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.”

 

 
 
 
 

More than 830 cities have brought essential services back under public control. Others should follow

A power station near Nottingham: not one owned by Robin Hood Energy, alas, but we couldn't find anything better. Image: Getty.

The wave of cities worldwide rejecting privatization is far bigger and more successful than anyone thought, according to a new report from the Transnational Institute, Reclaiming Public Services: How cities and citizens are turning back privatisation. Some 835 cities in 45 countries have brought essential services like water, energy and health care back under public control.

The persistent myth that public services are by nature more expensive and less efficient is losing its momentum. Citizens and users do not necessarily have to resign to paying increasingly higher tariffs for lower standard services. The decline of working conditions in public services is not an inevitability.

And the ever larger role private companies have played in public service delivery may at last be waning. The remunicipalisation movement – cities or local authorities reclaiming privatised services or developing new options – demonstrates that cities and citizens are working to protect and reinvent essential services.

The failure of austerity and privatisation to deliver promised improvements and investments is part of the reason this movement has advanced. But the real driver has been a desire to meet goals such as addressing climate change or increasing democratic participation in service provision. Lower costs and tariffs, improved conditions for workers and better service quality are frequently reported following remunicipalisation.  Meanwhile transparency and accountability have also improved.

Where remunicipalisation succeeds, it also tends to inspire other local authorities to make similar moves. Examples are plentiful. Municipalities have joined forces to push for renewable, climate-friendly energy initiatives in countries like Germany. Public water operators in France and Catalonia are sharing resources and expertise, and working together to overcome the challenges they meet.

Outside Europe, experiments in public services are gaining ground too. Delhi set up 1,000 Mohalla (community) clinics across the city in 2015 as a first step to delivering affordable primary health care. Some 110 clinics were working in some of the poorest areas of Delhi as of February 2017. The Delhi government claims that more than 2.6m of its poorest residents have received free quality health care since the clinics were set up.


Local authorities and the public are benefiting from savings too. When the Nottingham City Council found out that many low-income families in the city were struggling to pay their energy bills, they set up a new supply company. The company, Robin Hood Energy, which offers the lowest prices in the UK, has the motto: “No private shareholders. No director bonuses. Just clear transparent pricing.”

Robin Hood Energy has also formed partnerships with other major cities. In 2016, the city of Leeds set up the White Rose Energy municipal company to promote simple no-profit tariffs throughout the Yorkshire and Humberside regions. In 2017, the cities of Bradford and Doncaster agreed to join the White Rose/Robin Hood partnership.

Meanwhile, campaigners with Switched on London are pushing their city to set up a not-for-profit energy company with genuine citizen participation. The motivations in these diverse cities are similar: young municipal companies can simultaneously beat energy poverty and play a key role in achieving a just and renewable energy transition.

Remunicipalised public services often involve new forms of participation for workers and citizens. Remunicipalisation is often a first step towards creating the public services of the future: sustainable and grounded in the local economy. Inspiration can be found in the European towns and villages aiming for 'zero waste' with their remunicipalised waste service, or providing 100 per cent locally-sourced organic food in their remunicipalised school restaurants.

Public services are not good simply because they are not private. Public services must also continuously renew themselves, grow, innovate and recommit to the public they serve.

The push for remunicipalisation in Catalonia, for example, has come from a movement of citizen platforms. For them, a return to public management is not just an end in itself, but a first step towards the democratic management of public services based on ongoing civil participation.

Evidence is building that people are able to reclaim public services and usher in a new generation of public ownership. The momentum is building, as diverse movements and actors join forces to bring positive change in communities around the world.

You can read the Transnational Institute report, “Reclaiming Public Services: How cities and citizens are turning back privatisation”, on its website.