Mid-sized Cities: Punching above their weight

Cities like like Riverside and Raleigh aren’t exactly what you think of when you talk about the future of the American economy. But according to a recent report by the McKinsey Global Initiative (MGI), it is largely these “welterweight” cities – metropolitan areas with between 150,000 and 10 million people – that are the true engines of growth in the American economy.

As a follow-up to their recent analysis of the planet’s most economically powerful cities, MGI took a closer look at economic impact of mid-sized cities. In “Urban America: US Cities in the Global Economy,” MGI contends that it is not the megacities, like New York and Los Angeles that truly matter, but the “welterweights” that are responsible for the productivity advantages American metropolises have over cities in Europe and much of the developing world. America’s growing welterweights produce more than 70% of the country’s GDP. In Europe, welterweight only contribute about 50% of GDP.

But within these welterweights, all growth is not created equal. Population shifts toward sun belt cities with relaxed housing policies have pushed Atlanta, Houston, and Phoenix to greater prominence among the country’s 30 largest urban economies, while the likes of Milwaukee, Indianapolis, and Buffalo have dropped from the list altogether. In recent years, Houston’s GDP per capita has increased at the same rate as Detroit’s, but the divergent outcomes of the two cities have been driven by Houston’s rapidly growing population. MGI contends that a city’s GDP growth is not, however, solely driven by population gains.

By contrast, San Jose is gaining population by a modest one percent each year, but its per capita GDP has grown by three percent. These levels of productivity have allowed cities like San Jose, Washington, DC, and Boston to gain economic clout without a burgeoning population. MGI contends that an aging population, coupled with a smaller and increasingly less mobile workforce, will slow GDP growth for cities like Houston if they cannot offset these declines by increasing productivity or attracting migrants from abroad.

Some cities have even been able to combine the population growth of Houston with the productivity of San Jose. Dubbed “gazelles” by MGI, cities like Austin, TX and Raleigh, NC have significantly exceeded national growth rates in population and per capita GDP.

The overarching message to urban policymakers is that there are diverse paths toward an urban economic growth and that those paths exist in a dynamic global context. The report found that a diverse urban economy was less predictive of rapid growth than conventional wisdom suggests, and as a result, cities must use their unique strengths to tap into the emerging middle class of the developing world. The cities that can accomplish this might never rival New York or LA on the world stage, but as Urban America notes, these welterweights will find that there is much to be gained by “punching above your weight.”

Feature Photo: cc/dtraleigh