Posts Tagged ‘finance’

A Tale of Tech City

July 3, 2012

We launched A Tale of Tech City yesterday at Google Campus. It went very well – lots of robust discussion, and happily, general acclaim for the report.

The Centre for London project is joint work with Emma Vandore and Rob Whitehead, and takes an unvarnished look at the East London digital ecosystem.

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We ran a lot of numbers. By crunching the BSD, the best data there is, we find the East London scene is a lot bigger than anyone thought – at least 1500 firms (a conservative estimate), probably more like 3300 (drawing a wider line).

We also did seven international case studies to see how London stacks up in global terms. (Hint: Silicon Alley, not Silicon Valley.)

We then went out and did in-depth interviews with a lot of local firms, plus others working in finance, workspace and policy.

We identify six challenges for East London businesses, and make suggestions for tweaking the strategy and policy mix. In particular, we argue for a stronger focus on business development, helping young London firms become global players – and for Government to temper expectations for a new cluster in the Olympic Park. These things can’t be masterplanned.

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Those messages got the thumbs up from GLA Deputy Mayor Kit Malthouse, Hackney’s Guy Nicholson, Unruly’s Sarah Wood and from Matt Biddulph, who all joined me on the platform. The Tech City Investment Organisation is now running with some of our ideas – see here – and there are signs of an Olympics Media Centre rethink too.

You can download the whole thing here.

We’ve had pretty good press so far, with coverage on the BBC (here and here), Financial Times, Wall St Journal, Guardian and the Independent … plus a nice write-up by Richard Florida in The Atlantic.

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I’m now starting to think about further work. Two promising avenues are looking across the digital economy in the rest of London, and exploring NY-LON in depth – there are some striking parallels between the London and New York scenes. Get in touch if you’d like to talk about either of these.

How did London get away with it?

January 21, 2011

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).

Getting ahead in the countryside

July 7, 2010

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.

Open the pod bay doors, HAL

December 22, 2009

Essex County Council has asked IBM to manage its public services for the next eight years. My first reaction to this story was that handing over schools and social services to a company that builds supercomputers could go terribly, terribly wrong. Have these people never seen 2001?

Lord Hanningfield: You’ve switched off the heating in all the care homes. Turn it back on!

HAL: I’m sorry Dave, I’m afraid I can’t do that. This mission is too important for me to allow you to jeopardise it …

Anyway. Over the next few years many local authorities are going to have to do more with less. So it’s encouraging to see some trying out new ways to deliver.

Enterprising Conservative Leaders and Chief Execs are also trying to catch Central Office’s eye. The Times suggests this is ‘a new wave of privatisation supported by David Cameron’, following Barnet’s EasyCouncil model and various other experiments. According to Eric Pickles, ‘this is the future and we will be watching developments in Essex very closely.’

That seems sensible, particularly as the wings may be falling off the budget airlines model. My concern, though, is just that what’s being proposed for Essex isn’t exactly innovative, and hasn’t worked brilliantly in other places.

On paper the proposed contract seems a little odd. It’s worth ‘up to £5.4bn’ over eight years, and may save up to £0.72bn over the first three. Even if IBM identifies the same level of savings for the rest of its term – a heroic assumption – Essex only saves £1.92bn overall, but pays out over double that. This doesn’t sound like value for money.

In Canada, where IBM was involved in local government streamlining, the firm introduced one-stop shops and cut service duplication. Many UK councils already do this stuff, though, and few needed an outside contractor to tell them so. Bringing in IBM may say more about Essex officers’ own capabilities than point the way to the future.

My biggest worry is whether business consultants in general understand what local authorities actually deliver. IBM says it provides ‘business analytics and optimisation’. But as I’ve argued elsewhere, public services are more complex than running a shop or a selling cheap flights. This is why we’ve seen many, many examples of business process engineering failing to deliver real value for the public sector. Look at some of Capita’s contracts, or Fujitsu and the NHS Computer Project.

To be fair to both firms, poor management by civil servants is often part of the problem. But that’s another reason to worry about who’s in charge at Essex.

Local public services are also done for different reasons. Efficiency in the narrow sense isn’t actually what we want here, since we’re operating outside the domain of the market. Market efficiency criteria tend to push you into providing less for less, something some Conservative councillors might be quite happy with. But local authorities are charged with providing the best achievable outcomes for people in the area. Sometimes that means reprioritising, even spending more. As Obama Administration’s ‘Ebay in reverse’ initiative suggests, cost-cutting is an important means to free up resources.  But as an end in itself, it’s inappropriate.

Compulsory Competitive Tendering forced councils to operate on a cost-minimisation basis, often producing perverse outcomes and bad policy. The danger for Essex is that it just retreads the CCT experience, without understanding why the world’s moved on.

New stuff

December 20, 2009

A couple of new things from me. First, UCL Urban Lab and Figaropravda have just published ‘The Architecture of Financial Crisis’, papers from a recent workshop on cities, urban economics, design and the crash. Chapters from me, Peter Hall, Matthew Gandy Davida Hamilton et al.  It’s all masterminded by Louis Moreno. PDFs should be here.

Second, a new paper on cultural diversity and innovation by me and Neil Lee. We do some number-crunching on firms in London, and find a small but significant ‘diversity advantage’: firms with a richer mix of owners / staff seem to innovate more.

This paper will be coming out in January in the inaugural issue of the International Journal of Knowledge-Based Development, but you can download it here for a while.

The research is part a bigger piece of work I’ve been doing here at Berkeley. I’ll be presenting the new findings in April at the AAG 2010 conference in Washington DC, if any of you are around for that.

High speed train-spotting

October 14, 2009

(c) Frank Baron / guardian.co.uk

California is the same size as the UK, but its public transport network is a lot worse. So perhaps it’s not surprising that High Speed Rail is a big deal here. What’s more surprising is how similar the debates seem to be turning out.

The California proposals seem further ahead than High Speed Two. In both cases there’s strong political support. Ex-Hummer driver Arnie is less evangelical than Lord Adonis, but he has put up serious money to push things forward. The California High Speed Rail Authority has a definite route, a start date – 2012 – and a slick website with impressive 3d fly-throughs. Meanwhile, the austere HS2 team is still ‘weighing high speed rail’s benefits against costs’, and only ‘where existing capacity is likely to be most constrained’. Set against Golden State optimism, it’s almost a parody of British bureaucratic restraint.

But elsewhere, there are clear parallels. First, how to pay for the thing? Both Labour and Conservatives will make high speed rail a manifesto pledge. But with the UK down £26bn a year, £34bn-worth of bullet trains seems a far-off prospect. California’s trainline is projected to cost a similar $45bn (£29bn). So far the State has committed about $10bn via a bond issue. Sacramento is now bidding for $4.5bn of Federal stimulus money: with matching local funds, that takes California towards the halfway mark. But it’s still nowhere near enough – something no-one seems that keen to talk about.

Second, the real costs of both projects will be much larger. None of these figures appear to factor in optimism bias, the tendency to under-estimate the costs of major projects, which suggests the true numbers could be two thirds as higher again.

Third, who’s on the line? California’s planners have made everyone happy by including almost every major settlement on the route, from Sacramento down to San Diego. But some stops could get chopped in future budget cuts – in which case, expect similar reactions like those in Newcastle recently.

Finally, who gains? The California plans emphasise the environmental benefits of HSR – reducing pollution and congestion. Economic benefits are almost an afterthought – apart from 400,000-odd construction opportunities, cutting congestion will improve productivity, ‘creating and sustaining high skilled jobs’. But it’s unclear how this will happen, or where these jobs will go.

Urban economics can help here. We now have robust techniques for modelling the full economic impacts of transport investments. These suggest that direct benefits from time-saving and reduced congestion are actually fairly small, and may not offset build costs. But new infrastructure also brings more people into cities, increasing the effective density of urban labour markets. This pushes up labour productivity, which in turn raises wages and helps employment growth.

As Henry points out, the environmental benefits of high speed rail are not that clear-cut. A modal shift from cars or planes could cut CO2 emissions and congestion, but not if spare landing slots or road capacity are then used for something else.

Unfortunately for both countries, the economic outcomes aren’t clear-cut either. Agglomeration modeling suggests that the major benefits accrue to large urban centres. Cutting travel times by 10% across the UK would raise London’s productivity more than in most Northern cities. So in California, workers in the big urban cores – the Bay Area, San Diego and LA – will probably have most to gain.

In the UK, that calculus suggests some Northern cities might actually be better off investing in local or city-regional links, rather than pushing for high speed rail. Similarly, better connecting Liverpool, Manchester and Leeds might do more for local people than faster links down South. And in California, less glamorous but more useful local infrastructure projects – like extending the BART light rail system from San Francisco to San Jose – might do the job for less.

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