WHY METROPOLITAN GOVERNANCE MATTERS Abel Schumann – Public Governance and Territorial Development Directorate, OECD

1. Urbanisation trends in a global perspective

2. The economics of urbanisation

3. Why do we care about metropolitan governance

4. What do we know about metropolitan governance

5. How to build effective metropolitan authorities

Agenda

WORLDWIDE URBANISATION

3

1990

2010

Urbanisation is proceeding at an

unprecedented scale

4

0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

0,8

0,9

1950-1970 1971-1990 1991-2010 2011-2030 2031-2050

Developed countries

Developing & emerging countries in Asia

Developing & emerging countries in other regions

5

The world’s urban population is growing

at the fastest speed

Source: UNDESA Population Division (2012), World Urbanization Prospects: The 2011 Revision

Number of new urban dwellers (1950-2050)

Bil

lio

ns

6

The speed of Asian urbanisation is

unprecedented

1750 1775 1800 1825 1850 1875 1900 1925 1950 1975 2000 2025 2050

China, People's Rep. of

Bhutan

Lao PDR

Indonesia

Viet Nam

Asia and the Pacific

Europe

North America

Latin America andCaribbean

Number of Years from about 10% to 50% of Urbanization Rate

10% 49%210 years

9% 51%105 years

12% 51%150 years

11% 51%95 years

12% 50%90 years

12% 54%65 years

10% 52%60 years

10% 51%55 years

11% 51%61 years

Source: ADB estimates using Bairoch (2008) and UN(2012).

Urbanisation is accompanied by an

increase in the number of mega-cities…

Source: Montgomery, Mark (2015), presentation at the 1st JRC urbanization workshop

Number of cities by population size

…but mid-sized cities are still home to

the majority of the urban population

Source: Montgomery, Mark (2015), presentation at the 1st JRC urbanization workshop

Urban population by city size

• What counts as urban?

– Denmark: Towns with more than 200 inhabitants

– Japan: Cities with more than 50,000 inhabitants

– Togo: 21 prefecture capitals defined in 1981

• The U.N. has data for 1779 cities that is based on

– 642 cities proper

– 974 urban agglomerations

– 163 metropolitan areas

Data can show us general trends, but needs to be used cautiously

A note about urbanisation data

Source: UNDESA Population Division, World Urbanization Prospects, 2014

THE ECONOMICS OF URBANISATION

10

1990

…but urbanisation alone is no

guarantee for economic success

Source: OECD calculations based on World Bank World Development Indicators (2014)

Economic performance and urbanisation from 1970-2005

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

% 20% 40% 60% 80% 100%

GD

P p

er

ca

pit

a r

ela

tiv

e t

o t

he

Un

ite

d

Sta

tes

Share of urban population

Mexico

Urbanisation and per capita GDP

Note: Data points by country and year (1980-2013). Vertical axis: Per capita income as share of U.S. value Horizontal axis: Share of urban population.

Asia Latin America

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

% 20% 40% 60% 80% 100%

GD

P p

er

ca

pit

a r

ela

tiv

e t

o t

he

Un

ite

d

Sta

tes

Share of urban population

Korea

Normalised variation in labour productivity

between metro areas

0

0,05

0,1

0,15

0,2

0,25

0,3

0,35

0,4

0,45

0,5

Note: Standard deviation of labour productivity across metro areas divided by mean labour productivity Source: OECD Metropolitan Database

Share of GDP growth from metro areas

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Source: OECD Metropolitan Database

Urbanisation can benefit economic

growth…

Agglomeration effects make larger cities more productive

15 Source: OECD (2015), The Metropolitan Century

Larger cities have higher GDP per capita levels:

• They benefit from agglomeration effects – Larger local labour markets, faster spread of

ideas, more competition, more efficient use of infrastructure, …

– For a doubling in city size, productivity increases by 2% - 5%

• They have higher human capital levels

• They are often trade and transport hubs

• They offer opportunities for rent extraction

The economics of urbanisation

Connectedness to cities also benefits surrounding regions

The economics of urbanisation

Cities create agglomeration benefits – but also agglomeration costs

The economics of urbanisation

The economics of urbanisation

Income inequality has increased most strongly in large cities

WHY ARE WE INTERESTED IN METROPOLITAN

GOVERNANCE ?

20

WHAT IS A CITY?

21

Administrative boundaries are not the

answer

22

• Definition of Functional Urban Areas based on population density in 1km2 cells that are matched to municipal boundaries and connected via commuting patterns.

• Urban centres are identified by aggregating densely populated 1km2 cells. Urban centres with at least 50,000 inhabitants are kept.

• They are matched with the boundaries of the lowest administrative level for which statistical data is typically available (NUTS5/LAU2)

• Urban centres and the less densely populated municipalities in the commuting zone are combined into Functional Urban Areas based on commuting flows (>15%).

• More info: OECD (2012) Redefining Urban

• http://measuringurban.oecd.org

Definition of functional urban areas

(FUAs)

23

Horizontal administrative fragmentation is common as cities outgrow their historic boundaries (more than 10 local governments in 75% of OECD Metropolitan Areas; more than 100 in 22%).

This may lead to undesirable outcomes due to lack of cooperation and negative externalities.

Evidence from case studies points to administrative fragmentation indeed having negative effects.

This is confirmed by more systematic econometric evidence:

Ahrend, Farchy, Kaplanis and Lembcke (2014), “What Makes Cities More Productive? Agglomeration Economies & the Role of Urban Governance: Evidence from 5 OECD Countries”, forthcoming in Journal of Regional Science

Urban areas are highly fragmented

24

City productivity & administrative

fragmentation

25

What determines productivity in cities?

Focus on cities’ size and their governance structures

Evidence for 5 (+2) OECD countries: Germany, Mexico, Spain, UK and US; Netherlands and Japan

Empirical strategy: Two-step microdata based approach

(Combes, Duranton and Gobillon, 2011) :

i. individual (Mincerian) wage regressions to estimate the differential productivity levels of cities, controlling for sorting (on observables)

ii. explain the differential city productivity levels found in the first step by regressing them on a number of city explanatory variables

What determines productivity in

urban areas?

26

• Productivity increases by 2-5% for a doubling in population size

• Productivity falls by 6% for a doubling in number of municipalities

What determines productivity in urban

areas?

WHAT DO WE KNOW ABOUT METROPOLITAN GOVERNANCE?

28

• Data focuses on permanent structures of cooperation: – Do Governance Bodies exist?

– What are their powers, fields of work, budgets, staff numbers, etc.?

– Who is represented on them?

• Governance Bodies can be classified in four categories – a) Organisations based on informal/soft-coordination

– b) Inter-municipal authorities • i. (Single-purpose)

• ii. Multi-purpose

– c) Supra-municipal authorities

– d) Metropolitan Cities

29

OECD Metropolitan Governance Survey

• Approximately 280 metropolitan areas with more than 500,000 inhabitants exist in OECD countries

• Two-thirds of them have some form of metropolitan authority

• Great variety in tasks and competencies

Metropolitan Authorities

No metropolitan authority

31%

Metropolitan authority without

regulatory powers

51%

Metropolitan authority with

regulatory powers

18%

Example: Effective inter-municipal

authority

• Established by state law • Covers 2.2 million inhabitants in 75 municipalities • Controlled by an assembly of municipal representatives • Budget 15 million euro • 123 staff members • Municipalities pay 5.66 euros per inhabitant

Facts & figures

• Creation and enactment of regional land-use plan that forms the basis for local land-use plans

• Support of municipal administrations in technical issues • Regional economic development • European affairs • …

Tasks

Regional association Frankfurt Rhine-Main

Metropolitan Authorities: Fields of work

Three fields of work dominate

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

• Urban sprawl creates negative externalities in Metropolitan areas (MAs)

• Cooperation is a way to internalize the externalities when making policy decisions

• -> Sprawl decreased in MAs with governance body, but increased in those without!

Governance bodies can reduce sprawl

Difference significant at the 99%-level after controlling for log-population levels and country specific trends.

-0,8

-0,6

-0,4

-0,2

0

0,2

0,4

0,6

0,8

1

1,2

1,4

With Governance Body

Without Governance Body

Change in Urban Sprawl

Governance bodies can increase well-being

55%

60%

65%

70%

75%

80%

With Transport Authorities

Without Transport Authorities

Share of Citizens Satisfied with Public Transport • Citizens are more

satisfied in MAs that have sectoral authorities for public transport

• Those MAs have also lower pollution levels (PM)

Based on European Urban Audit perception survey. Difference significant at 95% level.

• As previously mentioned, within countries, cities with fragmented governance structures have lower levels of productivity.

– For a given population size, a metropolitan area with twice the number of municipalities is associated with 5-6% lower productivity.

• Effect mitigated by almost half when a governance body at the metropolitan level exists.

Ahrend, Farchy, Kaplanis and Lembcke (2014), “What Makes Cities More Productive? Agglomeration Economies & the Role of Urban Governance: Evidence from 5 OECD Countries”, forthcoming in Journal of Regional Science

35

Governance bodies positively affect

economic productivity

• Attempt to increase evidence about metropolitan governance bodies

• Survey sent to Metropolitan Governance bodies in selected countries

– Austria, Canada, France, Germany, Mexico, Netherlands, New Zealand, Sweden, Switzerland, United Kingdom, and United States; main criteria language

• Managed to get reply from 56 Metropolitan Governance Bodies (response rate 40%) – roughly a quarter of existing MGBs in OECD countries

New work:

36

0%

5%

10%

15%

20%

25%

Frequency (%)

Higher population

0

Source: 2nd Metropolitan Governance Survey, n = 56

Respondents by population size

Source: 1st and 2nd OECD Metropolitan Governance Surveys

Positive selection bias? (Better organised

MGBs more likely to respond?)

28,9%

54%

0%

10%

20%

30%

40%

50%

60%

1st Survey (Based on Websites, n = 142)

2nd Survey (n = 56)

Share of MGBs with legislative or regulatory authority is higher…

51

30,5

0

10

20

30

40

50

60

Median MGB Staff (Based on Websites, n = 95)

2nd Survey (n = 56)

… but Median MGB staff is lower than the first survey

NB. Figures based on the same 11 countries (Austria, Canada, France, Germany, Mexico, Netherlands, New Zealand, Sweden, Switzerland, United Kingdom, and the United States)

Los Angeles

London

Chicago

Dallas

Philadelphia

Munich

Dortmund

Hamburg

Miami Atlanta

Seattle

Stuttgart

Nuremberg

Cologne

Leipzig

Orlando

Vienna

St. Louis

Frankfurt

Stockholm

Kansas City

Charlotte

Austin

Raleigh

Portland

Auckland*

Amsterdam

Basel

Cuernavaca

Cleveland

Edmonton

Ottawa-Gatineau

Edinburgh

San Luis Potosí

Mérida

Karlsruhe

Zurich & Louisville**

Gothenburg

Geneva

Dayton

Augsburg

Tuxtla Gutiérrez

Baton Rouge Grand Rapids

Utrecht

Charleston Oaxaca de Juárez Wichita

Madison

Wellington

Strasbourg

Saint-Étienne Peoria

Saarbrücken

1

10

100

1000

200.000 2.000.000 20.000.000

Number of municipalities

covered by MGB

MGB Population

Log 10 scale

Log 10 scale

Source: 2nd Metropolitan Governance Survey, n = 56 *Auckland Council is a single municipality ** These 2 cities have almost the same population size and number of municipalities.

linear regression line

Population and municipalities covered by

MGBs

21.2

78

1.5

15.5

0

10

20

30

40

50

60

70

80

90

Median Budget, USD per capita Median Staff

Legislative/Regulatory Powers No Legislative/Regulatory Powers

Source: 2nd Metropolitan Governance Survey, n = 56

MGBs with regulatory powers have larger

staff and higher per capita budgets

79% 64%

80%

36% 38% 38%

18%

80% 75% 77%

43% 43%

34%

34%

80%

70% 73%

34% 45%

46%

40%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Policy Facilitation

Provision of Technical Expertise

Monitoring & Data

Collection

Operational Management

Strategic Management

Allocation of Funding

Legislative & Regulatory

Regional Economic Development Spatial planning Transport

43% 34%

45%

20% 18% 25% 21%

30% 23% 30% 21% 23% 18% 13%

52% 50% 52%

29% 34%

30%

10%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

100%

Policy Facilitation

Provision of Technical Expertise

Monitoring & Data

Collection

Operational Management

Strategic Management

Allocation of Funding

Legislative & Regulatory

Water and Sewage Waste Culture

Source: 2nd Metropolitan Governance Survey, n = 56

Functions of MGBs in Fields of Activity

55% 52%

50% 49% 48%

43% 40%

17% 18%

16%

23%

20%

10% 13%

30%

0%

10%

20%

30%

40%

50%

60%

Characteristics of service provision Pricing of services

Share of MGBs in a field with influence on

service provision and pricing

Source: 2nd Metropolitan Governance Survey, n = 56

MGBs' annual per capita budget and staff

for certain main fields of activity

4,5

26,4 33,6

30,5

103

126

0

20

40

60

80

100

120

140

Median (n = 56) Water & and Sewage Waste

Median Budget (USD per capita) Median number of Employees

Source: 2nd Metropolitan Governance Survey, n = 56

64,3% 60,7%

41,1%

33,9%

26,8%

17,9%

12,5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Transfers - Interm. level

Transfers - Government

Transfers - Municipalities

Service provision fees

Charge member fees

Other sources** MGB can levy taxes

Source: 2nd Metropolitan Governance Survey, n = 56; ** - EU funds, foundations, …

Sources of Funding of Surveyed MGBs

3,9

12,0

3,4

25,4

6,4

21,2

373

0

5

10

15

20

25

30

35

40

45

50

Transfers - Subnational

level

Transfers - Government

Transfers - Municipalities

Service provision fees

Charge member fees

Other sources**

MGB can levy taxes

Source: 2nd Metropolitan Governance Survey, n = 56

Median per capita budget (USD) by source

of funding

62,5% 64,3% 42,9%

30,4% 16,1%

25%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Local Governments (Municipalities)

Subnational Governments National Governments

A leading role A minor role

Source: 2nd Metropolitan Governance Survey, n = 56

Role of different levels of governments

in establishing MGBs

44,6%

23,2%

23,2%

7,1%

1,8%

Mandated by national/state law

National or State law, non mandatory

Voluntary but enforceable agreement

Entirely informal agreement

Home rule charter

Source: 2nd Metropolitan Governance Survey, n = 56

Legal basis of surveyed MGBs

1,9%

5,6%

18,5%

14,8%

1,9%

18,5%

25,9%

13,0%

0%

5%

10%

15%

20%

25%

30%

1920s 1950s 1960s 1970s 1980s 1990s 2000s 2010s

Source: 2nd Metropolitan Governance Survey, n = 56

Year of establishment of MGBs Share of each decade

Coordination necessary between:

• Great variety in approaches

• No one-size fits all solutions

• Appropriate tasks depend on local circumstances

• Different models within the same country can be appropriate

Policy coordination in metropolitan

areas

between local governments

across different policy areas

Coordinated approaches

• Non-binding coordination (e.g. Gauteng Spatial Framework, South Africa, many MPOs, United States)

• Joint modelling and data (e.g. ITLUP, United States)

• Integrated authority (e.g. metropolitan cities in Korea, Stuttgart, Germany)

• National-government led planning (e.g. Copenhagen, Demark)

Metropolitan authorities

Transport planning

Land-use planning

• Often controlled by national/intermediate levels of government

• Often controlled by the lowest level of government

• Policies not only need to be coordinated across jurisdictions

• Coordination across policy fields is equally important

• In particular, land use and transport policies need to be coordinated in metro areas

– Both policy fields highly complimentary

– Good outcomes in one field only possible with good outcomes in the other field

Good governance for metro areas

When considering metro governance reform, pay attention to the reform process

• Focus on the outcomes that are supposed to be achieved

• Encourage long-term cooperation between involved actors

• Compensate actors that lose from the reform

• Monitor outcomes of the reform to judge if it is effective

Good governance for metro areas

HOW TO BUILD EFFECTIVE METROPOLITAN AUTHORITIES?

54

Identify metropolitan projects to motivate collaboration

Build ownership among key stakeholders

Create reliable sources of metropolitan financing

Provide incentives and compensation for compromises

Implement a long-term process for metropolitan monitoring and evaluation

5 Steps for effective metropolitan

governance reform

• Creation of the Rhein-Main Transport Authority (Frankfurt 1995)

Integrated Public Transport System

• Creation of the Organisation for Planning and Environmental Protection (Athens 1985)

Olympic Games

• Creation of the Chicago Metropolitan Agency for Planning (2005)

GO TO 2040 Plan

Identify projects to motivate

collaboration

National government leadership!

Support from intermediate levels

of government

Private sector backing

Engagement of the civil society

Involvement of universities to

develop metropolitan

strategies

Create ownership among key

stakeholders

Own sources

Property tax

Income tax

Sales tax

Business tax

Congestion charges

Public transport fees

Parking fees

Transfers

Equalisation grants

Unconditional grants

Conditional grants

Capital finance

Development Charges

Land-value capture

Concessions

Bond issues

Ensure reliable sources of funding

Every reform creates losers

Compensate them!

Provide incentives and compensation

Examples Fiscal incentives

Greater flexibility in deciding how to cooperate

Greater political powers

It is never guaranteed that a reform succeeds

Specify objectives that are supposed to be achieved in advance

Monitor if progress towards the objectives is made

Adjust, if the reform is not effective in achieving desired outcomes

Metropolitan monitoring and evaluation

THANK YOU Contact: abel.schumann@oecd.org