London 2062: The Future of the London Economy

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London 2062 The Future of the London Economy

• Jurgen Essletzbichler
• Department of Geography
• UCL
• j.essletzbichler_at_ucl.ac.uk

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Overview

• What makes cities grow?
• What to do when confronted with uncertainty?
• Londons economy now
• Why growth is not enough?
• How to develop a resilient and inclusive city?

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What makes cities grow?

• Basic ideas go back to Alfred Marshall (1890) and
  Jane Jacobs (1969)
• Urbanization and localization economies
• Externalities
• Specialization (Marshall-Arrow-Romer or MAR)
• Competition (Porter)
• Diversity (Jacobs)
• Path-dependent evolution at the intersection of
  novelty creation and lock-in

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Externalities Empirical results based on
meta-analysis
Source De Groot, H., Poot, J., Smit, M (2010)
Cities and Growth A Meta-Analysis
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Diversity necessary to maintain adaptive capacity
to uncertain future challenges

• Results depend on geography, time frame, choice
  of dependent variable, included control
  variables, etc.
• But Studies focusing on long-run tend to result
  in positive and significant diversity effect
• This suggests portfolio-effect of diversity
  necessary to maintain the adaptive potential of
  an entity facing uncertainty (Stirling 1998
  2007)
• But probably at cost of short-term efficiency
  gains and innovativeness
• Possible solutions? Related diversity, clustered
  diversity, (Frenken et al. 2007 Simmie et al.
  2006, Neffke et al. 2011)

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Related variety arguments

• New industries are most successful if cities
  branch into sectors that are related to existing
  knowledge base
• Branching into identical sectors results in
  lock-in
• Branching into very different sectors impedes
  spillovers

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Londons economic structure, 2010
Source ONS briefing note, BRES 2010 London
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Source ONS briefing note, BRES 2010 London
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Finance jobs
Employment trends, London
London as percent of UK
Percentage of total London emp.
Source Nomis, ONS
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Result on inequality
Because of its economic structure, income
inequality more pronounced in London
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In addition over 20 youth unemployment rate
(especially among those without formal education)
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Spatial inequality Median household income 2006
Source ONS
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Usual practice

• Provide better education for individuals (human
  capital theory)
• Make individuals responsible to get jobs
• Vilify those that fail
• Gentrification as solution at borough level to
  initiate inflow of desirable and outflow of
  undesirable residents
• But why not providing jobs for those without
  formal education and re-value skills not based on
  university degrees?
• This could improve adaptability and reduce
  inequality (especially if coupled with bold
  re-distributive policies)

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Diversification into related sectors

• Example use I-O matrices to identify
• Relatedness (which sectors require inputs that
  are available in London)
• Similarity of input structure of sectors may
  indicate greater knowledge spillover potential

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Relatedness based on industry input requirements
Demand from Manufacturing
Dot means Column Industry requires gt2 of
total Input from Row industry
Finance Banking
London LQgt1
Renting of machinery
Advertising, Management consultancy, architecture
services
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Bottom line

• Even if London does not have a competitive
  advantage in manufacturing at the moment, it has
  competitive advantages in some key inputs for a
  large number of manufacturing sectors
• Not all of those will require proximity of
  manufacturing companies to those services, but
  supplier-customer relations could be used to
  build up a manufacturing base (eg. financing
  green energy technology, flexible solar cells to
  be draped around skyscrapers, etc.)
• The service firms would get a better
  understanding of novel manufacturing sectors to
  make informed investment decisions
• Manufacturing companies obtain information about
  financing

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Normatively driven diversification

• Urban agriculture (example New York)
• Vertical gardens (example Mexico City)

Source NYT

• Development of energy visions (eg. hydrogen city)
• Housing and transportation systems are obvious
  places to start

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Complementary measures

• London tax so companies contribute to
  infrastructure development (could be in form of
  required investment in particular businesses)
• Developing local visions (eg. energy visions) to
  galvanize businesses, government and local
  communities around particular themes
• Increase awareness of energy/waste/climate issues
  in primary schools (to obtain long-term shifts in
  attitudes) and sell the strategy to companies
  (probably in conjuncture with carbon disclosure
  projects but also through participation in
  visioning process)
• Increase living wage and penalize companies who
  do not comply
• Higher tax rates on incomes/bonuses (75-90 rates
  were common during and after WWII)
• Together with well paid jobs for non-university
  educated this could lead to a re-appreciation of
  diverse skill sets

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Conclusion

• An unknowable future requires economic diversity
  to increase/maintain the adaptive potential of a
  city (this would also increase resilience)
• Gradual diversification into related sectors
  and/or normative targets around local visions
  possible
• Outer London is probably better positioned to
  attract manufacturing activity
• Could increase jobs for the less formally
  educated and, together with fairer tax structure,
  could result in re-evaluation of diverse skills
  sets
• Economic survival, equality and inclusive
  development are not mutually exclusive

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Appendix Londons economic structure
SIC-2-digit level
Location quotients
Air transport
Electr/ Gas supply
Waste
Agriculture/ mining
Manufacturing