Is all economics local?

The Bank of England. Image: Getty.

Last month, Andy Haldane, the Chief Economist at the Bank of England, published his latest in a series of thought provoking think pieces about the economy. It posed the question, “Is all economics local?

This is quite a departure from the thinking of the Bank of England (and no doubt any other central banks around the world). The Bank has for the most part seen the UK economy as one single unit, rather than a collection of many hundreds of smaller economies. And when it has looked beyond the national headline, it hasn’t tended to do much more than a cursory look at regions, which as a unit of analysis miss much of the variation that we see across the country and the reasons for it.

So it was very pleasing from our point of view that Andy has addressed this question head on, and hopefully this will set the tone for how the Bank looks at the economy in the future.

If Andy’s speech represents the frontier of the Bank’s thinking on subnational economics, however, it shows that there is some development of thinking that is required.

This is underlined by the cartogram below, which was used in the speech. It shows how complex or “sophisticated” an economy is, based on the type of activities that take place there, with more complex economies being larger in size.

What jumps out here is that in general, the economies of cities are more complex than elsewhere. But this wasn’t noted in the speech, despite being crucial to understanding the patterns that the cartogram shows.

A cartogram of complexity of economic activity across the country. Click to expand.

This pattern occurs because of the different benefits that different places offer. Cities (and city centres in particular) offer access to a large number of potential workers and a network of businesses that companies can share ideas and information with (known as “knowledge spillovers”). In contrast, deep rural areas offer neither of these benefits. But what they do offer is a lot of land at a much cheaper price and access to the countryside, by definition, is on the doorstep.

Where businesses locate depends on the trade-off that they make between these different benefits. What the cartogram above shows is that those more complex activities choose cities.

More specifically, they choose city centres – 25 per cent of Britain’s service exporting jobs (such as finance, marketing and software development) locate in city centres, despite accounting for just 0.1 per cent of Britain’s land. By comparison, deep rural areas are home to 5 per cent of such activities, despite covering over half of Britain’s land mass. And despite ever more sophisticated communications technologies, the data suggests that these patterns of firm location have become more pronounced over the last two decades.


Without this understanding, it would be perfectly reasonable for a policy maker to attempt to use policy levers to make the cartogram look more even across geography. And indeed Andy suggests that the cartogram could be used to help inform the forthcoming local industrial strategies. But the descriptive power of the statistics, which is really interesting, tells us little if it is not couched in a framework for understanding the role that different types of places play in the national economy.

This understanding then helps us to expect that central Manchester will be more complex or productive than Cumbria or Cornwall. And it should spur us to ask why it isn’t as complex as Bristol, Brighton or London, and design policy to respond to this.

All economics is local. But different types of place have different types of economies because of the relative benefits that they offer. And because of this we shouldn’t expect all local economies to be the same. No doubt this will come out more strongly as the Bank continues to explore this area.

Paul Swinney is head of policy & research at the Centre for Cities, on whose blog this article first appeared.

 
 
 
 

What Citymapper’s business plan tells us about the future of Smart Cities

Some buses. Image: David Howard/Wikimedia Commons.

In late September, transport planning app Citymapper announced that it had accumulated £22m in losses, nearly doubling its total loss since the start of 2019. 

Like Uber and Lyft, Citymapper survives on investment funding rounds, hoping to stay around long enough to secure a monopoly. Since the start of 2019, the firm’s main tool for establishing that monopoly has been the “Citymapper Pass”, an attempt to undercut Transport for London’s Oyster Card. 

The Pass was teased early in the year and then rolled out in the spring, promising unlimited travel in zones 1-2 for £31 a week – cheaper than the TfL rate of £35.10. In effect, that means Citymapper itself is paying the difference for users to ride in zones 1-2. The firm is basically subsidising its customers’ travel on TfL in the hopes of getting people hooked on its app. 

So what's the company’s gameplan? After a painful, two-year long attempt at a joint minibus and taxi service – known variously as Smartbus, SmartRide, and Ride – Citymapper killed off its plans at a bus fleet in July. Instead of brick and mortar, it’s taken a gamble on their mobile mapping service with Pass. It operates as a subscription-based prepaid mobile wallet, which is used in the app (or as a contactless card) and operates as a financial service through MasterCard. Crucially, the service offers fully integrated, unlimited travel, which gives the company vital information about how people are actually moving and travelling in the city.

“What Citymapper is doing is offering a door-to-door view of commuter journeys,” says King’s College London lecturer Jonathan Reades, who researches smart cities and the Oyster card. 

TfL can only glean so much data from your taps in and out, a fact which has been frustrating for smart city researchers studying transit data, as well as companies trying to make use of that data. “Neither Uber nor TfL know what you do once you leave their system. But Citymapper does, because it’s not tied to any one system and – because of geolocation and your search – it knows your real origin and destination.” 

In other words, linking ticketing directly with a mapping service means the company can get data not only about where riders hop on and off the tube, but also how they're planning their route, whether they follow that plan, and what their final destination is. The app is paying to discount users’ fares in order to gain more data.

Door-to-door destinations gives a lot more detailed information about a rider’s profile as well: “Citymapper can see that you’re also looking at high-profile restaurant as destinations, live in an address on a swanky street in Hammersmith, and regularly travel to the City.” Citymapper can gain insights into what kind of people are travelling, where they hang out, and how they cluster in transit systems. 

And on top of finding out data about how users move in a city, Citymapper is also gaining financial data about users through ticketing, which reflects a wider trend of tech companies entering into the financial services market – like Apple’s recent foray into the credit card business with Apple Card. Citymapper is willing to take a massive hit because the data related to how people actually travel, and how they spend their money, can do a lot more for them than help the company run a minibus service: by financialising its mapping service, it’s getting actual ticketing data that Google Maps doesn’t have, while simultaneously helping to build a routing platform that users never really have to leave


The integrated transit app, complete with ticket data, lets Citymapper get a sense of flows and transit corridors. As the Guardian points out, this gives Citymapper a lot of leverage to negotiate with smaller transit providers – scooter services, for example – who want to partner with it down the line. 

“You can start to look at ‘up-sell’ and ‘cross-sell’ opportunities,” explain Reades. “If they see that a particular journey or modal mix is attractive then they are in a position to act on that with their various mobility offerings or to sell that knowledge to others. 

“They might sell locational insights to retailers or network operators,” he goes on. “If you put a scooter bay here then we think that will be well-used since our data indicates X; or if you put a store here then you’ll be capturing more of that desirable scooter demographic.” With the rise of electric rideables, Citymapper can position itself as a platform operator that holds the key to user data – acting a lot like TfL, but for startup scooter companies and car-sharing companies.

The app’s origins tell us a lot about the direction of its monetisation strategy. Originally conceived as “Busmapper”, the app used publicly available transit data as the base for its own datasets, privileging transit data over Google Maps’ focus on walking and driving.  From there it was able to hone in on user data and extract that information to build a more efficient picture of the transit system. By collecting more data, it has better grounds for selling that for urban planning purposes, whether to government or elsewhere.

This kind of data-centred planning is what makes smart cities possible. It’s only become appealing to civic governments, Reades explains, since civic government has become more constrained by funding. “The reason its gaining traction with policy-makers is because the constraints of austerity mean that they’re trying to do more with less. They use data to measure more efficient services.”  

The question now is whether Citymapper’s plan to lure riders away from the Oyster card will be successful in the long term. Consolidated routing and ticketing data is likely only the first step. It may be too early to tell how it will affect public agencies like TfL – but right now Citymapper is establishing itself as a ticketing service - gaining valuable urban data, financialising its app, and running up those losses in the process.

When approached for comment, Citymapper claimed that Pass is not losing money but that it is a “growth startup which is developing its revenue streams”. The company stated that they have never sold data, but “regularly engage with transport authorities around the world to help improve open data and their systems”

Josh Gabert-Doyon tweets as @JoshGD.