A recent TV program (Ep 1; Ep 2)by the BBC’s Evan Davis asked this question. The answer seems to be that it is successful because it is successful. As it grows, the economic benefits of ‘agglomeration’ accelerate. This term describes the benefits that firms obtain by locating near each other ('agglomerating'). As firms in related fields of business cluster together, their costs of production decline significantly (firms have competing multiple suppliers, greater specialization and division of labour result). Even when competing firms in the same sector cluster, there may still be advantages because the cluster attracts more suppliers and customers than a single firm could achieve alone. Cities form and grow to exploit these economies of agglomeration. A big factor in this seems to be connectivity. Despite London’s congestion problems, it is still easier to get together with like minded people within London, than to do so with people in Manchester, Birmingham or Edinburgh – hence the huge investment going into London on Crossrail.
London mayor Boris Johnson claimed in an interview with Davis that this huge growth in London was to the benefit of the rest of the country. London was the main driver of the UK economy, but the benefits would spill over into the rest of the country. This seems not to be proven to me. It probably isn’t a coincidence that the alternate term for this approach is trickle-down theory (more promulgated by politicians than economists so I suppose Boris would suggest this) as any benefits that do spill over will almost certainly be little more than a trickle compared to the torrent flowing into London.
Economic impact of London’s dominance
Davis also cited a survey which suggested that something like 75% of the population did not believe the growth of London damaged the UK economy as a whole. That may be true in that London’s growth is not holding the UK back, but is it the right question? Perhaps it would be better be to ask about the damage being done to ‘regional’ economies. Even this question shows a London centred perspective. London and the SE are also regions, but their political and economic clout makes the view from London the view that dictates national policy, whether we like it or not.
In this item on the BBC web site Davis refers to Zipf’s Law which seems a good approximation of the distribution of all sorts of phenomena from the most common words, to the size of cites. If it holds true for city size, which it does in many countries, the next city in the UK after London would be about half the size. In fact London is as big as the next six urban areas put together - Greater Manchester (2.5m), the West Midlands (2.4m), West Yorkshire (1.8m), Greater Glasgow and Clyde (1.2m), Liverpool (0.9m) and South Hampshire (0.9m). Greater Manchester and the West Midlands are both only half the size they would be expected to be if the usual size distribution applied.
From the article:
As the eminent economic geographer from the London School of Economics, Henry Overman, puts it: "These kind of arguments imply that the problem with Britain's urban system is not that London is too big. Instead, if anything, it's that our cities are too small."
Our second tier cities in particular.
Having cities that are too small is potentially an economic problem because we know that big cities act as hubs which boost whole regions.
We know that cities are where a disproportionate amount of business gets done. And we know that, typically, bigger cities are more productive than smaller ones.
One World Bank report summarised it thus: "The large and growing academic literature suggests that doubling city size increases productivity by 3% to 8%."
In other words, if you could make Manchester the size of London (by doubling it and doubling it again) you would expect it to be about 6% to 16% richer.
This seems to support my point that the dominance of London is damaging growth in other parts of the country – and I suppose therefore it is damaging the overall UK growth, since Manchester growing doesn’t have to mean London shrinking. If that were the case the trickle-down effect would have even less going for it than it does.
So why is the UK apparently the exception to this apparently universal principle? Given the title of this blog it would be tempting to argue that State interference has distorted the normal workings of urban economics, and to a degree that is probably true, although I’m sure the roots of this distortion are much more complex.
HS2 - an arrow pointed at London
For this post however I want to look at the implications for policy, in particular whether it represents good value to continue to pour tax money into a small part of the country in order to make a limited number of people even richer, in the probably vain hope that a few crumbs will fall to the rest of us. As you may have guessed my answer is no!
A prime example is the case of HS2. The tables from the official HS2 web site found here show projected journey times from various cities once Phase 2 is open. Taking the existing figures at face value (although the ones I checked seemed optimistic) the reduction in journey times between Birmingham and destinations further north appear to be of the same order as the improvements between London and Birmingham. HS2 is however an arrow pointed at London. Despite sweeping claims on the HS2 site that “return journeys (for business or leisure) between English cities will become the work of a morning or afternoon, not a day” it will do little or nothing to improve journey times between Northern cities. Such benefits as do accrue will be secondary and even then only after Phase 2 opens. Before then Phase 1 will continue to reinforce the centrality of London. The £43bn expenditure on HS2 would continue the disproportionate spending on transport in the South East and in London in particular that is evidenced by the £15bn cost of Crossrail 1 and the likely cost of £12bn for Crossrail 2. By contrast the so-called Northern Hub will involve expenditure of approximately £560m on improvements to rails services in and around Manchester and improved east-west rail links across the north. The disparity in investment is huge.
IPPR North analysis in 2011 showed transport spending is:
- £2731 per head in London
- £792 per head in the South East
- £311 per head in the East Midlands
- £269 per head in the West Midlands
- £201 per head in Yorkshire & Humber
- £134 per head in the North West
- £43 per head in the East
- £19 per head in the South West
- £5 per head in the North East
The analysis showed that almost half of major transport projects involving public funding benefit only London and the South East accounting for 84 per cent of planned spending. This is compared to 6 per cent in the North of England as a whole and only 0.04 per cent in the North East. An updating of these figures in 2013 showed no significant change - £2,595.68 in London but just £5.01 per head in the North East.
The effect of spending in the north at HS2 rates
The total population of Greater Manchester, West Yorkshire and Liverpool is around 4.2m (using the figures cited earlier). If transport expenditure in these regions was to be at the same level as in the South East, ie £792 per head the total expenditure would be £3.3bn. If the level of spending on HS2/mile were allocated to a high speed link between Liverpool and Leeds it would only equate to around £6bn. Extending this to say Newcastle would perhaps double that figure to say £12bn. Add in contingencies of say 15% and it would still only be around £14bn. Although these are very crude figures, when compared to the £43bn for HS2 (£22bn for Phase1) £15bn for Crossrail 1 and another £12bn for Crossrail 2 which largely benefit only the South East and London, the disparity becomes clear.
Improvements on this scale across the north would still benefit London and the South East. Economic growth in the North would reduce the pressures on London airports (I haven’t mentioned ‘Boris Island’ at an estimated cost of £24bn) with existing airports in Liverpool, Manchester, Leeds/Bradford and Newcastle all with spare capacity. A direct high speed link between Liverpool and Manchester would allow transfer between the two comparable in time with the transfer simply between terminals at Heathrow. Although not the point of this post a similar argument could probably be made about Edinburgh and Glasgow airports.
Impact of HS2 elsewhere
A study by KPMG published in 2013 described the benefits to cities linked by HS2. However an FOI request by the BBC revealed significant costs to other areas, not included in the KPMG report. The benefits claimed therefore need to be discounted by losses elsewhere, in areas like South Wales, NE Scotland and Norfolk. Even without that caveat, something like 1/3 of the projected £15bn benefits from the full HS2 network would still accrue to the Greater London area. This assumes also that the economic benefit of increased access to Greater London manifests itself locally and not in the form of a further southward migration of business and people.
This is obviously not a detailed analysis of alternatives. Even so it seem clear to me that the public infrastructure expenditure directed towards London is grossly out of kilter. It is almost certainly holding back the potential of the North for economic growth and in so doing possibly limiting the potential of the UK economy as a whole. The share of growth in UK GDP that went to London and the South East increased from 37% in the period 1997-2006 to 47% between 2007-2011. It seems unlikely that this situation will change without serious congestion related problems in London triggering even greater infrastructure expenditure or a major effort to boost growth elsewhere as I suggested above.