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.
A quick debrief from last night’s Liquid City debate, ably put together by Future Human. I was on the panel, alongside Eric van der Kleij from Tech City UK and Andrew Carter of Centre for Cities. It was a really helpful session for me, with a super-engaged audience full of good ideas and sharp questions.
Unvarnished notes follow.
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Strategy
‘Tech City’ is nice shorthand for London’s rapidly-growing tech scene, especially its nexus around Old St. What can policymakers do to help it along, if anything?
Eric set out his four main tasks:
1 / Stop Government messing things up
2 / Help big firms to come
3 / Help small firms to grow, e.g. through access to finance
4 / Promote ‘talent’.
Still quite vague, but the focus on micropolicies is wise. International evidence gives no clear steer on what Government’s role, and standard cluster policies have a very patchy record. Rather than just ‘building Silicon Valley in the UK’, strategy needs a distinctive London flavour.
The Olympic Park
It’s still not clear to me how the Olympic Park fits in – except as a big space nearby that will need filling post-Games. Officials hope that tech firms priced out of Silicon Roundabout might come to the Park. This feels optimistic , and rather goes against the intention not to masterplan the cluster.
More promising is the idea that the Park can morph into a campus for big firms like Cisco. Siemens have announced something similar in the nearby Royal Docks.
Big firms, small firms
What might global firms like Google and Facebook might do for, or to, Shoreditch? Eric was clear that big firms should be ‘good neighbours’, citing Google’s upcoming hub and Cisco offer of free telepresence as examples. Ministers are ‘encouraging’ them to set up R&D facilities here, but of course can make no promises. Someone suggested using Section 106 agreements to leverage, say, incubators, as a condition of setting up shop here – an idea worth looking at.
The room was divided about the competitive threat posed by big arrivals. A few people worried about small firms being ‘eaten’ by bigger ones. But for most companies in the Bay Area, being bought by Facebook is a dream outcome. More important is that the local ecosystem keeps producing new firms and new ideas. Which brings me to …
Gentrification
As Silicon Roundabout gets more popular, it will get pricier, and some firms will get pushed out. This is part of the neighbourhood change cycle. For small companies it’s of course disruptive, though London is big enough to allow new hot neighbourhoods to form. Policy can help by providing some cheap space, and avoiding any needless property shakeups. The area’s ‘soft infrastructure’ – cafes, bars and public spaces – also helps people get their creative work done. Keeping the feel is as important as keeping physical space available.
Failure
The UK needs to change its attitude to business failure, and develop a more positive view of serial entrepreneurship. This is partly a legal issue – bankruptcy rules in California are more relaxed than here. It’s partly attitudinal – US VCs actively look for entrepreneurs who’ve tried out a few ideas and learnt from their mistakes.
More broadly, we need to remember that Tech City is a long game. A lot of the innovation hotspots mentioned – in the US, Finland and Israel, for example – took decades to mature.
Human capital
We can accelerate innovation by helping smart people cluster together. But current immigration policy will hurt London’s ability to keep international talent. The Entrepreneur Visa, which requires £50k of backup funding per application, isn’t terribly helpful. Equally, London needs to get better at growing its own skilled people – improving education and training systems, and opening up routes into the industry are both forward priorities.
London’s cultural diversity is a big plus. My research (here and here) suggests that diversity helps push up innovation. However, Silicon Valley’s heavy dependence on international migrants is a cautionary tale – diversity has done a lot for the Valley, but firms are often at the mercy of DC immigration politics.
Why do firms pay more for space in skyscrapers? I’ve posted some answers on LSE’s Spatial Economics Research Centre blog. Drawing on new research by the SERC community, I look at the balance between agglomeration effects (people working in tall buildings are more productive) and reputation effects (managers like prestigious addresses).
The research findings suggest both effects are in play – particularly for very tall buildings like The Shard. That has important implications for planning the skyscape of London and other UK cities.
Now read on …
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.
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.
What’s on sale here? Will Davies and I both have been puzzling over this ad on the Tube. Will’s worried about the politics of ‘facetime’, but I think there’s a more basic problem.
I can see the point of putting this ad up in (say) Barrow-in-Furness, or in the middle of the countryside. But if ‘facetime’ is the commodity, why offer Londoners access to 400 million people, when they can reach several times that number in the capital itself?
I would have thought that Birmingham’s comparative advantage in ‘facetime’ (or dynamic agglomeration-derived proximity benefits, to be precise) has to be usability, not quantity.
Core cities like Birmingham offer a good balance between size, speed and access. For the businesses targeted here, Brum has pretty good infrastructure, amenities and markets – but is also easy to navigate. Isn’t that the selling point?
London might be a megacity, but it also has to be one of the least usable and most frustrating places in the UK to travel around – as anyone stuck on underground reading this ad would realise …
The big city’s the place to find fame and fortune, wouldn’t you think? Not according to the Commission for Rural Communities, whose new report claims ‘rural areas have more entrepreneurs’. This seems odd – aren’t cities supposed to help ideas flow, with banks to lend money, and customers to sell to?
All the evidence suggests innovation is heavily urbanised, for example. So what on earth’s been going on in the British countryside? Is the fresh air good for the brain?
The report’s here. It’s nearly 200 pages long, so to save you reading it I’ve done some digging. The relevant findings are:
1) A survey of bank lending finds that in 2008 and 2009, rural areas had more start-ups per working-age population than urban areas (p131)
2) GEM survey data for 2004-2008 finds higher rates of ‘entrepreneurship activity’ in rural areas than urban areas. Strikingly, the survey suggests rural entrepreneurship rates are ‘as high as inner London’ (p133).
The report uses good definitions of ‘urban’ and ‘rural’, based on this DEFRA typology. But there are questions about which rural areas we’re talking about – more on that in a moment.
Let’s start with start-ups. First, there’s not much urban-rural difference in business birth rates – 13.9 per thousand people in rural areas, 12.7 in urban areas. Second, in absolute terms there are far more start-ups in cities than the countryside – hardly surprising since c.80% of the English population live in urban areas.
Third, there’s noise in the data – the survey in question covers 93% of all bank lending, which is pretty good, but doesn’t adjust for the rest. If 80% of those loans were to city firms, a reasonable assumption, the urban-rural difference is less than one percentage point.
‘Entrepreneurship’ is a slightly more nebulous concept, and it turns out the GEM data needs a big pinch of salt. For one thing, the survey is based on just 43,000 firms across the UK – which might risk sampling error if you’re looking at small rural areas.
More seriously, GEM actually measures something called ‘total early-stage entrepreneurial activity’ – which is a weighted index including ‘nascent business activity’. This could include things like writing a business plan, but not actually doing anything with it. (I’ve also no idea how the Index is built because GEM doesn’t say.)
In the CRC small print, GEM concedes it’s tracking ‘propensity to be entrepreneurial’, rather than *actual* entrepreneurs. It’s hardly convincing.
So, case not proven – on the basis of these numbers. However, let’s suspend disbelief and assume there is a new generation of rural whizz-kids. What might explain this?
It could be a lifecycle effect – people downsize or move their families out of the city, starting new businesses in the countryside. Migration data suggests there could be something in this – young single people move into cities, older people with partners and children move out. Other studies suggest people gain skills and learning in cities, taking these with them when they leave.
There could also be a technology effect. The CRC’s start-up figures suggests that most loans go to business services like accountancy and consulting, a lot of which can be done by phone or online (anecdata – my accountant operates out of deepest East Sussex).
That implies a third point – many of rural areas are actually around the edges of big urban areas. In the jargon, they’re ‘peri-urban’ – pleasant, leafy communities with decent schools and public services, and good links into the urban core. Not surprisingly, these neighbourhoods tend to come near the top of ‘best place to live’ surveys.
In turn, that suggests some final lessons. Don’t overspin your data. The city and country have more in common than you might imagine. And ultimately, enterprise is less about place than about people.
It won’t be here for another 15 years, but HS2 has triggered a mass outbreak of trainspottery enthusiasm. The Guardian even live-blogged Andrew Adonis and Sadiq Khan’s announcements, for goodness’ sake. The big issues last week were route, timing and cost – so I want to focus on impacts, particularly for cities. I’m not sure these will be all they’re cracked to be.
Dermot has helpfully summarised HS2 and the Conservatives’ plans, and R&R round up the reaction here. It’s all fairly positive (although the headline numbers don’t add up – £30bn over 20 years is £1.5bn per year, not the £2bn quoted by DfT). All the positivity explains why the Conservatives feel they need separate proposals – more on those later.
Let’s take environmental impacts first. HS2 is being pushed as green infrastructure. But as Henry points out, the CO2 impact of the line isn’t at all clear: it could take reduce emissions by -0.41m tonnes, or raise them by about the same amount. This is a pretty small fraction of total UK emissions, and doesn’t seem to significantly change the overall cost-benefit ratio. However, the lack of certainty is a worry – and dents the line’s green image.
There’s more detail on the economic impacts (summarised above). The bulk of the benefits accrue to individual travellers and firms via time savings, which feed into productivity gains at the national level. Time savings also help increase competition between firms. Labour market impacts are much smaller – it’s unlikely HS2 will dramatically change commuting patterns, for example.
In theory transport improvements boost urban agglomeration – and thus productivity – by improving linkages between firms, and between firms and workers. By bringing agents closer together, we improve cities’ ‘effective density’. HS2 modelling suggests that for North-South high speed rail, these impacts are pretty small – £3.6bn over 60 years, just over 10% of the overall benefits of the line.
This is partly because HS2 doesn’t connect anywhere that’s not already on the rail network. By contrast, SERC’s research suggests that plugging new cities into high-speed infrastructure delivers a bigger charge to output.
So what does HS2 mean for cities? Urban firms and travellers are the big winners, which is good news for cities if more productive businesses raise wages or employment. Some cities get the kudos of being on the line, and may get a regeneration boost from new stations – although that could turn into a windfall gain for developers. But fairly few firms will relocate, and agglomeration impacts will be pretty small.
On this basis, HS2 isn’t likely to fundamentally change the UK’s economic geography. Rather, it will speed up the economic geography we already have.
Two final points. First, for Northern cities, the big agglomeration gains will come from speeding up links into urban cores, or bntter connections between nearby cities like Manchester and Leeds. This is the message of the Eddington Report, and it’s important it doesn’t get lost.
Second, the final shape of HS2 may look quite different. Last week’s report also did some preliminary modelling of high speed lines to Scotland – much closer to the Conservative proposals. While there’s a ‘good case’ for a high speed link to Manchester, the early numbers suggest a ‘particularly strong’ case for lines to Leeds and the East Coast of Scotland. That implies a cash-strapped future government might want to choose between two halves of the Y – a very tough political choice indeed.
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Update, Jan 2012: the Coalition has now given HS2 the green light. It’s also published some updated cost-benefit modelling. Three things stand out from this.
First, my analysis holds. The overall shape of benefits and costs is the same, although the recession and higher building costs have changed some of the numbers slightly. See page 10 for the new figures.
Second, the modelling almost perfectly explains the politics. Those who gain from HS2 (business, core cities, those in ‘the North’) are strongly in favour; those who lose (communities and homeowners along the line) are vehemently against. Local opponents of HS2 are hardly irrational – quite the opposite. This also suggests that rather than handing a windfall gain to business by pegging HS2 fares to conventional fares, HS2 tickets should be pricier – at least in first class. That provides another way for taxpayers to recoup some of the initial outlay.
Third, the agglomeration benefits for Phase 2 (Manchester and Leeds) seem much larger than Phase 1 (London to Birmingham). Why? Rather than connecting two relatively distant cities, Phase 2 links a lot of nearby places (e.g. ‘South Yorkshire’ to Leeds in 20 mins), and provides indirect access to big cities not on the line (e.g. from Manchester to Liverpool). The fact of HS2 thus strengthens the case for complementary investments like the Northern Hub, which will bring Liverpool, Manchester, Sheffield and Leeds closer together.
Notebook and Thermos time again. Last week’s slightly weird dust-up between Andrew Adonis and Theresa Villiers highlights two things. First, how tortured the politics of high speed rail are becoming. Second, how murky the concrete costs and benefits remain.
Politically, a fast North-South line should be a done deal. Both main parties want it – but for different reasons, and probably going different places. HS2 is also getting entangled in highly sensitive planning questions, especially for the Conservatives. The Tories want a highly localised, ‘open source’ planning system – but also, room for nationally-driven infrastructure that goes straight through various safe seats.
As with the Channel Tunnel, a surprising number of people are desperate to get away from major investments designed to make their lives easier. (In California, by contrast, one of the main problems facing High Speed Rail proposals is that everyone wants to be on the line.)
We’re still not much clearer on what will actually deliver, economically and environmentally (something I complained about in a previous post). Happily, SERC has just published a new paper [pdf] which gives us some pointers.
The researchers look at the economic impacts of the Frankfurt-Cologne ICE line: 120 miles long, about the same distance as London to Birmingham. In theory, better links between cities bring people closer together, raising their productivity. The researchers isolate this effect by concentrating on new stations with no prior rail links. They find a 1% increase in market access raised GDP by 0.25% around towns on the line. These effects were highly localised, dropping off within about 30 minutes’ drive time.
Importantly, the research suggests these benefits are probably permanent – putting in a new rail line changes the underlying connectivity of the area, which then shifts firms’ and households’ location decisions.
Overall, the authors suggest that HSR both delivers significant additional economic benefit. And it’s good value for money – if gains are permanent, there should be big future fiscal payoffs from higher tax receipts.
That still leaves some big policy questions:
1) The SERC work only looks 4-5 years post-investment – so we don’t know what the really long term impacts of HSR will be (papers like this take a deeper view).
2) We also don’t know impacts for big, well-connected cities. If they are the major gainers from connectivity improvements, HS2′s impact on spatial disparities may be limited.
3) It’s hard to say whether people will switch from planes to faster trains (a modal shift) or use more of both. The answer makes a big difference to the environmental footprint of high speed rail.
4) How to actually fund and deliver the thing.
I’m sure we’ll get answers to some of this when the Government eventually publishes the HS2 report and its own ideas – both of which will be appearing, according to the Transport Minister, ‘before the election’. At which point we can settle down to round 2 of Adonis vs Villiers …
Yes, according to some fascinating recent work from INSEAD and Northwestern University. Multicultural experience helps creativity. Major cultural experiences, like travelling or living abroad, can have a big impact on our ability to think innovatively. But so too might working in a diverse firm, or living in a cosmopolitan city.
For me these findings are a great relief, as they provide scientific justification for spending three months in California. (In fact I first read about this in the San Francisco Panorama, the latest from McSweeney’s). But these ideas also plug into some current policy debates in interesting ways.
William Maddux, Adam Galinsky and colleagues have done a series of studies looking at the ‘multicultural => creativity link’. In this American Psychologist paper, they distinguish between two types of multicultural encounter, ‘big M’ experiences (like living abroad) and ‘little m’ (like being employed in a global firm).
In this second paper, they test the specific impact of living abroad on various creative behaviours. ‘Creativity’ is defined pretty broadly, encompassing problem-solving, negotiation and generating new ideas.
They find that individuals who’ve lived abroad tend to be more creative than those who haven’t. International living has a causal effect on problem solving: people tend to draw on their experiences in solving problems. Importantly, the ‘big M’ effect is larger for people who threw themselves into their trip, engaging with local culture and citizens.
So what’s going on here? Maddux and co argue that a principle function of culture is to provide behavioural norms, which help us predict, understand and influence the world. If we expose people to new cultural norms, they tend to incorporate new ways of thinking and doing things. This helps people deploy different perspectives in problem-solving or invention, and improves their ability to deal with unfamiliar contexts back at home.
Importantly, ‘Big M’ events like living abroad aren’t the only way to boost creative abilities. In The Difference, Scott Page rounds up the evidence that culturally diverse groups and teams tend to be better problem-solvers. Essentially, the set of diverse experiences is pooled across the group rather than embodied in a well-travelled individual.
All of this has some important policy implications. First, as Maddux and Galinsky point out, skilled migrants may be at their innovative while abroad. In the US, migrant scientists and inventors dominate the technology and life sciences fields. That suggests an additional reason for the UK to keep its borders open, and to think hard about the migration caps that David Cameron proposes.
Second, it looks as if Britons also benefit from a more diverse society. ‘Little m’ experiences like working in diverse teams should pay off for everyone. Neil Lee and I are confirming this in our current work on firm-level diversity and innovation (a recent paper is here).
Third, cities are critically important to all of this. Urban areas are where the UK’s diversity is, and where most of us live and work. Cities are where it all comes together. Work I’ll be publishing shortly finds that over the past 16 years, increasing migration has helped raise average urban wages and productivity for British-born workers, especially the high skilled. These lab experiments help explain why that’s so. If travel is good for you, so are urban environments that help open your mind.
* I had called this post ‘does travel broaden the mind?’, but as a couple of people have pointed out, like, duh. I hope this one captures the spirit of the research better …
