Bigger, more urban, more diverse

The latest Census data confirms three things we already knew. First, Britain is becoming a bigger and more culturally diverse society. Second, net migration is one of the main drivers. Third, this diversity is largely urbanised – especially in London.

Beneath these headlines are many complications. Diversity is shifting across a number of dimensions at once – country of birth, ethnicity, religion and language. Official ethnic groupings are increasingly inadequate to capture what’s going on: see the huge growth in ‘other white’ and other ‘other’ categories.

Many of these trends will continue, with Leeds University researchers projecting a 20% minority ethnic population by 2051. But there is no obvious evidence that diversity is eroding national identity – 91% of residents identify with at least one UK national identity.

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These demographic changes are among the most profound of our lifetimes. So what are the economic and social impacts of these shifts?

My research is taking first steps towards answering the economic questions. European Urban and Regional Studies have just published this piece, which gives you a nice overview.

There is more detail in these working papers on the economics of super-diversity, the long term impacts of migration in cities, ethnic inventors, and diversity, entrepreneurship and innovation in London firms. This last piece, joint with Neil Lee, is coming out shortly in Economic Geography.

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We’re only beginning to understand some of these long term, dynamic channels. So it’s an exciting – and important – time to be working in the field.

Many of the key people will be in the UK in April for the 2013 NORFACE Conference. If you’re around, I’d encourage you to join us.

Is long term growth really ‘over’?

Robert Gordon’s new NBER paper, ‘Is US Economic Growth Over?’ has been making waves in the past few weeks. Here are a few thoughts on it.

A short version of Gordon’s argument is here. His provocative topline is:

The paper … suggests not just that economic growth was a one-time thing centred on 1750-2050, but also that because there was no growth before 1750, there might conceivably be no growth after 2050 or 2100. The process of innovation may be battering its head against the wall of diminishing returns. Indeed, this is already evident in much of the innovation sector …

Much of this is familiar from Tyler Cowen’s book ‘The Great Stagnation’, which kicked up a similar dustcloud in 2011. Gordon goes on to identify six ‘headwinds’ that may push back innovation in the States. These are: an ageing population, low skills and poor state education systems, inequality, globalisation and outsourcing, environmental constraints and government/consumer debt overhangs.

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Gordon is very clear that the analysis applies only to the US, but is also keen for researchers in other countries to pitch in. So, in no particular order:

1/ Many of the six ‘headwinds’ are much stronger in the US than elsewhere (a weak public education system in particular). As Gordon says, ‘my guess is that a Canadian or Swedish economist looking at the past and future of his or her country would not be nearly so alarmed’. (p23)

2/ Equally, some of these headwinds might reverse direction. For example, climate change may create new economic opportunities, not just constraints.

3/ This is very long wave analysis, and frankly it’s too early to tell if Internet-based innovation – Gordon’s ‘third industrial revolution’ – has really come to an end. That data only runs from 1960-2007; but previous revolutions took at least 100 years to fully diffuse. It feels premature to say that ‘the productivity impact of IR3 evaporated after only 8 years.’ (p13)

4/ There’s also something slightly odd about the historical treatment – which is done in terms of the country at the technology frontier. Gordon looks at the UK from 1300-1906, then the US til the present day. But it’s not obvious the underlying country drivers of growth are the same. And as Gordon acknowledges (p6), the future frontier country might not be the US.

5/ The analysis overlooks the dynamic nature of some innovations. Gordon suggests that urbanisation ‘only happens once’ – true, but its effects are persistent. Agglomeration economies can trigger virtuous cycles of urban development, raising growth over very long periods.

6/ Similarly, innovations like ‘travel speed’ haven’t changed much (p2) but their diffusion has been massive – e.g. far more people have access to plane travel than in 1958. This must have some impact on economic welfare through market size, if not on productivity.

7/ Gordon is perhaps a bit unfair on internet innovations. As he rightly points out, for most people running water and central heating are more ‘important’ than broadband. But he doesn’t really consider the internet as a general purpose technology with multiple affordances – many of which we’ve only just started to grasp. Equally, he doesn’t really consider big data, mobile, cloud or social technologies.

8/ The paper doesn’t really explore reasons why ‘IR3′ technologies haven’t fed through into labour productivity stats. There’s now a massive organisational literature which provides some answers. Work by Erik Brynjolfsson tells us that to make the most of ICTs, firms need to do substantial complementary investment in management and organisational structures. Research by John Van Reenen, Nick Bloom and others also highlights the importance of good management in triggering productivity gains for firms.

Some sectors have understood this better than others – such as ICT, retail and financial services, which have seen substantial technology-related productivity jumps.

In other words, just ‘putting a computer on the desk’ isn’t going to have much effect. And looking at average productivity changes hides some big sectoral differences. But this is how Gordon’s paper is thinking about it. A closer, finer-grained analysis might turn up some different answers.

A Tale of Tech City

We launched A Tale of Tech City yesterday at Google Campus. It went very well – lots of robust discussion, and happily, general acclaim for the report.

The Centre for London project is joint work with Emma Vandore and Rob Whitehead, and takes an unvarnished look at the East London digital ecosystem.

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We ran a lot of numbers. By crunching the BSD, the best data there is, we find the East London scene is a lot bigger than anyone thought – at least 1500 firms (a conservative estimate), probably more like 3300 (drawing a wider line).

We also did seven international case studies to see how London stacks up in global terms. (Hint: Silicon Alley, not Silicon Valley.)

We then went out and did in-depth interviews with a lot of local firms, plus others working in finance, workspace and policy.

We identify six challenges for East London businesses, and make suggestions for tweaking the strategy and policy mix. In particular, we argue for a stronger focus on business development, helping young London firms become global players – and for Government to temper expectations for a new cluster in the Olympic Park. These things can’t be masterplanned.

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Those messages got the thumbs up from GLA Deputy Mayor Kit Malthouse, Hackney’s Guy Nicholson, Unruly’s Sarah Wood and from Matt Biddulph, who all joined me on the platform. The Tech City Investment Organisation is now running with some of our ideas – see here – and there are signs of an Olympics Media Centre rethink too.

You can download the whole thing here.

We’ve had pretty good press so far, with coverage on the BBC (here and here), Financial Times, Wall St Journal, Guardian and the Independent … plus a nice write-up by Richard Florida in The Atlantic.

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I’m now starting to think about further work. Two promising avenues are looking across the digital economy in the rest of London, and exploring NY-LON in depth – there are some striking parallels between the London and New York scenes. Get in touch if you’d like to talk about either of these.

Manufacturing hipsters

I’ve just finished Enrico Moretti’s terrific new book, The New Geography of Jobs. Moretti is an annoyingly young and brilliant economist at UC Berkeley who made his name with seminal papers on agglomeration, knowledge spillovers and multiplier effects. He’s now following Ed Glaeser and Paul Krugman out of the seminar room into the mainstream.

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Moretti’s argument is in three parts. First, globalisation has made the knowledge economy increasingly important as a source of productivity and wealth in countries like the US (and the UK). Each ‘innovation economy’ job supports five others, two in other professions and three in local services.

Second, these big shifts have very uneven impacts. Cities concentrate economic activity. Places’ initial advantages matter. People’s ability and willingness to move is limited. So social and spatial disparities tend to grow – even though higher living costs in richer cities partly cancel out higher wages.

Third, our policy responses need to change. Unlike Glaeser, Moretti likes some area-based initiatives. But he also pushes strongly for public science, better public education and raising high-skill immigration.

So far, so familiar – see Glaeser’s The Triumph of the City, or Richard Florida’s The Great Reset. But Moretti arguing that it’s precisely these long term trends and their implications that need to be deeply understood. (Meanwhile, Glaeser gets one mention in the index – the same as Marlene Dietrich – and Florida gets a discreet knife in the ribs in Chapter 5.)

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The book also has great range. Moretti combines serious urban economics and economic geography with a number of excursions – on the historical origins of Hollywood, Berlin and culture-led regeneration, the dynamics of shared workspaces, cleantech investment, gentrification and ethnic inventors.  In many pop academic books these passages feel bolted on – a break from the high-level narrative. In this case they’re actually doing some intellectual work.

One of the richest passages comes early on. In the most successful cities, Moretti suggests, the innovation economy is supporting the return of urban manufacturing. He visits the site of the old Levi’s factory in San Francisco to find ‘dozens of workshops offering hand-crafted products’ – such as bespoke clothing line Cut Loose and the DODOCase iPad case factory.

Across town on Pier 17, Tcho has taken over an old warehouse and converted it into a craft chocolate factory, importing vintage German machinery and high-tech computerised gear. (The chocolate is absolutely amazing.) In London, S.E.H. Kelly (limited-run menswear), The Kernel (craft beer) and Berg’s Little Printer are riding the same wave.

The growth of high-end manufacturing in cities seems rich with possibilities. But Moretti convincingly shows that it’s fundamentally a niche phenomenon. First, this kind of manufacturing is essentially the result of wealth created elsewhere in the city. Although these firms can trade globally, their key market remains local – in that sense, they’re a form of high-end local service.

Second, an important part of these products’ appeal is that they’re unusual, or unique. Both the thing – and the experience of buying it – are positional goods. That business model then allows firms to cover high manufacturing costs. Scaling up would involve either jacking up prices even higher, or moving production to lower-cost locations – precisely what such firms are reacting against.

The most extreme example of this is also the best known. American Apparel gear sells precisely because it’s made in LA (and because of its softcore ads, of course). If Moretti is right, it literally couldn’t be made anywhere else.

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A more profound transformation, which the book doesn’t touch on, is the emergence of small-scale digital manufacturing. With 3D printers，economies of scale matter much less: there’s no need to retool a production line, and almost infinite customisation should be possible. The technology is already good enough to make specialised car parts, and some nice art objects.

Micro-manufacturing is deeply disruptive – especially when combined with zero-cost marketing and sales online.  Craft manufacturers will adopt it. But it’ll be the technology, as much as the brand positioning, that’s doing the hard work.

Megacities: the real story

We finally watched Andrew Marr’s Megacities last night. It’s a great piece of spectacular urbanism – endless cityscapes, vast crowds, skyscrapers, huge numbers, expansive metaphors. But it’s also quite badly wrong about what our urban future is going to look like. Let me explain.

The series has two basic premises. One, the world’s population is now majority urban. Two, we’ll be living in megacities – places with 10m people or more.

The first of these is very likely true. For urbanists it’s not an especially new fact, first appearing in this 2003 UN-Habitat report.

The second is part true at best. Megacities are telegenic, but most of the world’s population won’t be living in them. 

Sure, the number of megacities is rising – from two in 1950, three in 1975 to 19 in 2007. By 2025, the UN predicts  there’ll be 27. But the number of ‘large cities’ – five to 10m people – is already bigger, and growing faster. In 2007 there were 30: the UN suggests there’ll be at least 48 by 2025. More importantly, half the world’s urban population live in much smaller cities, of around 500,000 people. These may be the most common of all.

In fifteen years’ time, then, we’ll see far more Liverpools (around 400,000 people) and Londons (8m people) than Tokyos (26m people).

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Paradoxically, the biggest urban settlements are now hard to recognise as cities at all. Across the world cities are merging into mega-regions: notably China’s Pearl River Delta, the US Eastern seaboard, even the Greater South East.

Some of the numbers here are difficult to take in. An estimated 120m people live in the Pearl River Delta, the largest urban zone on the planet – China is now planning to merge nine cities in the Delta to create a single sprawl of 42m people. The Tokyo-Nagoya-Osaka-Kyoto-Kobe region may comprise 60m people by 2015, almost the entire population of the UK.

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All this may suggest that urbanisation is accelerating. In fact the opposite is true. Globally, cities grew fastest in the 1950s and early 60s: growth rates have been slowing ever since, from 4.1 percent to 2.5 percent today, and a predicted 1.8 percent by 2030. Developing countries are also on the same downward trend.  

Urbanisation runs in parallel with economic development, and so as developing countries industrialise, their urban systems tend towards steady state. Of course there is a lot of city by city variation. For example, the UN predicts Dhaka will keep growing – from 15.9m in 2007 to 22.8m in 2025. But Lagos, which has grown from less than half a million people in 1950 to over 13m in 2007, is predicted to reach just 16m in the next fifteen years.    

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Megacities makes much of the growth of urban slums. Again, the picture is complex. Over the past decade the share of urban slum dwellers has fallen from 39 to 32 percent, due to economic growth and policy interventions. But as people are flowing into cities faster than infrastructure can keep up, the absolute number of people in informal settlements is growing, and will keep growing.  

Marr stays the night in a Dhaka slum, discovering it’s quite like any other suburban neighbourhood – dirt streets and tin shacks aside. Marr echoes Stewart Brand, celebrating slum dwellers’ entrepreneurialism and inventiveness. Ed Glaeser describes slum neighbourhoods as ‘private energy, public failure’: the development challenges of poor public health, chaotic infrastructure and urbanised poverty remain considerable.

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Finally, we need to factor in the geography of climate change. Many megacities are coastal, and will be threatened by rising sea levels. Many will also be increasingly water-stressed in the years to come.

In his excellent book The New North, Laurence Smith explores the economic rise of the NORCS – cooler, resource-rich regions stretching across Canada, Scandinavia and parts of the US, Russia and China. He predicts new ‘hydrocarbon cities’ appearing across Canada and Russia, and new mega-regions like Cascadia – spanning Portland, Seattle, Vancouver and parts of NorCal.

Megacities are a great symbol of the global urban shift. But our urban future is going to be much richer and more complex than this.

Londonism

 Die Zeit has just published a big feature on London as high-powered, on-trend, chaotic world city. There’s a quote from me, plus a cinematic passage in which the journalist and I wander around Hackney Wick before stopping off for a latte.

Also featured are Boris Johnson, Mark Kleinman from the GLA and a grumpy-sounding Hanif Kureishi. You can read the whole thing here. Or for non-German speakers, there’s Google Translate.

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ps more fame: in case you missed it, the Guardian have done a nice writeup of my Munich / Silicon Valley report.

The Triumph of the City

The Ed Glaeser roadshow has rolled out of town. Last week the great man spoke at LSE, ippr, Demos, Centre for Cities and Policy Exchange, also finding time for a Guardian podcast, CfC video and an FT op-ed. Phew! He didn’t even change blazer - here he is on the Daily Show wearing it again (at about 14:30).

Until now Glaeser has been a bit of an academic’s academic. With his new book, The Triumph of the City, he’s making a bid for public intellectual territory. Saskia Sassen, Peter Hall and Richard Florida have had this space to themselves for the past decade, so it’s good to see someone else step up.

 Here’s the podcast and video of his LSE lecture. Below, my quick notes.

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 1) Cities still matter because they’re ideas engines. In a knowledge-driven economy, products and services are getting progressively more complex. Cities help manage this by bringing people face to face, helping ideas spread, and cross-pollinating new ones. As the returns to skills increase, cities help people get smarter.

This is actually a very old argument, dating back to Jane Jacobs (1970) and Alfred Marshall (1918). Glaeser brings it to life with some terrific examples of ‘urban ideas chains’ – such as the birth of Detroit’s auto industry from shipbuilding (engines) and carriage works (wheels and bodies), and the growth of financial services in NYC.

2) Technology is making cities more important, not less. Rather than killing distance, social media and the internet are producing more immersive, interactive urban environments. Again, plenty of evidence (Bill Mitchell, Castells) says that online and offline are complements, not substitutes. Glaeser rightly plugs this into the development of smart cities and the internet of things. Adam Greenfield’s incoming book will tie a lot of this together.

3) We need to build cities up, not out. Glaeser thinks Jane Jacobs was right about cities, but wrong about neighbourhoods. Long term, planning controls in urban cores tend to price poorer people out of the city. Similarly, high density cities tend to be greener, but if they restrict space, people relocate to lower-density, car-dependent communities. The answer is to allow denser development and more high-rises. 

4) In the West, urbanisation is basically done. The cities of the future are happening elsewhere. 50% of the planet now lives in cities – but the biggest urban transformations are happening in South and East Asia. This is also where the need for sustainable urban development is highest. LSE’s green cities project for UNEP echoes much of this.

5) Cities are good for poor people. But we shouldn’t save failing cities. Agglomeration economies benefit everyone. Like Stewart Brand, Glaeser sees slums as hives of enterprise – but where public infrastructure and planning has failed. Glaeser also argues that in declining cities, policy should focus making the population more skilled and mobile – rather than improving decaying urban environments. 

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A few reflections. First, is there anything bad about cities? At LSE, Glaeser suggested diminishing returns don’t really matter. I’m not so sure. Above is a classic urban economics ‘net wage’ curve. Up to point B, agglomeration effects rise with city size. Diseconomies like congestion and pollution then start to kick in. At point C, in theory, everyone leaves. In practice, this doesn’t happen – but plenty of real world cities are probably between the two (Bangkok, Lagos, LA?).

Second, Glaeser’s prescription for struggling cities might be internally robust, but in the real world it’s a very hard sell – as he found out when encouraging the US Government to move people out of New Orleans post-Katrina. Glaeser’s right that declining places can’t be preserved forever. But as I’ve argued, it’s the job of elected city leaders to make these choices – not national government. 

Which brings me to devolution. Glaeser was surprisingly lukewarm on this. He argued that when central government is weak (e.g. in a failing state), then devolution is essential. But only central government can handle redistribution, or economies of scale in service provision. This chimes with my reading of the literature. Devolution doesn’t translate directly into economic growth – although it helps indirectly, by allowing city leaders more flexibility and room to innovate. As the Coalition pushes localism ever further, Ministers should keep these caveats in mind.

More new stuff

I’ve put out a bunch of new academic and policy stuff in the past few weeks. Fresh from the ideas workshop, here it all is …

LSE’s Spatial Economics Research Centre has just published three of my phd papers in their working paper series. They are:

1) The Economics of Superdiversity [link]

2) The Long Term Impacts of Migration in UK Cities: Diversity, wages, employment and prices [link]

3) Does Cultural Diversity Help Innovation in Firms? Evidence from London (with Neil Lee) [link]

I’ll be presenting paper no.2 next month at the big NORFACE/UCL migration conference in London and at the RSA’s 2011 conference in Newcastle.

I’ll also be talking through all three papers (and discussing Richard Floria) at the AAG 2011 conference in Seattle in mid-April. If you’re there come and say hello!

More importantly, the UN Environment Programme launched a huge piece of work on the green economy a couple of weeks back, with a globally-streamed event in Nairobi and much other fanfare. This includes a report on Cities in the Green Economy [pdf], published by an LSE Cities team (including yours truly). LSE also did a sister report on Green Buildings [pdf].

You can read the whole lot, and some summary papers, on the Green Economy microsite.

Is migration good for British cities?

The LSE Migration Studies Unit have published a new paper of mine, looking at the long term economic effects of migration in British cities.

In a nutshell, I find migration is good for productivity and wages, less good for low skill workers’ employment. Let’s explain why …

The paper takes stock of the UK’s last big ‘migration cycle’ – from the mid-1990s to 2008. During this time net migration spiked up from 30-40,000 people per year to around 198,000 by 2007 . Most of those people ended up in urban areas, although some rural areas saw rapid growth too.

We’d expect this kind of shift to change both the size and the composition of cities’ population and workforce. We’d also expect a mix of short term ‘shocks’ to labour supply, and more subtle changes to urban economic structure.

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Sure enough, I find:

1)     Net migration to UK cities helps raise the productivity and wages of British-born workers, especially the higher skilled

2)     Net migration is linked to lower employment rates, especially among lower skilled UK-born workers.

I think I can interpret these as causal effects. (For the econometricians, results survive a battery of robustness checks, including a shift-share IV specification.)

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For policymakers, there are two big stories here.

The good news is that the diversity migrants bring is good for UK productivity, and helps raise average incomes. A number of things are probably driving this – high skilled migrants, diversity-innovation effects, and the benefits of diasporic communities in trade links.

The bad news isn’t about migrants taking British jobs – that’s too simplistic. My research and other evidence suggest various things are happening here. It’s partly about deindustrialisation. Established migrant communities went where the jobs were in the 1960s and 70s, and have stayed in old industrial towns as jobs have gone. And it’s partly about employer behaviour – during the 1990s the UK has seen increasing numbers of low-quality entry-level jobs, plus increasing use of employment agencies, many of whom use largely migrant labour. As a result, low-skilled Britons face a combination of poor jobs, limited access and competition. In effect, the labour market locks them out.

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Like a number of others, I think migration is good for UK plc, and good for British cities. Policy should be encouraging high-skill migrants in – through universities and workplace channels. At the same time, we need tougher regulation of poor employers and employment agencies, as well as restrictions on lower-skilled workers.

That needs a more sophisticated system than a migration cap – although the Coalition’s latest proposals suggest they are trying to introduce some flexibilities into what most businesses and experts think is a basically flawed idea.

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Now, these findings are significantly different from most (but not all) research in this field. It’s worth explaining why, and why I think this paper adds value.

First, I’m looking at the long term – I have a 16-year panel, rather longer than most other studies in the field.

Second, I’m looking beyond the labour market – I’m able to identify some short term wage and job ‘shocks’, but I’m also able to look at dynamic effects on urban economies, such as productivity and cost of living effects.

Third, I pay careful attention to space – most research on the local effects of migration compares outcomes across regions or local authority districts, which are either too big or too small to represent functioning economic zones. By building a new dataset of real urban economies, I’m able to pick up effects other studies might have missed.

This is work in progress. So as ever, I’d welcome your comments.

Germany’s Silicon Valley?

LSE Cities have just published a new paper of mine on innovation and growth in the Munich city-region. In terms of high-tech growth, the Munich metro is probably Germany’s Silicon Valley – it’s a fascinating story, with lessons for both the Bay Area and for British policymakers.

The report (written with Philipp Rode, Gesine Kippenberg and others) was launched last week at the Brookings-LSE Global Metro Summit in Chicago. You can find other speeches, papers and video here.

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For over two decades, Munich has had Germany’s highest share of technology patents per population. Like the Bay Area, it’s led the rest of the country on ICT. And Munich’s story has some further, surprising parallels to the history of the Valley. Over the past 60 years, both have shifted from mainly rural communities to high-tech hubs. Both offer a strong economy and an excellent quality of life – something that’s helped keep people in the area. And both benefited from Federal defence funding – Pentagon money helped fund the early Internet, while in Munich’s case defence cash built up the advanced manufacturing sector.

In other ways, Munich is very different. The metro has a notably diverse economy – the ‘Munich Mix’ spans manufacturing, ICT, life sciences, finance and creative industries, unlike the Bay Area which is still dominated by computing.

More importantly, Munich’s economic development has been hugely influenced by the State, especially the Bavarian regional government. It’s essentially a social democratic Silicon Valley.

Government spends heavily on public schools, universities and strategic infrastructure. Munich is at the centre of a network of innovation intermediaries – public research agencies like the Fraunhofer Institutes, dedicated to technology transfer. And there are very strong networks between public and private sectors.

In the jargon, this is ‘institutional thickness’. It’s created a strongly technocratic vision of economic progress, and a clear sense of common purpose. Or as they say at Audi: Vorsprung durch Technik.

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As a result, Munich’s leaders rode out a potentially disastrous period in the early 1990s when the area was hit by a triple whammy of re-unification, recession and global competition. Over the next two decades, state and city developed a rolling programme of policies to grow innovation capacity.

Our research suggests it paid off. Munich’s per capita economic output remains comfortably above regional and national averages. The metro has also markedly increased innovative activity in ICT, biotech and green industries – with a three-fold rise in green patents over the last 20 years.

The growing green economy sector has also benefited from pro-green federal policies, which have guaranteed a market for green energy and thus spurred a new industry of green energy products and services.

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Of course, Silicon Valley’s market-led model has yet to face such a crisis point. But as the Valley focuses on ‘cleantech’, Munich’s state-led model is looking increasingly attractive. VC money is pouring into green economy start-ups across the Bay Area. But California still lacks the quality public education system that will connect local people into new jobs.

More importantly, the US has not introduced market-making incentives like carbon pricing or feed-in tariffs. So California is going its own way – although its State-level cap and trade scheme has only just survived a Big Oil-sponsored public vote.

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What can the UK learn from the Munich experience? A lot of lessons are familiar. High-tech regions grow out of what’s there. Economic diversity is helpful, adding resilience and helping stimulate new ideas. Human capital is critical, as are good schools and universities. Both time and luck matter more than we’d like.

For me, the crucial lessons from Munich are about what the public sector can do. There are three.

First, decentralisation has given Munich flexibility to develop policies that suit its needs. It’s also helped strong leaders to develop, and over time, effective working across boundaries (and political parties).

Second, both local and national governments have kept up public investment in the things that matter – notably human capital, public services and strategic infrastructure.

Third, incentives and market-making are really important – especially in moving towards a greener economy. British cities can do something here, but it’s really about national policy, and political leadership.