The tailwind of the energy commodity boom, which accelerated the pace of Russian economic growth at the beginning of the century, subsided as suddenly as it came. But while he put the wind in the sails of the commodity economy, the role of urban development faded into the background. For the commodity-based growth model with its Dutch disease, large cities were useful to the extent that they served to redistribute commodity rents to final consumption and non-tradable service sectors. The concentration of rent led to the fact that Moscow and St. Petersburg successfully coped with the task of its redistribution, which became centers of attraction for investment. But the potential of other large cities remained untapped, and they lagged behind in their development.

In terms of the distribution of pairwise distances (the distance between all possible two enterprises) between manufacturing enterprises created during the period since the beginning of the transition to a market economy, Russia is very similar to Canada. Both distributions have two “humps” - the distance between enterprises is no more than 100 km and in the region of 600–700 km. For Russia, this means that the majority of new industrial companies are concentrated in the two largest agglomerations - Moscow and St. Petersburg.

As for second- and third-tier urban agglomerations (with a population of more than 1.5 million and from 700,000 to 1.5 million people, respectively), they attracted much fewer investors. In 2012–2015 investments per capita in second- and third-tier agglomerations turned out to be 2 times lower than in Moscow and St. Petersburg. But all types of agglomerations in terms of the size of average per capita investments were 3–4 times inferior to the zones of focal development, where, in fact, the raw materials that served as the basis of the old model of economic growth were extracted.

Now, when the energy sector has lost its leading role in development, the palm is moving to non-resource sectors, which are becoming too crowded in the crowded metropolitan agglomerations. This turning point could turn into a high point for second-tier million-plus cities that were unable to realize their potential at the previous stage. What was recently a weak point in our economic space may become the key to accelerating the growth of the entire economy. We call these opportunities the “spatial dividend.”

Value added per capita in second-tier agglomerations (there are eight of them in Russia) is 30% lower than in Moscow and St. Petersburg. But compared to any other territories, second-tier agglomerations have the most significant opportunities to increase productivity through effects of scale. Each percent of population growth in the zone of one and a half hour transport accessibility from the center of a second-tier agglomeration ensures an increase in labor productivity by an average of 0.22% - this is significantly higher than in Moscow, St. Petersburg and third-tier agglomerations. This applies to companies in most industries and services that are not related to the extraction and primary processing of raw materials. Therefore, the expansion of the geographical area of second-tier agglomerations and the additional migration influx of population into them can make the greatest contribution to accelerating the growth of the non-resource economy compared to the increase in population in any other territories.

The best conditions for competition have developed in second-tier agglomerations. For example, the number of small businesses per 1,000 people in the largest municipalities is more than two times higher than in small municipalities.

But unlike Moscow and St. Petersburg, the size of second-tier agglomerations is still insufficient to make maximum use of the accumulated potential. For 2010–2015 the population of these agglomerations grew by only 4%, which is 2 times less than the population growth of the Moscow and St. Petersburg agglomerations. According to our estimates, unrealized opportunities for population growth in second-tier agglomerations amount to over 5 million people, which would mean an increase of 30% compared to 2016.

Additional opportunities for accelerating economic growth are associated with the creation of conurbations (agglomerations with two or more large urban centers) through the creation of high-speed transport communications between cities such as Kazan, Yelabuga and Cheboksary, Yekaterinburg and Chelyabinsk, Novosibirsk and Tomsk, Krasnodar and Rostov-na. -Don. With travel times between the centers of large cities reduced to less than two hours, their agglomeration areas are closed, and the scale of the economy increases sharply, which significantly increases productivity.

The development opportunities of large cities are still underutilized, but in general, their implementation is not so difficult. As our calculations show, there is a real opportunity to more than double the added value in second-tier agglomerations by 2030.

A survey of organizations conducted by the Center for Infrastructure Economics showed that for the vast majority of respondents, the key factors of the urban environment that influence efficiency are:

– good transport infrastructure (this condition was named by over 80% of respondents);

– affordable cost of renting premises and their availability;

– favorable social environment;

– landscaping of the territory;

- good ecology;

– the opportunity to rent affordable housing for staff.

Second-tier agglomerations already meet some of these requirements. For example, in terms of the integral indicator of social well-being and the level of safety (low crime and mortality in road accidents), the territories that are part of large agglomerations occupy leading positions.

The state of transport infrastructure, on the contrary, has become one of the main obstacles to development. Traffic congestion is a problem common to most major cities. Peripheral municipalities are isolated from the centers of the largest cities, which gives rise to high wage inequality between the center and the periphery. And there is practically no high-speed transport connection between the centers of neighboring agglomerations.

The development of transport infrastructure in agglomerations involves:

– creation of high-speed rail and road transport between the nearest large agglomerations;

– increasing the density of the capillary network in agglomerations, developing light rail transport and transport interchange hubs;

– development of international transport corridors passing through agglomerations (Trans-Siberian Railway in seven days, Europe - Western China, a network of container railway routes on a schedule).

This program will require an increase in annual investment of approximately 1% of GDP, mainly from budgetary resources. But they lead to faster economic growth and higher future tax revenues. Therefore, their financing is possible on the principle of “tax increment debt” (DIT) - through special government investment borrowings, the return of which is ensured by an increase in tax revenues due to the implementation of infrastructure projects. Pilot projects based on DPN are already in the preparation stage. Our calculations show that attracting 1% of GDP annually through this mechanism until 2030 will lead to an increase in public debt by only 6% of GDP, which does not threaten the stability of the budget system.

The development of social and commercial rental housing in agglomerations also seems to be a solvable task. The rental housing market may follow the path that the mortgage lending market has successfully traveled over the past 10 years. This will require, with the support of development institutions, to launch a mechanism for securitizing income from rental housing, which will be managed by specialized real estate companies, as well as create conditions for the placement of rental houses in the centers of large cities and in their old industrial zones that need redevelopment.

But the Achilles heel of many second-tier agglomerations is the state of the environment. In general, due to the high concentration of production and population, the environmental situation in large cities is much worse than in other populated areas. And if the environmental situation begins to go off scale, then it becomes an insurmountable obstacle to development. Among the million-plus cities of the second echelon, there are practically no cities that would have a low level of environmental planning index and at the same time be distinguished by a high level of the composite socio-economic index.

To take into account the potential contribution of second-tier agglomerations to future economic growth, we considered a balanced spatial development scenario for the period up to 2030. This includes not only the growth of agglomerations, but also more efficient development of small cities outside urban agglomerations. This scenario assumes a population growth in second-tier agglomerations by 30%, creating 186 million sq. m. m of housing and 10 million sq. m of commercial real estate, as well as the accelerated development of transport infrastructure.

This scenario makes it possible to create an additional 48 trillion rubles. added value, which is equivalent to an increase in average annual GDP growth rates by 0.8% compared to the base scenario. Over 3/4 of this additional growth is achieved through accelerating the development of the non-resource economy in second-tier agglomerations.

But this same scenario shows that small cities outside agglomerations also have chances for development. Their development is achieved through the optimal use of spatially immobile factors, i.e., the development of those industries that are associated with geographic location, natural resources, transport infrastructure and historical and cultural heritage. Such industries are generally insensitive to economies of scale and reach peak productivity in relatively small localities. In our scenario, due to the rapid development of these industries in small cities, over 20% of the total additional GDP growth occurs, i.e. about 10 trillion rubles. This shows that, contrary to popular belief, accelerating the growth of the non-resource economy in agglomerations does not lead to the devastation of sparsely populated areas, but, on the contrary, goes well with their smart and successful development.-

Authors: President of the Economic Partnership “New Economic Growth”; Vice President of LLC "Center for Infrastructure Economics"

The Urban Agenda series is published with the support of the Moscow Urban Forum 2017 and is dedicated to the development of global agglomerations

Previous articles in the series:

Bulat Stolyarov “First League of Cities”

Evgeny Kuznetsov “The city as an initiator and consumer of technology”

Vasily Gatov “The city as a message”

Alexey Komissarov “The Death and Renaissance of Urban Industry”

Transport, housing, ecology