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.

 
 
 
 

17 things the proposed “Tulip” skyscraper that London mayor Sadiq Khan just scrapped definitely resembled

Artist's impression. See if you can guess which one The Tulip is. Image: Foster + Partners.

Sadiq Khan has scrapped plans to build a massive glass thing in the City of London, on the grounds it would knacker London’s skyline. The “Tulip” would have been a narrow, 300m skyscraper, designed by Norman Foster’s Foster & Partners, with a viewing platform at the top. Following the mayor’s intervention, it now won’t be anything of the sort.

This may be no bad thing. For one thing, a lot of very important and clever people have been noisily unconvinced by the design. Take this statement from Duncan Wilson, the chief executive of Historic England, from earlier this year: “This building, a lift shaft with a bulge on top, would damage the very thing its developers claim they will deliver – tourism and views of London’s extraordinary heritage.”

More to the point, the design was just bloody silly. Here are some other things that, if it had been built, the Tulip would definitely have looked like.

1. A matchstick.

2. A drumstick.

3. A cotton ear bud.

4. A mystical staff, of the sort that might be wielded by Gandalf the Grey.

5. A giant spring onion.

6. A can of deodorant, from one of the brands whose cans are seemingly deliberately designed in such a way so as to remind male shoppers of the fact that they have a penis.

7. A device for unblocking a drain.

8. One of those lights that’s meant to resemble a candle.

9. A swab stick, of the sort sometimes used at sexual health clinics, in close proximity to somebody’s penis.

10.  A nearly finished lollipop.

11. Something a child would make from a pipe cleaner in art class, which you then have to pretend to be impressed by and keep on show for the next six months.

12. An arcology, of the sort seen in classic video game SimCity 2000.

13. Something you would order online and then pray will arrive in unmarked packaging.

14. The part of the male anatomy that the thing you are ordering online is meant to be a more impressive replica of.

15. A building that appears on the London skyline in the Star Trek franchise, in an attempt to communicate that we are looking at the FUTURE.


14a. Sorry, the one before last was a bit vague. What I actually meant was: a penis.

16. A long thin tube with a confusing bulbous bit on the end.

17. A stamen. Which, for avoidance of doubt, is a plant’s penis.

One thing it definitely does not resemble:

A sodding tulip.

Anyway, it’s bad, and it’s good the mayor has blocked it.

That’s it, that’s the take.

(Thanks to Anoosh Chakelian, Jasper Jackson, Patrick Maguire for helping me get to 17.)

Jonn Elledge is editor of CityMetric and the assistant editor of the New Statesman. He is on Twitter as @jonnelledge and on Facebook as JonnElledgeWrites.

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