Thursday 14 June 2018

Did the Blitz enhance London’s economy?

By Gerard Dericks & Hans Koster
The Blitz lasted from Sept 1940 to May 1941, during which the Luftwaffe dropped 18,291 tons of high explosives and countless incendiaries across Greater London. Although these attacks have now largely faded from living memory, our recent CEP Urban and Spatial Programme discussion paper ”The Billion Pound Drop” shows that the impact of the Blitz remains evident to this day in London in both its physical landscape and economy.

Figure 1: Greater and Inner London Blitz Bomb Density

Using recently digitised National Archive records on the locations of all bombs dropped during the Blitz (see Figure 1 above), we compare the locations of Blitz bomb strikes with local differences in London’s modern-day building heights, employment levels, and office rental prices. After controlling for the central concentration of bombs, we find that local areas which were more heavily bombed during the Blitz have more permissive development restrictions, more office space, and consequently higher worker densities today. For example, as Figure 2 below illustrates, the eastern core of the City of London was particularly heavily bombed, and is today one of the few areas in the City of London where tall buildings are permitted.

Figure 2: City of London Bomb Strikes and 10 Tallest Buildings

Consistent with considerable empirical evidence from other cities, the consequence of this higher worker density in London has been greater worker productivity (which we proxy with office rents). What is new about this research, however, is the magnitude of measured effects. Whereas previous research has primarily sampled secondary cities and has generally found that a doubling in worker density raises productivity by only about 5% (as measured by wages), even after extensive sensitivity tests our paper shows an increase in London of 25%. We argue that this difference is largely due to London’s unique position as perhaps the world’s foremost financial and commercial centre, and that the benefits of greater worker density here are likely to be exceptionally large.

City planners are tasked with controlling development in order to separate incompatible land uses and mitigate costs of congestion such as traffic. However, these restrictions (especially building height limits) entail various costs, for example, higher property prices and greater price volatility, but equally significant is the fact that constraining worker density damages the productivity of the economy. For many historical reasons London has one of the most restrictive planning regimes in the developed world. Based on back-of-the-envelope calculations, we estimate that the value of the Blitz to London in having reduced the restrictiveness of its planning regime is £4.5bn annually, equivalent to 1.2% of London’s GDP (assuming that, without the Blitz, London's density would have been constrained to what it is in non-bombed areas of the city).

Ideally, planners would calibrate the stringency of development controls to ensure that society makes the best trade-off between the costs and benefits of greater worker densities. However, in order to make this judgement, planners require accurate information on both these costs and benefits. What our research now shows is that for the case of London, and perhaps other global cities such as New York and Tokyo, the benefits of greater worker density appear to be much larger than anyone had previously surmised. Consequently, if welfare maximization is indeed city-planners’ primary goal, then, at least in those cities, planners should now be reviewing the stringency of their height restrictions and new development controls more generally.

The Blitz was a tragic episode in London’s history, the likes of which one only hopes will never be repeated. However, by locally relaxing the restrictive planning regime put in place after the war, for all its human cost, the Blitz has subsequently had an extremely positive effect on London’s present day economy. Furthermore, this lasting influence has now provided us with unique insights into our understanding of urban economics, and spotlights the exceptional dynamism of this enduring city.

Tuesday 12 June 2018

Inclusive Growth in cities: Good intentions, difficult policy

Posted by Neil Lee, Department of Geography and Environment and SERC

Inclusive Growth - a concern with the pace and pattern of growth - has become a new mantra in local economic development. The phrase was barely used up until about 2009 (see figure 1). But interest has increased significantly since the financial crisis. The term first influenced development, with organisations such as the World Bank taking it up. But it has since spread into urban and regional policy in the developed world. The OECD have launched an ‘Inclusive Growth in Cities’ programme, the RSA launched a high profile report on Inclusive Growth, and an Inclusive Growth Analysis Unit (IGAU) has been established at the University of Manchester.

Figure 1. Google searches for Inclusive Growth and Pro-poor Growth

Note: Data from Google Trends. Height of each line gives indication of share of searches containing each term. 

It is hard not to be sympathetic to the basic idea of Inclusive Growth. It is a positive way to link two problems - declining living standards for many and low growth. It is more optimistic, and less politically loaded, than a focus on inequality. But how useful is it for policy? In a new paper published in Regional Studies, I argue that while there is much to like in this new policy agenda, there are significant problems operationalising Inclusive Growth at a city level. Inclusive Growth is a classic ‘fuzzy concept’ as described by Anne Markusen, with researchers and policymakers using the same term but often describing different concepts. It is a conceptual Rorschach (inkblot) test onto which people project their own particular interests.

The question is whether this fuzziness matters for policy. In some respects, it doesn’t. Efforts from cities to address problems of disadvantage and inequality are welcome, and Inclusive Growth provides cover for them to do that. While the precise definitions are fuzzy, the general direction is clear. If cities can do anything to help inclusion then that is better than nothing.

But definitions do matter for policy. ‘Growth’ is a clearly understood if highly imperfect indicator - politicians are judged on the performance of the national economy. When policymakers aim to hit precise targets they are more likely to do so (famously, New Labour hit virtually every social policy metric they aimed for - but doing so led to some unintended consequences). These measurement issues are important right now as civil servants try and work out how to replace European Funding. What should the targets be of the Shared Prosperity Fund: simply GVA or employment growth, or something which also measures inclusivity?

Precise targets also help policymakers make choices. Like economics, policymaking is often about tradeoffs, particularly given the stretched budgets and tough choices faced by local government. If Inclusive Growth becomes the target, a clear definition would help policymakers choose between competing priorities and focus investment. If the definition is too broad, Inclusive Growth is less useful for policymakers.

Even if they do have clear targets, there is little evidence on what the best interventions would be. The What Works Centre has highlighted the limited evidence for many general economic development interventions (although some argue they have set the bar high). There is even less evidence on the more specific target of Inclusive Growth. The JRF, OECD, IGAU and others are all developing frameworks and considering interventions right now (disclosure: I have a horse in this race, having produced several reports for the JRF). But it will take time for an evidence base to develop. The policy initiatives are outrunning the evidence.

The measurement issues matter. But even if they are solved, there is another, more fundamental problem with applying Inclusive Growth at the local level: local government often lacks the powers or ability to create growth, let alone shape it. The UK is both highly centralised and characterised by large regional disparities, which policymakers have found it hard to address. An Inclusive Growth strategy is unlikely to solve these problems.

But there is also a strong defence for the new focus on Inclusive Growth. Much economic development policy simply assumes benefits ‘trickle-down’ to disadvantaged groups. While imperfect, Inclusive Growth does at least focus attention on this. Rather than thinking about it as a specific concept, it might - as Ruth Lupton and Ceri Hughes argue - be better to think about it as a general policy agenda, which needs to be considered but does not necessarily form the sole focus of policy. While imperfect, the Inclusive Growth agenda is better than one which simply ignores distributional concerns.