish to bet against our city. But more seriously. Look, I think pandemics historically have actually ended up being pretty good for cities — for the somewhat macabre reason that pandemics in the past have killed large numbers of people, which decreases the supply of labor, boosts wages, and draws more people into urban centers. New York and Paris, for example, boomed after the Spanish influenza in 1918 and throughout the 1920s.

What this pandemic has done has actually had a slightly different effect. In the sense that, again, to be a little bit grim here, but in historical perspective, the casualty numbers are not gigantic. But what has happened is that by accelerating the adoption of technologies that make remote work possible for a certain class of people, this pandemic has actually undermined one of the central things that make cities attractive in the first place — which is the idea that proximity and acumen economies of scale can foster faster innovation, faster economic growth.

The fact that Zoom has shown that we don't actually have to be in cities to work with each other, has kind of undermined that perception. So, I think the question of whether people will leave cities or not, you have to ask two questions. One, are there a large number of people in any given city who really can leave that city and — the laptop class — could they actually live somewhere else? In a number of American cities? Yes, but when you're talking about Mumbai, or São Paulo, or Abuja, or Legos, this is not the same conversation. And the second thing is, as Ida says, will people really stay away from cities over the long term? So, my short answer is, no, cities will not be canceled. New York City the least of them.

Caitlin Dean: Ida, what are the biggest short-term impacts you think the pandemic has brought, and which of those changes might be here to stay?

Ida Liu: So, Alex hit on it a bit. Remote work and virtual communications have literally accelerated all things digital. So, we've been challenged on our views historically of remote work. And we found that teams can be as efficient if not more efficient working remotely. And what we're seeing is the disruption from COVID — this sort of accelerated use of all things digital, including the way that we're communicating with our clients via Zoom, broadcast. And just as an example, we did a global family office event. Historically, we would have had 150 families from around the world, in New York City. And now, through the virtual format, we're able to reach 5,000 families. So, the amplification of virtual is enormous and the reach becomes broader and quite frankly, limitless.

This virtual communication format is here to stay and to accommodate this demand, the infrastructure to support digital has to be equally robust. So, this has included significant investment across fiber optic networks, data centers, mobile towers, small cell infrastructure, just as a few examples. And this is also the case with 5G, which is widely considered to be the future of connectivity. And the importance of 5G is being solidified and heightened through this crisis. And investment in 5G infrastructure remains a top priority. So, these trends in technology were ones that we were already watching as unstoppable trends prior to the pandemic, but have become even more pronounced due to COVID.

Caitlin Dean: Alex, I know you've done some research on the historic impact of pandemics on cities. What have you found?

Alex Kliment: I think perhaps more than any other aspect of our civilization, cities bear the marks of pandemics, both in how they're designed and how they're experienced. If you're standing on the Rue de Saint-Germain in Paris, and marveling at the beauty of it all, or if you're getting some fresh air in Central Park in New York City, you are experiencing two public spaces that owe their existence directly to pandemics. In this case, epidemics of cholera in the 1830s and 1840s.

The modern sewer systems in Philadelphia and London were built for the same reason. In fact, anyone who's lived in a U.S. city and an apartment with a clunky old radiator that's way too hot, even in the winter — the reason that radiator is way too hot, even in the winter, is because steam heat was installed in the period right after the Spanish influenza. And the code assumed that people would leave their windows open all the time to keep airflow up to prevent the spread of the disease.

So, we see the way that pandemics reshape our lived experience in cities throughout history. I think the big question now is what are cities going to do? So, and Ida mentioned, this question of technology is absolutely an essential one. How can our cities become smarter? How can our cities become more efficient? How can our cities become better at tackling future pandemics? And I think that's all part of the question. And in historical perspective, we will see what we come up with.

Caitlin Dean: Alex, how have demographics been shifting in these large global cities in recent years? And what impact is that having?

Alex Kliment: Well, I think it's important to distinguish maybe between cities in developed economies and developing economies. In the developed world, particularly in the U.S., as I mentioned, the main trend has been the rise of the creative class in cities and all of the positives and negatives that have come out of that. But in fast-growing emerging market economies, you are still seeing the kind of first major wave of urbanization happening, in which people are moving from rural agricultural areas into the city. That massive migration of labor from the countryside to the city — this happened in Latin America and the second half of the 20th century — it's happening in Asia right now. Africa will be next on the curve, if you look at urbanization rates. It creates different sets of concerns in many of these developing economies. The rise of cities has coincided, not surprisingly, with the rise of the so-called global middle class. Where do most middle class people live? In cities.

As people enter the middle class, that has a distinct effect on politics, because when people enter the middle class their expectations of what government is supposed to provide and how it is supposed to provide it, and the transparency of government, those things all go way up. It's not an accident that you had the biggest protests in Brazil's democratic history several years back, which started because of a fare hike on the local buses in Sao Paulo because people were fed up with sitting around in traffic all day. And as they had entered the sort of middle class and become more affluent, they became more comfortable making demands of their governments about the quality of public services, the quality of healthcare, the quality of infrastructure, the quality of schools.

So in country, after country, that has urbanized rapidly over the past 30 or 40 years, you have started to see — particularly over the past 10 to 15 years as the middle class grows — you get a whole new dynamic of political demands and expectations about corruption and services that have really reshaped a lot of countries around the world. And I think that's something we ought to keep an eye on as the pandemic has its economic effects on a lot of these countries.

Caitlin Dean: And Ida, in recent decades, cities have also seen a rise in inequality. Wealth concentrated in certain areas, but with vast differences, even just a few blocks away. We have the South Bronx, for example, the poorest congressional district in the U.S. just a short subway ride from Park Avenue. So, how did that happen? And has that only been exacerbated by the pandemic?

Ida Liu: Yes, unfortunately it has been, and not only have we not had a V-shaped recovery or U-shaped recovery, it's been more like a K-shaped recovery where we've unfortunately seen COVID carving an even deeper divide and larger inequality. And certainly one of the very sad consequences of urbanization is an increase in gentrification and wealth inequality in certain cities. And as Alex mentioned earlier, the growth of many cities has also led to inadequate access of public services, and an inability to meet equitable standards of living for all residents.

I think certainly the pandemic has had an adverse impact on lower income communities. Both from a health perspective, where many individuals work in jobs that do not have the flexibility of working remotely, many live in multifamily buildings where the virus has spread easier, but also economically as blue collar jobs were far more likely to be furloughed or laid off.. So when we think about smart cities in the future, those cities that leverage technology and data to improve living conditions, sustainability, and all operational aspects of a city — we must ensure that they are smart for every citizen, having systems in place that will benefit lower income communities access to necessary services.

Caitlin Dean: And, and as both of you alluded to, this isn't just a U.S. story — it's global. India, China and Nigeria are projected to see the largest expansion of urbanization in the coming decades. So I'd ask you both, what does that imply both geo-politically and economically?

Ida Liu: So there are 2.5 billion people that are expected to live in urban areas by 2050, with close to 90% of this increase taking place in Asia and in Africa. So what we will come to see is a massive amount of innovation coming out of these regions as they have the opportunity to design urban areas in smart data driven ways that can accommodate this growth.

And over the next 10 years, Asia is likely to see 440 million additional urbanites, with the rural populations declining by a hundred million. most of these new large cities are in less developed markets, such as India and Southeast Asia. We will have a lot to learn from these growing regions in terms of our own urbanization. And with this increased urbanization, there'll be massive growth and wealth creation coming from these cities.

Geopolitically, this also sets the stage for strong policy implementation in these urban areas that can serve to lead the way for other cities around the world. For example, China's recent carbon neutrality pledge will likely become a policy standard for cities and countries in the years to come.

Alex Kliment: Yeah, just to pick up on what Ida just said there. I think, you know, we talk about the urban, rural divide, and places in which large cities have different politics than the national governments. There's a whole thing to talk about. I mean, Ida’s example of Chinese cities setting standards on sustainability — there's a whole world out there in which cities are learning from each other, which is a fascinating process as well. Particularly, on questions like climate change or sustainability. I mean, this started 500 years ago with the Hanseatic league. But 20 years ago, I remember the conversation was about how can cities learn from each other about counter terrorism, after 9/11. And then after the financial crisis, it was, how can cities learn from each other about working out of the Great Recession?

And the conversation before COVID was how can cities learn from each other about sustainability and climate change and issues on which cities are on the front line. And now the conversation is about COVID and pandemic responses. So, there are ways in which cities are actually learning from each other and working with each other in more efficient networks than even national governments are.

I mean, we're in a world where national governments can barely even look each other in the eye, let alone work together on global problems, but cities are different — and we've seen that in the C40 and other urban groupings. And that's one thing that gives me hope about ways that cities can lead us forward on these challenges.

Caitlin Dean: Let's talk a little bit more about that, Alex, and that innovation we see from cities. So, from affordable housing to waste management to healthcare, do cities have the ability to be more effective than state and national governments?

Alex Kliment: Well, I think in one sense, they have to be. If you're a mayor and you can't get the trash picked up, or traffic is bad, or the schools are closed, or the hospitals don't function — I mean, you hear about it in a way that national leaders often don't, they're more insulated from these things. And if you look at the research on this — in an era when popular trust in governing institutions is generally falling around the world — local government still does well because people can see the mayor. They know who the mayor is. They live in the same city as the mayor, and mayors and local governance are generally closer to people's concerns.

You know, as far as how city governments can deal with these problems, again, the number one question is how good is the governance. I mean, and that's been revealed as a big problem in a lot of developing economies where once their cities got gigantic — it was very difficult to run them with adequate infrastructure, adequate healthcare, adequate services, good schools. these are issues that cities live or die on.

In the U.S. we have a big national debate about healthcare and so on, but like when it comes down to it, the places that people go for healthcare for education, for schools, for roads — this is urban policy. And, so I just think people's experience of politics is, primarily, all politics is local and all localities are basically urban.

Caitlin Dean: So we spoke a bit before about how the creative and tech industries have been drawn to cities. And that also means a lot of smart thinking about how to make cities function better. So, Ida, what are some of the most interesting things you're seeing in terms of the so-called smart cities?

Ida Liu: I think we have a massive opportunity for cities to rethink the way that they're structured and to rebuild in more sustainable, efficient ways, very smartly. And that means leveraging new technologies and equally important data to make better decisions and improve quality of life overall.

So digital solutions could improve some of the quality of life indicators by as much as 30%. And one example of this is in Pittsburgh, where they recently installed smart traffic lights that use big data and A.I. to adapt to changing traffic patterns and reducing travel times — ultimately reducing wait times at intersections by 40%. So this not only impacts the quality of life, but also is extremely positive for our planet with fewer emissions.

However, I think as we discussed earlier, lower income communities often bear the brunt of many of the consequences of urbanization. So we have to ensure that we have policies in place to manage urban growth in a way that ensures access to infrastructure, technology and social services for all.

Caitlin Dean: What impact could these technologies have on macro issues like climate change?

Ida Liu: So firstly, my sympathy and heart goes out to all who've been impacted by the wildfires devastating the West Coast. I'm from San Francisco, so it's heartbreaking to see what's happening there.

You know, in 2020 Climate Change has become an even more visible threat. On the West coast, warm and dried out tinder led to five of the six largest fires in California history. And this year, on the East coast, in the U.S. we saw unprecedented amounts of hurricanes and tropical storms. So to keep wildfires from destroying homes and putting lives at risk, we also need to think about where and how we build to adapt to these kinds of growing risks.

I think large issues like climate change require partnerships between city, state and national governments, but also partnerships between private and public sectors. So while cities may be more equipped to act nimbly and innovatively to solve many of these challenges, I think climate change is a global challenge that will require action from everyone.

I look at a city like Vancouver, that's making incredible strides in climate innovation where they've cut carbon emissions by about 12% since 1990 while jobs and the population have each grown by more than a third through clean technology, sustainable building code, and taking strong action to meet their 100% of carbon neutrality goal by 2050. I think this is the type of progress we can expect from our cities. However, it can be amplified through partnerships with state and national governments.

Caitlin Dean: Alex, you mentioned 5G. Let's talk about the impact that 5G and access to 5G will have.

Alex Kliment: Yeah, there's no question that 5G is the key to cities of the future, societies of the future. But when we talk about the things that Ida was talking about in terms of smart cities, whether that's running the traffic lights or running the city infrastructure better, or integrating industries better across cities — it's all about 5G.

And I guess there's two things that we look at from a political perspective that are challenges to address with 5G. The first one is — who is building the 5G? I mean, as we know, the U.S. and China are in a deepening rivalry over all kinds of things, but mainly over trade and particularly over technology. And the technology piece has a lot to do with 5G. The United States government has recently decided that it is too big of a risk to use Chinese 5G suppliers — in particular, Huawei — because of the risk that a state-affiliated company in China could have access to these sensitive 5G networks — that that would be a national security risk.

Whether you agree with that or not, that's the policy direction that the U.S. has taken not only at home, but also pressuring other countries not to use Chinese suppliers for 5G. So the first question with 5G is, it's great, and all cities in particular need it — but who's building it, becomes an intensely political and geopolitical question in many countries around the world.

The second thing I would say, is that with 5G, when we talk about massive data flows and predictive analytics, there's a very big question about privacy and a question about bias. It's not only who is making your 5G, it’s who's overseeing your 5G. How can people be comfortable in a situation where so much more data is floating around that, you know, the privacy protections are ones that people feel comfortable with. The Europeans have taken a very different approach on this than the Americans have. I think that's another thing that we'll have to look at as 5G delivers all of these benefits in terms of economic growth and innovation.

Caitlin Dean: Before we go, let's talk about what it will take to prepare for the cities of the future — the housing, transportation, and infrastructure that we're going to need. Ida, can governments handle this expansion, or will it be a public-private model, realistically?

Ida Liu: A public private model will absolutely be critical. And I think it will enable the type of progress that we need to handle the growth and the added challenges that'll come with it. You know, for example, governments are partnering with companies focused on clean energy and electric vehicles have the potential to reshape public transit in a way that not only accommodates increased demand, but does so sustainably. But I think that this type of partnership allows for private companies to deliver the levels of innovation that are likely unattainable from governments alone. So absolutely a public-private model, and partnership critical.

Caitlin Dean: And Alex, do you have some thoughts on what it will take to successfully sustain the two-thirds of the world living in urban areas?

Alex Kliment: Well, I come at this more from the politics side of it, which is that you need to have good governance for any of this to work. I agree with Ida entirely that public-private partnerships are the way forward with a lot of this. The issue is that the public side of it has to be transparent and well-governed for that to work.

I mean, cities are only going to grow in the coming years. A majority of the world's population already lives in them. That percentage will increase. So you need the financing mechanisms and you need the kind of strategic thinking, but when it comes down to it, you gotta pick up the trash and you’ve got to make sure the trains run on time. And if you don't, and increasing urbanization leads to new political pressures and new political expectations, that can be explosive.

Caitlin Dean: And finally, to end on a bit of a more optimistic note for both of you — what lessons have been learned over this very challenging time for the world that could bring something positive to cities moving forward?

Ida Liu: Something I've witnessed personally that gives me great optimism is the resilience of our cities, which is ultimately a testament to the resilience of the people that live there. My neighborhood in Manhattan has shown creative and resilient ways to adapt to a new environment and continue to serve the people. Restaurants have expanded outdoors, and some of the world renowned restaurants began offering takeout for the first time ever just to survive.

Additionally, I've seen other small neighborhood businesses changing their operating models and transitioning from designing custom clothes, for example, to creating personal protective equipment at a time when the supply was low. So I think the way in which our communities have rallied around our local businesses to help them be successful in their new models of businesses has spoken volumes around the strength of our communities.

And while we can equip our cities with the smartest technology and the most innovative solutions to our challenges, a city is ultimately nothing without the people that live in it.

Caitlin Dean: Alex, what are your final thoughts?

Alex Kliment: Yeah, I agree with Ida. I mean, crises reveal both the good and bad about societies. And I also have been really inspired and impressed by the ways that people have both at the neighborhood level and the community level come together to find solutions to some of the problems we're facing.

I got to say, in the long run, I'm a city optimist. Cities are the great texts of our civilizations. Everything that happens in civilization — wars, pandemics technology — it's all written first and most lastingly in our cities. And that will be true of coronavirus too. So I think my hope is that the problems that coronavirus has exposed, not just in terms of public health and future of work, but inequality more broadly — I think if we can use this moment to craft solutions that are innovative, but also inclusive — and Ida spoke a lot about this — our cities are going to lead the way back to not some outdated form of normalcy, but to a new future and solutions that I think we will all look back on positively. So times are tough now, but don't bet against cities.

Caitlin Dean: Thanks so much to both of you. Ida Liu, Head of Citi Private Bank, North America — and Alexander Kliment, Editor of GZERO Media’s political newsletter Signal. It was a great talk with you today.

Ida Liu: Thank you so much for having me Caitlin. It was wonderful to be on with you and Alex.

Alex Kliment: Thank you so much, Caitlin. This was great. And Ida, I really enjoyed this.

Caitlin Dean: That's it for this episode of Living Beyond Borders. Stay with us throughout the fall, as we look at the biggest issues impacting your world and your money.

Next time, energy and the possible end of fossil fuel dependence. I'm Caitlin Dean. Thanks for listening.