“Due to unexpected traffic conditions the bus may brake so please fasten your seat belt” That was the English version of the announcement made during the bus ride back to Narita Airport.
The richest city in the world with $1.5T of GDP, $116k of GDP per capita (more than twice that of Singapore) and over 13 million people — welcome to Tokyo!
Here are some random impressions after spending a day in Tokyo:
1. Great fresh food
2. Fantastic public transportation network: having lived in a megacity before (Shanghai) I thought that I saw everything there is to see when it comes to city development but Tokyo’s subway and rail network leaves Shanghai’s in the dust. There is even a dedicated space to stow bags in the subway, take a look:
3. Tokyo is exciting: I took the subway to visit few points of interest but I also got off at a random station just to see what it is like and it was happening. I walked a lot around the city and every street I saw had many restaurants, cafes, shops and nice buildings. Tokyo offers an eclectic mix of old and new, foreign and local, modern and traditional and I really miss that — Singapore has only few streets that are fun to walk in and almost all of them are concentrated in a small area in the city.
How do we explain Tokyo’s success being number one in the world in GDP per capita? If a business would exhibit such an outperformance we would look for a competitive advantage. The same competitive advantages that apply to business competition apply to cities as well and I wouldn’t want to be the mayor of a city that has to compete with Tokyo — Tokyo enjoys two very strong scale-based competitive advantages: network effect and economies of scale.
The network effect competitive advantage arises when the value of an ecosystem increases with each new user/customer (or resident, in the case of cities). Think about eBay: every buyer/seller that joins the site makes it more valuable for other potential buyers and sellers. Same with cities. Tokyo (similar to London and NYC) enjoys huge presence of top-tier companies and professional and that keeps on attracting more people and more businesses to this wonderful city.
Economies of scale is pretty obvious in the case of a city: If a new entrant, such as an aspiring financial hub like China’s Bin Hai New Area wants to compete with Tokyo, it has to invest a lot just to come near what Tokyo already has. While Tokyo can sustain it, new cities who try to put that infrastructure in place before going through decades of gradual development might find themselves going bankrupt (did I mention Bin Hai?). For instance, take a look at this subway map, it doesn’t even contain all the lines:
There are more advantages that make Tokyo what it is but just to summarize, Tokyo is a fantastic place and if Japan gets its act together this city should have a bright future. I wish I had more time to spend here, but Warren Buffett is waiting for me in Omaha and I don’t want to let him down.
That said, my overall economic view on Japan is lukewarm at best. How can one be optimistic about a country with a declining and aging population? The number of people aged 65 or older makes almost 25% of the population (it doesn’t feel like that in Tokyo) and the total population declines — last year it declined by 0.1% and that rate is set to increase. With fewer people who can produce goods and services and more people who require support it’s hard to be optimistic. The key to solve this issue is in the hands (or another organ…) of the Japanese men and women. Let’s hope they are will step up and change the current trajectory.
Sayonara Tokyo, I’m going to the US…