Last week I wrote about three global trends creating risk and exerting a powerful influence on compliance — population growth, swelling money supply, and proliferating regulation. There’s another global trend but it’s usually overlooked in conversations about risk and compliance: urbanization.
Over the past 70 years, while the global population increased by 250 percent from 2.5 billion people to 8 billion, the global urban population grew twice that fast: from 751 million in 1950 to 4.5 billion today, a 500 percent increase.
In 1950, about 25 percent of the world’s population lived in urban areas; today it’s 56 percent.
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Urbanization isn’t only about risk. There are also benefits. Let’s start with a few of those.
Cities create dynamic markets and economic opportunities. Businesses come to serve those markets, and people come to work in them. There’s often better healthcare and more choices for education, and having daily necessities close to home is convenient.
Arts and culture flourish in cities — in part because the mix of people and ideas is so stimulating — and innovations in most fields originate there.
(What does “urban” mean? Surprisingly, there’s no universal consensus. The United Nations and World Bank generally adopt whatever meaning national authorities assign. That makes sense because we all know “urban” when we see it.)
The risks? Public health is an obvious one. We’ve just witnessed how a pandemic can spread in cities and disrupt everything. Natural and man-made disasters endanger more people occupying smaller spaces. Energy interruptions have more impact. High-density living magnifies supply chain problems. Civil unrest can overwhelm existing authority. And there’s more personal crime.
It’s unclear why personal crime rates in cities are higher than in nearby non-urban areas, but they often are. What are some possible causes? For one, cities attract criminals. More people with money mean more targets of criminal opportunity.
Proximity increases our wariness of each other and our fear. That might trigger more crime when people react (justifiably or not) to perceived threats instead of waiting for something terrible to happen to them.
Newcomers from the countryside leave behind their support groups — families, friends, co-workers, clubs, churches, and so on. Untethered from stabilizing networks, they’re more likely to succumb to lawless impulses, or so the theory goes.
Urbanization also brings the risk of institutional crime. It concentrates power in fewer hands per capita. And just as cities outgrow dated physical infrastructure, they also outgrow dated leadership infrastructure, often resulting in inadequate checks and balances on elected and appointed officials.
Relatively unrestrained mayors and city councilors (or whatever their local equivalents are called) end up controlling vast urban economies and making the rules for millions of inhabitants. It’s a recipe for rampant graft.
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The scale of today’s cities is astounding. Nine have over 20 million people: Tokyo (37.4 million), Delhi (30.3 million), Shanghai (27 million), São Paulo (22 million), Mexico City (22 million), Dhaka (21 million), Cairo (21 million), Beijing (20.5 million), Mumbai (20.4 million).
To even rank among the 20 biggest metropolitan areas requires a population of at least 16 million. Thirty-three cities have more than 10 million people.
China now has 155 cities with more than a million people. Since 1960, China’s urban population has gone from 16 percent of its total population to 63 percent. Indonesia’s went from 15 percent to 57 percent. Brazil’s from 46 percent to 87 percent. Angola’s from 10 percent to 67 percent. Uganda’s from 4 percent to 26 percent. And so on.
What about the future? Urbanization will keep going. The UN predicts that by 2050, about two-thirds of the global population will live in cities, which means urban areas will add around 2.5 billion more people.
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Even with honest and efficient leadership, fast-growing urban areas face enormous challenges. But when local governments are outdated and weak, when political patronage and nepotism are prevalent, problems pile up, creating a series of never-ending shortages.
Shortages are fertile ground for corrupt gatekeepers. They can extract bribes in exchange for access to basic services such as medical care, driver’s licenses, electricity, a place in school, building permits, even police protection. And pay-to-play becomes the rule for anyone trying to win public contracts.
Where’s that leave us? I’ve heard insurance companies talk about urban risks involving business disruption and property damage, and the U.N. talks about urbanization leading to more poverty and environmental degradation. But as I said at the outset, urban risks are usually overlooked; I don’t recall hearing urbanization mentioned at all in business discussions about risk assessment or compliance planning.
Is that surprising? Not really. We can measure the rate of urbanization, but we can’t yet measure how it has made the world more dangerous (assuming it has). Conventional wisdom says we can’t manage what we can’t measure, so we ignore it.
But the hyper-urbanization of the planet is one of the most significant global trends in history. When it comes to risk assessments and compliance planning, ignoring it seems, well, too risky.
That’s the dilemma and the challenge.
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