Why London Must Share Economic Power

The United Kingdom has long been one of the most centralized developed economies in the world. If you envision economic activity to be measured by height of the landscape, this country has a huge peak over London and pimples over the other cities.

Even France, also historically politically centralized, has some provincial heights competing with Paris. This centralization has limited the performance of the UK economy compared with what could have been achieved in a more geographically balanced economy.

Making the economic case

There are large economic benefits that come from businesses and people concentrating in busy urban areas. People will be able to switch jobs more easily and will be able to exchange ideas with others in their line of business. Firms will be able to draw on a larger pool of suitable workers and will be closer to their suppliers, customers or transport links.

Hence economic growth and urbanization go hand in hand – last year, the world passed the milestone of half of humanity living in cities. There are downsides to cities, too, including the noise, congestion and higher costs of living, but these are outweighed by the advantages.

So why does it matter whether a country has ten large, dynamic cities or just one? It is clear that London is thriving and nobody wants to see it disadvantaged in any way just for some abstract principle of regional balance.

However, the downsides of agglomeration in London are becoming very large indeed. It is hard not to sense that the UK capital is approaching the limit of being able to create more jobs for people on normal kinds of wages.

The problem of centralization

People in departmental offices in London – no matter how clever and dedicated they are – also have to have time to know enough detail about local economic issues to be able to deliver policies accordingly.

Whether it is the skills needs of local employers, or the specific challenges facing areas whose inhabitants are struggling with all sorts of problems and deprivations, the information needed to address the problems is only available on the ground.

But the more significant point from the perspective of the overall UK economic growth rate is that putting all economic eggs in one basket limits the range of industries and services in which the country can excel. Not even the mightiest city can do everything.

It is reasonable to believe the national growth rate would be higher if other cities were able to grow faster in their areas of specialization – Bristol in aerospace, Edinburgh in finance and professional services, Manchester in the creative industries and graphene and so on.

Growth in other cities around the country, attracting highly skilled or experienced workforces, would also help reduce the downsides of agglomeration for London. The UK economy would do better if it regarded cities as a system, not as solo players.

Sectoral imbalance equals geographic imbalance

People often talk of unbalanced growth in the UK, referring to the dominance of finance and the weakness of manufacturing. That sectoral imbalance, and the dismal export performance that goes along with it, is the reflection of geographic imbalance.

Growth in other cities does not happen spontaneously because the physical and political infrastructure has not been in place for more geographically balanced growth. Market forces drive people and activity towards London, apparently inexorably, because they operate within structures channeling them in that direction.

Our UK national transport system, our broadband and communications infrastructure, are built around that single hub. The devolution of powers to Greater Manchester over some key investment decisions is very welcome.

There is much to debate still about the political choices that have been made. This is a once-in-a-generation opportunity to reshape the economy.

Not quite the endgame

The long and complete dominance of London over national life has stamped a deep imprint on the structure of the UK economy. As a starting point, perhaps every pound invested by the Treasury in London’s infrastructure from now on should be more than matched by investment in infrastructure serving the other cities.

This is not just a matter of delegating local infrastructure decisions to local politicians. The entire infrastructure map of the country needs to be redrawn, thinking about the UK’s cities as a whole.

It will take another generation to reshape the economy, and it will be important for the leaders of Manchester – and other cities around the UK – to stick with the vision of running the economy on more than a single engine.

Editor’s Note: Adapted from “Why devolution is good for the economy” (March 2, 2015 on Policy@Manchester)