Top team diversity

Like many Western countries, the UK has become substantially more ethnically and culturally diverse. The 2011 Census makes this crystal clear. Since 2001, the foreign-born population in England and Wales has jumped from 4.6 to 7.5m. At the same time, the ‘white British’ ethnic group shrank from 87.5-80% of the population.

What are the economic impacts of these deep demographic shifts, and what do they mean for cities? Certainly, population change has been most striking in urban areas: notably, London is now a ‘majority minority’ city for the first time in its history.

Urban factors may also affect how ‘diversity effects’ play out at firm level. Although the public debate is still focused on migrants, jobs and public services, a number of academic researchers are turning their attention to the wider impacts of immigration, minority communities and population diversity. Globally, there are now studies exploring effects on firms’ productivity, innovation, entrepreneurship, or trade patterns; and channels that may influence house prices, or the mix of local goods and services.

There’s been little parallel UK research to date – but in a new SERC Discussion Paper (supported by LLAKES) I explore the links between the composition of 6,000 English firms’ ‘top teams’ and company performance. Unusually, my data allows me to look at both ethnicity and gender mix.

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What might we expect to see? Owners, partners and directors set firms strategic direction. So the make-up of a ‘top team’ might generate production externalities through diversity (a wider range of ideas/ experiences, helping problem solving) and/or ‘sameness’ (via specialist knowledge or better access to international markets). These channels may be balanced by internal downsides  (lower trust) and external barriers (discrimination), so that overall effects on business performance are unclear.

Big cities might then amplify or dampen these channels. Agglomeration economies might help productivity, and firms may benefit from large, cosmopolitan customer markets. Alternatively, firms in cities might face more competition, or minority-headed businesses might face discrimination.

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My results suggest a non-linear link between top team diversity and business performance, which is net positive for process innovation and net negative for turnover. Further tests on diverse and minority/female-headed firms find positive links for diverse top teams, negative for minority and female-only top teams.

Looking at the influence of urban areas, I find some evidence of complex amplifying and dampening effects. In London, for example, diverse firms are less likely to engage in process innovation; but overall, firms in bigger cities are more likely to.

My data make it hard to identify causal effects, so I interpret these results as pure correlations. The implication is that while diversity has internal and external benefits, penalties from being ‘too diverse’ probably result from external constraints. In turn, that suggests policymakers need to encourage corporate diversity, while taking discrimination more seriously.

In a companion paper on London firms, Neil Lee and I found strong links between firm-level diversity and innovation. This paper suggests diversity-innovation links for firms outside the capital too. Core city leaders should pay attention.

From Tech City to Smart City?

Is Silicon Roundabout going green? I’ve written a new piece about London’s emerging ‘cleanweb’ scene, highlighting some of the fascinating new firms and ideas emerging from the area.

You can read short versions on the Huffington Post and the SERC blog. The piece was commissioned by LSE Cities, and the full version is in the LSE Cities ‘Electric City’ conference newspaper.

It all builds on the Centre for London report A Tale of Tech City, which came out over the summer.

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I’m starting to write all this up into a journal article or articles – so comments are very welcome.

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.

City Deals: The Second Wave

Some thoughts from yesterday’s City Deals workshop, fronted up by Nick Clegg and Greg Clark, and ably compered by Alex.

The major announcement was that 20 cities and city-regions get the chance to bid for a ‘Wave 2′ deal. It’s a competition – the Cabinet Office sift bids around the turn of the year. Successful pitches will get a ‘core package’ plus local options, then go live sometime in 2013.

There was also lots of reflection on the wider Deals process – now almost a year old.  I got quite excited about all this back in December. Some real challenges are now emerging.

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Some immediate points on the Wave 2 proposals. First, we need more detail on the sift criteria, and a sense of how many cities will get through. I suspect the Cabinet Office and HMT may have different views on this. Officials are also working on core package specifics. I’d expect skills, transport and finance to feature – and perhaps, Earnback-type arrangements for everyone?

Second, not all the 20 are city-regions. Ministers say local groups should self-organise. But the evidence says fitting the right policy asks to the appropriate scales is crucial. Relying on local political coalitions may not result in genuine functional economic areas.

Some wider issues:

1/ What can we expect? Ministers were very confident that City Deals will achieve substantive economic change: ‘the leadership of cities is incredibly important to their success’, said one. But the evidence is ambiguous on whether these direct effects actually exist. There may be indirect links from empowered leadership to growth – say, if this helps secure investment, or produces innovative policies. City Deals will help test that argument.

2/ It’s the process, stupid - as I’ve said, this is a long game. Getting the systems right is crucial – on negotiation and sift in the short term, and delivering culture change in the longer term. Like industrial strategy, the Deals system has to be flexible, and allow for failure.

As Dani Rodrik argues, in some ways process is more important than content in these situations. City Deals are basically experiments, and some won’t work out. The right institutional setting and rules are fundamental – not least to identify failure quickly. So it’s good that Core Cities will get a chance to renegotiate Deals in future, for example. Wave 2 cities should also get this.

3/ Whitehall as blockage – Clegg, Clark and others were very open about problems persuading some parts of Whitehall to engage (shades of Blair’s ‘scars on my back’ speech?).

Some of these blockages were already emerging last year, and Ministers and the Cities Policy Unit have done well to minimise these. But I guess one reason for the Wave 2 announcement is to keep the pressure up, co-opt city leaders in the cause, and build a critical mass of devolutionary pressure.  There will be severe tests of political leadership ahead, especially on welfare and benefits.

4/ Peer support and mentoring – Central government is investing in mentoring for cities – each gets a Cities Unit ‘partner’, alongside a senior ‘sherpa’ for each LEP. The Core Cities group also says it’s interested in peer support advising Wave 2. This is welcome stuff, which will be essential for some of the candidate cities. However …

5/ Too far, too fast? - Central government capacity is now getting very stretched. The officials are good, but there’s only so many of them. Even if over half the Wave 2 candidates are sifted out, this still doubles the workload. And there was some talk yesterday of a Wave 3, covering rural areas, before 2015.

This rapid roll-out has already drawn some fire from New Economy Manchester. There’s clearly  a political argument for acceleration. But Ministers should be very careful it doesn’t come at the expense of effective delivery. Official capacity needs beefing up. And again, process is key. Individual Deals should move forward at different speeds; some will be renegotiated; some may need a pause.

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.

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.

Busy

It’s a sad day. I’ve become one of those people who makes excuses for not blogging.

I have got some good reasons though. These are:

1) I’ve been getting some papers into journals.

A version of my PHD intro chapter has been accepted by European Urban and Regional Studies.

And my paper with Neil Lee on cultural diversity and business performance has been accepted by Economic Geography.

I’m pretty happy about both of these. Fingers crossed for a third which is still out for review.

2) I’m finishing up a couple of other projects.

One is a paper on proximities and collaboration, with Riccardo Crescenzi and Andrés Rodríguez-Pose. We’re interested in how physical, institutional, social and other ‘closenesses’ might shape how people work together (or not). You can see an early version of this here [pdf], from a  presentation I gave in Leuven the other week.

The other is some research on Tech City, which I’m doing for the Centre for London. This is joint work with Emma Vandore and Rob Whitehead at CFL. We’ve been talking to a lot of East London tech firms, and crunching microdata to trace the cluster’s long term growth and dynamics.

You can hear some early thoughts on the Future Human podcast – look for the ‘Liquid City’ episode. The report itself will launch on 2 July at Hackney House.

On which note, back to writing …

London’s economics of diversity

I gave a talk on my diversity and firms research at LSE London on Monday. You can now read summaries on LSE’s British Policy and Politics blog and the SERC blog.

LSE London have also posted up the slides and a podcast. I hope they’ve included the bit at the beginning where Powerpoint stops working …

The paper’s been picking up some interest – thanks to The Economist’s Free Exchange blog – and you can read the whole thing here if you so wish.

Future chat

I’m giving a couple of seminars in the next few weeks.

First up, on 5th March, I’m at LSE London talking about cultural diversity and the London economy. This will draw on some of my PHD research on the economics of diversity. It turns out diversity and co-ethnic networks are good for London businesses; the broader effects of immigration on labour markets more mixed. I’ll talk about these results and the policy lessons. Details here.

Next, on 7 March I’ll be giving a talk on Tech City at UCL’s Bartlett School of Planning. I’ll be discussing emerging findings from a project on the East London technology cluster, which I’m leading at the Centre for London. Only a few people are looking at this stuff, so I’m excited to be working on it. I’ll be looking at international experience, what the numbers tell us, and feeding back some of our conversations with local firms. Details here.

If you’re around, come and say hello!

Tech City at City Hall

I gave evidence to the London Assembly Economy, Culture and Sport Committee  on Tech City yesterday.  On the panel with me were Eric van der Kleij (Tech City UK), Kulveer Ranger from the Mayor’s Office, Theo Bertram (Google), Georg Ell (Yammer) and Jeff Lynn (Seedrs).

You can see the 90s-style ‘webcast’ here. There’s some entertaining political gunfighting between Kulveer Ranger and some of the Labour members for the first 20 minutes, and then a good hour of discussion after that.

Happy viewing!