City-driven growth for the UK: Opportunities and threats (excerpts)

An horizon scan for the Foresight Cities Project Written by Michael Reilly January 2013
Ariel Research Services +44 (0)7986599791 michael@arielresearchservices.com www.arielresearchservices.com

Prospero and Ariel by Steering for North 2012 All rights reserved http://www.flickr.com/photos/steeringfornorth/

This report has been commissioned by the UK Government Foresight Programme. The views expressed in this report are not those of the UK Government and do not represent its policies.

Executive Summary
What drives the development of cities?
The industrial development of cities is driven mostly by scale economies that incentivise agglomeration Evidence suggests that cities grow systematically - with stability and persistence in the industrial concentration of many cities particularly those with mature industries leading to a portfolio of place History matters through the accumulation of labour pools, capital, and development of scale economies Rates of urbanisation in developing countries are similar to those in 18th century Britain, Europe and North America; but the unprecedented volume of anticipated urbanisation is a major known unknown

Opportunities for economic growth

Cities are people rather than infrastructure and successful cities are sustained by a creative class of individuals Cluster analysis could help to identify and nurture more clusters in UK cities so as to improve its portfolio of place Innovative international researchers are gradually uncovering a new multi-disciplinary science of cities Adjusting the urban metabolism of UK cities may increase their economic efficiency and improve social equity Smarter cities may be able to better manage the trade-off between growth and negative externalities as well as provide tantalising commercial opportunities but some experts insist cities are not machines

Threats to economic growth

Skills are an crucial driver for growth but there is an historically-determined divide between UK cities; economic growth in the UK is too dependent on London and global city competition is increasing Long lead-times and high costs of physical infrastructure investment, pressures to decarbonise, and the wider geography of its stakeholders, make it a massive challenge for strategic governance Urban areas contribute to greenhouse gas emissions because of their higher levels of consumption but dense, compact cities can be especially energy- and emission-efficient spaces for growth-inducing agglomeration Dysfunctional planning regulations and land markets, ageing infrastructure, and the state education system impede UK city-driven growth; and cities need to claw back more responsibility for strategic governance Strategic governance for urbanising countries is nuanced and depends on geography, and economic density, 2 division and distance; negative externalities such as crime, congestion and disease incidence scale with city size

Executive Summary
What could drive change?
Cities and their drivers of change are part of a highly inter-dependent complex system of urban systems Scale economies are the elemental driver of change for cities Strategic governance of cities has the ability to enable future economic growth or through its absence impede it Competitiveness and strategic positioning in a network of global cities is vital to sustaining Londons growth More generally, economic diversity, a skilled workforce, connectivity, strategic governance, innovation in firms and quality of life are important drivers for city competitiveness

What might be on the horizon?

Rising inequality between the creative class and other workers might inculcate an inchoate rage in cities Led by ambitious mayors, cities may bypass nation-states and the Bretton Woods system to establish new forms and networks of strategic governance, leading to the rise of new de facto city-region states When cities ignore the consequences of their voracious urban metabolisms it can result in a deepening sense of injustice within the distant elsewheres that supply them If nation-states become engaged in distracting culture wars over social values, the creative class may flee their cities seeking more diverse and tolerant centres

Concluding remarks
Better understanding of the economic inter-dependency between cities in the UK and abroad and a credible and imaginative exercise to explore the future in those terms could enhance strategic governance of UK cities and improve the allocation of scarce resources Analysis of opportunities and threats suggest that too much emphasis on physical infrastructure whilst a crucial public good for strategic governance to shape may obscure the notion that cities are people and, moreover, that successful cities are arguably creative people; an integral futures approach points to significant uncertainty in individual behaviour and action, and institutional composition and agency Looked at dispassionately, the risks to UK economic growth - especially if London loses it influence in the global 3 economy - seem to be on the down-side but the future is not written and the UK still possesses highly-valuable economic and cultural assets; improved strategic governance could be a game-changer

City-driven growth for the UK: Opportunities and threats 1. What drives the development of cities?

Remarkable patterns in the development of cities over time may offer insights into future pathways
Rank-size rule for urban England and Wales, 20016
18 16 14 12 10 8 6 4 2 0 0 2 4 6 8 10 Natural log scale of rank Natural log scale of population

Stylised representation of urban areas7

Metropolises, secondary cities, market towns, and villages link through complementary functions to form an inter-dependent portfolio of place both nationally and internationally

There is a growing body of evidence to suggest that cities will tend to grow systematically Cities seem to conform to a rank-size rule insomuch as, with the exception of a few notable outliers, the rank of a city in its national (and international) hierarchy is linearly related to its population8; the rank-size rule is stable over time9; and cities seem to grow in parallel to form an inter-dependent portfolio of place10 Historical analysis and theoretical insights from the new economic geography suggest that rather than flattening the world, globalisation, by expanding the size and scope of markets, and therefore inducing a finer division of labour, incentivises bumpy city formation to capture agglomeration scale economies11 The historic rates of urbanisation in 18th century Britain, Europe and North America are consistent with the supposedly extraordinary rates of change more recently in the developing world12 However, it is the unprecedented volume of anticipated urbanisation in the developing world that 5 represents a major known unknown for the 21st century

City-driven growth for the UK: Opportunities and threats 2. Opportunities for economic growth

Cities are people rather than infrastructure and successful cities are sustained by creative individuals
Density of college graduates in the US, 200016

The geographical distribution of creative individuals is uneven in the US, UK and Europe

US urban theorist Richard Florida has developed a hypothesis that a creative class of individuals is the driver of regional economic growth and that they favour innovative, diverse and tolerant centres17 The Nobel-prize winning economist Robert Lucas described the growth-inducing effects of human capital clusters as a Jane Jacobs externality after the influential Greenwich Village-based urban activist Evidence from the US, UK and Europe supports the hypothesis of the creative class18 Rather than building high levels of bonding social capital, often associated with stability, on the contrary, creative centres favour looser networks, weak ties, and quasi-anonymity19 There is an opportunity for those who develop cities to facilitate creative centres that rely not just on crude density but on Jacobs density places for diverse street-level urban interactions to occur, which can lead to spill-overs of knowledge, ideas, insights and information 7 Jacobs density could also improve health outcomes by encouraging more walking and cycling

Innovative international researchers are gradually uncovering a new multi-disciplinary science of cities
Urban indicators vs population size for 360 US metropolitan areas35

Surprising regularities in the increasing returns to income, innovation and crime from population in metropolitan areas may lead to better ways to manage urban trade-offs

Some researchers have called for additional resources to be allocated towards multi-disciplinary quantitative analysis of the city in order to improve scientific knowledge of urban dynamics and growth36 The complexity of cities and the high degree of inter-dependency between the individuals, institutions and infrastructure from which it emerges makes intervention to shape outcomes hugely challenging But there is evidence of surprising regularities in the scale economies for infrastructure, and CO2 emissions in cities with larger populations37; for example, doubling the population of a city requires only 85% of the same infrastructure; moreover, per capita GDP, innovation, crime, congestion and disease incidence all seem to have the same increasing returns to population The performance of several megacities suggest there may be a sub-optimal level of economic density past which productivity growth is constrained by crime, congestion and health outcomes38 8 A new science of city planning could help manage trade-offs between growth and its negative externalities39

City-driven growth for the UK: Opportunities and threats

3. Threats to economic growth

Skills are an elemental driver for growth but there is an historically-determined divide between UK cities
Skill levels in UK cities, 2010 (%)51
60 50 40 30 20 10 0

Highly-skilled cities have historical advantages including established universities

Working age population with no formal qualifications (%) 2010 Working age population with qualification at NVQ4+ (%) 2010

An historically-determined skills divide between UK cities threatens the balance of its portfolio of place Analysis of census data found that a citys skills base in 1901 was the best predictor of economic performance in 2011 although infrastructure investment and industrial diversity were also influential52 Improving city-driven growth is a long-term challenge because history matters to city futures Cities are powerful engines of social mobility53; but widening skills divides within cities may create structural inequalities, induce spatial segregation, and dampen cultural vitality Rising within-city income inequality could also increase insecurity and thereby indirectly impede growth; 10 many of those charged with offenses during the English urban riots in of 2011 lived in some of the most deprived areas of the UK largest cities, and in neighbourhoods where conditions are deteriorating54

Oxford Cambridge Edinburgh Brighton Aberdeen London York Cardiff Reading Dundee Glasgow Aldershot Bristol Norwich Milton Keynes Warrington Crawley Belfast UK average Gloucester Southampton Manchester Sheffield Ipswich Huddersfield Coventry Burnley Preston Newport Leeds Worthing Hastings Derby Nottingham Blackpool Birkenhead Swansea Bolton Bournemouth Newcastle Plymouth Portsmouth Middlesbrough Leicester Telford Blackburn Swindon Luton Birmingham Sunderland Peterborough Stoke Medway Rochdale Wigan Northampton Liverpool Southend Bradford Hull Doncaster Mansfield Barnsley Grimsby Wakefield

Economic growth in the UK is heavily dependent on London but global city competition is increasing
Dispersion of regional GDP per capita, 2007 (%)55
35 2000 30 25 20 15 10 5 0 2009

Projected economic rankings of global cities in 202556

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 GDP New York Tokyo Shanghai London Beijing Los Angeles Paris Chicago Rhein-Ruhr Shenzhen Tianjin Dallas Washington, DC Houston Sao Paulo GDP Growth Shanghai Beijing New York Tianjin Chongqing Shenzhen Guangzhou Nanjing Hangzhou Chengdu Wuhan London Los Angeles Foshan Taipei

New middleweight cities expected to account for 40 per cent of global growth in 2025

Growth is more regionally dispersed in the UK than in other European competitors and the level of dispersion has been steadily increasing since the 1990s57 Around half of the UKs growth in the last 10 years has come from London and its surrounding areas; in 2009 London had an average productivity level 32% above the UK average58; of the other regions only South East bettered the UK average while Scotland equalled it59 Growth in the UKs portfolio of place is therefore heavily dependent on the future of London but London is wrestling with other global cities in an intense competition for talented firms and individuals McKinsey analysis on global city-driven growth suggests that big is not necessarily beautiful because emerging middleweight cities are projected to out-perform megacities impeded by diseconomies of scale60 Furthermore, some experts argue that so-called second tier cities in Europe have been neglected by 11 uninspired and over-centralised strategic governance at the nation-state level61

City-driven growth for the UK: Opportunities and threats

4. What could drive change?

12

Strategic governance of cities has the ability to enable future economic growth or through its absence impede it
Sources Urban system Sinks

Energy supply Water supply Food supply Matter supply Migration

Innovation Creative class Economic growth Enterprise

Consumption Urbanisation Productivity Infrastructure

Demographic change Security Culture Social cohesion

Inequality Urban design Health and wellbeing Strategic governance

Congestion Pollution Waste Crime Disease

Economic integration

Technological change Climate change

International Infrastructure Globalisation

Unemployment Scale economies are the elemental driver of change for cities

Inter-dependent urban systems

Economic drivers

Indirect drivers

Negative externalities

Policy drivers

Drivers and Outcomes

13

Integral futures analysis may be more successful in anticipating discontinuous events than scenarios
Initial scan of horizon Title 13 Premium enclaves96 Urbanisation trap97 Ghost town98 Summary Capital investment for low carbon urbanisation and smart infrastructure increases land costs. Exclusive urban enclaves emerge with low social mobility. Countries urbanise yet without moving successfully from farm to firm. Negative externalities increase without a corresponding increase in GDP per capita. Top-down planning and investment is ignorant of the complexity of urban systems. Cities new and old that do not attract a critical mass of talent stagnate. Some nation-states become engaged in a distracting culture war over social values. The creative class flee their cities seeking diverse and tolerant centres. New emerging middleweight cities dominate the global economic landscape. Megacities such as London fail to address their diseconomies of scale. Income inequality, cultural aversion to in-migration, and perceptions of insecurity produces more closed communities. Innovation and social mobility falters. Weak signals Masdar City; High capital costs of low carbon urbanisation Nigeria; Cameroon; Madagascar; Guinea Bissau Spanish property crisis; UK new towns; Chinese ghost cities Culture wars in US; Arab Spring; UK conservatism Lower economic growth of megacities; Increased air pollution Urban segregation in Argentina and Brazil; Gated communities

14

15

16

World Culture War99 Middleweight knock-out100 Barrios cerados101

17

18

14

Integral futures analysis may be more successful in anticipating discontinuous events than scenarios
A framework for integral futures including initial scan of horizon
Individual

20. Distant elsewheres 5. Invisible insecurity

Subjective eg values, goals

Objective 19. Deurbanisation eg behaviours, actions 14. Urbanisation trap

1. Dematerialisation

16. World Culture War 3. Schumpeters children 10. Frictionless utopia 18. Barrios cerados

Interior
9. Dream society

23. Western hukou 24. African Queen 7. UN of cities 2. Rise of city-region state 14. Premium enclaves 11. Clusters lose lustre 4. Dumb cities 22. Sinopolis 15. Ghost town 17. Middle-weight knock-out 6. Too tightly wound up 21. Moveable feasts 12. Ragusa cohesion

Exterior

Inter-subjective eg institutions, culture

Inter-objective eg infrastructure, systems

8. Pandemic

Collective

15

City-driven growth for the UK: Opportunities and threats

6. Concluding remarks

16

Concluding remarks
1. It would be possible to design a project that explores opportunities and threats to UK economic growth from cities both in the UK and abroad 2. Focusing exclusively on UK cities would be inadequate because of the significant changes occurring in the global economy; whereas analysing future urbanisation in the developing world in general terms is likely to duplicate other work 3. Instead better understanding of the economic inter-dependency between cities in the UK and abroad and a credible and imaginative exercise to explore the future in those terms could enhance strategic governance of UK cities and improve the allocation of scarce resources 4. Anticipating this future may be aided by historical analysis and a burgeoning science of cities 5. Strategic governance of UK cities has been too centralised in the past and the project should reach out - where capacity exists - to a wider range of local government stakeholders 6. This notwithstanding a significant amount of project resources should be allocated to exploring the future of the UKs global city London 7. Focusing on economic growth need not be narrow if sustainable growth was emphasised and the full range of possible negative externalities were in scope 8. The importance of scale economies to city-driven growth should be reflected in project expertise 9. Cities are primarily an innovation for improving living standards; how that growth translates into living standards is a wider question for the project 10. Analysis of opportunities and threats suggest that too much emphasis on physical infrastructure whilst a crucial public good for strategic governance to shape may obscure the notion that cities are people and, moreover, that successful cities are arguably creative people 11. Furthermore, an integral futures approach points to significant uncertainty in individual behaviour and action, and institutional composition and agency 12. Looked at dispassionately, the risks to UK economic growth - especially if London loses it influence in the global economy - seem to be on the down-side but the future is not written; 17 fortunately the UK still possesses highly-valuable economic and cultural assets