Future chat

May 20, 2015

(c) 2015 Max Nathan

I’ve been busy working on a bunch of projects recently, but will be escaping the office to do a couple of talks over the summer. Each very different …

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On 7 July I’m chairing an LSE lecture by Gerard Grech, CEO of Tech City UK. We’ll be talking about the extraordinary growth of London’s digital economy, and where these sectors could take us next.

I’ve just completed a long piece on London’s digital evolutions for the Centre for London think tank’s new London Essays imprint, so I’m looking forward to this one. Emma and I met Gerard recently and were impressed by his openness. It should be a great session. Details are here.

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On 23 July I’m in New Zealand at the ‘Pathways, Circuits and Crossroads’ conference on the economics of immigration and diversity, which is organised by the University of Waikato, Massey University and Motu. I’m very grateful to Jacques Poot and Dave Maré for inviting me over. They’re just beginning a major programme of work on immigration and diversity in NZ, and I’m hoping we can kick off some interesting collaborations when I’m in town. More details of that event when I have them.

If you’re around for either of these, come and say hello!


Training entrepreneurs: does it work?

March 24, 2015

(c) South Park

Here are some highlights from last Friday’s joint What Works Centre / SERC seminar, which was given by Prof Rob Fairlie from UC Santa Cruz. The talk was part of the Spatial Economics Research Centre’s regular series of seminars, and the first in an occasional series of collaborations where we get the chance to dig into an innovative piece of local growth policy.

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Rob’s talk looked at policies to promote entrepreneurship, and focused on whether training programmes for entrepreneurs can help these new businesses grow their workforce. This taps into some major policy concerns in the UK and elsewhere. Since the Great Recession, US and UK policymakers have been very keen to push entrepreneurial activity as a way to generate economic growth. Existing US evidence suggests that small and young firms account for the majority of new jobs generated; and most of that job creation comes from a very small number of those firms (although we should bear in mind that at least some of these jobs created come at the expense of jobs lost in incumbent businesses).

So are there policy interventions that can a) help move people into entrepreneurship and b) help those new businesses grow?

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One cluster of interventions is accelerator and incubator programmes, in the tech sector and more broadly, which select a small number of participants for intensive training. In the States, entrepreneurship training has also been applied as part of active labour market policy, with programmes that aim to help long term unemployed people set up their own businesses. We covered some of these programmes in our evidence review on business advice. Rob’s talk focused on one of the largest, Project GATE, which was set up as an RCT covering over 4,000 people, of whom over 50% were unemployed at the time. Project participants received a package of training, classes and seminars and 1:1 counselling / advice on setting up and growing a business.

A key question for policymakers is whether new entrepreneur-owned businesses generate additional employment, and where this comes from: an unemployed person who becomes a business owner has generated a job (for themselves), which is a success from a ‘welfare to work’ point of view. However, from a local growth perspective, what we really want to know is whether these firms also hire additional employees.

The conclusions from the evaluation are not hugely encouraging. There are positive but not statistically significant effects of the programme on hiring a new employee, and the training did not have an effect on the number of employees hired.

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What might explain this? The RCT results are average effects, so it is possible that the training might be more effective for firms in specific industries, or for specific types of people (the paper also uses descriptive evidence from the Kauffman Firm Survey which suggests quite a lot of heterogeneity in hiring patterns across different types of entrepreneurs).

Another issue is programme aims: this particular intervention focused on moving participants into business ownership, not growing workforces; many participants reported that the hiring advice they received wasn’t terribly helpful, and the number of hiring firms was low, making inference difficult.

A third issue contamination: is that over 50% of the control group also ended up getting some kind of entrepreneurship training. As one of the seminar participants pointed out, although they spent less time on training and reported lower satisfaction than the treatment group, it’s possible that a sub-section of the control group ended up more motivated – and likely to succeed – than the treatment group.

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So what can policymakers take from all of this? First, amidst all the excitement about incubators and accelerators, be wary about claims that entrepreneurship training is a silver bullet for local growth. Second, try to set up some experiments so we can properly test such programmes in a UK context. Third, be very clear about what your entrepreneurship training programme is designed to achieve, and make sure that the policy design and evaluation strategy are able to pick this up. Finally, make sure that participant and performance data is available to researchers. Initial evaluations of Project GATE suggested it had positive impacts, leading the US Department of Labor to spend large sums on further rollout. After several years chasing down the data, Rob and colleagues found mistakes in the original studies and concluded the actual effects were substantially smaller than claimed.

 

A version of this piece was originally posted on the What Works Centre blog.

 


Estate renewal and neighbourhood regeneration

March 8, 2015

(c) Max Nathan 2012

At the end of January the What Works Centre on Local Economic Growth, where I’m a Deputy Director, released its review of estate renewal programmes. For many of those who’ve worked in regeneration policy, and (like me) want such programmes to succeed, the results were deeply disappointing.

The team found that

1/ Estate renewal programmes do a good job of improving housing, public space and physical amenities.

2/ Estate renewal programmes lead to increases in property and land prices and rents, although not necessarily for nearby properties that do not directly benefit from improvements.

3/ Programmes tend to have a limited impact on the local economy in terms of improving income or employment.

4/ Programmes tend to have a limited impact on the local area in terms of reducing crime, improving health, wellbeing or education.

Worse, we found no evaluations that were able to unpick effects on existing residents, as opposed to people moving into an area. This matters, because it means that – for example – area-level improvements in employment rates might simply be driven be people moving into the area, rather than real improvements in life chances for people already living there.

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A few thoughts on this.

First, as Ruth Lupton points out, we have to be careful to assess such programmes on what they set out to achieve. The main aim of estate renewal is usually to improve the quality of housing supply, the built environment and other local amenities. The review shows programmes are pretty good at achieving these. An important result.

Where such programmes score less well is on broader objectives. New Labour broadened estate renewal into a wider ‘neighbourhood renewal’ agenda – programmes like the New Deal for Communities included economic as well as social goals. The review included a number of independent and officially-commissioned NDC evaluations, and the results on these wider goals are not great. As John Haughton suggests, this is consistent with a larger body of evidence on ‘people’ vs ‘place’ interventions, and where views cut across the political spectrum.

It’s worth thinking a moment about why this might be. Urban economies are complex, and adjustment is hard to predict, sometimes chaotic. There’s clearly space for for neighbourhood regeneration programmes to try and deal with co-ordination problems, provide public goods, and try to mitigate some of the problems facing people in deprived areas.

On the other hand, these programmes are microsolutions for megaproblems: the economic elements of NDC are trying to roll back huge structural trends that two decades of national intervention under Labour more or less failed to shift. I’ve got a chapter coming out in this book, edited by Dave O’Brien and Peter Matthews, which talks more about these ‘regeneration expectations’.

Second, as John also says, it is important to understand in more detail *why* some estate renewal programmes have not delivered on their objectives. John suggests a few reasons: lack of community ownership, a lack of learning culture in the ‘estate renewal industry’, and shifting / conflicting central government priorities (a point also made by Ruth and others).

To dig into this, we need better quality impact evaluations (the What Works team used just 21 out of over 1,000 candidate studies). We also need to look through the complementary literature on programme process, implementation and management. The Centre has now started to do this – across a range of policy areas – and will be reporting back in the coming months.

Third, we need to set our expectations for such policies in the future. As a whole, regeneration programmes involve an implicit contract with communities, as Lee Pugalis and David McGuinness argue, and there remains a strong equity case for such initiatives. However, effective urban and neighbourhood policy is hard to design: neighbourhoods and cities are complex systems, which adjust in messy and uneven fashion. This creates space for policymakers – dealing with market and co-ordination failures – but also implies that impacts are likely to be incremental at best. That means presenting a realistic positive case for regeneration and estate renewal, rather than asserting economic transformations that stand little chance of coming about.


Two new (old) papers

January 4, 2015

(c) 2015 Max Nathan

A couple of papers that have been online for a while have now been physically published.

These are the minority ethnic inventors paper, which is out in the Journal of Economic Geography, and another paper on a ‘post Richard Florida’ framework for thinking about the economic effects of diversity. This is the lead article in the new European Urban and Regional Studies, which is nice.

Abstracts are below. You can get an earlier, working paper version of the JOEG paper here, and for a limited time you can download the EURS paper here.

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JOEG:  Minority ethnic inventors play important roles in US innovation, especially in high-tech regions such as Silicon Valley. Do ‘ethnicity–innovation’ channels exist elsewhere? Ethnicity could influence innovation via production complementarities from diverse inventor communities, co-ethnic network externalities or individual ‘stars’. I explore these issues using new UK patents microdata and a novel name-classification system. UK minority ethnic inventors are spatially concentrated, as in the USA, but have different characteristics reflecting UK-specific geography and history. I find that the diversity of inventor communities helps raise individual patenting, with suggestive influence of East Asian-origin stars. Majority inventors may benefit from multiplier effects.

EURS:  In recent years, most European countries have experienced substantial demographic changes and rising cultural diversity. Understanding the social and economic impacts of these shifts is a major challenge for policymakers. Richard Florida’s ideas have provided a popular – and pervasive – framework for doing so. This paper assess Florida’s legacy and sets out a ‘post-Florida’ framework for ‘technology, talent and tolerance’ research. The paper first traces the development of Florida’s ideas. ‘Florida 1.0’, encapsulated by the Three Ts framework, has performed badly in practice. There are problems in bringing causality to the fundamental relationships, and in consistently replicating the results in other countries. ‘Florida 2.0’, though suggests that Creative Class metrics have value as alternative measures of human capital. This create space for a post-Florida agenda based on economic micro-foundations. I argue that the growing body of ‘economics of diversity’ research meets these conditions, and review theory and empirics. Urban ‘diversity shocks’ shift the size and composition of populations and workforces, with impacts operating via labour markets, and through wider production and consumption networks. While short-term labour market effects are small, over time low-value industrial sectors may become migrant-dependent. Diversity may help raise productivity and wages through innovation, entrepreneurship, market access and trade channels. Bigger, more diverse cities help generate hybridised goods and services, but may also raise local costs through crowding. All of this presents new challenges for policymakers, who need to manage diversity’s net effects, and address both economic costs and benefits.


New big data paper

November 27, 2014

(c) 2014 NIESR / GI

Anna Rosso and I have just published the next phase of our big data project. Kindly funded by NESTA, this builds on the work we did with Google last year. As before we’re working with Growth Intelligence, who’ve developed the very nice multi-layer dataset we use. We’ll be publishing a further paper sometime in the New Year.

You can download the full NIESR working paper here or a summary here. A version of the paper will also be coming out in Research Policy shortly.

The abstract is below. Or take a look at this writeup in the FT.

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Governments around the world want to develop their ICT and digital industries. Policymakers thus need a clear sense of the size and characteristics of digital businesses, but this is hard to do with conventional datasets and industry codes. This paper uses innovative ‘big data’ resources to perform an alternative analysis at company level, focusing on ICT-producing firms in the UK (which the UK government refers to as the ‘information economy’). Exploiting a combination of public, observed and modelled variables, we develop a novel ‘sector-product’ approach and use text mining to provide further detail on the activities of key sector-product cells. On our preferred estimates, we find that counts of information economy firms are 42% larger than SIC-based estimates, with at least 70,000 more companies. We also find ICT employment shares over double the conventional estimates, although this result is more speculative. Our findings are robust to various scope, selection and sample construction challenges. We use our experiences to reflect on the broader pros and cons of frontier data use.


Can ‘Tech North’ take off?

October 27, 2014

Rory Cellan-Jones has a nice article on the BBC website on the prospects for the Government’s ‘Tech North’ initiative, building extensively from my work with Emma Vandore on Tech City in London. Here’s some further thoughts.

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Tech North was launched by Nick Clegg last week: it’s one of the products of the DPM’s recent Northern Futures initiative. The idea is to promote tech clusters in Liverpool, Manchester, Sheffield, Leeds and Newcastle: Clegg has put £2m/year on the table to support local firms, and to attract FDI to the area.

Politically this is a no brainer. It meshes with the government’s ‘rebalancing’ rhetoric. And it fits the new mission of TechCity UK, which has expanded its remit from just East London to cover the whole country. TCUK is publishing work next month looking at digital clusters, which will put some new numbers behind the policy.

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So will it work? Rory is fairly sceptical in his piece. I’m still unclear what the programme will actually do: so here are five issues policymakers should be thinking about.

1/ Real geographies – Tech North connects five big cities with over 150 miles between them. In the real world, urban tech is in very tight microclusters: neighbourhood scale scenes which allow for lots of face to face contact. In Liverpool, for example, a lot of the action is in Ropewalks or the Baltic Triangle.

In London, Ministers originally hoped to ‘connect’ the Shoreditch cluster to the Olympic Park a few miles away. That hasn’t proved possible, not least because Old Street firms didn’t want to move there and saw no connection between the two.

So the chances of creating a single super hub across the Pennines are slim at best. There are worrying echoes of the Thames Gateway here: a planning concept, not a real place. On the other hand, as we found in London, the area branding might prove a helpful way to raise the profile of these local scenes.

2/ Who’s in and who’s out? The DPM seems to have focused his attention on the five Northern core cities. Fair enough, in that these are the economic powerhouses of their wider regions. But the real geography of tech activity is a little different. But cities like York and Sunderland also have quite a lot of tech firms. So why aren’t they included?

3/ FDI versus growing our own – firms cluster because co-location makes sense: they can tap into new ideas and pools of skilled workers and can share useful inputs (like fast broadband or VC investors). On the other hand, clusters have tensions built in. As more firms enter, pressures on space build up, so rents rise. And competition rises, for staff and for market share.

Given all this, it’s risky to base cluster development policies on foreign investment. If FDI simply brings in big multinationals, these might displace smaller, younger UK businesses. I doubt that’s what Government or cities want. Agencies like UKTI typically try and maximise the count and size of foreign investments. A different approach is needed here, which is to focus on the type of foreign inputs.

4/ Infrastructure – FDI programmes should try and enrich the rest of the ecosystem, especially specialist services tech firms need: finance, lawyers, accountants and workspaces. This stuff is only just starting to appear in London at scale, and is likely to be a priority for other UK cities. Certainly, the UK’s VC scene is pretty weak outside the capital.

Equally, fast internet (and fast connection to it) is a basic need. For me, this is now a public utility, so it’s disappointing that the Superconnected Cities scheme has retreated from rolling out faster systems to everyone, to simply providing vouchers to SMEs. The CORE programme in York, Peterborough and Derby is an interesting exception (thanks to Tom Forth for the link).

5/ Policy architecture (and whether it really matters) – cluster policy advocates like Michael Porter assume that cluster development has to be local, since clusters are local phenomena. But this doesn’t follow.

First, Tech North has little cash on the table: its five-city budget is about the same as the original budget for Shoreditch. Second, a lot of the relevant policy levers are held at national level: tax breaks for investors, crowdfunding regulation, immigration and skills. That still leaves some local levers: branding, networking, planning and any local investment pots. But it’s limited stuff.

Arguably some of these national levers should be devolved: that’s started to happen through City Deals and Local Growth Deals. But we’re at the very start of this process, and though the post-Scotland moment may yet shake things up further, what Ministers are handing over in powers they’re currently taking away in cuts.

But perhaps that’s too pessimistic. As Emma and I found in the East London research, the Old St scene grew quietly for years without policymakers really noticing. That could well be the likely trajectory for the many clusters under the Tech North umbrella.


Experimenting on yourself

August 29, 2014

A recent post for the What Works Centre that I thought would be good here too.

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At the What Works Centre we’re keen on experiments. As we explain here, when it comes to impact evaluation, experimental and ‘quasi-experimental’ techniques generally stand the best chance of identifying the causal effect of a policy.

Researchers are also keen to experiment on themselves (or their colleagues). Here’s a great example from the Journal of Economic Perspectives, where the editors have conducted a randomised control trial on the academics who peer-review journal submissions.

Journal editors rely on these anonymous referees, who give their time for free, knowing that others will do the same when they submit their own papers. (For younger academics, being chosen to review papers for a top journal also looks good on your CV.)

Of course, this social contract sometimes breaks down. Reviewers are often late or drop out late in the process, but anonymity means that such bad behaviour rarely leaks out. To deal with this, some journals have started paying reviewers. But is that the most effective solution? To find out, Raj Chetty and colleagues conducted a field experiment on 1,500 reviewers at the Journal of Public Economics (where Chetty is an editor). Here’s the abstract:

We evaluate policies to increase prosocial behavior using a field experiment with 1,500 referees at the Journal of Public Economics. We randomly assign referees to four groups: a control group with a six-week deadline to submit a referee report; a group with a four-week deadline; a cash incentive group rewarded with $100 for meeting the four-week deadline; and a social incentive group in which referees were told that their turnaround times would be publicly posted. We obtain four sets of results.

First, shorter deadlines reduce the time referees take to submit reports substantially. Second, cash incentives significantly improve speed, especially in the week before the deadline. Cash payments do not crowd out intrinsic motivation: after the cash treatment ends, referees who received cash incentives are no slower than those in the four-week deadline group. Third, social incentives have smaller but significant effects on review times and are especially effective among tenured professors, who are less sensitive to deadlines and cash incentives. Fourth, all the treatments have little or no effect on rates of agreement to review, quality of reports, or review times at other journals. We conclude that small changes in journals’ policies could substantially expedite peer review at little cost. More generally, price incentives, nudges, and social pressure are effective and complementary methods of increasing pro-social behavior.

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What can we take from this?

First, academics respond well to cash incentives. No surprise there, especially as these referees are all economists.

Second, academics respond well to tight deadlines – this may surprise you. One explanation is that many academics overload themselves and find it hard to prioritise. For such an overworked individual, tightening the deadline may do the prioritisation for them.

Third, the threat of public shame also works – especially for better-paid, more senior people with a reputation to protect (and less need to impress journal editors).

Fourth, this experiment highlights some bigger issues in evaluation generally. One is that understanding the logic chain behind your results is just as important as getting the result in the first place. Rather than resorting to conjecture, it’s important to design your experiment so you can work out what is driving the result. In many cases, researchers can use mixed methods – interviews or participant observation – to help do this. Another is that context matters. I suspect that some of these results are driven by the power of the journal in question: for economists the JPubE is a top international journal, and many researchers would jump at the chance to help out the editor. A less prestigious publication might have more trouble getting these tools to work. It’s also possible that academics in other fields would respond differently to these treatments. In the jargon, we need to think carefully about the ‘external validity’ of this trial. In this case, further experiments – on sociologists or biochemists, say – would build our understanding of what’s most effective where.

 

A version of this post originally appeared on the What Works Centre for Local Economic Growth blog.


Spaces of Evidence seminar, 26 September

June 27, 2014

(c) richard serra / max nathan

I’m speaking at Goldsmiths in September, at one of the ESRC Spaces of Evidence seminars which will look at different types of economic evidence, their characteristics and limitations, and their uses in policy-making.

Will Davies, the organiser, has put together a nice lineup including Angus Deaton (Princeton), Suzy Moat (Warwick), Martin Giraudeau (LSE), Tiago Mata (UCL), Zsuzsanna Vargha (Leicester) and Vera Ehrenstein (Goldsmiths).

Here’s the blurb:

Economics and economists have a long history of providing a scientific basis or justification for public policy decisions. Concepts derived from welfare economics, such as ‘market failure’, have provided a language through which politicians and government officials can understand where and why the state might (and might not) intervene in market processes. The efficiency of potential regulation can be tested through the use of models, based on neo-classical assumptions.

However, events such as the financial crisis have thrown a renewed scepticism upon the capacity of orthodox economic theories to adequately model situations. At the same time, a new empiricism has emerged, which makes a bold appeal to data and field trials, which are purportedly less cluttered by normative assumptions about causality and probability. ‘Big Data’ and randomised controlled trials are at the forefront of new efforts to probe economic activity, in search of policies which ‘work’. The distinction between ‘model’ and ‘reality’ is abandoned, and the economy becomes treated as a zone of experimentation and data-mining, such that behavioural patterns can be discerned.

The seminar will explore the implications of these new directions in economic evidence, and ask what they mean for the authority of public policy, how they reconfigure expertise, and what types of epistemological and political assumptions they conceal.

It’s open to all, but you’ll need to register. Full details are here.


Same Difference?

June 25, 2014

v2

I have a new article out in the Journal of Economic Geography. Originally one of my PHD papers, it looks at the demography of innovation, particularly the roles of what I call ‘minority ethnic inventors’.

Here’s the abstract:

Minority ethnic inventors play important roles in US innovation, especially in high-tech regions such as Silicon Valley. Do ‘ethnicity–innovation’ channels exist elsewhere? Ethnicity could influence innovation via production complementarities from diverse inventor communities, co-ethnic network externalities or individual ‘stars’. I explore these issues using new UK patents microdata and a novel name-classification system. UK minority ethnic inventors are spatially concentrated, as in the USA, but have different characteristics reflecting UK-specific geography and history. I find that the diversity of inventor communities helps raise individual patenting, with suggestive influence of East Asian-origin stars. Majority inventors may benefit from multiplier effects.

The full paper is here. You can also read the working paper version, though bear in mind there are some differences to the final edit. I’ll upate this post at some point with a proper pre-print.

 


My new book

May 23, 2014

I have a book out: Urban Economics and Urban Policy, written with Henry Overman and Paul Cheshire, and published by Edward Elgar.

In a nutshell, it’s ‘economic urbanism’. We bring together last two decades of work by economists and economic geographers on urban issues, and distill some high-level lessons for policymakers. We look at trends in city growth and change, spatial disparities and urban housing/labour markets, as well as evaluating a range of urban policies.

The focus is on the UK, and especially work done at LSE’s Spatial Economics Research Centre since 2008. You can read the first chapter here.

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The book began as a kind of greatest hits compilation for SERC, but has morphed into a broader attempt to show what economists (and economic geographers like me) can bring to cities and urban analysis.

Economics’ influence on urban policy has historically been very limited: urban thinking has been dominated by architects, planners and governance types.

In part, this is because economists haven’t been very interested in space until recently. As Paul pointed out at the book’s launch, economics 101 classes mention the three factors of production – capital, labour and land – after which land is rarely (if ever) discussed again. That has only really begun to change in the last decade or so, with the very obvious death of ‘death of distance’ arguments, and people like Paul Krugman and Ed Glaeser making their influence felt in the profession. (Ed kindly wrote the foreword for our book.)

It’s also because spatial economic concepts and techniques are fiddly and difficult to explain. Dealing with spatial autocorrelation is rarely as glamorous or compelling as iconic buildings or big political personalities. Evan Davies did economic geographers everywhere a great service with the Mind the Gap series, which did a bravura job of distilling agglomeration, knowledge spillovers and path-dependence into everyday language.

And of course lessons from spatial economics aren’t always ones policymakers want to hear. Urban systems tend to build in spatial differences, and these inequalities are self-reinforcing and hard for policy to reverse. Many urban policies are effective, but many popular ones – such as Enterprise Zones or cluster programmes – often don’t have much impact.

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In turn, that highlights both the advantages and limitations in the economic urbanist’s approach. City leaders should take economic ideas and analysis seriously, especially when making decisions about housing, planning or development. The book is an attempt to put economic thinking back in the room. But we can’t reduce cities to purely economic processes: as objects or systems, they are too complex and chaotic for that. And as Max Weber says:

… The explanation of everything by economic causes alone is never exhaustive in any sense whatsoever, not in even in the … economic sphere itself. In principle, a banking history of a nation which adduces only economic motives for explanatory purposes is naturally just as unacceptable as an explanation of the Sistine Madonna as a consequence of the social-economic basis of the culture of the epoch in which it was created. 

That logic also applies to policy choices. In practice we often have to trade off economic, social and environmental goals – when planning new roads or houses, for instance. Citizens’ welfare is rather wider than economic welfare, and we should avoid collapsing the first into the second.

Given those complexities, economists need to be mindful of real-world priorities and politics when giving policy advice. (As do others – Richard Rogers’ reductionist readings of Jane Jacobs have not been very helpful in the UK, for example.) The What Works Centre for Local Economic Growth, which I’m helping to run, is one attempt to translate quantitative academic analysis from a range of fields into feasible, pragmatic policy ideas.

As an economic geographer, co-authoring a book with two economists proper is a rewarding experience – and a challenging one. The three of us didn’t agree on everything: as you can imagine, my views on regeneration, brownfield development and place-based policies are more optimistic than some of my co-authors. In the book we carefully flag who led on each chapter, and which work is genuinely joint.

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I hope all that’s encouraged you to take a further look. The hardback is painfully expensive, as academic books always are. The ebook edition is quite a lot cheaper. Either way, order it from the EE website and use the code CHES35 to get yourselves a 35% discount. Happy reading!


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