I was walking to a business meeting in Manhattan when I noticed a street display that caught my attention. "Dessert Delivery - Say it with flour," the sign stated with many generous ratings from the Zagat Guide and the New York Times. I walked into the store and grabbed a menu. The staff smiled and politely handed over a dessert delivery menu. Here was a store with an unusual business with a potentially useful service combined with an effective marketing program. This is a business with human capital, capitalizing on an innovative idea that would not work in smaller cities. Welcome to one city of the future.

The world is currently witnessing dramatic and rapid changes in the economy, culture and society. Within the past 2 months, violent riots and demonstrations have occured in 7 European countries. Undiversified cities around the world like Detroit are becoming a war zone with precipitous drops in property values and unemployment rates in the double digits. A major US security official ranks the economic debacle as THE biggest threat facing national security and governments, especially the United States. With all of this chaos, what will be the areas of most opportunity and prosperity in the future?

Paradigmatic shift from West to East

Nearly every management consulting firm has contibued to this discussion. Nearly every one of these firms has a section on their website on the paradigmatic shift from the West to the East. SIS International and I have lived this new paradigm since 1989, before many firms caught on.

It is clear that this Eastward shift is being accelerated by the recession. On our Market Intelligence blog, our analysts wrote on how IBM, with its "Project Match," is offering its US laid off employees the opportunity to relocate to Asia. The hitch: employees will likely be paid local salaries. This seems to be the turning point when people realize how much of a reality the shift from the West to the East has become.

What will bounce back?

"Global Cities" (New York, London, Tokyo, Shanghai, Hong Kong, Sao Paulo) will be very strong positioned to bounce back and be strong in the long term.

Even before the recession, there had been major movements of people to "Global Cities." These cities benefit from both the BEST human capital as well as flows of immigrants to support growth. This has been noticed in many developing countries like China, with expatriates and educated executives relocating to urban areas and with rural immigrants moving to Shanghai, Guangzhou and Beijing for factory jobs. There, they receive higher wages, rewarding their talent and hard work, unlike in smaller urban areas.

In the US, the opposite has been in effect. Mid-sized cities like Pheonix, Las Vegas and Tampa have benefited from skilled retirees moving to warmer climates, young people moving to these cities with higher quality of life as well as market bubbles that made these cities appear profitable. Yet, the economic cataclysm is making it increasingly difficult for specialists to prosper in these cities. This is not to say that Mid-sized will crumble. These cities have skilled specialists and strong resources. But, with economic turmoil on the horizon for a long time, talent is likely to relocate to cities to benefit from the few opportunities that exist, especially in the developing world and even in the US.

Can Global Cities Like New York Survive?

Very, very few US cities will avoid recession. The question is which cities will bounce back in a strong position in the next 5 years?

The economic problems are widely thought to have orginated out of New York, raising the question of whether a city highly dependent on the financial sector (20% of its budget), over 250,000 layoffs in only ONE industry and 50,000 more layoffs could ever bounce back.

After September 11th, New York had a "renaissance". While it lost many people, it gained new people who relocated to one of the nation's safest and properous large cities in the years following. New York City residents are quite satisfied in their leadership and the decrease in crime over the past few years. In the years to come, New York will face many challenges. While the city expects massive layoffs in one of its largest industries, it has developed a program to retrain these laid off executives. This will help keep some of the world's most valuable intellectual and human capital in the New York area.

London, Tokyo, Singapore and regional mega cities like Sao Paolo will likely remain strong in the longterm.

What about Dubai?

Dubai is in question. The city-state is facing severe challenges with a catastrophic real estate downfall and its intellectual capital (largely expatriates from abroad like India, Asia and Europe) have left, some by leaving in exodus without paying their bills and by dumping their rental cars in the parking lots of Dubai International Airport. Amidst dramatic challenges, it still is positioned as the epicenter of the Middle East with a strong financial sector with a government commited to fighting the crisis. Time will tell.

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