The Future City

This article was published by McKinsey & Company in honor of the Skoll World Forum.

No one knows the exact day or place, but sometime in 2008, a person moved into a city and established a milestone: the moment when, for the first time, more than half the world’s population lived in urban areas. More than six billion people will live in cities by 2030, according to the United Nations—almost double from when that unknown person left home for the city.

McKinsey has worked with cities around the world to create large-scale initiatives that help shift the trajectory of a city’s economy. Delivery is essential to fostering sustainable and inclusive growth. It begins with a strategy that is rigorous, fact-based, and market-disciplined, and builds from a city’s existing assets. These are the competitive strengths that allow them to compete and lead in the global economy.

Successful implementation of an economic-growth strategy requires tapping into the talents of high-skilled workers, entrepreneurs, researchers, and visionaries, and creating a base of effective anchor institutions and infrastructure. To do so, the community must be patient and resist the temptation to seek short-term, visible successes that may not build on the underlying economic strengths required for sustainability. Taking the long-term view also requires a commitment from the public, nonprofit, and private sectors alike. No economic development “playbook” can replace an understanding of local dynamics.

Here are some encouraging examples that illustrate how some cities are helping themselves through excellence in delivery:

1. Identify high-potential economic clusters. New York City is beginning to see results in its efforts to become an East Coast high-tech hub. Over the past decade, New York increased venture-capital activity by 2.8 percent a year—the only major US city to show such a rise. From 2003 to 2011, high-tech employment grew the fastest—5.3 percent—of any of the 13 major industries surveyed. And digital leaders are buying in: Facebook, Google, and Twitter have all opened offices.

The key to this success is that New York’s entrepreneurs, business leaders, and government have built on the city’s intrinsic strengths and its foundation of existing industries. For example, entrepreneurs and businesses have leveraged proximity to the fashion industry to identify the trends that are contributing to the next wave of e-commerce (think of start-ups like Gilt). And it is no wonder that New York does well in ad tech and digital content, considering it is home to so many writers and artists.

The sector has also benefited from intelligent government support. The New York City Economic Development Corporation (NYCEDC) has developed ten incubators to give emerging businesses access to the services they need. NYCEDC has also financed a privately managed $22 million fund aimed at early-stage technology start-ups, and it sponsors competitions and information sessions to identify and recruit talent.

While New York still has a long way to go compared with the competition in the Bay Area and Boston, the buzz is undeniable: There are twice as many members in New York Tech Meetup (23,000-plus) today than there were just three years ago. And the Cornell-Technion campus, a $2 billion education-research institution designed to forge stronger links between entrepreneurs, academics, and the high-tech sector, may be a game changer. “The campus was set up specifically to increase the talent pool in New York City,” Cornell President David Skorton told the New York Times, “to positively influence the New York City economy.”

2. Develop human capital. Human capital is the single most important input for economic growth, but it must be properly developed and deployed. Getting this right requires paying attention not just to education and training, but also to what sectors are creating jobs. Chicago is learning that lesson. The city, which has been plagued with slow growth and low rates of entrepreneurship, suffers from several mismatches—between the skills of the unemployed and the jobs that exist, between where the jobs are and where the people are, and between training programs and employer needs. In short, Chicago is not using its human capital to the fullest.

Recognizing this, Chicago recently launched Skills for Chicagoland’s Future (SCF), a public-private partnership that aims to shrink the skills gap and help employers find trained workers. SCF has flipped the usual workforce model on its head by seeing employers as their customers and working to meet their needs. To make the right connection, unemployed people can use the program’s website to register their skills, and local training programs are tailored to specific employers. Matches are tracked.

The program is still new, and it is starting small, with a goal of placing 2,000 workers this year. But we believe that this is a move in the right direction.

3. Improve innovation and entrepreneurship capabilities. Buffalo was once, quite literally, powerfully innovative—it was a pioneer of electricity, tapping into the immense natural force of the Niagara Falls in the late 19th century. But in recent decades, it has lost its innovative verve. The region is home to an array of infrastructure assets and R&D institutions, particularly in health and life sciences. Yet local researchers earn fewer than 20 patents each year, and there were only 30 life-science start-ups arising from institutional intellectual property in the last decade.

Recognizing this, the city took stock of its strengths and weaknesses in a systematic way and created a long-term strategy for rejuvenation: the Buffalo Billion Investment Development Plan. One high-potential initiative is a $50 million business-plan competition, the richest in the United States. While it will be supported by the public sector, successful delivery will require input from venture capitalists and entrepreneurs from within and outside the region. The idea is to get the word out that Buffalo is open for business, change public perceptions, and attract talent and capital.

Executed well, such a competition can bring real results, as it did in Dortmund, an industrial German city with a history and economy similar to that of Buffalo (indeed, the two are “sister cities”). Dortmund’s business-plan competition, begun in 2000 and run by an independent entity, has generated 700 start-ups.

4. Invest in the right infrastructure. Density and transit-oriented development are sound principles for sustainable urban growth. Detroit might seem an odd choice to illustrate these principles, considering it is so strongly associated with the car. Moreover, Detroit’s economic challenges are well-known. Its city center has been hollowing out, in part because of the absence of coherent transit-oriented development, and the state just sent in an emergency manager to oversee the city’s operations.

Based on research and experience working with cities around the world, we have seen that it is possible to implement large-scale initiatives that can shift the trajectory of a city’s economy. In this regard, it will be worth watching Detroit’s M-1 Rail Initiative, which is intended to stimulate development and foster a “revitalized, livable, walkable, and vibrant downtown.” The initiative is being financed by a partnership comprising 1) the federal government, which has granted $25 million (as of January 2013) for the initial 3.3-mile light-rail/streetcar route; 2) the city, $9 million; and 3) the private sector, more than $100 million, most of it from the Kresge Foundation, but with large sums from local employers. State and local governments have chipped in expertise and other kinds of support, such as land easements, construction coordination, tax credits, governance, permits, and the creation of a regional transport authority. The first passengers could board in 2015.

In sum, if any of this were easy, everyone would be doing it well. But it isn’t. In each of these examples, the public, private, and nonprofit sectors worked together, supporting one another’s efforts. They did so in different ways, with different players taking the lead. That makes sense; needs and capabilities vary. But the larger point is the same: sustainable growth requires participation across sectors to address a comprehensive set of economic drivers.

Editor's Note: This collection of articles is part of "The Art and Science of Delivery," an anthology of essays published by McKinsey & Company in honor of the 10th Anniversary of the Skoll World Forum. It is the most recent installment of McKinsey's ongoing series, Voices on Society, which convenes leading thinkers on social topics. (Copyright (c) 2013 McKinsey & Company. All rights reserved. Reprinted by permission)

Read more stories by Jonathan K. Law & Shaina Doar.