London 2062 the future of the london economy
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London 2062: The Future of the London Economy. Jurgen Essletzbichler Department of Geography UCL [email protected] Overview. What makes cities grow? What to do when confronted with uncertainty? London’s economy now Why growth is not enough?

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London 2062: The Future of the London Economy

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London 2062: The Future of the London Economy

Jurgen Essletzbichler

Department of Geography


[email protected]


  • What makes cities grow?

  • What to do when confronted with uncertainty?

  • London’s economy now

  • Why growth is not enough?

  • How to develop a resilient and inclusive city?

What makes cities grow?

  • Basic ideas go back to Alfred Marshall (1890) and Jane Jacobs (1969)

  • Urbanization and localization economies

  • Externalities

    • Specialization (Marshall-Arrow-Romer or MAR)

    • Competition (Porter)

    • Diversity (Jacobs)

  • Path-dependent evolution at the intersection of novelty creation and lock-in

Externalities: Empirical results based on meta-analysis

Source: De Groot, H., Poot, J., Smit, M (2010) Cities and Growth: A Meta-Analysis

Diversity necessary to maintain adaptive capacity to uncertain future challenges

  • Results depend on geography, time frame, choice of dependent variable, included control variables, etc.

  • But: Studies focusing on long-run tend to result in positive and significant diversity effect

  • This suggests portfolio-effect of diversity necessary to maintain the adaptive potential of an entity facing uncertainty (Stirling 1998; 2007)

  • But probably at cost of short-term efficiency gains and innovativeness

  • Possible solutions? Related diversity, clustered diversity, …(Frenken et al. 2007; Simmie et al. 2006, Neffke et al. 2011)

Related variety arguments

  • New industries are most successful if cities branch into sectors that are related to existing knowledge base

  • Branching into identical sectors results in lock-in

  • Branching into very different sectors impedes spillovers

London’s economic structure, 2010

Source: ONS briefing note, BRES 2010: London

Source: ONS briefing note, BRES 2010: London

Employment trends, London

Finance jobs

London as percent of UK

Percentage of total London emp.

Source: Nomis, ONS

Result on inequality

Because of it’s economic structure, income inequality more pronounced in London

In addition: over 20% youth unemployment rate (especially among those without formal education)

Spatial inequality: Median household income 2006

Source: ONS

Usual practice

  • Provide better education for individuals (human capital theory)

  • Make individuals responsible to get jobs

  • Vilify those that fail

  • Gentrification as “solution” at borough level to initiate inflow of “desirable” and outflow of “undesirable” residents

  • But: why not providing jobs for those without formal education and re-value skills not based on university degrees?

  • This could improve adaptability and reduce inequality (especially if coupled with bold re-distributive policies)

Diversification into related sectors

  • Example: use I-O matrices to identify

    • Relatedness (which sectors require inputs that are available in London)

    • Similarity of input structure of sectors may indicate greater knowledge spillover potential

Relatedness based on industry input requirements

Demand from


Dot means

Column Industry requires

>2% of total

Input from

Row industry





Renting of



Management consultancy, architecture services

Bottom line

  • Even if London does not have a competitive advantage in manufacturing at the moment, it has competitive advantages in some key inputs for a large number of manufacturing sectors

  • Not all of those will require proximity of manufacturing companies to those services, but supplier-customer relations could be used to build up a manufacturing base (eg. financing green energy technology, flexible solar cells to be draped around skyscrapers, etc.)

  • The service firms would get a better understanding of novel manufacturing sectors to make informed investment decisions

  • Manufacturing companies obtain information about financing…

Normatively driven diversification

  • Urban agriculture (example New York)

  • Vertical gardens (example Mexico City)

Source: NYT

  • Development of energy visions (eg. hydrogen city)

  • Housing and transportation systems are obvious places to start

Complementary measures

  • London tax so companies contribute to infrastructure development (could be in form of required investment in particular businesses)

  • Developing local visions (eg. energy visions) to galvanize businesses, government and local communities around particular themes

  • Increase awareness of energy/waste/climate issues in primary schools (to obtain long-term shifts in attitudes) and sell the strategy to companies (probably in conjuncture with carbon disclosure projects but also through participation in visioning process)

  • Increase living wage and penalize companies who do not comply

  • Higher tax rates on incomes/bonuses (75-90% rates were common during and after WWII)

  • Together with well paid jobs for non-university educated this could lead to a re-appreciation of diverse skill sets


  • An unknowable future requires economic diversity to increase/maintain the adaptive potential of a city (this would also increase resilience)

  • Gradual diversification into related sectors and/or normative targets around local visions possible

    • Outer London is probably better positioned to attract manufacturing activity

  • Could increase jobs for the less formally educated and, together with fairer tax structure, could result in re-evaluation of diverse skills sets

  • Economic survival, equality and inclusive development are not mutually exclusive

Appendix: London’s economic structure: SIC-2-digit level

Location quotients




Gas supply





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