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London 2062: The Future of the London Economy. Jurgen Essletzbichler Department of Geography UCL 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



  • 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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