As symbolized by the terms Industry 4.0 or the Fourth Industrial Revolution, the world surrounding us is becoming predominantly digital-centric and knowledge-intensive. That is leading to a transformation of people’s lifestyles and the very concept of industry. Where, then, are those knowledge-intensive industries located? The answer is, overwhelmingly in cities. It is cities — where diverse human resources and businesses converge — that make innovation possible.

Sociologist Richard Florida, a University of Toronto professor widely known for such works as “The Rise of the Creative Class” and “The Flight of the Creative Class,” says that the Earth is made up of 20 to 30 clusters of light — based on his observation of satellite images of the planet taken during the nighttime. He calls such clusters of light “mega-regions” and notes that 80 percent of innovations are created in such mega-regions. In other words, mega-regions are the sources of innovation.

Where, then, is the world’s largest cluster of light located? It is in the greater Tokyo metropolitan area — which has a combined population of 35 million. And that is a very strong point for Japan.

The greater Tokyo area is unparalleled in the world for its sheer population and size. Residents of Tokyo may not realize it, but when foreigners visit for the first time and travel to its suburbs by train, they invariably express their surprise at the uninterrupted rows and rows of houses alongside the railway tracks. The total output born out of the greater Tokyo area roughly equals that of Germany as a whole — because people and the output capacity are so heavily concentrated in the Tokyo mega-region.

A major feature of the greater Tokyo area is that its 35 million people live in orderly circumstances where public safety is maintained. There is also the historical background that Edo was already a city of 1 million people toward the end of the 18th century — a time when the populations of London and Paris stood at roughly 500,000. In the city of Edo at that time, residents must have been conscious of social capital and order so they could live in cooperation and safety in the limited available land. Every time I come back from an overseas trip, I feel it’s amazing that the sky is beautiful, the air is clean and the water tastes good in Tokyo even though it is a big metropolis with so many residents. I think that’s one of the great charms of Tokyo.

Tokyo has its weaknesses. The Institute for Urban Strategies of the Mori Memorial Foundation, of which I serve as director, has for the past 10 years compiled and released the Global Power City Index (GPCI) to rate the world’s cities. According to the GPCI, which gives comprehensive ratings by combining a total of 70 indexes, including economy, culture and environment, Tokyo is ranked the third after London and New York — even though its scores have picked up slightly in recent years. London replaced New York as the world’s No. 1 city when it hosted the 2012 Summer Olympic Games — and is expanding its lead over Tokyo in the comprehensive score. Tokyo is followed by fourth-ranked Paris and fifth-ranked Singapore, and the gap between Tokyo and Singapore is narrowing. Tokyo has a large number of wonderful elements, but at the same time it’s exposed to fierce international competition.

There indeed is a simulation showing that Tokyo can potentially become No. 1 if its scores in three out of the 70 indexes were to rise significantly — namely reducing its high corporate tax rates to the level of Singapore, easing its regulations and improving access to airports. Tokyo is hosting the Summer Olympic and Paralympic Games in 2020, and it should be closely watched whether the event can trigger rapid progress in domestic reforms and infrastructure development. Tokyo last hosted the Olympic Games 54 years ago, and that’s when the Tokaido Shinkansen, the super-express train service that’s representative of Japan, was launched. Many of the top-class hotels that have become key features of Tokyo today also opened around that time.

Professor Florida notes that the world inside mega-regions is not flat, but rather “spiky.” In a mega-region, there is a clear distinction between businesses and people that move forward with new innovations, and those that do not. In today’s world where the technology frontier has expanded and new innovations are taking place, spiky people play very important roles. Spiky human resources can be rephrased as creative people. It wouldn’t be an exaggeration to say that the future of a city depends on how many — and how diverse — creative people it can attract.

What are the conditions that attract creative human resources? First, those people will be drawn to places that have a high degree of freedom. Therefore, making laws to guarantee freedom and the rule of law are key. Second, the tax issue is important. A high marginal income tax rate will work to exclude creative people, and as it is Japan is handicapped in that matter. The last — and the most important — condition is whether there is culture and art in the city. As German philosopher Friedrich Nietzsche said, art is the most supreme thing in life, and its importance as been recognized since ancient times. Tokyo has its own strength in terms of art and culture that attract creative people.

Heizo Takenaka, a professor emeritus of Keio University, served as economic and fiscal policy minister in the Cabinet of Prime Minister Junichiro Koizumi from 2001 to 2005. He is a member of the government’s Industrial Competitiveness Council.

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