The case for the devolution of power away from London has centred on the political arguments. Diane Coyle looks at the economic reasons.
The context for the devolutionary tide in politics – to the nations and within England to the north and especially Greater Manchester – is that the United Kingdom has long been one of the most centralised 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 centralised, has some provincial heights competing with Paris.
This centralisation has limited the performance of the UK economy compared with what could have been achieved in a more geographically balanced economy. There are large economic benefits that come from businesses and people concentrating in busy urban areas – in the jargon, agglomeration externalities. 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 urbanisation go hand in hand – and last year the world passed the milestone of half of humanity living in cities. There are diseconomies of 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 diseconomies of agglomeration in London are becoming very large indeed, especially housing and transportation costs. It is hard not to sense that the capital is approaching the limit of being able to create more jobs for people on normal kinds of wages.
Centralisation has also had many other drawbacks related to the inability of people in departmental offices in London – no matter how clever and dedicated they are – 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 estates 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 the 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 specialism – 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 diseconomies of agglomeration for London. The UK economy would do better if policy took explicit account of our cities as a system, not as solo players. 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 take people and activity towards London, apparently inexorably, because they operate within structures channelling them in that direction. Our 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 – I have been involved in this policy debate since my involvement in the 2009 Manchester Independent Economic Review, and the arguments for political and economic devolution of course date back long before that. There is much to debate still about the political choices that have been made. But in terms of the once-in-a-generation opportunity to reshape the economy, Greater Manchester’s leadership deserves great credit for having played such a long game.
But this isn’t the end of the effort. The long and complete dominance of London over national life has stamped a deep imprint on the structure of the 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.
Note: This article was originally published on the Manchester Policy Blogs and gives the views of the author, and not the position of the British Politics and Policy blog, nor of the London School of Economics. Please read our comments policy before posting.
Diane Coyle heads the economic consultancy, Enlightenment Economics, and is a visiting Professor of Economics at the University of Manchester. She received a PhD in economics from Harvard and was previously the economics editor of The Independent. You can read her blog at Enlightenment Economics or find her on twitter @diane1859.