Today the world’s top 600 cities[1] look
like this:
•
1.5 billion people
•
$30 trillion in GDP (50% of the world’s GDP)
•
485 million households with average per capita GDP
of $20,000
In 2025 the world’s top 600 cities will look like
this:
•
2 billion people
•
$64 trillion in GDP (60% of the worlds GDP in 2025)
•
735 million households with average per capita GDP
of $32,000
Where does London fit in to this scenario? GLA Economics’
nineteenth London forecast suggests that:
•
London’s
Gross Value Added (GVA) growth rate should be 1.4% in 2011. Growth should
increase to 2.0% in 2012 and 2.4% in 2013.
•
London
is likely to see a modest rise in employment in 2011, 2012 and 2013.
•
London
household income and spending will both increase over the forecast period.
That
rate of performance will keep London in the “City 600” for 2025. However, like
all averages, the forecast hides some inconsistency. London
is more unequal than any other region of England, and the MID (Multiple Index of Deprivation)
shows concentrations
of disadvantage in London's East & South, especially for employment, income
and education[2].
London’s stark divide lets the richest 10% of
households account for 40% of all income and two-thirds of all financial wealth,
whilst the bottom 50% effectively account for none of the financial wealth in
the capital.
Increasing
unemployment, worse adult ill-health, worse educational attainment and two of
the ten worst areas in the UK for child poverty are indications that, amidst
the wealth of the capital, east London is missing out. The reason, quite simply,
is scale.
London is (just about) small enough geographically
to be a city. Economically though, it is big enough to be a country. London’s
economy is bigger than Switzerland or Saudi Arabia, and almost twice as big as
Venezuela. And just as with any country, within the city boundaries huge
economic disparities apply. In fact, there is no “London economy” – just a
cluster of local economies. Some are clearly well-developed whilst others have
more in common with emerging markets.
East London as an emerging market?
The area from the City of London to the M25 is no ordinary
“deprived area”. Benefiting from a 30-year UK Government commitment to
regeneration, east London has had tens of billions of pounds of public money
since the early 1980s. Recent years alone have seen £9bn of public spending on the
capital’s first Olympic and Paralympic Games for two generations, and several
billions of private sector investment to create Europe’s biggest shopping mall,
the world’s most successful music venue, London’s International Convention
centre and Europe’s fastest-growing city-centre international airport. And
that’s not counting the world’s two leading financial centres in the City and
Canary Wharf.
And all this spending has paid off, too. In the ten
years to 2000, east London generated 1 in 8 of London’s new jobs. Between 2000
to 2008 job growth ratcheted upwards, and the area created 1 in every 4 of
London’s new jobs – 52,000 jobs compared
with 11,000 in Birmingham, 16,000 in Edinburgh, 33,000 in Leeds and 24,000 in
Manchester. And it’s not over – by 2030, London could benefit from 180,000 new
jobs and £21.4bn of additional GVA per year, just by following through on
planned investments in east London[3].
Great potential – so
what’s the problem?
The problem is market failure. In economic regeneration,
market failure will normally occur in one of two ways – either the economic
development doesn’t happen at all (as with the Royal Docks, prime riverside land
lying undeveloped for 30 years despite unprecedented growth in the UK economy),
or it is patchy (for example, the benefits of the City and Canary Wharf have spread
neither widely nor deeply into the surrounding areas).
Both effects are present in east London, and that
dual market failure – uneven underdevelopment – has left east London performing
below the London economic average for decades, in a pattern that uncannily
matches the economic shape of an emerging economy.
The characteristics of emerging economies[4]
Emerging
economies have several common features – and problems. Relatively low
standards of living and low levels of productivity. Low levels of income and
educational attainment. Inadequate housing and poor health. Low life and work
expectancies. High levels of population growth and unemployment. Imperfect
markets and a dependence and vulnerability in external relations.
East London has low income levels, as we’ve seen
from earlier figures. It also has low productivity, partly due to the
preponderance of public sector jobs in the area (and UK public sector
productivity has been declining steadily for ten years). It has a young and
rapidly growing population, yet low levels of educational attainment. It has
insufficient housing and widespread poor health. It has an uneven (and thus
“imperfect”) local economy and a huge dependence upon its “external relations”
with the rest of London. And, it has unemployment levels as high as 14% in some
boroughs.
Underlying all this is perhaps the most important,
and least considered, similarity between east London and the BRICs or CIVETs we
hear so much about – an emerging economy is one caught between tradition and
transition.
Irresistible force and
immovable object
In the past, east London comprised communities of tradition.
Small, tight, close-knit groups of people, who stayed around – and together – a
long time. They provided an identity and a support structure unequalled
elsewhere. East London was the Heart of Empire, the engine room, the clearing
house, where the whole, burgeoning world could be glimpsed in a single stroll
along the docks. Everything the empire bought, sold, produced or consumed
passed through east London, and it felt like it would last forever.
And now, the stage is taken by a rainbow of
entrepreneurs from all over the world – communities in transition. From
manufacturing to services. From families of four to single people or families
of ten. From long-term employment to self-employment or job-hopping or portfolio
careers. From manual work to knowledge work. Every imaginable element of the
economy has been changing in east London for twenty years, and more rapidly
than policy or planning can keep up.
It’s not over. For years to come, east London will
be in transition, because transition is the defining feature of emerging
economies. Of course, east London has two massive advantages which will shorten
the timeline to a thriving, successful economy – if we get it right.
Firstly, east London is an integral part of the
world’s foremost economic powerhouse. London really is different, not just from
the rest of the UK, but from the rest of Europe and the world. It is the number
one economic machine in the global economy, and will remain one of the world’s
few pivotal cities for many, many years. Having that kind of economic momentum
right alongside is a unique opportunity for east London to reach its full
potential.
Secondly, and we may have reached the inflection
point, east London now has a critical mass of private sector developments bringing
their own momentum. With Canary Wharf as the fulcrum and itself growing, we see
the City just to the west, the Olympic Park and Westfield’s Stratford City
development northwards, London City Airport and Excel London to the east, and
the O2 and Greenwich Peninsula southwards – a cluster of huge, mostly privately-funded,
commercially-successful projects.
The public sector is not idle. The investment in
the 2012 Games has galvanised local authority spending, itself matching – and
leveraging – private sector contributions. And Crossrail, which splits in east
London to cover both sides of the river Thames, will revolutionise travel and
transport patterns across the whole south east of England.
Between them, these projects give out a firm signal
that London’s growth is indeed eastwards.
Get it while it’s hot
East London is no longer a deprivation play. East London
is an opportunity, perhaps the best economic opportunity in Europe or indeed
the world.
Affordable access to global markets, world-class
resources and unrivalled technologies in a stable economy with a rock-solid,
first-world political and social structure – all the opportunities of an
emerging economy, wrapped around the confidence factor of long-term political and
economic stability.
See next week's exciting episode...
Next instalment, we’ll talk about what should be
done to capitalise on all this opportunity, and how to attract the investment,
the jobs and the future that east London deserves, and can provide for all.
[1] Urban World: Mapping the Economic
Power of Cities, McKinsey Global Institute, March 2011, http://www.mckinsey.com/Insights/MGI/Research/Urbanization/Urban_world
[2] London’s Poverty Profile, 2011, Trust
for London and New Policy Institute, October 2011, http://www.londonspovertyprofile.org.uk/key-facts/overview-of-london-boroughs/
[3] http://ltgdc.topleftdesign.com/ltgdc/wp-content/uploads/2011/05/Potential-of-the-Golden-Triangle-Oxford-Economics.pdf,
Assessing the Economic Potential of the Golden Triangle, Oxford Economics for
LTGDC, 2011
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