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!
I left today’s LSE/Demos Outer London seminar scratching my head. What is ‘Outer London’ for? It doesn’t make much sense – except as a voting bloc. Given we’re less than a year from Mayoral elections, though, perhaps that’s the point.
Here are some brief thoughts from the day. (Disclosure: I’m affiliated with Demos’ new Centre for London, but these views are my own.)
*
There are different ways of thinking about cities. Planners focus on systems and zones. Economists think about markets, and clusters of people and firms. Sociologists look at communities, neighbourhoods and relationships. In practice, we need all of these lenses to understand real world places.
London has many distinctive features. For now let’s pick two. First, it’s a ‘city of villages’ – over time, the capital has emerged from dozens of small centres merging in a single urban mass. Second, it’s a mega-city-region. London’s economic system spills over political boundaries and across much of Southern England.
Given this, drawing lines around bits of London is a bit of an arbitrary exercise. Using official definitions of ‘Inner’ and ‘Outer’ London to make policy is actively unhelpful.
*
This became very clear during the morning. Demos’ Paul Hildreth took a classic systems approach, tracing links between Outer London and the rest. But his slides demonstrated just how hard this is to do. Data on people flows, industry mix, residence types and productivity all show how interconnected the London system is. 60% of Londoners live in the outer Boroughs, but most don’t stay there: commutes within Outer London make up less than a third of total journeys.
Alan Mace from LSE London took a communities angle, presenting some very rich data on three outer boroughs. These showed some classic suburban features – stable populations and a strong sense of belonging. But it’s not clear these neighbourhoods are distinctively different from inner suburbs like parts of Hackney or Islington – or that similar to other outer communities. In the Q&A, it became obvious how heterogenous ‘Outer London’ neighbourhoods actually are.
*
As Scottish law would say, Outer London is ‘not proven’ – either as an economic space or a state of mind. But it does work in political terms.
Boris won the 2008 Mayoral election largely on the basis of outer boroughs’ votes. Ken, learning from past mistakes, began his 2012 comeback bid in Croydon. No surprise that Boris is re-launching the Outer London Commission less than a year before the vote, with £10m to spend on Outer London town centres before May (and £40m after).
*
What does this mean for policy? The political imperative means Outer London features heavily in the new London Plan, which launches on 11 July. Economic and social realities mean there are tensions in the Plan’s overall strategy, and in the gap between policymaking and impact on the ground.
On strategy, the Plan has a welcome focus on thinking across ‘mega-London’, and identifies high-growth development hotspots across the capital. But it then goes on to set out a number of Outer London-specific policies on the economy, transport and quality of life.
On impacts, OLC chair Will McKee rightly said at the seminar that planners can’t turn market forces around, and need to work opportunistically within the business cycle. So given the deep trends taking retail off high streets and onto the internet, what can the OLC’s £50m town centre fund actually do? It is unlikely to have more than a marginal effect on retail employment. Better, as Mary Portas suggests, to take a hard look at how shopping behaviour is changing – then intervene where sensible to help high streets adapt.
*
Outer London is driven by electoral realities, more than economic or social truths. Let’s hope the next Mayor, whoever they are, recognises which of these is the best basis for policy in the capital.
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.
*
ps more fame: in case you missed it, the Guardian have done a nice writeup of my Munich / Silicon Valley report.
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.
*
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.
*
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.
‘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.
*
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.
*
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.
*
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.
*
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.
A lot of people predicted London would be hit hard during the recession. In fact, London did better than the rest of the UK. Why?
Henry Overman, Director of SERC, delivered the answer at the first LSE Works lecture last night (with some help from me on numbers, trends and jokes). In case you couldn’t make it, here’s a post on LSE’s Public Policy blog which gives the main story.
LSE should be putting up a podcast in the next couple of weeks. Watch out for that here. Meanwhile, the next event in the series is CEP Director John Van Reenen, on ‘Where is Future Growth Going to Come From?’ That’s on 17 February.
In March we have both Lord Stern (on the low carbon economy) and Bruce Katz from Brookings Metro Program (on the ‘next urban economy’, some joint work with me and colleagues at LSE 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.
*
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.)
*
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.
*
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.
*
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.
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.
*
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.
*
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.
*
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.
*
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.
The terrifying prospect of Eric Pickles as Tom Cruise still lingers after his recent LGA speech. But amongst all the one-liners, the shape of localism is becoming clearer.
First it’s cash and rules-light – ‘less money, more freedom’, as Jon Rouse puts it. Second, as Julian Dobson says, it’s a bit centralist right now. That’s not surprising – the Minister has the tricky job of devolving via the machinery of central government.
Most importantly, localism points in several directions at once. Councils get more freedom, but so do community groups and local people. For me, this is the most radical bit – and the most radical idea isn’t big city Mayors, but direct votes on local taxes.
The Economist memorably referred to local referendums as ‘the crack cocaine of democracy’. So should we be worried about what Eric might (or might not) call ‘freebase localism’?
The referendum proposal focuses on council tax. At the moment Whitehall can cap council tax levels ‘to protect council taxpayers from excessive increases’. The Coalition wants to replace capping with local votes on whether taxes are too high.
Getting rid of capping is a good thing. It’s not transparent, and it’s verging on the undemocratic. It’s not obvious we need to replace capping with direct votes, however.
*
In the jargon, local people already have choice (of parties), voice (in local elections) and exit (moving out). Of course local elections are every four years, voter turnout is often low, and many people don’t find it easy to move. Direct democracy seems to raise turnout, and plugs people straight into decision-making.
The big problem with Eric’s proposal is the loaded question issue. It’s effectively a massive nudge for lower taxes – although the Coalition is silent on what ‘low enough taxes’ means in practice. That will put an automatic, and potentially destabilising limit on council revenues. In turn, that makes it harder for Councils to provide effective services – especially in a ‘post-bureaucratic’ age of changing social structures and more demanding consumers.
California is an extreme example of where low-tax bias takes you. Under Proposition 13, the state has capped property taxes *and* requires a supermajority for any revenue-raising measures. Right now, recession-hit public finances are in a total mess, but it’s proving politically impossible to pass a budget. As a result, one small town is now disbanding its police force.
*
Councils might get round the loaded question if they had other means of raising money, besides council tax. Right now they don’t: over 80% of council finance comes direct from Whitehall.
The bigger issue here is the disconnect between local taxes, local votes and local services. Because the latter are largely grant-funded, it’s not properly clear to voters what they’re voting on, and how that vote might change local services. Worse, Council tax hasn’t reflected real house values for years.
As Dermot suggests, councils should call the Coalition on localism. As well as proper incentives for housing growth, how about:
1) new money-raising tools – a green light for Accelerated Development Zones, and borrowing on the Housing Revenue Account;
2) a clearer link between local taxes and local services - the Review of Local Government Finance should push a revaluation of council tax, relocalising the business rate, and arguably a local income tax (as proposed by the Lib Dems).
With all this in place, I’m not sure local referendums are needed. Votes will really make a difference to services – and taxes. That should raise both turnout and political engagement. And if local taxes are too high, politicians will exit via the ballot box.
In other words, really show us the money. And just say no to crack.
… eco-towns, by the look of it. This is a good thing. Eco-towns are largely unloved, often in the middle of nowhere, and would have little impact on overall CO2 emissions.
Dermot (and Adam Marshall) have rightly criticised eco-towns for distracting from the much bigger task of greening Britain’s cities. As I’ve explored elsewhere, that’s a job which should have both a significant impact on the UK’s carbon footprint, but also much greater economic development potential.
Eco-towns have also failed dismally at being the kind of demonstration project the Government originally envisaged. There are much better examples abroad, both self-standing cities like Masdar in Abu Dhabi, and (more realistically) urban extensions like those in Vauban, Freiburg, or Hammarby Sjostan, Stockholm.
The latter also have the benefit of localist in design and delivery. In the coming months, let’s hope the Coalition can give British cities the financial flexibilities to try something similar.
