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9 November 2013

Future Cities

Tag(s): Politics & Economics
Over half the human population lives in cities. By 2030, it is estimated that around 60% of us will live in urban areas. There is increasing recognition of the role of cities in creating economic growth in the UK and globally. By coincidence last week I was invited to two separate events on consecutive days about the future of cities. The first was held at the Royal Society of Arts (RSA) where I am a Life Fellow and marked the launch of the City Growth Commission, a major new inquiry into how best to enable England’s major cities to drive growth and respond to the fiscal and economic challenges of the future. In the second, the Economist Events’ Infrastructure Summit drew together an audience of over 150 international delegates from transport, energy, digital communications, construction and finance to understand how cities are evolving.

The City Growth Commission will develop an overarching plan for supporting city led growth and rebalancing the UK economy. It will aim to engage with Whitehall, business and the political parties in order to generate broad support for its proposals and to lay the policy foundations for the next stage of devolution to our cities. The Commission will be chaired by Jim O’Neill, retiring Chairman of Goldman Sachs Asset Management, famous for coining the acronym BRICs to describe emerging economies. It will be hosted and run by RSA 2020 Public Services with support from the Core Cities group, the GLA, and London Councils. The launch event set out the Commission’s main areas of enquiry and asked how growth in other English cities can complement London’s economic success and what the benefits of such an approach would be. It also asked what the practical, organisational, cultural and systemic barriers are to moving to a multi-polar growth model.

Jim O’Neill gave his first thoughts on the subject:
  • The London factor was a major issue. England is highly centralised. (To this end I question the wisdom of involving the GLA and the London Councils as one area of enquiry should be how to decentralise by taking things away from London.)
  • His insight over the BRICS had just been to recognise that to be economically large you need a lot of people working productively. But in addition the main areas of economic activity are urban.
  • We have to challenge the British assumption that the decline of manufacturing is irreversible. People used to write off Boston and Hamburg but both have recovered strongly.
  • We need to focus on supply side issues such as local infrastructure, both physical and technological. We should look at the flexibility, skill levels, educational attainment and desires of people living in cities.
  • There has to be more autonomy in the regions over their finances and we should consider instruments such as local authority bonds.
Jon Collins, the Labour Leader of Nottingham City Council and representative of Core Cities, a grouping of England’s eight largest city economies outside London, said that cities are the engine of economic growth. There was a strong need to rebalance as uniquely in Europe major cities in Britain underperform the national economy while elsewhere in the EU regional cities are at least equal to or even outperform the national economy in terms of growth. The Core Cities collectively generate 27% of Gross Value Added but growth simply won’t happen in the current policy framework. The regional cities are only allowed to retain 5% of their tax take. Other investment comes with Whitehall strings attached or through national agencies that don’t understand local needs and often seek one-size-fits all solutions. There was a need for devolution in financing and other powers.

Alexandra Jones, Chief Executive of the Centre for Cities which conducts independent research and policy analysis on UK city economies, said that 70% of the world’s population will be urban by 2015. The 64 largest cities in the UK account for 60% of jobs and Gross Value Added and just 9 more than 50% but 7 of the 9 perform below that national average. (I think Alexandra describes a city as a place where people work rather than one where they reside and in economic terms no doubt this is right.) She points out:
  1. Britain is one of the most centralised countries in the world. Most policies are national which means that a great deal of public money is wasted.
  2. In an age of austerity it is clear that we need to reduce spending. One way of doing this is to join up services at a regional or local level.
  3. We should make the most of London but we should also make the most of our other major cities.
Much of this is unobjectionable. It is clear that the deindustrialisation of most of Britain’s largest cities has been overdone. While some cities like Manchester have found new industries others like Hull are in severe decline. As we start to see reasonable growth in the overall economy it is probable that most of that is coming in the vigorous economies of London and the South East while other regions are still stagnant. This is further increasing the polarisation of the economy. London is attracting capital investment from Russia, from China, from the Middle East as it is seen as a safe haven. Every industrialised country has debt that can’t be paid down. If it was they would break apart so they are all practising some form of default with a risk of unleashing inflation. Sovereign wealth funds are therefore investing in hard assets like transport infrastructure, urban commercial property and now, in parts of London, residential property. The UK is friendly to non-doms. It was reported earlier this year that 70% of new build properties in Central London were bought by foreigners fuelling massive increases in prices.[i] The French are escaping Hollande’s savage taxes; the Greeks are escaping economic meltdown. All see London as a refuge with legal transparency and the assets of a city that is becoming the capital of the world.

The other elephant in the room is that when regional cities had more powers over their own finances those that were ruled by the Loony Left were irresponsible in their use of such powers. They took on foreign loans at high rates of interest which of course registered against the National Debt. They had to be reined in by the Treasury and so I think it unlikely that the mandarins with long memories will be ready to give up such controls.

In next week’s blog I’ll return to the subject of Future Cities with a report on the Economist’s Infrastructure Summit.

Copyright David C Pearson 2013 All rights reserved

[i] 16 August 2013

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