Over the past 30 years, the capital has replaced around 1m jobs in manufacturing, largely around the edge of the city and along radial routes, with over 1m services jobs in the centre. Croydon, selected for growth in the 1960s, lost its last big private sector employer, Nestle, in 2012. But the digital economy encapsulates London’s capacity for re-invention. In 2011, 144,000 worked in financial intermediation, 80,000 in computer consultancy and 29,000 in programming. In the next few years, however, IT and communications are set to overtake finance and insurance.
Fortunately, and some of it was luck, we have had enough infrastructure to make change possible. The Victorian railway and Underground legacy have heaved us into the twenty-first century as one of the great global cities, overcoming the loss of confidence and infrastructure which was the legacy of war.
Nobody really forecast this shift. In the 1990s, it was fashionable to talk about a future of market towns and the continued loss of urban density. Even those of us who were dubious were not then foreseeing that half the world’s population would now be living in cities. In spite of the trend of continued services growth and a decline of manufacturing, it still took a leap to see that this meant London’s employment would now grow.
If identifying existing trends is not easy, spotting the emerging trend is harder, being a dynamic process. The developing digital economy on the northern fringe of the City was not planned, though planning can certainly stifle such potential. Yet spare capacity, whether of buildings, transport or bandwidth, is essential to enabling growth. Economists who model maximising outcomes, where everything is “just right”, forget this at the economy’s peril.
Joseph Bazalgette, when asked to design a sewer system in the 1860s, calculated the effluent of the densest part of London and applied this rate to the whole of the city. Then he doubled it, to allow for growth. Then he built the Embankment, with enough room for a railway – the District line – beside the sewers. None of our current evaluation mechanisms would have given this project a positive ratio of benefits to costs. But the payback has been enormous, as the sewers have only recently needed new capacity. We have seen similar results with the Jubilee line extension. On the original analysis, it should have been a financial disaster. In the event, this was not so. The original figures suggested the maximum usage of the line would be 170m passengers per year. It currently carries more than 213m.
Taking a long-term view is taking a bet. No one can be sure that people will continue to come to cities. But the trend seems well-established, and we need to provide the backdrop that makes it possible. Transport, water, drains, power distribution, and housing are all essential. Both the scale and the regulatory backdrop mean that the public sector has to be bold – it was municipal bonds that financed the sewers, after all. A similar funding mechanism is proposed for the Northern Line extension into Battersea, to open up new high density areas and to enable the refurbishment of Battersea Power Station after years in the doldrums. The GLA borrows funds, and they are repaid out of the business rates generated by the development.
Large-scale finance is equally necessary to solve London’s housing problem, and provide for the growth in population and demand that is driving up prices. A wholesale funding mechanism for development, which makes possible a range of tenures and rapid build-out, is essential for further progress.
Better transport and housing make possible the continued development of high density economic activity, the agglomeration which produces the high productivity which drives growth. Effective labour markets encourage investment in skills and the ability to find the right job. High density makes it easier to find clients for new firms, and to make new ideas effective. Just as in eighteenth century coffee shops, people still congregate to talk, and not just with laptops. Extending the areas of high density has been a theme of the last decades, in Broadgate and Docklands, Kings Cross and St Pancras, Paddington and London Bridge. It is no accident that all of these have invested in the quality of their transport connections and that Crossrail will continue to improve them.
All investment is about creating a city in which people can develop and use their skills and abilities. Funding mechanisms, the planning regime, and institutions are all necessary. But they’re not sufficient without a diversity of people, which we should celebrate and enhance.
Bridget Rosewell is senior partner at Volterra Partners, former chief economic adviser at the GLA, and author of Reinventing London (London Publishing Partnership, £7.99).