From Tech City to Smart City?

Published by Dr Max Nathan, LSE, SERC and NIESR

A vibrant technology scene has developed in London's East End. Neighbourhoods around Clerkenwell and Shoreditch form a core around Old Street's Silicon Roundabout. Spotting this, in 2010 the UK Government launched the Tech City strategy, hoping to develop the area into 'one of the world's great technology centres'. Last week at an LSE Cities conference, the PM and London Mayor Boris Johnson announced £50m of funding for a new civic space, right on top of the Roundabout.

Ministers are right to get excited. Inner East London is a key node in the capital's digital ecosystem. The Centre for London finds over 3200 digital economy firms there, supporting over 48,000 jobs; those job counts have kept trending up through the recession. (Full disclosure: I led this research.)

Silicon Roundabout is particularly strong on content industries, including global players like MindCandy, Unruly, Songkick and Last.fm. But it's also quietly developed a green layer - an exciting new generation of smart city and cleanweb firms. Could this be the shape of Tech City 2.0?

As the world grows more cities, we need better ways to help them run. The 'smart city' is about using new technology to manage construction, energy, lighting and transport systems - cutting emissions and raising efficiency.

There are two competing smart city visions. The top down version involves brand new, masterplanned demonstration projects - think Masdar or Cisco's 'city in a box'. The bottom up version involves grafting new functionality onto existing urban systems. For an old city like London, it's this on-the-fly approach that's most likely to stick. The capital is already developing smarter transport systems - such as the congestion charge, the Oystercard and Boris Bikes - which point the way ahead.

Green economy products and services also come in two flavours. Cleantech is the physical green economy - driverless cars, smart meters. Cleanweb is online green technology - crowd-sensing apps and maps, environmental data, online marketplaces. London policymakers need this stuff. And London's digital scene, strong on social media and digital content, is well placed to deliver it.

East London's green digital firms are mostly very small and very young. Some offer online apps and tools for cutting carbon - such as Carbon Culture , Gnergy or Homely. Others have developed green transport marketplaces, like Carbon Voyage and Loco2. A third group are more focused on hardware and systems, such as Cosm, Fairphone and Mastodon C.

Amee, an environmental information, auditing and data management firm, is the daddy of the scene. Founded in 2007, it now has 13 staff and offices in London and San Francisco. The first to get major VC investment, it is now helping seed the next generation: founder Gavin Starks now heads the Open Data Institute, and Amee alumni are involved in the London Cleanweb network - 'because we don't want to bluescreen the planet' - organising meetups, talks and hackdays.

Such networks are essential social infrastructure for new young firms. So are accelerators like Bethnal Green Ventures. Aimed at social/environmental start-ups, BGV offers a combination of seed funding (GB£15,000 / US$23,877 per firm), a peer group, structured networking and mentoring, as well as shared workspace at Google Campus.

So how big could the scene get? Cleanweb builds on London firms' skills in programming and digital content. And BGV's Paul Miller notes rising angel and VC interest. The Tech City initiative has shone a bright light on the area; and variable experiences with cleantech investments have pushed many US investors towards cleanweb, where capital requirements are lower and returns potentially higher.

But the next few years won't be easy. Getting finance, finding workspace and skilled workers all present challenges for digital startups. Policymakers hope that tech firms will migrate to brand new spaces in the Olympic Park, Stratford City and the Royal Docks - but so far there are few connections between Shoreditch and shiny new buildings further East. And cleanweb needs committed government support - through legislation, enabling frameworks and funding tools. Ministers' twists and turns on energy policy haven't helped.

So these are early days for green digital firms in London. But in my view there's plenty of promise: watch this space.

 
This piece was also published on the Huffington Post. It's is based on an article written for the LSE Cities 'Electric City' conference, December 6-7 2012. Click here for more. 

Regional versus local pay

Busy week, so only just catching up on the Autumn Statement.

Interesting to see that centrally set regional pay ruled out. I don't think this ever made much sense. Much better to have more local variation that helps address recruitment and retention issues where they occur. More flexibility is still likely to prove controversial, but the case for is pretty convincing (as I argue here in some detail).

Two cheers for Mr Boles

A bold step from the new housing minister to insist that building on open land is needed to solve the housing crisis. No disagreement from me on that front. But what a pity that the political debate on development is so poisonous that Mr Boles feels the need to rule out building on greenbelt land.

Any sensible debate on new development would recognise that some greenbelt land is of such low environmental value that we should consider building on it. Ruling this out means developing land that is of higher environmental value and further away from existing development (with all the implications that has for longer commutes etc). But it would take a very brave (some might argue foolish) minister to try to win that particular debate against the anti-development lobby. At least Mr Boles is trying to move the debate in the right direction and for that he deserves to be congratulated.

Happiness maps

When the latest 'happiness maps' show that the happiest people live in the least populated places (Outer Hebrides, Orkney and Shetland) I am once again convinced that we can learn little, if anything, from spatial differences in self-reported happiness. Quite simply, if people care about their wellbeing and if this drives decisions about where to live then the most heavily populated places must offer something that low populated places don't. So either the people in the Outer Hebrides aren't very representative of the overall population or self-reported happiness misses something important (or both).

I provide a more detailed discussion in my March post on 'Miserable Londoners' but this is the basic idea and the reason why I take these things with a pinch of salt.

The Grey Side of Localism

The Guardian has coverage of the Intergenerational Foundation's report arguing that the localism act hands power to older generations.

The report argues that local tiers of government are completely unrepresentative of their voters. This is certainly true, although (as the Guardian piece argues) this is certainly true of other tiers of government and would also hold for other groups (e.g. ethnic minorities).

Whether the lack of representation is a problem depends on whether the decision they make consistently advantage one group over another. The Intergenerational Foundation think this is a particular problem in the area of planning. As the Guardian reports it: "[...] the report cites strong statistical evidence that older people are more likely to be opposed to change, such as new development in a rural area than their younger counterparts: 45% of people aged 55 and above had formally objected to a local planning application to build houses, compared to just 8% of those under 25."

I am sympathetic with the general argument being made here, but I do wonder whether this particular fact provides strong statistical evidence of a bias. Imagine that the arrival rate of planning applications is random and that the probability to object is independent of age. In the 7 years (from when they are aged 18 to 25) 8% of individuals end up objecting to a planning application. That gives a rate of about 1.14% of the age group complaining in any given year. If this cohort lives to be 55, how many of them will have complained at some point in that time period: roughly 43%.

So, whether this is strong statistical evidence on a bias depends on whether the question asked of people specified a time limit or instead just asked if they had ever objected. Unfortunately, the NHPAU report that was the original source doesn't provide details and the archive section of yougov (who did the poll) is a broken link. The situation is also complicated by the fact that the arrival rate of applications may be biased towards home owners.

In short, while the argument fits with my NIMBY prejudice, I am not sure it confirms it.

[Update: Via Jonathan Jones: Looking at the actual report, it seems the Guardian added together "25% of 55–64s & 20% of 65–74s"! p16]

[Update 2: Via Geography Jim: British Social Attitudes better on this (p.68); Although I think you would want to net out location and income before attributing to age (see tables 5.7 and  5.8)]

Aerotropolis

A couple of long flights seemed the perfect moment to have a look at Kasarda and Lindsay's Aerotropolis: The Way We'll Live Next.

The books main argument runs as follows: "Not so long ago, airports were built near cities, and roads connected the one to the other. This pattern—the city in the center, the airport on the periphery— shaped life in the twentieth century, from the central city to exurban sprawl. Today, the ubiquity of jet travel, round-the-clock workdays, overnight shipping, and global business networks has turned the pattern inside out. Soon the airport will be at the center and the city will be built around it, the better to keep workers, suppliers, executives, and goods in touch with the global market."

I have to say that I am somewhat skeptical on a couple of fronts. The first concerns the extent to which activity will cluster incredibly close to airports. I buy that there are a small(ish) group of people who travel an incredible amount for whom living near a good airport is important. This group appears to be growing, but I can't imagine it will ever comprise large percentages of the population. I also buy that there are firms - involved in global supply chains, distribution etc - that benefit a lot from being near airports. Again, the book makes the case that this group is growing, but the non-traded part of the economy will remain substantial. Of course, in the old days the fact that merchants and firms wanted to cluster near ports (and then rail stations) was enough to drive overall concentration of non-traded activity around those infrastructure hubs. But that was because intra-metropolitan travel costs were high. When you no longer need to walk or take the omnibus to work, you can live a lot further away from your office or factory. This drop in within city transport costs decimated city centres. To the extent they are coming back, this is more about the amenities of city centre living than the need to be close to work. I don't see how airports as a key transport infrastructure changes that particular dynamic.

The second piece of skepticism concerned what was cause and what was effect. Airports are clearly going to be important in the future, but many of the build it and they will come examples in the book didn't appear that successful.

Still, a thought provoking read, and interesting for the wealth of detail on some fascinating case studies.
  

The Heseltine Report

The FT has my reaction to the Heseltine report (£). There's good and bad in there, but on the central recommendations around decentralisation I admit to being puzzled. As I explain in the piece: 'there is a tension, which is never resolved, about whether Mr Heseltine calls for the devolution or the decentralisation of decision making. Should cities be free to tax and spend how they like or are they instead to act as localised delivery merchants for some grand central government strategy conceived and developed in Whitehall?'

 

I'm also unconvinced by the 'back to the future' flavour of some of it: 'On other occasions, however, it appears that Mr Heseltine (like many politicians) finds it hard to take a critical look at policies that they had a hand in developing. Many would suggest that the emphasis on “challenge funds” provides a particularly unfortunate example. The Heseltine report isn’t all bad. But it is hard to shake the feeling that Mr Heseltine is arguing for a return to policies, many of them not particularly successful, that were developed in different times, to tackle different challenges.'

The FT has more on this, so let me instead discuss a couple of themes that I didn't develop fully there. The first of these concerns whether industrial policy should have a strong sectoral component. Mr Heseltine appears to be calling for this with the emphasis on sectoral councils and national government plans. Most economists would suggest that the evidence goes against this recommendation and would prefer horizontal policies (that treat all sectors equally). I wouldn't deny that this evidence is heavily 'contested' but I would argue that the systematic evidence in favour of sectoral policy is hard to come by. By systematic evidence, I mean something that goes out and looks at all sectors that are the target of sector specific industrial policy and demonstrates that these do better than sectors that don't receive such help. Instead, most of the so-called evidence adopts the opposite approach - find a successful sector, point to the existence of a sector specific industrial policy, trade group etc and argue that the policy drove the success. This is correlation, not causation. For those of you who are interested a previous post on clusters develops these arguments further.

The other concern is around the localisation of skills policy and the need for local business to play a much bigger role in shaping demand. I hear this claim all the time from local government so this recommendation will certainly be popular outside of Whitehall. The key point, however, is whether it will be effective. Here, in contrast to industrial policy, there is simply no convincing evidence either way. It's unclear whether local areas should put the emphasis on improving general skills (reading, writing, ability to interact with others) or on vocational skills aimed at particular sectors. Similarly, local areas will often point to 'local skills gaps' as a justification for the need to skew local provision towards particular sectors. But this assumes that, e.g. the lack of engineers, is down to the fact that FE colleges provide too many hairdressing courses and not enough engineering courses. If engineering courses were systematically over subscribed that might be compelling evidence to support this proposition - but my feeling is that this is not the case. If the problem instead is what people want to study (rather than what they can) then changing the supply of places may just lead to lots of empty lecture halls. As I said, there's no convincing evidence either way but I don't think things are as clear cut as the Heseltine report makes out.

There's much more to debate (and for this alone the Heseltine review is welcome), but that will need to wait for another day.

City Deals Mark II

I was pleased to see that the government is going to talk to 'fast growing' cities as part of the new city deals process. I think this makes sense, as I argued at the end of the last round of negotiations: "The final question concerns next steps. The government has committed itself to continued negotiations with the bigger cities. That's clearly welcome. The trickier thing is which new deals to start negotiating. I can imagine the temptation is to go for the next biggest cities in terms of population size. I think this would be a mistake if it excluded smaller cities that have, arguably, the biggest growth potential (to use the CfC e.g.: Cambridge, Milton Keynes). In the current economic climate, striking deals with some of these cities must be a top priority."

Other points from that post, remain relevant for the next round of negotiations:

"I am broadly sympathetic to the outcome that this process is trying to achieve. British government is very centralised and more localisation is, on balance, a good thing. That said the process does feel a little odd with powers being granted in one area in exchange for commitments in other unconnected policy areas (e.g. power over some transport spending in exchange for a commitment on youth employment and training). Not much point dwelling on it - the process is achieving something - but you'd hope that in the longer run government will be looking to learn lessons on what works with a view to localising in those areas across the board.

In addition to supporting the ultimate objective, there are specific things agreed in the latest round that I'd certainly support. The end of RDAs left a vacuum in terms of sub-national strategy on transport (at least for some cities). The deals generally look to fix this. Likewise in the broad area of business support - investment funds, support for enterprise, inward investment etc - although I confess to remaining sceptical on whether these policies are cost-effective. I'm also pleased to see local experimentation around skills and training - not least because national policy in this area is in a state of flux (or in a mess, depending on your perspective).

One thing that I don't yet understand is what happens if cities cannot deliver on their commitments as part of the deal? For example, people are talking about Leeds Deal as involving a commitment to achieving a NEET free city (so all young people will be in education, employment or training). That seems ambitious. What happens if they don't achieve it? Even more extreme, what happens if outcome measures in some of these employment and skill areas worsen (with significant budgetary implications)? But true experimentation at the local level must allow for the possibility that policy changes will make things worse, not better, and I don't understand how the latter is going to be managed."

I get the impression the government is sympathetic to the argument for some 'core component' to the next round of deals, so it will be interesting to see how that develops. Finally, I'm still not sure what will happen if a city fails to meet its objectives - I guess we will see!


[NB I am not sure the BBC is right to say "The government earlier this year gave Birmingham, Manchester, Sheffield and five other authorities the right to spend tax receipts from local firms." I thought the earnback deal was limited to Manchester on the first round]

Second homes and the Census

I have never been convinced that 'second homes' a major issue in the UK (although they might be important for a small number of rural areas). The Census figures would appear to confirm this - 165,095 people (approximately 0.3% of the population) report a second address that they use for more than 30 days of the year. Many more people report second addresses (1.57m) but the vast majority of these are students living away from home.

Even the 0.3% figure is likely to be an overestimate of the number of holiday homes. According to the BBC: The Office for National Statistics said the estimates of the number of people with second addresses used for holidays were "not equivalent to an estimate of holiday homes". Although, somewhat oddly, that doesn't seem to have stopped the BBC from providing a map labelled 'holiday homes mapped' which appears to be based on the census data.

Regional Growth Fund (Round III)

I am in the US, so haven't had much time to read the details on which projects will get the next lot of RGF money. On a first pass, I think my more detailed analysis of RGF round 2 remains valid:

• If £1bn of RGF really safeguards or creates 240,000 it is an incredibly effective scheme;
• That's a very big 'if'. Incomplete monitoring will mean that it is highly likely much of the 'leveraged' private sector funds ('£6 for every £1 of public money') would have been spent anyhow. This is especially the case with money given to larger firms;
• If all of government truly believed these numbers you might expect to see a lot more spending on RGF.

In short, I remain to be convinced that these numbers stack up.

[NB: interesting to see so £358m going to Local Authorities or Enterprise Partnerships this time round. If I remember correctly, in my submission to the original RGF consultation I argued that roughly a third of the money should be allocated to LEPs. Third time lucky.]

Are Britain's 'Second Tier' Cities too Small?

Interesting to see The Economist arguing that America's big cities help make it richer than Europe. The basic idea is that big cities deliver productivity benefits so that restricting growth of cities makes us poorer. As The Economist points out (based on research by my colleagues Christian Hilber and  Paul Cheshire) the planning system certainly acts to restrict such growth in Britain.

As I've discussed that particular issue many times before, let me instead flag something else: These kind of arguments imply that the problem with Britain's urban system is not that London is too big. Instead, if anything it's that our cities are too small. As it turns out, this is an argument that applies particularly strongly to our 'second tier cities'. Drawing on Zipf's Law this is an argument that Pat Rice and I made back in 2008 in SERC's first ever policy paper. As we explained:

"Many factors contribute to determining the size of different cities in different countries at different times. Despite this diversity, statistical analysis for a wide range of countries suggests that the relative size of cities often satisfies an empirical regularity known as Zipf’s law. A version of this law which is particularly easy to understand is known as the rank-size rule. In a group of cities that obey the rank size rule, the second largest city is half the size of the largest city, the third largest city is a third the size of the largest city etc. An easy way to see whether a group of cities obey the rank size rule is to draw the scatterplot of the (natural) logarithm of city size against the (natural) logarithm of its rank. Starting from the point on the vertical axis that corresponds to the largest city, we then draw a line with slope -1.If the group of cities obeys the rank size rule then all the cities in the group will lie along this line.



The figure shows such a Zipf plot for English Cities. Medium size cities in England are, roughly speaking, about the size Zipf’s law would predict given the population of London, the largest city. As can be seen from the plot, the right hand end of the line sits just above points for this set of cities. But England’s “second tier” of cities appear to be too small, as can be seen from the fact that their points lie some way below the Zipf line (a similar point can be made for a few smaller cities at the far right hand side of the figure). It is important to note that this feature is not a consequence of London being ‘too large’. If we had predicted the population of England’s largest city by drawing the Zipf line through the medium size cities and projecting to the y-axis then we would obtain a figure not much different from that of the actual population of London. Of course, such a simplistic exercise comes with a number of important caveats (not least the fact that Zipf's law need not necessarily hold for English cities and that the exact definition of urban areas will affect the relative size of urban areas). But, the Zipf plot is at least indicative of the fact that, for England, second tier cities may be too small."

I don't think you should take this analysis too seriously, but I do think it's important to recognise that debates about London being too big may not just be wrong, but may also distract us from the equally important issue of how we ensure some of our second tier cities get bigger.

It's worth finishing by spelling out a couple of things that are likely to make that debate particularly difficult. First, cities can move up the ranking, so the best 'candidates' for big second tier cities could currently be quite small. Second, even if growth is going to come in some of our existing second tier cities, this arguably needs to be at the expense of other similar size cities rather than at the expense of London. You can see why the politics might favour avoiding that particular debate and focusing instead on London 'bashing'.

HS2 and the WCML fiasco

No surprises to see some people questioning the HS2 decision in light of the West Coast Mainline franchising fiasco.

My personal position remains unchanged: I'm not convinced by the case for HS2 even on the basis of the existing growth numbers. That said, the WCML fiasco did reinforce my prejudice for the need to present simple headline figures for passenger numbers etc alongside more complex cost-benefit calculations. I say 'reinforced' because my experience on the HS2 Analytical Challenge Panel had already convinced me that only a small number of people are really on top of the modelling work that is being done for these very complex schemes. [Indeed, one of the factors behind my recent decision to resign from the ACP was that I no longer felt sufficiently on top of the details of the economic model to be able to fulfil the challenge role.]

Unfortunately, HS2 (and, I assume, DfT) don't seem to share the same prejudice. So, for example, the economic case for HS2 (updated) predicts that 148,000 passengers will use HS2 each day between Birmingham and Old Oak Common. To my mind, the most helpful way to think about that number is to compare it to current figures. Sadly, this is not a comparison that you'll be able to make easily on the basis of information provided in the economic case. Likewise, I'd find it helpful to see user numbers by station compared to current user numbers. Again, not information that you'll find provided in a simple format anywhere in the report. Without these figures I find the more complex calculations even harder to assess.

In short: Simple descriptive statistics help provide context and allow ballpark assessment of more complex analysis. If nothing else, let's hope that DfT and HS2 ltd learn that particular lesson from the WCML fiasco.

More conference housing plans

I was pretty critical of Nick Clegg's recent announcement on allowing parents to use their pension pots to help their kids buy housing. Ed Ball's plans announced earlier this week fair marginally better.

I haven't seen much persuasive analysis that the previous stamp duty holiday had much impact, so it's unclear why a new one should make much difference (a much better move would be a wholesale reform of property tax).

Setting aside the question of the overall fiscal position, using the windfall from 4G to help fund affordable homes makes more sense than Clegg's proposal because it boosts supply rather than demand. The crucial question, of course, is whether it will make any meaningful difference to affordability? The answer, I'm afraid, is almost certainly not. Making the very generous assumption that all of these government funded houses are truly additional (i.e. wouldn't have been built anyhow) the plan delivers at most 100,000 affordable houses over two years. If Balls has 'got his sums wrong' as some claim that figure might be closer to the 60,000 mark. 30,000 to 50,000 additional housing units per annum roughly takes annual house building back to where it was in the mid 2000's.

Unfortunately, even in a downturn, building houses is expensive. Ball's scheme makes some sense, but truly dealing with the problem of affordability requires a market led response in the areas of highest demand. This in turn, requires the planning system to allow a proper supply response. Labour only woke up to this problem very late in their last administration and, arguably, did too little too late. Addressing long term affordability isn't a matter of short term stimulus. Instead, it requires a private sector response when the market finally (hopefully) picks up. Developing a planning system that allows that to happen is the real challenge for the next administration.

The soft power Games

Posted by Dr Max Nathan, SERC and LSE Cities

The Economist Intelligence Unit has published Legacy 2012, a collection of essays on the economic effects of the London Olympics. You can download it here. I’ve got the lead piece, written pre-Games, which (post-Games) now seems a bit grumpy. Here are the headlines, and some reflections with the benefit of hindsight: 

First, the direct economic benefits of 2012 to London are pretty small. This is the overwhelming message from the economic evidence, and the experience of past Games. Predictions of a hit to local retail and tourism also turned out to be correct. 

Second, the major hard gain is the physical regeneration of the Olympic site. We can argue about whether winning the Games ‘created’ this, or just accelerated it. But some Londoners (homeowners, certainly) got more out of it than others. It’s telling that the Centre for Cities suggests a ‘separate’ employment and skills strategy is needed for East London – so what positive effect did the Games have on local people’s employment chances? 

Third, the indirect economic effects on the UK may be pretty big – as they have been for Korea, China and Spain. Hosting the Olympics is a massively powerful policy signal, and the Games are a platform from which to tell a story about the UK’s place in the world. Work by Rose and Spiegel, published in the Economic Journal, suggests that on average, Olympic host countries get a whopping 20% trade boost. (Amazingly, even losing bidders pick up some positive trade effect.) The host city stands in for the nation at Games time, so that London effectively was the UK for foreign viewers. Boris clearly understood this before David Cameron.

More prescient than he knew, Tony Blair is fumbling for the political economy argument in this Vanity Fair interview (thanks to Will Davies for the spot): 

For a country like Britain, it’s a great thing for us to have the Olympics here. We can afford to do the Olympics. We’re Britain. We’re not some Third World country.

For countries like Korea and China the message is ‘we’re arrived’. For Britain, perhaps – ‘we’ve still got it’?

So perhaps we’ve been looking for legacy in the wrong place. If it's all about messaging, the biggest economic impacts of 2012 may be the long term boost to British soft power.

The other takeaway  is that economists vastly under-estimated the intangible benefits from the Games. Pre-Games analysis suggested the ‘willingness to pay’ was dwarfed by the £9.3bn budget, but our medal hauls in both Games have clearly changed the calculus. Perhaps we should have spotted this coming – Goldman Sachs suggest that host countries typically win 54% more medals than usual. That sporting success doesn’t come for free, as Will points out here. But Team GB’s glorious performances are likely worth several billions in – fleeting? – goodwill. 

This post originally appeared on the squareglasses blog.