London 2062: The Future of the London Economy

1. London 2062: The Future of the London Economy Jurgen Essletzbichler Department of Geography UCL j.essletzbichler@ucl.ac.uk

2. 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?

3. 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

4. Externalities: Empirical results based on meta-analysis Source: De Groot, H., Poot, J., Smit, M (2010) Cities and Growth: A Meta-Analysis

5. 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)

6. 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

7. London’s economic structure, 2010 Source: ONS briefing note, BRES 2010: London

8. Source: ONS briefing note, BRES 2010: London

9. Employment trends, London Finance jobs London as percent of UK Percentage of total London emp. Source: Nomis, ONS

10. Result on inequality Because of it’s economic structure, income inequality more pronounced in London

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

12. Spatial inequality: Median household income 2006 Source: ONS

13. 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)

14. 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

15. Relatedness based on industry input requirements Demand from Manufacturing Dot means Column Industry requires >2% of total Input from Row industry Finance Banking London LQ>1 Renting of machinery Advertising, Management consultancy, architecture services

16. 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…

17. 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

18. 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

19. 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

20. Appendix: London’s economic structure: SIC-2-digit level Location quotients Air transport Electr/ Gas supply Waste Agriculture/ mining Manufacturing