Features

How capital cities can turn into parasites

Capital cities can be key drivers of a nation's economy. But if politics becomes corrupt, they can become huge, bloated parasites, sucking the life out of the rest of the country. Seán Keyes explains how.

Cities have taken over. They are "humanity's greatest invention", according to Harvard University economics professor Ed Glaeser. In his best-selling The Triumph of the City he argues that they make us richer, greener and happier.

Cities grew up out of the countryside because people need to be close together to accomplish complicated tasks. In essence, they're big sorting machines for human capital, placing the right people close to one another so that they can help each other to work more efficiently.

Advertisement - Article continues below

Cities grow in a peculiarly predictable way. When you rank a country's cities from largest to smallest by population, the second-largest city will be half the size of the largest city, the third-largest city will be a third of the size of the largest, the fourth largest will be a quarter of the size, and so on down the ranking.

Subscribe to MoneyWeek and get your first six issues FREE

Subscribe to MoneyWeek now and get your first six magazine issues absolutely FREE

In other words, the population of a city is inversely proportional to its rank. This is known as Zipf's Law, and nobody knows what causes it.

The relationship holds for almost all countries, and has done for at least 100 years. No urban planner imposes it. It hints mysteriously at the forces of attraction and repulsion that bring people to cities. Transport costs, trade and industrial economies of scale pull people together; congestion pushes people away.

Paul Krugman, whose Nobel prize was awarded for his contribution to economic geography, said that "the usual complaint about economic theory is that our models are oversimplified that they offer excessively neat views of complex, messy reality. [In the case of Zipf's Law] the reverse is true: we have complex, messy models, yet reality is startlingly neat and simple."

Advertisement - Article continues below

And capital cities are more than that. They drive their host country's economy by sucking in the national talent and hot-housing it. Media and politics tend to concentrate there so that the capital often dominates the national culture.

But corrupt politics corrupts the city it inhabits. And that's when capital cities turn from economic growth engines into parasites, sucking the life out of their nations.

Why dictatorships breed bloated capitals

In authoritarian regimes, the capital city can swell on its host country like a leech. These cities don't grow just by sorting talent and capital. They grow by stealing resources from the hinterland.

In unstable, undemocratic societies, among the only ways a group can make its voice heard is through violence or the threat of violence. So people mob up. But a distant mob isn't much of a threat. So to be effective, the mob has to stay close enough to the base of power in order to threaten it, so it can then be bought off.

Advertisement - Article continues below

Therefore, if you have a weak, easily influenced government, the size of the city that hosts it is likely to expand. Such governments absorb resources from the rest of the country via taxes, then distribute them in the capital via local cronies, or to pay off agitators.

So people are drawn to move close to their dictators because of demand created by the concentration of wealth; the desire to influence them, which is impossible in the hinterland; and the bribes paid to them to maintain order in the capital.

In practice, there's plenty of evidence to support this theory on average, the capital city in a dictatorship is 50% larger than in a democracy. And the evidence over time seems to show that the causation runs from politics to city size, and not the other way around.

Rome - the first great parasite city

Ancient Rome is a clear example. Rome dominated the Mediterranean and much of Europe with its huge, efficient army. The army firmly controlled its empire for centuries. At the centre of it all was the sprawling capital. At its height, Rome's population probably stood at over 1,000,000 - twice the size of the largest city in history up to that point.

Advertisement - Article continues below

Yet while it controlled most of the known world, the Roman government was weak. Its authority was challenged repeatedly by Italian rebels, forcing it to extend Roman citizenship to all Italians.

And the city was a restless place. It was harder for the Roman government to subdue the mob in the capital city than its subjects at the edge of the empire. So it bought them off. The Egyptian grain harvest was shipped to Rome, where it was used to buy the loyalty of the local plebs.

At first the grain was subsidised. Then, it was distributed free to anyone willing to stand in line to collect it. Perhaps 50,000 or so applied at first, but the numbers swelled. By 46 BC, 320,000 people a third of the city's population - were dependant on the grain dole.

The number of unemployed people and the huge city bureaucracy that fed them suggests clearly that Rome's size was primarily a result of government transfers sucking resources from its empire and squandering them on bribes to keep the population docile.

Advertisement - Article continues below

The unemployed multitudes needed entertainment, so lavish spectacles were staged. The bread and circuses were paid for by the occupied provinces. Rome's size was a function of the provinces' subjugation.

This parasitism or its legacy can be seen in many of the world's greatest cities today. Moscow, Tokyo, Mexico City and Buenos Aires are all mega-cities which at one time or other hosted unstable, undemocratic regimes. All of them violate Zipf's law.

Closer to home, the city of Dublin constitutes almost half the population of the Republic of Ireland, and it served as the seat of authoritarian power in that country during British rule. London grew most strongly during the reign of the Stuarts, who were England's most dictatorial kings with little regard for the political rights of the hinterland. James I, for example, re-established trade monopolies and gave them to large London merchants, and imposed naval taxes on hinterland territories.

Cities reflect their societies

A capital city reflects its society. It can be a beacon of cooperation and civilisation, what Descartes called "an inventory of the possible". But if politics fails a country, its great city will grow like an ugly symbol of that failure. The great cities are concrete symbols of a nation's freedom, or of its tyranny.

Recommended

What is fiscal drag?
Too embarrassed to ask

What is fiscal drag?

How can politicians raise more tax revenue, without damaging their political popularity too badly? One way is by using “fiscal drag”. Here's what that…
18 Nov 2022
US inflation drops to 7.7%
US Economy

US inflation drops to 7.7%

Costs for rents increased, but the price of cars, clothes and medical care helped slow the rate of inflation in the US
11 Nov 2022
UK economy shrinks 0.2%. Is a recession on the way?
UK Economy

UK economy shrinks 0.2%. Is a recession on the way?

The latest figures showed the UK economy shrank by 0.2%, and we seem to be heading for a recession. How will this affect you?
11 Nov 2022
What is a recession and how will it affect you?
UK Economy

What is a recession and how will it affect you?

The UK economy is heading towards a recession, according to economists. But what is a recession, and what does it mean for your money?
11 Nov 2022

Most Popular

Is it cheaper to leave the heating on low all day?
Personal finance

Is it cheaper to leave the heating on low all day?

The weather is getting colder and energy bills are rising, but is it really cheaper to leave the heating on low all day or should you only turn it on …
1 Dec 2022
Radiator vs electric heater – which is cheaper?
Personal finance

Radiator vs electric heater – which is cheaper?

We compare the costs, pros and cons of radiators and electric heaters and see which one will help keep your energy bill as low as possible.
28 Nov 2022
State pension errors – why tens of thousands of mothers could be missing out on millions in state pension payments
State pensions

State pension errors – why tens of thousands of mothers could be missing out on millions in state pension payments

LCP launches Mothers Missing Millions campaign amid DWP state pension errors.
3 Dec 2022