Why Tech City is like Fight Club

‘The first rule of Tech City is, you don’t talk about Tech City,’ someone says. We’re sat in a conference discussing the Coalition’s plans to turn East London into Silicon Valley. Others around me nod their heads. ‘What we’ve got here already is great,’ says someone else. ‘My message to Government is: don’t fuck it up.’

The Tech City proposals still feel like ideas without a strategy. Government wants to support the nascent tech cluster around East London’s Old Street; bring in big investors like Facebook and Twitter; and develop the post-2012 Olympic Park into a high-tech hub.

It’s not hard to see tensions (see above, from one of the breakout sessions). Will big arrivals threaten existing firms? Could start-ups be pushed out by rising rents? How far will East Londoners benefit? And what’s in it for the rest of the UK?

So far, Ministers have mixed hands-on optimism and hands-off caution. ‘This is our attempt to generate Silicon Valley in the UK’, announced one at the event. ‘We seem to have a cluster on our hands,’ said another. ‘Do we need to do anything about it?’

Here are some evidence-based thoughts that I hope will help.

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In theory there’s no need for cluster policies: firms should sort across space to optimal locations. In practice this often doesn’t happen. Because of agglomeration economies, co-locating firms raises their productivity – which raises urban wages.  So cities can benefit if we push firms together.

Some sectors are far more location-sensitive than others, though. So a tech city strategy needs to start with the firms we’re interested in, then configure urban space accordingly. First tech, then city.

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BIS already has a shopping list from the tech industry – better access to finance, improving intellectual property regimes, improving workforce skills, easing immigration caps, cheaper rents and widening the open data initiative. Not all of these merit intervention, although some do (more below).

The technology industry also tends to cluster locally. Yet firms’ markets and supplier relationships are often global, and important functions (like customer services) are often offshored.

So how does the city fit in? London’s tech businesses are largely service-sector, and benefit from the matching, sharing and learning economies that big cities offer.

These effects kick in at different scales. At city level, London offers economic diversity, access to skills, finance and world markets. At neighbourhood level, East London offers soft infrastructure – the cheap spaces, bars and coffee shops where a lot of creative work actually gets done.

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We need to be realistic about growing our own Silicon Valley. As I’ve said before, the Valley is a city-region, over 1300 square miles across – more than twice the size of Greater London. It also emerged over decades – Tech City has barely begun.

UK research suggests that science parks can boost innovation rates. But much of this is driven by bringing smart people together. Elsewhere, purely property-led strategies have failed.

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I think this leaves six big challenges for London.

First, what is London’s USP in the global tech field? New York City might be a better comparator than Silicon Valley. Like NY, London’s tech scene is cross-pollinated by the wider creative economy.

Second, how much strategy do we need? The wider role for government isn’t clear from international experience. In the Bay Area government did little, except spend large amounts on defence-orientated research. But Bavaria’s leaders took the opposite approach, developing a cluster through political leadership, public spending and public research agencies like the Fraunhofer Institutes.

Third, finance. Both the Bay Area and New York have large local venture capital scenes. London firms complain about this. Are there information gaps or deeper structural problems in connecting London VC to London  businesses? What, if anything can policy do to help?

Fourth, how best to build human capital? Bavaria grows its own skilled workforce; Silicon Valley depends heavily on skilled immigrant workers. London is somewhere in between, although the Coalition’s migration cap is already making life harder for tech firms.

Fifth, should we worry about gentrification? Silicon Roundabout is a vibrant local scene, but higher rents could push local firms (and services) out. London is big enough for that cluster to reform, but does short term disruption outweigh any wider gains?

Finally, what’s in it for the rest of the UK? At the moment, very little. Whitehall can probably help by concentrating on ‘tech’ – sectoral support that helps firms everywhere – and devolving the ‘city’ bit – property, planning, economic development – to the GLA.