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Two people in front of a cityscape
The headquarters of Amazon and Microsoft are situated in Seattle, on the west coast of the US. The city is flourishing and is the second most popular location among startups after Silicon Valley. Photo: Bloomberg

The future is urban. More than half of the world's seven billion people already live in cities. In fifty years' time, the number of people living in cities will exceed today's entire global population.

The economist and Harvard professor Edward "Ed" Glaeser has spent a large part of his research life investing what he calls "the greatest invention of mankind". In his 2011 book Triumph of the City, and in several research articles since, he describes the advantages of living in close proximity to other people. Cities make us richer, smarter, greener, healthier and happier according to the book's sub-title.

At SKAGEN Funds' New Year's Conference, Ed Glaeser will be speaking about some of the strongest driving forces behind the global economy. These include urbanisation, greater prosperity, demographic change and sustainability. These are all things that will be crucial to one's future success as an investor.

Restaurants and hip hop

Ed Glaeser's thesis builds on the idea that people and ideas develop in collaboration with others. When people are in the same place, close to each other and meeting face to face, a cross-fertilisation takes place, which provides fertile conditions for innovation and new business. Many things from restaurants to the legendary record company Def Jam Records, which brought hip hop into the mainstream, have come about precisely as a result of people living in close proximity.

Cities also allow employers to connect with employees and offer broader work and development opportunities. The bigger the place you live in, the greater the chance of being able to create a better life for yourself, argues Glaeser.

Some cities more prosperous than others

What is it that makes some cities flourish while others fail? According to Glaeser the answer has more to do with consumption than production.

While the US "Motor City" of Detroit has not managed to adapt after industry jobs disappeared, for example, Seattle has fared much better. Here, forward-looking entrepreneurs from the IT giant Microsoft to the coffee chain Starbucks have managed to create new businesses that respond to consumers' new preferences.

Healthier and happier in cities

Glaeser has become known as an opponent of urban sprawl, i.e. the expansion of human populations away from central urban areas, which characterises many parts of Europe and the US. Rather he favours building high, also in emerging market countries. Problems such as smog, overcrowding and failing hygiene conditions can be resolved. Suburbanisation, on the other hand, not only inhibits growth, but is an "ecological disaster".

If you live in a densely populated area, you are less reliant on your car to get to work, the shops, leisure activities, schools, etc., and this in turn leads to lower Co2 emissions. Energy consumption is also lower in cities thanks to the fact that homes are smaller and less energy is required for heating and cooling.

Moreover, city-dwellers are healthier, live longer and deem themselves happier, according to the professor's studies.

There are disadvantages too, of course, and Glaeser acknowledges that "urban proximity makes it easier to trade in thoughts or goods, but it also makes it easier to exchange bacteria or steal a handbag."

More about Edward Glaeser

Glaeser is Fred and Eleanor Glimp Professor of Economics at Harvard University. He grew up in Manhattan, New York, and obtained his B.A. in economics from Princeton University and his Ph.D. in economics from the University of Chicago. A large part of his research focuses on economics, housing, entrepreneurism, segregation and criminality in urbanised society. He will be the keynote speaker at SKAGEN's New Year's Conference in Copenhagen on 11 January 2018.

Cities of the future

By 2045 the number of city-dwellers is expected to have risen to six billion, according to the UN. The greatest increase will occur in developing countries. With global mega trends such as new technology, digitalisation, demographic change, greater prosperity, climate change, sustainability and, not least, the urbanisation wave, cities will play an even greater role in the global economy.

Further reading

SKAGEN Kon-Tiki's portfolio manager: Urbanisation still the key driver for China

Superior demographics and urbanisation trend underpin growth in emerging markets

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