The economic geography of the 21st Century is different from the last. We are at the dawn of an age of unprecedented global connectivity driven by technology. The channels of economic growth and participation this century provide a virtually bypass to the world’s traditional hubs, entrepots and gateways. Bangalore - a sleepy university town 20 years ago - is now India’s booming IT capital. German factories hum in Poznan and in Puebla, and as Bruce Katz highlights, the US is experiencing a metropolitan revolution, as small and medium post-industrial cities capitalise on their rich inheritance.
Globally, “small middleweight” cities - those with 200,000 to 2 million residents - are home to 7% of the world’s population, but McKinsey estimates they will generate 19% of global GDP growth to 2025. The UK, as the seventh largest global economy, must act now to realise the potential of its cities: the ONS defines 32 urban areas in England with populations over 200,000. Despite decades of urban regeneration initiatives from civic and business leaders, only London currently makes a net contribution to the Treasury. In the last 15 years, no cities outside London have grown their proportion of national Gross Value Added.
The neglect in developing a national urban growth strategy by national government must be in part due to the complacency that Westminster feels, comfortably astride the prosperity flowing up the Thames. This wealth doesn’t provide sufficient irrigation for business and industry nationwide. Our river of capital streams into non-productive investment in housing and consumption, led by southerners borrowing to fund both. Will Hutton made this plain in 1995: Britain needs to invest more in its future. Since then the ONS has warned that investment, as a proportion of the economy, has fallen to its lowest level since the 1950s, and 30% lower than the G7 average.
As Mariana Mazzucato has recently highlighted, the wider supporting environment for growth is influenced heavily by government. No entrepreneur is an island. Cities need autonomy in regulating and taxing business, and in supporting a skilled and fluid labour market. This reform is needed at a time when local authorities are hugely challenged. They must redefine public services in an era of constrained spending and increasing demand for health and social care. Public services must be fundamentally transformed to support people to thrive in 21st Century cities, matching contemporary social geography. This isn’t a competing agenda to the challenges of stimulating productive economic activity – it is fundamental, complementary and necessary.
Over 15 million people live in England’s 15 largest metropolitan city-regions outside London. If they are to lead socially productive and fulfilling lives, investment must be attracted and enterprise must flourish, providing jobs that pay sufficiently to raise living standards. Growth needs to deliver for all who propel it, and adapt to the increasingly apparent environmental limits.
The potential for people to work, to learn, to find funders and collaborators, will only be realised at scale in cities. Cities offer critical mass: providing enterprises the breadth of markets - labour markets and consumer markets - to grow. Currently, getting people back to work is not delivering growth because worker productivity is stagnant; we have returned to pre-2008 levels of numbers of people employed and number of hours worked, but not of GDP. If we are to address labour market challenges, this must mindful of the scale at which these markets operate.
A London growth strategy for the UK will not suffice. We must develop a network of cities to serve as centres of productivity, home to businesses which power the UK on the world stage. We face a delicate balance between capitalising on agglomeration effects and concentrating economic power, and providing assistance to people and areas currently less competitive – potentially undermining that power.
Last week, the RSA launched the City Growth Commission - chaired by Jim O’Neill, outgoing chair of Goldman Sachs Asset Management - to develop a comprehensive roadmap to deliver a programme of change. Recently the Heseltine Review, the City Deals, and the London Finance Commission have suggested an array of levers that could alter the relationship between our national government and our cities, and the current RSA Journal brings together several innovating voices on the power of cities. There is a growing consensus that cities represent the best scale at which prioritise investments and redesign the political economy, thus unleashing the potential of the innovators, social entrepreneurs and active citizens to pull the UK through its current challenges.
A century ago, municipal government in the UK was among the most progressive and ambitious in the world, pro-actively investing in the transport infrastructure and human capital to fuel an industrial economy. The next national government of this country must empower urban authorities and urban residents to join the global momentum of city-led growth for economic, social and environmental benefit.