Productivity hand-in-hand with growth
As seen elsewhere in the QVARTZ Annual 2016, Professor Geoffrey West has many scientific breakthroughs to his name, among them his studies of cities. West proved that whenever a city doubles in size, every measure of economic activity increases by approximately 15% per capita. “This remarkable equation is why people move to the big city”, West says. “Because you can take the same people, and move them to a city that’s twice as big, then all of a sudden they’ll do 15% more of everything that we can measure”. Cities simply magnify humanity’s strengths – they spur innovation and entrepreneurship by facilitating diverse human interaction, and they attract talent and sharpen it through competition.
After looking at cities, West and his team turned to what they expected to be a similar subject: corporations. But it turned out that cities and companies differ in a very fundamental aspect: cities almost never die, while companies in comparison are short-lived and increasingly so. West analysed data from more than 25,000 publicly traded companies to find out why, and he discovered that corporate productivity is entirely unlike urban productivity. As the number of employees grow, the amount of profit per employee shrinks, which, according to West, reflects that efficiencies of scale are almost always outweighed by the burdens of bureaucracy: “When a company starts out, it’s all about the new idea, and then, if the company gets lucky, everybody is happy and rich. But then management starts worrying about the bottom line, and so all these people are hired to keep track of the paper clips. And that is the beginning of the end”.
It seems obvious that companies have something to learn from cities. Elsewhere in this publication, Danish superstar architect, Bjarke Ingels, says that all cities have a starting point, while none of them have a finish line. And this embrace of emergence, imperfection, constant renewal, self-organisation and purpose might be what we should aim for.