Why is the U.S. wealthier than Europe? Give credit to its cities.

at 04:13 PM ET, 04/17/2012

Bright lights, big GDP. (Mark Lennihan/AP)
Whole volumes have been written on the virtues of cities — the way they make people around the globe smarter, more productive, more innovative. See, for instance, Edward Glaeser’s “The Triumph of the City,” or Matt Yglesias’s “The Rent is Too Damn High,” or Ryan Avent’s “The Gated City.”

But a new report from the McKinsey Global Institute offers an curious twist on this old tale. The United States, it turns out, actually derives more economic benefit from its cities than any other country on the planet. Roughly 83 percent of America’s GDP came from its “large cities,” defined as cities with a population of 150,000 or more. By contrast, China got 78 percent of its GDP from large cities and Western Europe got a surprisingly small 65 percent of its GDP from its large urban areas. Here’s the chart:

The report’s authors argue that the city gap between the United States and Europe account for about three-quarters of the difference in per capita GDP between the two. In other words, the United States appears to be wealthier than Europe because it has a greater share of its population living in large, productive cities.

All told, some 80 percent of Americans live in large cities, versus just 58 percent of Western Europeans. Why the difference? The McKinsey report explains language barriers in Europe have made migration from rural to urban areas somewhat slower on that continent. Also, various E.U. programs have “transferred funds from richer metropolitan regions in its member states to poor rural ones.” Government spending in Europe has helped limit urban migration.

That’s noteworthy in light of the fact that various commentators have often complained that the U.S. Congress has a rural bias (in part because of the way the Senate is structured). David Leonhardt, for instance, has argued that, in the United States, “suburbs and rural areas receive vastly more per-person federal largesse than cities.” There’s some debate over Leonhardt’s numbers, but either way, the McKinsey report suggests that Western Europe has a much larger anti-city bias in its policies — and is somewhat poorer as a result.

In any case, the report also notes that America’s largest cities will continue to play an outsized role in the global economy. In 2025, the report predicts, about 600 cities around the globe will account for 60 percent of the world’s GDP. And one in seven of those will be located in the United States, with New York and Los Angeles number one and number six, respectively. (China, meanwhile, will be catching up fast.)

“The United States has a broader base of large cities than any other region,” the report concludes, “and that explains their greater economic clout.”

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