Why business clusters are an increasingly urban affair

Silicon Valley: the cluster effect in action. Image: Getty.

Below a kebab shop in Shoreditch, at the end of a corridor covered with old Czech newspapers, an appointment-only establishment serves cocktails with a theatrical twist. Holy Smoke is essentially cognac, but comes hidden in a bible accompanied by smouldering frankincense and myrrh; Old Castro is rum poured over dissolving candy floss. Reviews of Lounge Bohemia on social media range from hip to hype.

Sustained by the well-paid workers of the East London tech scene, such bars are increasingly en vogue. They might not seem like an obvious magnet for productivity, yet some firms have located in or re-located to the area to recruit or retain the talented people who drink in them. A technology hub has emerged, which the government has branded “Tech City”.

The attraction of city living for the workers of the digital economy helps explain a shift in the innovation landscape. Rather than building on green-field sites, as the Silicon Valley pioneers did in the 1940s, a rising number of high-growth companies are choosing to locate and congregate in the core of cities, which offer advantages such as access to skilled labour and knowledge sharing.

“We are seeing the biggest rural urban migration in history,” said Peter Madden, chief executive of the Future Cities Catapult, a government-funded program to stimulate innovation. “Fashions have ebbed and flowed, but the last 150 years has been very urban.”

Competition for talent pits cities against each other: from Berlin, New York and Paris, to Beijing, Tel Aviv and even new upstart tech scenes such as Beirut. Investment brochures boast about a creative scene with art galleries, bars, restaurants and temporary “pop-up” installations. Eased visa restrictions, investment programs and direct incentives complete the offer.

This has led to a revived interest in business clusters – geographic concentrations of interlinked businesses – as a means of attracting mobile investment to stimulate growth. But building expensive out-of-town facilities would be unsuitable for footloose digital economy firms, many of whom require little more than a good internet connection. The new tools of economic development are downtown co-working spaces, and start-up incubators and accelerator programs.

Research by the Centre for Cities think tank and McKinsey, a consultancy, identifies 31 “economically significant clusters” in the UK: from financial services in London to Scottish whisky. Accounting for 8 percent of UK business but 20 percent of output, they are a “major contributor to growth”, and offer high salaries.

Centre for Cities Analyst Edward Clarke says it’s not possible to classify all of the 31 clusters as either urban or rural: many, such as Motorsports Valley in the Midlands, straddle large areas which include both. But he insists the most productive clusters “benefit from the fact that they are in cities”.

While fast-growing digital economy firms hog media attention, however, research-oriented firms in other industries – bioscience, for example, or motorsports – still require access to purpose-built facilities. “It depends where the focal point or the node is,” says Nigel Walker, head of access to finance at the Innovate UK agency. “Shoreditch is a village with artistic flair, and that wouldn’t work on a campus. But something that needs access to experimentation facilities, then maybe a campus is necessary.”

Governments continue to invest in them, from Russia’s Skolkovo Innovation Centre on the outskirts of Moscow to the Paris-Saclay research facility. Successful sites bring researchers, or people with ideas, together with entrepreneurs to turn those ideas into businesses, and access to finance. They also have good connection links to other centres.

In 2011, the government awarded the British Bioscience Research Council £44m to invest in its Babraham Research Campus, on the outskirts of Cambridge. Dr Celia Caulcott, its executive director for innovation & skills, explains that the campus is designed to attract small bioscience companies through access to world-leading researchers and facilities.

“It’s about proximity to discovery,” she explained, during the Innovate UK conference in London earlier this month. “We have invested to make sure that great research facilities are available to small companies that couldn’t possibly afford access to those things on their own.”

The flexibility of accommodation on the site appears to have given it the “stickiness” that economists crave. Will Spooner, chief science officer at Eagle Genomics, says the company has occupied seven different offices in six years on the campus as it expanded from 3 to 22 people: as the company grew, the space it occupied could grow with it, without the upheaval of moving to a completely new site.

Innovation, of course, doesn’t stop at city borders. Two “growth areas of national importance” attached to London – the Thames Gateway and the London-Stansted- Cambridge- Peterborough areas – extend far beyond the M25. Both schemes bring together policy makers across institutional boundaries, in an attempt to create joined-up thinking on issues such as transport, housing, and skills.

Public policy “should not only be one answer centric,” says Michael Joroff, a senior lecturer at the MIT Dept. of Urban Studies and Planning. Or, to put it another way: “A lot of growth will happen where growth happens.”

 

 
 
 
 

What’s in the government’s new rail strategy?

A train in the snow at Gidea Park station, east London, 2003. Image: Getty.

The UK government has published its new Strategic Vision for Rail, setting out policy on what the rail network should look like and how it is to be managed. 

The most eye-catching part of the announcement concerns plans to add new lines to the network. Citing the Campaign for Better Transport’s Expanding the Railways report, the vision highlights the role that new and reopened rail lines could play in expanding labour markets, supporting housing growth, tackling road congestion and other many other benefits.

Everyone loves a good reopening project and this ‘Beeching in reverse’ was eagerly seized on by the media. Strong, long-standing reopening campaigns like Ashington, Blyth and Tyne, Wisbech and Okehampton were name checked and will hopefully be among the first to benefit from the change in policy. 

We’ve long called for this change and are happy to welcome it. The trouble is, on its own this doesn’t get us very much further forward. The main things that stop even good schemes reaching fruition are still currently in place. Over-reliance on hard-pushed local authorities to shoulder risk in initial project development; lack of central government funding; and the labyrinthine, inflexible and extortionately expensive planning process all still need reform. That may be coming and we will be campaigning for another announcement – the Rail Upgrade Plan – to tackle those problems head-on. 

Reopenings were the most passenger-friendly part of the Vision announcement. But while sepia images of long closed rail lines were filling the news, the more significant element of the Strategic Vision actually concerns franchising reform – and here passenger input continues to be notable mainly by its absence. 

Whatever you think of franchising, it is clear the existing model faces major risks which will be worsened if there is a fall in passenger numbers or a slowdown in the wider economy. Our thought leadership programme recently set out new thinking involving different franchise models operating in different areas of the country.

The East-West Link: one of the proposed reopenings. Image: National Rail.

Positively, it seems we are heading in this direction. In operational terms, Chris Grayling’s long-held ambition for integrated management of tracks and trains became clearer with plans for much closer working between Network Rail and train operators. To a degree, the proof of the pudding will in the eating. Will the new arrangements mean fewer delays and better targeted investment? These things most certainly benefit passengers, but they need to be achieved by giving people a direct input into decisions that their fares increasingly pay for. 

The government also announced a consultation on splitting the Great Western franchise into two smaller and more manageable units, but the biggest test of the new set-up is likely to be with the East Coast franchise. Alongside the announcement of the Strategic Vision came confirmation that the current East Coast franchise is being cut short.

Rumours have been circulating for some time that East Coast was in trouble again after 2009’s contract default. The current franchise will now end in 2020 and be replaced with public-private affair involving Network Rail.


This new management model is an ideal opportunity to give passengers and communities more involvement in the railway. We will be pushing for these groups to be given a direct say in service and investment decisions, and not just through a one-off paper consultation.

Elsewhere in the Strategic Vision, there are warm words and repeated commitments to things that do matter to passenger. Ticketing reform, compensation, a new rail ombudsman, investment in improved disabled access and much else. This is all welcome and important, but is overshadowed by the problems facing franchising.

Stability and efficiency are vital – but so too is a model which offers deeper involvement and influence for passengers. With the building blocks of change now in place, the challenge for both the government and rail industry is to deliver such a vision. 

Andrew Allen is research & consultancy coordinator of the Campaign for Better Transport. This article was originally published on the campaign’s blog.

Want more of this stuff? Follow CityMetric on Twitter or Facebook