Why do businesses continue to cluster in London?

London! City of dreams! Image: Getty.

You don’t need to be an economist to know that businesses tend to cluster together in cities: 14th Century Ghent was famous for woollen cloth, 15th Century Florence for its fine arts and by the 16th Century Bordeaux was already a wine city. In the 17th Century, Delft was known for its pottery, while 18th Century Venice specialised in fun – opera, carnivals, fine food and ‘courtesans’ – and 19thcentury Manchester in cotton mills. In the 20th century, L.A. became the centre of the US film business, just as Detroit did for the car industry. 

As the understanding of the economics of urban agglomeration has spread, so city leaders and their economic advisers have come to see their job at least in part as preserving their city’s edge in one “cluster” or another or incubating new clusters.

This is a helpful way of thinking, but in the case of a global city like London it also has its limits. London is a teaming cluster of clusters. Yes, the city has particular strengths in creative industries, financial and business services, tourism and higher education, among other things. Each of these has its own particular set of opportunities and issues, and which demand particular attention from city leaders and policy makers.  But there are so many of these clusters in London, and they are so inter-connected, that it’s hard to make this a way of organising economic strategy.  

Last week Centre for London published a report that offers a different and perhaps more useful way of thinking about the capital’s economic specialism. The research looks at the role that headquarters play in the London economy. 

There are good reasons after all for any city to want to grow, attract and retain head offices. Headquarters create highly paid jobs and tax revenue and feed valuable professional and business service clusters. They attract a lot of business visitors. Bosses are less likely to move a headquarters to another city than they are a “second tier” function. Headquarters are “sticky”.  And headquarter functions, like strategy, governance, HR, comms and public affairs, are less vulnerable to automation than other business functions. 


Moreover, London’s headquarter economy has boomed. Between 2003 and 2018, London was the top ranked destination globally for foreign direct investment into head offices, measured by number of projects. The big multi-nationals have overwhelming chosen London as their European head offices. Employment in head office functions has grown faster than even fast growing and valuable sectors like accountancy and consultancy. Indeed, if London has a leading sector, it’s not financial, business or creative industries. It is headquarters. Headquarters are to London’s economy what steel-making was to Victorian Sheffield, or digital technology is to Silicon Valley. 

But the single most important factor in explaining the rise and rise of London as a headquarter city has been its ability to attract talent at every level of business – much of it from the EU.  In centuries past, businesses clustered together in cities because the goods needed in manufacture were cheaper in cities, and cities provided an accessible market for finished products. 

But the modern service industries in which London and other global cities specialise in don’t depend on raw goods or access to customers in the same way. They don’t rely heavily on raw goods and internet allows them to sell their services around the world.  What businesses are looking for in a head office destination is a good pool of highly skilled workers. As one property broker we spoke to put it, “Head office decisions are probably 90 per cent about people.” Finding a location that appeals to a modern skilled, and ultimately mobile workforce is therefore essential.  

Both the Conservative government and Jeremy Corbyn’s Labour party have prioritised preserving the free flow of goods in their approach to Brexit – in part because they are rightly worried about the damaging effect barriers to trade in goods would have in the UK’s poorer industrial heartlands.  But if we want to maintain London’s invaluable role as the world’s leading head office capital, we need to preserve the flow of talent as well.

Ben Rogers is director of the Centre for London.

 
 
 
 

The IPPC report on the melting ice caps makes for terrifying reading

A Greeland iceberg, 2007. Image: Getty.

Earlier this year, the Intergovernmental Panel on Climate Change (IPCC) – the UN body responsible for communicating the science of climate breakdown – released its long-awaited Special Report on the Ocean and Cryosphere in a Changing Climate.

Based on almost 7,000 peer-reviewed research articles, the report is a cutting-edge crash course in how human-caused climate breakdown is changing our ice and oceans and what it means for humanity and the living planet. In a nutshell, the news isn’t good.

Cryosphere in decline

Most of us rarely come into contact with the cryosphere, but it is a critical part of our climate system. The term refers to the frozen parts of our planet – the great ice sheets of Greenland and Antarctica, the icebergs that break off and drift in the oceans, the glaciers on our high mountain ranges, our winter snow, the ice on lakes and the polar oceans, and the frozen ground in much of the Arctic landscape called permafrost.

The cryosphere is shrinking. Snow cover is reducing, glaciers and ice sheets are melting and permafrost is thawing. We’ve known this for most of my 25-year career, but the report highlights that melting is accelerating, with potentially disastrous consequences for humanity and marine and high mountain ecosystems.

At the moment, we’re on track to lose more than half of all the permafrost by the end of the century. Thousands of roads and buildings sit on this frozen soil – and their foundations are slowly transitioning to mud. Permafrost also stores almost twice the amount of carbon as is present in the atmosphere. While increased plant growth may be able to offset some of the release of carbon from newly thawed soils, much will be released to the atmosphere, significantly accelerating the pace of global heating.

Sea ice is declining rapidly, and an ice-free Arctic ocean will become a regular summer occurrence as things stand. Indigenous peoples who live in the Arctic are already having to change how they hunt and travel, and some coastal communities are already planning for relocation. Populations of seals, walruses, polar bears, whales and other mammals and sea birds who depend on the ice may crash if sea ice is regularly absent. And as water in its bright-white solid form is much more effective at reflecting heat from the sun, its rapid loss is also accelerating global heating.

Glaciers are also melting. If emissions continue on their current trajectory, smaller glaciers will shrink by more than 80 per cent by the end of the century. This retreat will place increasing strain on the hundreds of millions of people globally who rely on glaciers for water, agriculture, and power. Dangerous landslides, avalanches, rockfalls and floods will become increasingly normal in mountain areas.


Rising oceans, rising problems

All this melting ice means that sea levels are rising. While seas rose globally by around 15cm during the 20th century, they’re now rising more than twice as fast –- and this rate is accelerating.

Thanks to research from myself and others, we now better understand how Antarctica and Greenland’s ice sheets interact with the oceans. As a result, the latest report has upgraded its long-term estimates for how much sea level is expected to rise. Uncertainties still remain, but we’re headed for a rise of between 60 and 110cm by 2100.

Of course, sea level isn’t static. Intense rainfall and cyclones – themselves exacerbated by climate breakdown – can cause water to surge metres above the normal level. The IPCC’s report is very clear: these extreme storm surges we used to expect once per century will now be expected every year by mid-century. In addition to rapidly curbing emissions, we must invest millions to protect at-risk coastal and low-lying areas from flooding and loss of life.

Ocean ecosystems

Up to now, the ocean has taken up more than 90 per cent of the excess heat in the global climate system. Warming to date has already reduced the mixing between water layers and, as a consequence, has reduced the supply of oxygen and nutrients for marine life. By 2100 the ocean will take up five to seven times more heat than it has done in the past 50 years if we don’t change our emissions trajectory. Marine heatwaves are also projected to be more intense, last longer and occur 50 times more often. To top it off, the ocean is becoming more acidic as it continues to absorb a proportion of the carbon dioxide we emit.

Collectively, these pressures place marine life across the globe under unprecedented threat. Some species may move to new waters, but others less able to adapt will decline or even die out. This could cause major problems for communities that depend on local seafood. As it stands, coral reefs – beautiful ecosystems that support thousands of species – will be nearly totally wiped out by the end of the century.

Between the lines

While the document makes some striking statements, it is actually relatively conservative with its conclusions – perhaps because it had to be approved by the 195 nations that ratify the IPCC’s reports. Right now, I would expect that sea level rise and ice melt will occur faster than the report predicts. Ten years ago, I might have said the opposite. But the latest science is painting an increasingly grave picture for the future of our oceans and cryosphere – particularly if we carry on with “business as usual”.

The difference between 1.5°C and 2°C of heating is especially important for the icy poles, which warm much faster than the global average. At 1.5°C of warming, the probability of an ice-free September in the Arctic ocean is one in 100. But at 2°C, we’d expect to see this happening about one-third of the time. Rising sea levels, ocean warming and acidification, melting glaciers, and permafrost also will also happen faster – and with it, the risks to humanity and the living planet increase. It’s up to us and the leaders we choose to stem the rising tide of climate and ecological breakdown.

Mark Brandon, Professor of Polar Oceanography, The Open University.

This article is republished from The Conversation under a Creative Commons license. Read the original article.