London 2062: The Future of the London Economy

Jurgen EssletzbichlerDepartment of GeographyUCLj.essletzbichler@ucl.ac.uk

Overview

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

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

Externalities: Empirical results based on meta-analysis

Source: De Groot, H., Poot, J., Smit, M (2010) Cities and Growth: A Meta-Analysis

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)

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

London’s economic structure, 2010

Source: ONS briefing note, BRES 2010: London

thousands PercentInner L. Outer L. UK Inner L. Outer L. UK LQ IL LQ OL

Primary and utilities 11.5 14.6 882 0.4 0.9 3.1 0.13 0.29Manufacturing 42.6 73.7 2,445 1.6 4.3 8.6 0.19 0.50Construction 64.3 85.3 1,395 2.4 5.0 4.9 0.49 1.02Wholesale 69.8 104 1,687 2.6 6.1 5.9 0.44 1.03Retail 191.1 188.1 2,955 7.2 11.1 10.3 0.70 1.08Transport & Storage 85.6 132.6 1,263 3.2 7.8 4.4 0.73 1.77Accommodation &Food Services 203.5 104.2 1,895 7.7 6.1 6.6 1.17 0.92Information & Communication 236.7 81.6 1,066 9.0 4.8 3.7 2.43 1.30Finance & Insurance 295 40.6 1,062 11.2 2.4 3.7 3.03 0.65Property 69.8 29.2 456 2.6 1.7 1.6 1.63 1.06Professional, Scientific & Technical 429.4 128 2,092 16.3 7.5 7.3 2.23 1.03Business Admin Services 262.4 189 2,217 10.0 11.1 7.8 1.28 1.42Education 160.3 169.9 2,603 6.1 10.0 9.1 0.67 1.10Health 213.3 190.5 3,678 8.1 11.2 12.9 0.63 0.87Public Admin 149.7 84.7 1,571 5.7 5.0 5.5 1.04 0.91Arts & Other Services 151.5 83 1,328 5.7 4.9 4.6 1.24 1.07Total 2,636.50 1,699.00 28,595.00 100.00 100.00 100.00

Source: ONS briefing note, BRES 2010: London

Finance jobs

2526272829303132333435

Dec

-95

Dec

-97

Dec

-99

Dec

-01

Dec

-03

Dec

-05

Dec

-07

Dec

-09

Finance

Banking

Insurance, auxilliary

London as percent of UK

100000

150000

200000

250000

300000

350000

400000

Dec

-95

Dec

-97

Dec

-99

Dec

-01

Dec

-03

Dec

-05

Dec

-07

Dec

-09

Employment trends, London

2

3

4

5

6

7

8

9

10

Dec

-95

Dec

-97

Dec

-99

Dec

-01

Dec

-03

Dec

-05

Dec

-07

Dec

-09

Percentage of total London emp.

Source: Nomis, ONS

Result on inequality

Because of it’s economic structure, income inequality more pronounced in London

In addition: over 20% youth unemployment rate (especially among those without formal education)

Spatial inequality: Median household income 2006

Source: ONS

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)

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

Relatedness based on industry input requirements

Demand from Manufacturing

LondonLQ>1

FinanceBanking

Renting ofmachinery

Dot meansColumn Industry requires>2% of totalInput from Row industry

Advertising,Management consultancy, architecture services

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…

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

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

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

Appendix: London’s economic structure: SIC-2-digit level

00.5

11.5

22.5

33.5

44.5

5

01 :

Cro

p an

d an

imal

pro

duct

ion

02 :

Fore

stry

and

logg

ing

03 :

Fish

ing

and

aqua

cultu

re05

: M

inin

g of

coa

l and

ligni

te06

: Ex

tract

ion

of p

etro

leum

and

gas

07 :

Min

ing

of m

etal

ore

s08

: O

ther

min

ing

and

quar

ryin

g09

: M

inin

g su

ppor

t ser

vice

act

ivitie

s10

: M

anuf

actu

re o

f foo

d pr

oduc

ts11

: M

anuf

actu

re o

f bev

erag

es12

: M

anuf

actu

re o

f tob

acco

pro

duct

s13

: M

anuf

actu

re o

f tex

tiles

14 :

Man

ufac

ture

of w

earin

g ap

pare

l15

: M

anuf

actu

re o

f lea

ther

and

rela

ted

prod

ucts

16 :

Man

uf o

f woo

d (in

cl. p

rodu

cts,

exc

. fur

nitu

re)

17 :

Man

ufac

ture

of p

aper

and

pap

er p

rodu

cts

18 :

Prin

ting

and

repr

oduc

tion

of r

ecor

ded

med

ia19

: M

anuf

of c

oke

and

refin

ed p

etro

leum

pro

duct

s20

: M

anuf

of c

hem

ical

s an

d ch

emic

al p

rodu

cts

21 :

Man

uf. o

f bas

ic p

harm

aceu

tical

pro

duct

s22

: M

anuf

actu

re o

f rub

ber a

nd p

last

ic p

rodu

cts

23 :

Man

uf o

f oth

er n

on-m

etal

lic m

iner

al p

rodu

cts

24 :

Man

ufac

ture

of b

asic

met

als

25 :

Man

u. o

f fab

ricat

ed m

etal

pro

duct

s26

: M

anuf

. of c

ompu

ter,

ele

ctro

nic,

opt

ical

pro

duct

s27

: M

anuf

actu

re o

f ele

ctric

al e

quip

men

t28

: M

anuf

actu

re o

f mac

hine

ry a

nd e

quip

men

t n.e

.c.

29 :

Man

ufac

ture

of m

otor

veh

icle

s, tr

aile

rs

30 :

Man

ufac

ture

of o

ther

tran

spor

t equ

ipm

ent

31 :

Man

ufac

ture

of f

urni

ture

32 :

Oth

er m

anuf

actu

ring

33 :

Rep

air/i

nsta

llatio

n of

mac

hine

ry/e

quip

men

t35

: El

ectri

city

, gas

, ste

am/a

ir co

nditio

ning

sup

ply

36 :

Wat

er c

olle

ctio

n, tr

eatm

ent a

nd s

uppl

y37

: Se

wer

age

38 :

Was

te c

olle

ct.,

trea

t., d

ispo

s.; m

ater

ials

39 :

Rem

edia

tion

act./

was

te m

anag

emen

t ser

vice

s.

41 :

Con

stru

ctio

n of

bui

ldin

gs42

: C

ivil

engi

neer

ing

43 :

Spec

ialis

ed c

onst

ruct

ion

activ

ities

45 :

Who

les/

reta

il tra

de/r

epai

r ve

hicl

es/m

otor

cycl

es46

: W

hole

sale

trad

e, e

xc m

otor

47 :

Ret

ail t

rade

, exc

. mot

or v

ehic

les/

mot

orcy

cles

49 :

Land

tran

spor

t and

tran

spor

t via

pip

elin

es50

: W

ater

tran

spor

t51

: A

ir tr

ansp

ort

52 :

War

ehou

sing

/sup

port

act

. for

tran

spor

tatio

n53

: P

osta

l and

cou

rier a

ctiv

ities

55 :

Acc

omm

odat

ion

56 :

Food

and

bev

erag

e se

rvic

e ac

tiviti

es58

: Pu

blis

hing

act

ivitie

s59

: M

otio

n pi

ctur

e, s

ound

, vid

eo, t

elev

isio

n pr

od60

: Pr

ogra

mm

ing

and

broa

dcas

ting

activ

ities

61 :

Tel

ecom

mun

icat

ions

62 :

Com

pute

r pr

ogra

m.,

cons

ulta

ncy/

rela

ted

act

63 :

Info

rmat

ion

serv

ice

activ

ities

64 :

Fina

nc.s

erv.

act

., ex

insu

r./pe

nsio

n fu

nds

65 :

Insu

ranc

e, r

eins

uran

ce a

nd p

ensi

on fu

ndin

g66

: A

ct. A

ux. t

o fin

ance

. Ser

v, a

nd in

sura

nce

act.

68 :

Rea

l est

ate

activ

ities

69 :

Lega

l and

acc

ount

ing

activ

ities

70 :

Act

. hea

d of

fices

; mgm

t con

sulta

ncy

act.

71 :

Arc

hite

ctur

al a

nd e

ngin

eerin

g ac

tiviti

es72

: Sc

ient

ific

rese

arch

and

dev

elop

men

t73

: Ad

vert

isin

g an

d m

arke

t res

earc

h74

: O

ther

pro

fess

iona

l, sc

ient

ific,

tech

nica

l act

.75

: Ve

terin

ary

activ

ities

77 :

Ren

tal a

nd le

asin

g ac

tivitie

s78

: E

mpl

oym

ent a

ctiv

ities

79 :

Trav

el a

genc

y, to

ur o

pera

tor

80 :

Secu

rity

and

inve

stig

atio

n ac

tiviti

es81

: S

ervi

ces

to b

uild

ings

and

land

scap

e ac

tiviti

es82

: O

ffice

adm

in,

busi

ness

sup

port

activ

ities

84 :

Publ

ic a

dmin

istra

tion

and

defe

nce

85 :

Educ

atio

n86

: H

uman

hea

lth a

ctiv

ities

87 :

Res

iden

tial c

are

activ

ities

88 :

Soci

al w

ork

activ

ities

with

out a

ccom

mod

atio

n90

: C

reat

ive,

arts

and

ent

erta

inm

ent a

ctiv

ities

91 :

Libr

arie

s, a

rchi

ves,

mus

eum

s 92

: G

ambl

ing

and

betti

ng a

ctiv

ities

93 :

Spor

ts a

ctiv

ities

, am

usem

ent,

recr

eatio

n ac

t.94

: A

ctiv

ities

of m

embe

rshi

p or

gani

satio

ns95

: R

epai

r of c

ompu

ters

, per

sona

l, H

H g

oods

96 :

Oth

er p

erso

nal s

ervi

ce a

ctiv

ities

Location quotients

Agriculture/mining

Manufacturing

Electr/Gas supply

Waste

Airtransport