London is highly successful as a city and is twenty nine percent more productive than the UK average
London is hugely important to the UK and indeed huge in its own right. Taken in the entirely of its built-up area it has a population of 9.8 million (ONS, 2013), greater than the combined total of the six next biggest urban spaces. London is also a very densely populated city: on average around six thousand people inhabit each square kilometre compared to Manchester’s 4,300 people per square kilometre (ONS, 2013).
London is also highly successful as a city and a busy place to work and live. London is twenty nine percent more productive (measured in financial gain per person per hour) than the UK average and the business birth rate (as a percentage of active enterprises) is higher too (17.9% compared to the lowest in Northern Ireland of 8.7%). This makes it the fastest growing part of the country. With a high business death rate too (10.6% compared to the lowest in the South West of 9.1 %) the picture of London is one of a rapidly changing, business oriented city but nonetheless one that is highly productive.
Net new business growth rate (2013 data) in the different regions of the UK
Around a fifth of the UK’s national income is generated in London. Whilst, over recent decades, this is nothing new – London has consistently produced between sixteen and twenty one percent national GDP since the 1980s – where the remainder of the UK’s wealth has come from is changing in its geography. Traditionally ‘the rest’ used to consist of a number of large cities, such as Manchester, Liverpool, Glasgow and Bristol, that dominated wealth production outside London. What has been noted more recently is the relative decline of these cities and more productivity being seen in a larger number of smaller cities and towns.
This gives a picture of London as a city truly on its own: many would indeed argue that there is now no ‘second (or even third) city’ in the UK. According to Zipf’s Law, a country’s largest city should be twice the size (in population and productivity) of its second largest city, three times the size of its third largest city and so on. In the real world this theory works fairly accurately for many countries, but in the UK the second and third largest cities (Manchester and Birmingham respectively) are far smaller in size than Zipf’s Law predicts.
Two views of London tend to emerge, both from data such this and the nationwide media portrayal of the capital. The first is of London as a decadent vulture, feeding greedily off government investment and its own success, much to the detriment of the rest of the UK. Though London has traditionally attracted the most influential sections of the labour market from the rest of the UK, the ‘vulture effect’ has also been witnessed at a more local level. The London borough of Croydon has experienced business ‘dough-nutting’ in its CBD: the location of business head offices and operations from Croydon town centre to the centre of London, leaving parts of Croydon like a ghost town.
The second view is that of the engine that drives the rest of the UK and keeps it financially afloat. How you view London also tends to be influenced by your geographical distance from it: those further away tend to side with the former viewpoint whilst those in the south east choose the latter.
London: A vulture or an engine?
At the centre of why London has become so large and powerful within the UK is a series of positive feedback loops. In other countries too, large cities start with some unique features, such as in London’s case being an imperial as well as national power, and this causes a chain of positive reactions.
In the capital, one can see two very simple ideas combine: London being a place to which talented people migrate and London having internal processes (agglomeration economics) in place that make these people highly productive.
‘The London Formula’: A feedback loop that allows London to retain dominance in the UK
London attracts a highly skilled workforce both from within the UK, possibly denying other areas of their skills as well as from overseas. Fifty eight percent of Londoners are graduates – twenty percent more than the UK average. People are attracted to the perceived better standards of living (including higher wages) but more often because London is the place where they are most likely to find a job that matches their skills set and training. This has an impact in a number of ways, which are communally known as ‘agglomeration economics’.
Firstly, a large number of people with high levels of economic and business skills in one place serve to feed the spread of knowledge, information and the sharing of good practice. Businesses, and people who can work and run them, tend to cluster for this reason. Secondly, if you are setting up a new business it makes sense to do so in a place that already has a reputation for having a strong workforce at hand, even if this means you will have to compete with similar companies for the key people in your workforce. London, with its denser labour market attracted new businesses at an exponential rate between 2008 and 2013.
A large and successful city will also boast a large number of ‘support services’ for any business, from a compatible infrastructure to cycle couriers, independent accountants and stationers. As more large businesses join the city due to these support services, a domino effect takes hold and even more subsidiary companies make their way to the capital. Subsidiary companies can also serve the staff of businesses. As well as earning money, workers will want to have good quality means by which they can spend their earnings too and a well-established consumption economy also serves to exacerbate the market of all levels of business. Finally, so called ‘big city values’ can be highly attractive to innovators and creative people who generate new businesses and new markets. Cities have a tendency to be more liberal and more tolerant spaces for workers who see themselves as ‘big thinkers’.
The role central government has on the development of urban spaces has also been questioned. The UK government, regardless of political leanings, has a history of serving the needs of London. From bailing out London’s banks (as well as the Scottish based RBS, to heavy investment in infrastructural projects (such as HS2 and the potential expansion of Heathrow) and lobbying at EU level for the interests of the capital, the government has a political rhetoric of helping London to grow so that it can better serve the rest of the UK, somewhat justified by the very real need that London has for such intervention simply because of its size and economic position. This idea alone is not enough to explain the large development gap between London and the rest of the UK, but in combination with other growth factors, one sees a picture that would be hard to contradict in future years.
Though the London juggernaut shows no sign of slowing, there are strong calls from those outside the city, and especially those in areas which have seen large scale deindustrialisation and economic decline, for the UK’s wealth, and more importantly for the opportunities to be able to generate wealth, to be spread more easily around the country. Investing in a city to a level by which it can legitimately be called a ‘second city’ (Manchester is the most favoured) might seem a sensible choice but it would be difficult to reduce the power of London given its status as a global, as well as a national, hub. Moving key businesses out of London, and to another city such as Manchester would undoubtedly spread development there, but the advantages of such a move to Manchester may be less than the disadvantages felt by London.
As well as focussing investments on regional centres, efforts need to be made by governments to also celebrate and promote the working environments of the ‘spokes’ of the London hub: large towns such as Cambridge and Reading that can ease the pressure off the capital yet still benefit from their proximity to it. However, ultimately the future of London relies on there being flexibility being built into all of the UK’s major urban spaces, not just the capital. This flexibility should include that in physical space, infrastructure projects, the models through which businesses are run as well as the laws and political systems that would govern their operations and markets. This may allow them to grow and contract sustainably and without negative effects filtering down to other cities: an increasingly important consideration as we look towards an increasingly urban world.
Office for National Statistics (2013) characteristics of Built Up Areas, ONS
Unless otherwise stated, all data in the above piece relates to figures taken from Evan Davis’s lecture (March 2014)
An area at the heart of economic activity, where innovation, technology and employment are at a high level.
A model that shows the relationship between the core, (as a user) and the periphery, (as a supplier) of labour and resources.
A place that displays multiple real and conceptual connections to other places.
The services and facilities needed for an economy to function, for example transport networks, energy supply and health care.
An area with low levels of productivity, innovation and employment.
A growth in the geographical size of urban areas as a result of increased population.
Students can try to predict what London might be like in 2100. Using a variety of categories under Social, Economic and Environmental headings, students can decipher whether, given the inevitable changes, the city is as attractive to highly skilled workers and new businesses as it is today.
Using online research, students can chart the rise of a company that moved its operations to central London. Listing the advantages such a move could have brought, students can try to place a value on the prestige there is of that company being a London company.
Looking at Manchester as a contender for the UK’s official second city, students can design a promotional video or website that lists the reasons why it should either be the recipient of a new infrastructural project (students can decide for themselves the nature of this) or the headquarters of a new company.
BBC Mind the Gap programme
Employment and Rural Britain
Global cities, the British state and London’s new migrant division of labour
Surf’s Up – Internet access in Cornwall
Two Speed Britain
Town: The making of Urban Britain (Oct 2011)
Introducing the Escape to the City discussions
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