Channel 4’s HQ2: where and why?

TL,DR; the economics says Manchester.

Channel 4 is moving 300 staff out of London, with most going to a major British city. (1) The HQ2 shortlist has just been announced, and seven city-regions are on it: Bristol, Cardiff, Glasgow, Leeds, Liverpool, Greater Manchester and the West Midlands. The winner will be announced on 1 October.

So, who should win? And what effects could the move have on the local economy? Is it really a big deal?

Full disclosure: I work at Birmingham University. I also work at the What Works Centre for Local Economic Growth. So these are my own views.

*

Economists have a simple answer to the first question: look for the biggest cluster of TV/radio/media activity outside of London, and move Channel 4 there.Why? Because adding hundreds of jobs to an existing hotspot should have catalytic effects beyond the direct transfer of those jobs.

Those catalytic effects are driven by what economists call agglomeration economies — the matching, sharing and learning effects that help workers and firms become more innovative and productive, and which depend on proximity and face-to-face interaction. (There may also be downsides to big moves like this. I’ll come back to those below.)For media firms, benefits might arise from local contracting and sub-contracting; staff moves; networking; as well as the critical mass and diversity of ideas and industry expertise.

The wider economy could gain too, through multiplier effects: high-paid media workers may help support jobs in local services, for example. US evidence suggest the tech multiplier is as much as 4.9 extra local jobs per tech job; but this UK study, albeit post-crisis, find a much lower number, 0.9 for each tech job.

*

Which media cluster is the biggest? The data is unambiguous. As Tom Forth shows using NESTA data (original report here), on the UK mainland, Greater Manchester has by far the largest cluster of TV/radio/film activity outside of mega-London. If it cares about economic impact, Channel 4 should put HQ2 in Manchester.

 

 

But is this C4’s only criterion? No. The move aims to improve Channel 4’s country-wide fit and programming, as well as boost the winner’s local economy. Now, it’s not clear to me how to decide ‘fit’ objectively. And lots of other local factors will also be in play as C4 bosses do their fact-finding tours: the property deal, the buzz, and the persuasiveness of local leaders, especially in cities with Mayors.

Alternatively, if C4 wants to rebalance media activity more evenly, it should put HQ2 in either Birmingham or Coventry, the least media-intensive places on the shortlist. These would also win for travel time to London, which may be more of a factor than we think. It’s notable the Birmingham is widelyconsidered the frontrunner.

C4 is already trying to move bits of itself to three different places, so I wouldn’t rule out the HQ2 move being part of that pattern. But from an economist’s point of view, this is not the right approach: it risks having no catalytic effects anywhere.

*

That brings us to the other big question. How big could the C4 effect be?Here we have some idea of what to expect. Tom has done a diff-in-diff analysis of the BBC’s move to MediaCity, and finds significant rises in film/radio/TV industry productivity (revenue/worker) in Greater Manchester.

More recently, the Centre for Cities found 1400 additional creative industries jobs appeared in Salford on top of the 2600 BBC jobs, but little effect on the wider (non-creative) economy.

Notably, CFC showed much of the new creative jobs in Salford came from elsewhere in GM. I’m not sure that’s actually a bad thing, if it suggests that firms are physically clustering closer to MediaCity. We know that knowledge spillovers die away with distance, and these decay effects are especially large in the creative industries.

(The What Works Centre is doing its own impact analysis using the synthetic control approach. We hope to have results available soon.)

*

The apparently weak wider effects found by CFC may be explained by potential negative impacts of a move. Here are some things the winning city needs to watch out for.

First, large public sector moves might — in theory — lead to some crowding-out of the private sector, via changes to local wages (if C4 pays better than local incumbents) and/or prices (via higher property costs).

Second, we don’t know how far the BBC actually changed its procurement and contracting patterns after the move, or more importantly, whether staff spend enough locally to have a direct effect on supporting other jobs. (Channel 4 should track its own spend, and consider surveying staff.)

Third, any multiplier effects could be washed out by other changes in the city-region economy. In the MediaCity case, that could be the post-crash downturn or austerity.

*

All of this gives us an idea of what to expect from Channel 4’s move. It should also moderate our expectations.

For one thing, C4 is shifting far fewer positions than the BBC (300 vs. 2000+ jobs), and not all of the 300 will go to the same place. It’s big for C4 (nearly 40% of its staff) but tiny vs. the Beeb’s move.

Second, there is a case for pessimism. As Tom says here, if the move is this small in the aggregate, should C4 even bother? Well … even if the whole of C4 left London, this would still involve fewer people than the slice of the BBC that moved to MediaCity. For me, this makes the agglomeration story even more important — HQ2 will have the biggest catalytic effect if it goes to the biggest existing cluster, that is, Manchester. (In technical terms, leveraging existing agglomeration economies is most likely to give non-linear impacts.)

Third, we need to know more about what kind of jobs are moving. As Bec says, the roles that relocate matter a lot, especially as they help determine the level of interaction with other local media firms.The final thing to mention is that C4’s organisational culture will also need to shift. Commissioning the same London-based programme-makers from some new building outside the capital is more than pointless. Generating real benefits requires behaviour change, as well as location change.

 

***

(1) Bill points out that this is a GB study, not UK. Northern Irish cities don’t feature in the HQ2 shortlist. That said, Belfast is on the shortlist for one of the two planned ‘creative hubs’ outside London, as are Brighton, Newcastle-Gateshead, Nottingham, Sheffield and Stoke-on-Trent.

 

 

 

Wired x Museum of London film: migrants, diversity and tech

I’m delighted to be part of this excellent new Wired x Museum of London documentary on migrants, tech, innovation and the capital’s economy.

You can see me mumbling through my talking points alongside Elizabeth Varley  (TechHub), Eileen Burbridge (Passion Capital), and three compelling profiles of tech companies set up by migrants: WorldRemit (remittances), Andiamo (3d-printed orthoses) and Arborea (bionic leaves).

The film is about 15 mins long, and is part of the Museum of London show City Now City Future – which explores the challenges, initiatives and innovations taking place within our cities. More details here.

*

Urban incubators, inequality and innovation

The growth of shared, flexible urban workspaces for startups and SMEs is now a striking, and very visible feature of British cities.

Over the past decade or so, startups and small firms in retail, manufacturing, arts, the cultural industries and the digital economy have been making creative use and re-use of urban spaces — through newish practices such as co-working and pop-ups, as well as reconfiguring older forms such as high street units and industrial estates.

We can see these new practices across the city — in centres and in peripheries, in economically vibrant neighbourhoods and more deprived places. Since 2007, for example, there’s been a particular explosion of co-working, incubator and accelerator provision in London: in 2014 there were at least 132 spaces, 50% of which had arrived since 2012. Today there are at least 156 co-working spaces alone.

This colourful and rapidly-changing landscape raises a lot of questions for researchers and policymakers.

Now read on …

*

 

 

Podcast: migration, cities, Brexit

I did a Centre for Cities podcast on migration, urban economies and Brexit a few weeks back, with Andrew Carter (CFC) and Nicola Headlam (Oxford Uni).

Here’s the blurb:

From the benefits of cognitive diversity in the workforce to the success of the entrepreneur program, our guests offer insights from their own research on the less publicised impacts migrants have on the economy. They go on to discuss the big question; does net migration have an overall positive or negative effect on the UK economy? Finally they consider how Brexit might affect migration patterns and examine what benefits diasporic communities can have on facilitating trade links with new markets.

You can listen here – it’s about an hour in total.

*

 

 

Innovation, evidence and industrial strategy

[A What Works Centre post that’s good here too.]

Industrial strategy is one of the big issues for the What Works Centre and its local partners and innovation is one of the main themes of industrial strategies in the UK, and around the world.

Public policy plays a number of important roles in supporting innovation — see thisdebate between Mariana Mazzucato and Stian Westlake for a good intro. And as I wrote back in January, it’s equally important that we understand what the most effective tools are.

The good news for the UK is thatwe are — slowly — building an evidence base on what works for promoting innovation, as well as other pillars of industrial policy. What’s more, what we have suggests some current UK programmes work pretty well.

*

Our latest case study summarises Innovate UK’s programmes of support for microbusinesses and SMEs: mainly grants but also loans, awarded on a competitive basis, either to individual firms, or to promote partnerships with other companies or with universities.

Using standard UK administrative data, evaluators were able to set supported firms alongside similar non-supported companies, then compare how the two groups did. This ‘difference in difference’ approach is one of the methods we endorse, as it meets our minimum standards for good evaluation.

Encouragingly, Innovate UK’s programmes seem to have raised treated firms’ survival prospects (by 14 percentage points), employment (an extra 32 staff on average), and possibly sales too (although this result is less robust). These positive effects are biggest for 2–5 year old companies and those aged 6–19 years old. That is, these programmes seem to have helped innovative firms to scale.

*

This is another helpful piece of the industrial strategy puzzle, for several reasons.

First, in our innovation evidence review back in 2015, we found lots of evidence that these kinds of programmes raised firms’ R&D — but rather less evidence on growth impacts further down the line. Now we have good UK evidence of those growth and scaling impacts.

Second, we already know that the UK’s R&D tax credit system is pretty effective in stimulating firms’ patenting. We can now add good evidence on grants and loans alongside that.

Third, we can set these innovation findings alongside other evidence on business support programmes — where again, we have a decent stock of UK evidence, with several programmes (e.g. on export support) showing positive impacts.

Finally, it’s reassuring to see that evidence for these types of innovation support programmes in the UK broadly lines up with what we’ve found for OECD countries as a whole. We’ve had a number of conversations with policymakers worried that innovation programmes are very context-specific, so results from one country won’t generalise to others. This may be true in some cases. But for grants, loans and tax credits, what we know suggests that what works across the OECD also works in the UK.

*

Originally published here on 17 August 2017.

Doing broadband better

 

A What Works Centre post I thought would be good here too.

 

Our new broadband toolkit takes a look at how policymakers (nationally and locally) can increase broadband takeup.

Why do we care about this? From a social point of view, it’s increasingly clear that decent internet access is a citizen right (especially as many public services are being shifted online). From an economic angle, evidence from our broadband review shows that household broadband takeup can have positive effects on house prices, female labour market participation, employment, firm growth, and economic growth. (Household adoption is also strongly linked to firm adoption.)

With that in mind, the toolkit looks at three different areas where public policy can step into the market.

*

The first toolkit looks at direct public and public-private provision. EU State Aid rules limit what member governments can do here, but even so there is room to provide networks in rural areas. And if Brexit means these rules no longer apply, the UK can (potentially) make big investments.

We find that direct public provision raises broadband takeup, even in countries like the US where the private sector is already active. We also found a study of an Italian programme that successfully raises takeup in rural areas. Crucially, though, the US evidence suggests that provision on its own is only half as effective as provision combined with info/education on broadband’s benefits.

Frustratingly, it’s hard for us to say much on cost-effectiveness on the basis of the available evidence; although it’s clear that there are huge variations in programme costs across countries. Some of this reflects physical ruggedness (Norway is tougher to pipe than the Netherlands), but there may also be potential to deliver schemes more smartly than the UK currently does.

*

The second toolkit looks at ‘local loop unbundling’ – essentially, opening up the last mile of broadband networks to all-comers. Currently only BT is obliged to do this in the UK, but in theory, national government could bring cable providers into the scope of the legislation. There’s also the question of access fees and other arrangements.

The argument against LLU is a simple one: firm X has invested in a very expensive network, so why should others get the benefit, and why should X invest more in future if they are forced to open up access? (In BT’s case this is complicated by the company’s history as a state monopoly.) The counter-argument is also simple: the wider benefits to society (via higher broadband takeup) outweigh losses to a single firm, which can in any case be compensated through charging for access.

The available evidence shows a pretty clear impact of LLU on household broadband takeup (it’s less clear for firms). Across the EU, between 2000 and 2010, LLU raised household broadband adoption by 15%. Perhaps surprisingly, the majority of studies also find no evidence that LLU crowds out future investment by the network owner, and in one case, may even lead to upgrading. This seems partly explained by relatively high access charges in most countries.

We’d urge some caution here though. For the UK, the positive effects of LLU have decreased over time, as broadband rollout covers more and more of the population. That might change if future technology gets a lot better, but this seems unlikely any time soon. Setting lower access charges would also bump up the adoption effect, but also risks discouraging future investment.

*

The third toolkit looks across other tools that Governments have used to nudge providers and users: incentives (loans, subsidies, tax breaks), information campaigns, and demand-side measures such as buying clubs and bulk purchasing.

Sometimes policy works directly with providers (ISPs); at other times the nudges are applied to users (firms and households). Does it matter which? Not from the point of view of take-up: we find evidence that both kinds of measure can be effective. Specifically, we find that loans to ISPs and demand aggregation measures like buying clubs have the effect of raising downstream takeup. For direct-to-user policies, subsidies, training and providing computers are all effective.

For providers, a cross-OECD study finds that a bundle of producer incentives have the effect of raising fibre uptake by 10% (from slower copper networks). On the user side, a US study shows that a partial loans scheme for farms raised broadband takeup by 13-14% points.

Again, it’s not easy to figure out cost-effectiveness, but we estimate that typical household programmes cost £1.1-1.3k per extra connection, with the farms scheme above costing around £3-4k per farm connected.

The UK has strongly pushed programmes like this, notably the last government’s SME broadband voucher scheme. Sadly, this has had no proper evaluation done (something we’d like to see change for future schemes) – although a user survey was published which (perhaps not surprisingly) found that voucher recipients were very happy with £3k off the cost of a fast broadband line …

*

Originally posted here on 23 June 2017.

YouGov called the election right. How?

This General Election has been full of surprises. So I’ve been digging into the YouGov MRP voting model, pretty much the only one that got the 2017 Election result correct.

Given all the current humble pie and book eating by pundits who didn’t spot the result coming, this seems worth doing. I also think there are also some useful takeaways for cities, especially as devolution rolls on.

*

YouGov’s MRP (multilevel regression and post-stratification) method not only got the national result right, but correctly predicted results in 93% of seats. Compare this to most other polls [£, and chart below]. The model somehow also predicted the Canterbury result, where Labour won for the first time since 1918.

It turns out that earlier versions of an MRP model also spotted the Leave vote in 2016, and did pretty well in the US 2016 Presidential Election. Though this version seems to have worked better, for reasons I’ll come back to.

Remember, this is a predictive method — how might people vote in the future? — that did about as well as the main exit poll — which asked people *how they just voted*. (John Curtice has more on how UK exit polling is done here.)

*

So how does the MRP model work? Here’s an overview: this gives us the main features but not surprisingly, doesn’t reveal all the datasets or the functional form/s. YouGov describe this as a Big Data approach; it seems to involve bespoke data and data science methods, but also lots of public datasets, aka ‘administrative Big Data’. The key steps seem to be:

1/ YouGov have weekly individual-level data on voting intention and detailed characteristics (including past voting). They run around 50k online interviews per week, and anyone can sign up;

2/ They use this to build a typology of voter types;

3/ For each voter type, they then fit a model that predicts voting intention;

4/ For each constituency, they then estimate how these types are spread (using public resources like the British Election Study and other ONS resources, perhaps these);

5/ They work out how the vote should go in each constituency.

By contrast, traditional polls tend sample about 1,000 people, then project direct from respondents to the whole UK, using weights to compensate for demographics, voting intention and so on.

This helps us see why an MRP approach might work better than conventional methods.

First, MRP has a much bigger starting sample. More observations = sharper results.

Second, MRP is micro-to-macro: it models each constituency individually, so stands a better chance of picking up local issues (such as the hospital closure crisis which helped drive the Canterbury result).

Third, MRP is both fine-grained and high-frequency. The only pundits to pick up on the reality of #GE2017 got out there on the ground. Given the complexity of UK politics right now, we also need methods to get at this complexity in a structured way.

Fourth, MRP methods should get better over time. you end up with loads of high-frequency training data, and this progressively makes the model better.

*

This doesn’t mean that conventional polling has had its day – e.g. Survation were also on the money. But it’s notable that most conventional polls fell over this time, just as they did in the 2015 General Election.

I suspect that these four factors helped YouGov pick up higher turnout for younger voters faster than most pollsters (and many mainstream journalists), as well as shifts in other age groups. This post by Ben Lauderdale, one of their chief modellers, seems to supports that. (Note that we won’t know turnout by age for sure until the next BES in a few months. If modelling can get us to a decent understanding faster, that’s very useful.

As Sam Freedman points out, it also helps show precisely, and in close to real time, the huge damage the Conservative manifesto did to the party’s chances.

*

Micro-to-macro techniques like MRP could beuseful for Mayoral elections and city politics. With a 50k in sample, could you train the model on a city-region like the West Midlands using public data? If so, this feels much more useful and adaptable than one-off traditional polling.

YouGov say their model works at local authority level, so some version of this could probably be done now. However, I suspect that even a big national sample might be too sparse for very local analysis, say at neighbourhood level. In this latter case, you could also imagine building a richer, locally-specific model for a whole conurbation — like the West Midlands or Greater Manchester — using a big base of local respondents.

This would be expensive — but for a local university, or a group of them, it would be a super interesting (and public-spirited) long term investment.

Birmingham University’s city-regional lab City-REDI will be exploring this further in the coming months.

Citizen Jane

Like a boss.

We went to see the new Jane Jacobs documentary Citizen Jane: Battle for the City. It’s pretty good, with plenty both for Jacobs fans and those who don’t know her work. It pulls in some big-name contributors, including Saskia Sassen, Michael Sorkin, Mindy Fullilove, Mike Davis (!) and Geoffrey West (*). But it also – perhaps unintentionally – shows up some of the limits of Jacobs’ thinking as it applies to today’s cities. Here’s a review of sorts.

*

The film has two particular strong points. The first is the precis of Jacobs’ most famous work, The Death and Life of Great American Cities. Director Matt Tyrnauer nicely summarise the key ideas: cities as organised complexity; street life as a ‘dance’ of uses and users; the rebellion against modernist city planning, cities for the car, and high rise living; the importance of ‘eyes on the street’, mixed uses, old and new buildings, and short blocks – concepts now hard coded into masterplans and design standards in cities across the world. Crucially, these ideas developed over many years’ close observation of New York streets and neighbourhoods, and through test runs in Jacobs’ journalism: her first book arrived in the world fully formed and ready for use.

 

 

The film’s other big plus is its retelling of the epic struggle between Jacobs and city planner Robert Moses in 1950s and 60s New York. With minimal resources, Jacobs somehow turned around Moses’ big money plans to bulldoze and run roads through Washington Square Park, the West Village and ultimately Lower Manhattan itself. These are perhaps the most gripping parts of the picture. Moses is a monstrous figure – see also Robert Caro’s 900-page biography, summarised here by Jackson Lears – while Jacobs is revealed to be a total badass.

Machine politics, corruption and the abuse of power run up against agile and well-networked social activism: we see Jacobs wearing a ‘Mailer for Mayor’ badge, organising a series of brilliant publicity stunts and photo opportunities, and roping in Susan Sontag, Margaret Mead and Eleanor Roosevelt to help out.

 

 

The gender dynamics are striking. Moses summons an army of besuited male planners, and notoriously dismisses Jacobs’ female-led network as ‘just a bunch of mothers’: fatally underestimating his opponents, but also, as a talking head points out, ’you’d only say that if you thought people didn’t matter at all’. Jacobs’ publisher sends Moses a copy of Death and Life: he returns it in a terse note (‘Sell this junk to someone else’); Lewis Mumford dismisses the book as ‘Mother Jacobs’ Home Recipes’.

The filmmakers link Jacobs’ tactics and successes to other 1960s social struggles: feminism, the environmental movement, civil rights. There’s an important point here about shared repertoires of protest tactics. It’s also true that Jacobs was both a feminist and an environmentalist. But I needed a bit more convincing that the bigger links really held together.

*

The racism in US post-war urban planning is still shocking to see. James Baldwin appears in the film to point out that ‘urban renewal means negro removal’, with housing projects and highways used as tools of segregation. The minority urban poor were pushed into badly designed blocks at the city’s edge, just as in France the following decade – with similarly grim results for the victims.

The film starts to connect these practices to Moses’ development model, which raised land values in redeveloped zones, and leveraged huge federal budgets. I was left wanting to know more about the political economy: was this racial redlining? Patronage politics? Or some toxic mixture of the two?

The Cross-Bronx Expressway (1948-72) is perhaps one of the most notorious Moses schemes, literally cutting the neighbourhood in half and blighting lifechances for years afterwards. As Mike Davis points out, it’s ‘perhaps the single most damaging urban development in US history’. Jacobs was active in New York at the time, and the film is curiously silent about this. Was she involved in opposing this? If not, why not? Did she try and fail? (Was her model of protest anchored in the neighbourhoods she knew? Did construction help spur her into action elsewhere in the city?)

*

If the film is sometimes in danger of reifying Jacobs’ older ideas, it also misses out some of her newer thinking. That’s a shame: The Economy of Cities (1969) is a foundational text in urban economics, with important ideas about how cities help innovation to happen, long term growth and urban resilience. Cities and the Wealth of Nations (1985), which posits cities over nation-states as the key unit of development, feels ahead of its time. And her environmental work – which I know less well – also looks increasingly prescient.

The film also skips some chances to reassess that legacy. Jacobs was a progressive and a futurist – but not a fan of big government. Her anti-planning stance has made her popular with the libertarian right: it’s the antithesis not just of the government cynicism that produced Pruitt-Igoe and Ronan Point, but also the state-funded optimism that gave us the LCC and Park Hill.

Sure, the Lower Manhattan Expressway would have been a concrete stake through the city’s heart. But I dare you not to look at the renderings and at least wonder what a Brutalist icon it would have made.

 

 

Some of the limitations in Jacobs’ vision become clearer in the second half of the film, which lays up Jacobs’ neighbourhood prescriptions against urbanisation outside the West. As Saskia Sassen puts it, the pace and style of urbanisation in the urban cores of China and India are ‘Moses on steroids’ . ‘How can we apply Jane Jacobs’ thinking to these cities?’, asks another contributor.

Good question. The film drops some hints: successful urbanisation can’t shut out the public realm; cheaply-built towers are a terrible false economy; existing urban settlements, however visually shabby or informal, embody their own ‘dances’ and should be valued by planners, not bulldozed away (see Stewart Brand for more on this).

Nevertheless, the film can’t escape the conclusion that Death and Life … has plenty of say about preserving old neighbourhoods in old cities, but rather less about building new ones:  Jacobs’ New York was losing population, as their heavy industry began to be globalised away; the cities of the BRICS are growing at speed. Equally, today’s New York is struggling with an affordable housing crisis; other US cities are still feeling the aftershocks of de-industrialisation.

As Jacobs put it in 1958: ‘the best way to plan a downtown is to see how people use it today; to look for its strengths and to exploit and reinforce them.’ Today’s urban crises need urgent solutions, and significantly, by her death in 2006, Jacobs didn’t seem so interested in these issues: as her last interviews show, she had moved on to other things.

*

The film is a great appreciation of Jane Jacobs’ finest hour. Her elegant and radical thinking was inevitably a product of its time. But bettering our contemporary cities may require both a re-tooling of Jacobs’ ideas, and new thinking from other voices.

A modern industrial strategy

A What Works Centre post I thought would be good here. Written with Henry Overman.

*

Much has already been written on the UK Government’s Industrial Strategy Green Paper. This post isn’t intended to provide an overall assessment or spell out our individual views on the approach being set out (they differ, depending on which of us you ask). But there are areas where the proposed strategy will shape the work that we’ll do at the Centre and where we also hope that our work will influence the implementation of the eventual strategy.

[Full disclosure – the Centre is cited in the document as one of the institutions the Government hopes will help improve local economic growth.]

*

The first area relates to what we do and don’t know about policy effectiveness, particularly when it comes to some of the Strategy’s 10 pillars – which are a mix of tech (science, research and innovation) cross-cutting (skills, infrastructure, supporting business growth, procurement, trade and inward investment) and sector (new sector deals, clean energy). Academics would call this a ‘matrix’ approach.

Take, for example, policy to support business to start and grow. We know that there are market failures here – entrepreneurs often make avoidable mistakes, which better information could help fix; many young firms need better access to early stage finance (the Green Paper talks about ‘patient capital’).

The crucial question is: what’s the right policy mix to help address these challenges? Our evidence reviews on business support and on access to finance suggest that around half of schemes have measurable impact against policy objectives but around half don’t. Our reviews and associated toolkits start to identify the elements that might go in to the design of a more effective set of interventions. And we’ll soon be publishing more toolkits on incubators, accelerators and science parks. All this material provides guidance on how we might improve support to businesses but major challenges remain – both in terms of gaps in our understanding and embedding the evidence in policy development.

We are in a similar position when it comes to policy to develop skills. We know quite a lot – see, for example our evidence reviews on employment support and apprenticeships and our toolkit on training (soon to be supplemented by a toolkit on apprenticeships). Changes to policy design can improve effectiveness but, once again, there are gaps in our knowledge and challenges in implementation.

*

Things are more complicated when it comes to investing in science and promoting innovation. We can say something about the specific policy tools – e.g. from our evidence reviews we know that both R&D grants and tax credits drive up innovative activity. But it’s not so clear whether increased innovation at the firm level feeds in to improved local economic performance and there are lots of unanswered questions about the appropriate policy mix. That ambiguity is one of the reasons why people advocate such different approaches to strategy.

In the interests of openness – we should note that one of the things our review did find was that grants and loans programmes that target particular production sectors appear to do slightly worse in terms of increasing R&D expenditure and innovation, compared to those that are ‘sector neutral’. So, while it makes sense for government to recognise that different sectors might need different policy responses (e.g. in terms of the institutional structure that supports those sectors) this might increase the challenge of effective policy implementation in some of the other policy areas.

*

Questions of infrastructure are similarly challenging. The evidence that we do have on the link from transport to local economic growth raises some questions about the effectiveness of these policies for turning around areas that are struggling. But at the same time, we know that such investments can help drive growth in areas where travel times and congestion are a big issue (and not all of those areas are in London and the South East). Getting the right balance will be crucial.

As with innovation expenditure, people are willing to advocate for very different approaches – particularly when it comes to the overall pattern of expenditure. We’ll continue to make the case that focussing on the overall pattern of expenditure isn’t helpful when it comes to shaping effective policies. What we need is a better understanding of the economic impact of different schemes and improved ways of feeding this information back in to decisions about scheme prioritisation. This will be where our work will focus in the coming years.

*

We could make similar points about the other pillars, but in the interest of space, let’s turn instead to a final cross cutting issue – whatever happens we think that to be successful, industrial policy will need to be inherently experimental. How we deliver and develop the policy will matter a lot.

Industrial strategy is always going to involve unknowns. Most fundamentally, because it involves funding basic science (or commercialising new ideas) – not all of which are going to work out, so wouldn’t be delivered by the market. In other cases, investments will trigger spillovers between parts of the economy that are hard to see upfront.

Finally, unknowns crop up because – for a lot of the things Governments want to do as part of industrial strategy – we still have a long way to go in understanding what is an effective policy mix. In addition to the policy areas covered above, at least three of the Pillars – strategic procurement, innovative place strategies, and institutions – are subject to big knowledge gaps in terms of what works. As a result, how we implement future industrial strategy will be crucial.

As you might expect, we will be arguing for an experimental approach. We need to test lots of different ideas, figure out what works, scale up the things that do and drop those that don’t. Many of those calling for a more interventionist policy – such as Harvard’s Dani Rodrik – have consistently emphasised this point. Many people have argued that the Green Paper’s approach isn’t such a fundamental break with the past. But a greater focus on flexibility, on experimentation, and on testing and improving, would help differentiate this from the past and increase the chances of success where so many other strategies have failed.

*

Originally posted here on 27 January.

‘After Florida’ wins a prize

I’m delighted (and honestly, surprised) to have won the 2016 Jim Lewis Prize for my paper on the economics of diversity – After Florida – which is out in European Urban and Regional Studies. The prize is awarded for the most innovative paper published in EURS the previous year.

*

You can read the whole paper here. To give you a flavour, the abstract is below.

In recent years, most European countries have experienced substantial demographic changes and rising cultural diversity. Understanding the social and economic impacts of these shifts is a major challenge for policymakers. Richard Florida’s ideas have provided a popular – and pervasive – framework for doing so. This paper assesses Florida’s legacy and sets out a ‘post-Florida’ framework for ‘technology, talent and tolerance’ research. The paper first traces the development of Florida’s ideas. ‘Florida 1.0’, encapsulated by the Three Ts framework, has performed badly in practice. There are problems in bringing causality to the fundamental relationships, and in consistently replicating the results in other countries. ‘Florida 2.0’, though suggests that Creative Class metrics have value as alternative measures of human capital. This creates space for a post-Florida agenda based on economic microfoundations.

I argue that the growing body of ‘economics of diversity’ research meets these conditions, and review theory and empirics. Urban ‘diversity shocks’ shift the size and composition of populations and workforces, with impacts operating via labour markets, and through wider production and consumption networks. While short-term labour market effects are small, over time low-value industrial sectors may become migrant-dependent. Diversity may help raise productivity and wages through innovation, entrepreneurship, market access and trade channels. Bigger, more diverse cities help generate hybridised goods and services, but may also raise local costs through crowding. All of this presents new challenges for policymakers, who need to manage diversity’s net effects, and address both economic costs and benefits.

*

The paper has its origins in the intro chapter to my PHD thesis. If you fancy wading deeper in, that’s here.