Which way is up?

June 1, 2009

face the wall

In my day job – well, one of them – we’re spending time thinking about how the recession is playing out in different places, and how cities will look in years to come. It’s not easy to find useful tools for working through this.  The most promising of the lot looks like Carlota Perez, the on-trend Venezuelan economist whose ideas about long term change are increasingly hot (as far as socio-econo-technological systems analysis can ever actually be hot).

At ippr this evening Perez laid out her ideas, which sum up pretty much like this. First, we’ve been here before. The crisis we’re in is internal to capitalism, and is one of many big waves of change.  Second, these ‘revolutions’ are trackable, arriving every 40-60 years. New technologies arrive in an ‘installation period’, accompanied by a financial bubble (in this case, the dotcom boom). Third, casino finance precipitates a crisis, after which more activist policies can lead us into a period of long term growth (the ‘deployment period’, or ‘golden age’).

Essentially, Perez thinks that the future is already here. It will be a remix of the present, with industries like nanotech, biotech, greentech and social media coming to the fore. Human capital and open innovation will become ever more important. Policymakers need to refloat the financial system, then regulate the casino and use activist sectoral policies and pro-skills programmes to push forward growth.

Impressive stuff which stood up to some difficult questions – including Samuel Brittan suggesting this was all *very* short term (‘What about the Dark Ages?’). It also looks like a thumbs up for Lord Mandelson’s industrial activism – which itself feels like a policy remix of New Labour’s late-90s encounter with endogenous growth theory.

So what kind of spatial remix is heading our way? There’s good news and bad news for cities. Perez suggested to me that we think about sectors and location decisions. If she’s right, finance is going to be less important. So places like London and Leeds may need to diversify. Perez also argues that  TNC location decisions matter a lot. Firms will look for places with good natural resources, connectivity and a strong skills base. As Richard Florida suggests elsewhere, that means today’s leaders will probably stay ahead – big cities and knowledge centres will be OK, smaller ex-industrial centres less so.

So far, so familiar. But there are big unresolved questions about clusters and investment: should city leaders still compete for hot firms? The most recent UK evidence suggests urban productivity is driven by critical mass, economic diversity and human capital more than specific key sectors. If Perez is right, those sectors are going to change anyway. That implies city bosses might be better off going back to basics – sorry – rather than all chasing after a nanotech future which could never arrive.

Unfortunately, there are no easy answers here. As my supervisor would probably say, more research is required

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