London 2062: The Future of the London Economy Jurgen Essletzbichler Department of Geography UCL j.essletzbichler@ucl.ac.uk
Overview
• • • • •
What makes cities grow? What to do when confronted with uncertainty? London’s economy now Why growth is not enough? How to develop a resilient and inclusive city?
What makes cities grow?
• Basic ideas go back to Alfred Marshall (1890) and Jane Jacobs (1969) • Urbanization and localization economies • Externalities – Specialization (Marshall-Arrow-Romer or MAR) – Competition (Porter) – Diversity (Jacobs)
• Path-dependent evolution at the intersection of novelty creation and lock-in
Externalities: Empirical results based on meta-analysis
Source: De Groot, H., Poot, J., Smit, M (2010) Cities and Growth: A Meta-Analysis
Diversity necessary to maintain adaptive capacity to uncertain future challenges • Results depend on geography, time frame, choice of dependent variable, included control variables, etc. • But: Studies focusing on long-run tend to result in positive and significant diversity effect • This suggests portfolio-effect of diversity necessary to maintain the adaptive potential of an entity facing uncertainty (Stirling 1998; 2007) • But probably at cost of short-term efficiency gains and innovativeness • Possible solutions? Related diversity, clustered diversity, …(Frenken et al. 2007; Simmie et al. 2006, Neffke et al. 2011)
Related variety arguments
• New industries are most successful if cities branch into sectors that are related to existing knowledge base • Branching into identical sectors results in lock-in • Branching into very different sectors impedes spillovers
London’s economic structure, 2010 Primary and utilities Manufacturing Construction Wholesale Retail Transport & Storage Accommodation &Food Services Information & Communication Finance & Insurance Property Professional, Scientific & Technical Business Admin Services Education Health Public Admin Arts & Other Services Total
Inner L. 11.5 42.6 64.3 69.8 191.1 85.6 203.5 236.7 295 69.8 429.4 262.4 160.3 213.3 149.7 151.5 2,636.50
thousands Outer L. UK 14.6 882 73.7 2,445 85.3 1,395 104 1,687 188.1 2,955 132.6 1,263 104.2 1,895 81.6 1,066 40.6 1,062 29.2 456 128 2,092 189 2,217 169.9 2,603 190.5 3,678 84.7 1,571 83 1,328 1,699.00 28,595.00
Inner L. 0.4 1.6 2.4 2.6 7.2 3.2 7.7 9.0 11.2 2.6 16.3 10.0 6.1 8.1 5.7 5.7 100.00
Percent Outer L. UK 0.9 3.1 4.3 8.6 5.0 4.9 6.1 5.9 11.1 10.3 7.8 4.4 6.1 6.6 4.8 3.7 2.4 3.7 1.7 1.6 7.5 7.3 11.1 7.8 10.0 9.1 11.2 12.9 5.0 5.5 4.9 4.6 100.00 100.00
LQ IL 0.13 0.19 0.49 0.44 0.70 0.73 1.17 2.43 3.03 1.63 2.23 1.28 0.67 0.63 1.04 1.24
LQ OL 0.29 0.50 1.02 1.03 1.08 1.77 0.92 1.30 0.65 1.06 1.03 1.42 1.10 0.87 0.91 1.07
Source: ONS briefing note, BRES 2010: London
Employment trends, London 400000
Finance jobs
350000 300000 250000
London as percent of UK
Dec-09
Dec-97
Insurance, auxilliary
Dec-07
100000 Dec-05
Banking
Dec-03
150000 Dec-01
Finance
Dec-95
35 34 33 32 31 30 29 28 27 26 25
Dec-99
200000
Percentage of total London emp. 10 9 8
Dec-09
Dec-07
Dec-05
Dec-03
Dec-01
Dec-99
Dec-97
Dec-95
7 6 5 4 3 Dec-09
Dec-07
Dec-05
Dec-03
Dec-01
Dec-99
Dec-97
2 Dec-95
Source: Nomis, ONS
Result on inequality
Because of it’s economic structure, income inequality more pronounced in London
In addition: over 20% youth unemployment rate (especially among those without formal education)
Spatial inequality: Median household income 2006
Source: ONS
Usual practice • Provide better education for individuals (human capital theory) • Make individuals responsible to get jobs • Vilify those that fail • Gentrification as “solution” at borough level to initiate inflow of “desirable” and outflow of “undesirable” residents • But: why not providing jobs for those without formal education and re-value skills not based on university degrees? • This could improve adaptability and reduce inequality (especially if coupled with bold re-distributive policies)
Diversification into related sectors
• Example: use I-O matrices to identify – Relatedness (which sectors require inputs that are available in London) – Similarity of input structure of sectors may indicate greater knowledge spillover potential
Relatedness based on industry input requirements Demand from Manufacturing
Dot means Column Industry requires >2% of total Input from Row industry
Finance Banking Renting of machinery Advertising, Management consultancy, architecture services
London LQ>1
Bottom line • Even if London does not have a competitive advantage in manufacturing at the moment, it has competitive advantages in some key inputs for a large number of manufacturing sectors • Not all of those will require proximity of manufacturing companies to those services, but supplier-customer relations could be used to build up a manufacturing base (eg. financing green energy technology, flexible solar cells to be draped around skyscrapers, etc.) • The service firms would get a better understanding of novel manufacturing sectors to make informed investment decisions • Manufacturing companies obtain information about financing…
Normatively driven diversification
• Urban agriculture (example New York) • Vertical gardens (example Mexico City) Source: NYT
• Development of energy visions (eg. hydrogen city) • Housing and transportation systems are obvious places to start
Complementary measures • • •
• • •
London tax so companies contribute to infrastructure development (could be in form of required investment in particular businesses) Developing local visions (eg. energy visions) to galvanize businesses, government and local communities around particular themes Increase awareness of energy/waste/climate issues in primary schools (to obtain long-term shifts in attitudes) and sell the strategy to companies (probably in conjuncture with carbon disclosure projects but also through participation in visioning process) Increase living wage and penalize companies who do not comply Higher tax rates on incomes/bonuses (75-90% rates were common during and after WWII) Together with well paid jobs for non-university educated this could lead to a re-appreciation of diverse skill sets
Conclusion • An unknowable future requires economic diversity to increase/maintain the adaptive potential of a city (this would also increase resilience) • Gradual diversification into related sectors and/or normative targets around local visions possible – Outer London is probably better positioned to attract manufacturing activity
• Could increase jobs for the less formally educated and, together with fairer tax structure, could result in reevaluation of diverse skills sets • Economic survival, equality and inclusive development are not mutually exclusive
5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 01 : Crop and animal production 02 : Forestry and logging 03 : Fishing and aquaculture 05 : Mining of coal and lignite 06 : Extraction of petroleum and gas 07 : Mining of metal ores 08 : Other mining and quarrying 09 : Mining support service activities 10 : Manufacture of food products 11 : Manufacture of beverages 12 : Manufacture of tobacco products 13 : Manufacture of textiles 14 : Manufacture of wearing apparel 15 : Manufacture of leather and related products 16 : Manuf of wood (incl. products, exc. furniture) 17 : Manufacture of paper and paper products 18 : Printing and reproduction of recorded media 19 : Manuf of coke and refined petroleum products 20 : Manuf of chemicals and chemical products 21 : Manuf. of basic pharmaceutical products 22 : Manufacture of rubber and plastic products 23 : Manuf of other non-metallic mineral products 24 : Manufacture of basic metals 25 : Manu. of fabricated metal products 6 : Manuf. of computer, electronic, optical products 27 : Manufacture of electrical equipment 8 : Manufacture of machinery and equipment n.e.c. 29 : Manufacture of motor vehicles, trailers 30 : Manufacture of other transport equipment 31 : Manufacture of furniture 32 : Other manufacturing 33 : Repair/installation of machinery/equipment 35 : Electricity, gas, steam/air conditioning supply 36 : Water collection, treatment and supply 37 : Sewerage 38 : Waste collect., treat., dispos.; materials 39 : Remediation act./waste management services. 41 : Construction of buildings 42 : Civil engineering 43 : Specialised construction activities 45 : Wholes/retail trade/repair vehicles/motorcycles 46 : Wholesale trade, exc motor 47 : Retail trade, exc. motor vehicles/motorcycles 49 : Land transport and transport via pipelines 50 : Water transport 51 : Air transport 52 : Warehousing/support act. for transportation 53 : Postal and courier activities 55 : Accommodation 56 : Food and beverage service activities 58 : Publishing activities 59 : Motion picture, sound, video, television prod 60 : Programming and broadcasting activities 61 : Telecommunications 62 : Computer program., consultancy/related act 63 : Information service activities 64 : Financ.serv. act., ex insur./pension funds 65 : Insurance, reinsurance and pension funding 66 : Act. Aux. to finance. Serv, and insurance act. 68 : Real estate activities 69 : Legal and accounting activities 70 : Act. head offices; mgmt consultancy act. 71 : Architectural and engineering activities 72 : Scientific research and development 73 : Advertising and market research 74 : Other professional, scientific, technical act. 75 : Veterinary activities 77 : Rental and leasing activities 78 : Employment activities 79 : Travel agency, tour operator 80 : Security and investigation activities 81 : Services to buildings and landscape activities 82 : Office admin, business support activities 84 : Public administration and defence 85 : Education 86 : Human health activities 87 : Residential care activities 88 : Social work activities without accommodation 90 : Creative, arts and entertainment activities 91 : Libraries, archives, museums 92 : Gambling and betting activities 93 : Sports activities, amusement, recreation act. 94 : Activities of membership organisations 95 : Repair of computers, personal, HH goods 96 : Other personal service activities
Appendix: London’s economic structure: SIC-2-digit level Location quotients
Electr/ Gas supply
Agriculture/ mining
Manufacturing Air transport
Waste