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London 2062 - UCL - University College London

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London 2062: The Future of the London
Economy
Jurgen Essletzbichler
Department of Geography
UCL
j.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
Primary and utilities
Manufacturing
Construction
Wholesale
Retail
Transport & Storage
Accommodation &Food Services
Information & Communication
Finance & Insurance
Property
Professional, Scientific & Technical
Business Admin Services
Education
Health
Public Admin
Arts & Other Services
Total
Inner L.
11.5
42.6
64.3
69.8
191.1
85.6
203.5
236.7
295
69.8
429.4
262.4
160.3
213.3
149.7
151.5
2,636.50
thousands
Outer L.
UK
14.6
882
73.7
2,445
85.3
1,395
104
1,687
188.1
2,955
132.6
1,263
104.2
1,895
81.6
1,066
40.6
1,062
29.2
456
128
2,092
189
2,217
169.9
2,603
190.5
3,678
84.7
1,571
83
1,328
1,699.00 28,595.00
Inner L.
0.4
1.6
2.4
2.6
7.2
3.2
7.7
9.0
11.2
2.6
16.3
10.0
6.1
8.1
5.7
5.7
100.00
Percent
Outer L.
UK
0.9
3.1
4.3
8.6
5.0
4.9
6.1
5.9
11.1
10.3
7.8
4.4
6.1
6.6
4.8
3.7
2.4
3.7
1.7
1.6
7.5
7.3
11.1
7.8
10.0
9.1
11.2
12.9
5.0
5.5
4.9
4.6
100.00 100.00
LQ IL
0.13
0.19
0.49
0.44
0.70
0.73
1.17
2.43
3.03
1.63
2.23
1.28
0.67
0.63
1.04
1.24
LQ OL
0.29
0.50
1.02
1.03
1.08
1.77
0.92
1.30
0.65
1.06
1.03
1.42
1.10
0.87
0.91
1.07
Source: ONS briefing note, BRES 2010: London
Employment trends, London
400000
Finance jobs
350000
300000
250000
London as percent of UK
Dec-09
Dec-07
Insurance, auxilliary
Dec-05
100000
Dec-03
Banking
Dec-01
150000
Dec-99
Finance
Dec-95
35
34
33
32
31
30
29
28
27
26
25
Dec-97
200000
Percentage of total London emp.
10
9
8
Dec-09
Dec-07
Dec-05
Dec-03
Dec-01
Dec-99
Dec-97
Dec-95
7
6
5
4
3
D ec - 09
D ec - 07
D ec - 05
D ec - 03
D ec - 01
D ec - 99
D ec - 97
2
D ec - 95
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
Dot means
Column Industry requires
>2% of total
Input from
Row industry
Finance
Banking
Renting of
machinery
Advertising,
Management consultancy, architecture services
London
LQ>1
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 reevaluation of diverse skills sets
• Economic survival, equality and inclusive development are
not mutually exclusive
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
01 : Crop and animal production
02 : Forestry and logging
03 : Fishing and aquaculture
05 : Mining of coal and lignite
06 : Extraction of petroleum and gas
07 : Mining of metal ores
08 : Other mining and quarrying
09 : Mining support service activities
10 : Manufacture of food products
11 : Manufacture of beverages
12 : Manufacture of tobacco products
13 : Manufacture of textiles
14 : Manufacture of wearing apparel
15 : Manufacture of leather and related products
16 : Manuf of wood (incl. products, exc. furniture)
17 : Manufacture of paper and paper products
18 : Printing and reproduction of recorded media
19 : Manuf of coke and refined petroleum products
20 : Manuf of chemicals and chemical products
21 : Manuf. of basic pharmaceutical products
22 : Manufacture of rubber and plastic products
23 : Manuf of other non-metallic mineral products
24 : Manufacture of basic metals
25 : Manu. of fabricated metal products
6 : Manuf. of computer, electronic, optical products
27 : Manufacture of electrical equipment
8 : Manufacture of machinery and equipment n.e.c.
29 : Manufacture of motor vehicles, trailers
30 : Manufacture of other transport equipment
31 : Manufacture of furniture
32 : Other manufacturing
33 : Repair/installation of machinery/equipment
35 : Electricity, gas, steam/air conditioning supply
36 : Water collection, treatment and supply
37 : Sewerage
38 : Waste collect., treat., dispos.; materials
39 : Remediation act./waste management services.
41 : Construction of buildings
42 : Civil engineering
43 : Specialised construction activities
45 : Wholes/retail trade/repair vehicles/motorcycles
46 : Wholesale trade, exc motor
47 : Retail trade, exc. motor vehicles/motorcycles
49 : Land transport and transport via pipelines
50 : Water transport
51 : Air transport
52 : Warehousing/support act. for transportation
53 : Postal and courier activities
55 : Accommodation
56 : Food and beverage service activities
58 : Publishing activities
59 : Motion picture, sound, video, television prod
60 : Programming and broadcasting activities
61 : Telecommunications
62 : Computer program., consultancy/related act
63 : Information service activities
64 : Financ.serv. act., ex insur./pension funds
65 : Insurance, reinsurance and pension funding
66 : Act. Aux. to finance. Serv, and insurance act.
68 : Real estate activities
69 : Legal and accounting activities
70 : Act. head offices; mgmt consultancy act.
71 : Architectural and engineering activities
72 : Scientific research and development
73 : Advertising and market research
74 : Other professional, scientific, technical act.
75 : Veterinary activities
77 : Rental and leasing activities
78 : Employment activities
79 : Travel agency, tour operator
80 : Security and investigation activities
81 : Services to buildings and landscape activities
82 : Office admin, business support activities
84 : Public administration and defence
85 : Education
86 : Human health activities
87 : Residential care activities
88 : Social work activities without accommodation
90 : Creative, arts and entertainment activities
91 : Libraries, archives, museums
92 : Gambling and betting activities
93 : Sports activities, amusement, recreation act.
94 : Activities of membership organisations
95 : Repair of computers, personal, HH goods
96 : Other personal service activities
Appendix: London’s economic structure:
SIC-2-digit level
Location quotients
Electr/
Gas supply
Agriculture/
mining
Manufacturing
Air
transport
Waste
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