Cities and productivity

Australia ranks among the most urbanised nations globally, with 85 per cent of our population residing in cities. These urban centres are crucial economic assets and sustaining their productivity is more important than ever.

When we talk about urban productivity, two key things spring to mind initially. Firstly, our economic productivity on a per capita basis is in decline. Despite some bright spots in key sectors and levels of immigration, our ageing population and, by international standards, lack of economic diversity, are creating a slow decline that is difficult to arrest.

The second point that is important to acknowledge is that economic productivity in and of itself is not an outcome – rather, it is a measure of our collective ability to deliver quality-of-life outcomes; access to education, healthcare and opportunity; and to have the capital needed to invest in societal and environmental outcomes that can sustain the nation.

Looking at global benchmarks or indicators of above-average growth in productivity, innovation and research districts are a good proxy for a city’s economic diversity and health. These districts tend to exhibit strong ‘place capital’, resulting in a distinctive identity, investability and attractiveness to talent. They also often exhibit collaborative governance frameworks and a strong sense of intentional specialisation.

In Australia, while we often boast precincts and districts with strong ‘place capital’, we have not consistently seized the opportunity to build fit-for-purpose governance models, nor are there enough examples of the successful pursuit of clustering specialised industry sectors.

Perhaps one reason for this is that our cities, which are some of the best places in the world to live, have not faced some of the fundamental economic and environmental crises that have catalysed more productive urban places globally. While we hope that these crises never emerge, there are some valuable lessons to be learned from places such as Eindhoven in the Netherlands, which have used reinvention as a force for productivity and systems change.

The concept of agglomeration is also crucial. The role that this ‘ratcheting force’ applies at both the metropolitan scale, and, in some parts of the world, the national scale is well documented.  

Setting aside for a moment the metropolitan scale, a national mindset could plausibly deliver exponential urban productivity benefits. If all Australian cities invested in their competitive physical and structural advantages and explored fit-for-purpose governance models, the impact would be significant. Making tough decisions to prioritise high-productivity sectors could amplify the aggregated impact of Australian cities on the global stage.

The Australian Government has a significant role to play in driving more productive cities, by setting the major infrastructure agenda, and adjusting key taxation and regulatory levers. Directing these three forces into specific ‘positions’ on productivity outcomes in our cities could elicit an almost instantaneous response from industry and capital markets, with a significant impact.

Imagine if all our national programs and policies aimed to make our cities more competitive and liveable. This perspective offers an opportunity for the Australian Government to lead, using the emerging National Urban Policy to deliver cross-cutting benefits for the cities of one of the world’s most urbanised countries.

A bottom-up approach to productivity is also essential. The university and research sectors, start-ups, scale-ups and the development of local business ecosystems significantly contribute to innovation and, by implication, productivity. Encouragement and nurturing are needed for local and state governments, venture capital, industry engagement and other strands in this complex system if we are to meet our incredible potential.

The risk here is that cities are too often the victims of generalisation – for example, the opportunities and challenges to move the dial on productivity in Sydney vary significantly from those in Perth, and the competitive advantages of Melbourne are not comparable to those of Hobart.

This nuance requires an acknowledgement of the complexity involved, through more specific policy settings and a multi-level, multi-speed approach to driving meaningful change in productivity outcomes. It also requires collaboration and a willingness to learn from global best practices.

With the right policies and leadership, our cities can drive Australia’s future growth and prosperity.