Wednesday, 21 September 2016

Why London dominates (or how the London problem isn't really a London problem)

Aaron Renn picks up on how tech superstar, Peter Thiel sort of accidently exposed the truth about Chicago (in Chicago):
“If you are a very talented person, you have a choice: You either go to New York or you go to Silicon Valley.”

The problem for Thiel was that he said this while speaking at an event in Chicago. No surprise, it didn’t go over well. An enquiring questioner wanted to know, “Who comes to Chicago if first-rate people go to New York or Silicon Valley?”
Now leaving aside the responses from miffed Chicago fans (the city that is not the band) Renn raises and explores an interesting point about the USA. Here he borrows from Charles Murray to make his point:
[I]t is difficult to hold a nationally influential job in politics, public policy, finance, business, academia, information technology, or the media and not live in the areas surrounding New York, Washington, Los Angeles, or San Francisco. In a few cases, it can be done by living in Boston, Chicago, Atlanta, Seattle, Dallas, or Houston—and Bentonville, Arkansas—but not many other places.
For those not up on US billionaires, Bentonville in the HQ of Walmart.

Transfer this observation out of the USA and we have the elements of a thesis about why London dominates the UK - indeed, why London is so dominant in Europe. It seems likely that, just as Peter Thiel says, smart people head to one or two places - Renn reports that a quarter of HPY (Harvard, Princeton, Yale) graduates live in or around New York. I've no data for the UK but does anyone want to bet against Oxbridge graduates overwhelmingly living in and around London? We know it's true of tertiary education in general:
Given that most persons aged 30–34 will have completed their tertiary education prior to the age of 30, this indicator may be used to assess the attractiveness (or ‘pull effects’) of regions with respect to the employment opportunities they offer graduates. Map 5 shows tertiary educational attainment by NUTS level 2 region for 2015: the darkest shade of orange highlights those regions where at least half of the population aged 30–34 had attained a tertiary level of education. By far the highest share was recorded in one of the two capital city regions of the United Kingdom — Inner London - West — where more than four fifths (80.8 %) of the population aged 30–34 possessed a tertiary level of educational attainment. The second, third and fourth highest shares were also recorded in the United Kingdom, namely in: Outer London - South (69.3 %), the other capital city region of Inner London - East (68.2 %), and North Eastern Scotland (66.1 %); note that all four regions in Scotland recorded shares above 50%.
The three regions in Europe with the highest concentrations of graduates are all in London which seems to repeat what we've seen from the USA where New York, Boston, Washington and San Francisco dominate. And it means that the UK, by defining its regional achievement through comparison with London, has created an economic development problem. The city's success creates a virtuous circle - the clever, ambitious people are in London doing clever ambitious things meaning that clever ambitious people from elsewhere in the UK - perhaps even in Europe - head to London because that's where clever, ambitious people go to be clever and ambitious. With the obvious result that, the occasional Bentonville or Omaha proving the rule, places elsewhere have to make do with less clever, less ambitious people and as a consequence slower economic growth.

The European data on tertiary education tells us that this supercharged agglomeration effect is pretty consistent - everywhere capital cities and places with a lot of research infrastructure suck up the graduates leaving other places with less of the talent needed to achieve that aim of 'closing the gap' between successful places and less successful places. The problem with London, New York and San Francisco (and, no doubt, were we to look: Hong Kong, Singapore and Shanghai) is that their agglomeration effect sucks the brightest and most able from places that, of themselves, are seen as relatively successful. Clever and ambitious Parisians head to London, just as the brightest in Chicago switch to San Francisco, Washington or New York.

For London - regardless of Brexit - this process is likely to continue and, in doing so, for the problems of London (expensive housing, the occasional late train, crime, air pollution and so forth) inevitably become the problems of the UK. Planning policies are adapted to fit London's housing crisis, health policies to reflect the worries of a thirty- and forty-something population, and transport policies designed for the needs of big city commuters. The dominance of London - The London Problem - doesn't just skew the UK's economy but it also profoundly influences the complete range of national government policies. That London Problem isn't really a London problem but results in a national policy programme suited to the clever and ambitious who have - because that's where the opportunities are - headed to London.


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