Paul Swinney, principal economist at Centre for Cities, presented his latest research, on lessons learned for the North of England from the economies of the Rhine-Ruhr and Randstad, to an invited audience at a breakfast debate organised by Place North West for DAC Beachcroft and Centre for Cities. Here he sums up the findings and takeaways from the debate.
While there have been many different reasons put forward as to why the UK electorate chose to leave the European Referendum, there is one theme that divides the parts of the country that voted to stay and the parts that voted to leave – the former have gained the most from globalisation, while the latter have been hit the hardest. And it is this fact that makes the Northern Powerhouse initiative more important than ever.
This, it seems, is something Theresa May is very alive to. Her language to date has been about being inclusive. This includes her position on economic development, which the new PM says needs ‘a plan to help not one or even two of our great regional cities but every single one of them’.
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That the Northern Powerhouse initiative should continue to be about cities – both big and small – is crucial if we are to see the North of England perform better in the future than it has in the past. Our recent work comparing the North to the Randstad area of Holland and Rhine-Ruhr area of Germany, as politicians have been so keen to do, shows that it is the performance of their respective cities that set the areas apart. Places such as Rotterdam and Dusseldorf are the drivers of the economies of the Randstad and Rhine Ruhr, which is not the case in the North of England. And because the North’s cities punch well below their weight, the North of England struggles as a whole.
The question for the new political leadership is: how should it address this? The flagship policy of the Northern Powerhouse initiative to date has been to improve the rail links between northern cities, with the aim of bringing them together as one single northern economy. But our work on the Randstad and Rhine-Ruhr shows that it’s not the rail connections between the cities that is important. These cities are instead successful in their own right. They just happen to be close together.
Cities are places that, by concentrating jobs and businesses in one place, are able to get more out than they put in. This process is known as agglomeration. And as globalisation becomes ever greater, this process is becoming ever more important.
Businesses – particularly the high-skilled ones that the UK is likely to become ever more specialised in – concentrate in cities for two main reasons. The first is that they benefit from being located close to other businesses (known as ‘knowledge spill-overs’) – a look around Manchester city centre, which accounts for less than 1% of land in Greater Manchester, but 14% of jobs in spite of its high costs, shows that. The second reason is that it gives businesses access to large numbers of workers from which to recruit.
The cities of the North of England don’t appear to be capturing the benefits of agglomeration in the way that the cities of the Randstad and Rhine-Ruhr (or London, for that matter) do. To change this, policy needs to do three things. Firstly, it needs to have a clear, coherent and consistent approach to deal with the skills challenges northern cities face. Without improving the skills of their residents, northern cities will remain uncompetitive against both their southern cousins and cities elsewhere in the world.
The second is to put planning policies in place that encourage the development of northern city centres. The North has too few of the high-paid, high-skilled jobs that are increasingly preferring a city centre location. The failure to make its city centres more attractive places to do business will hinder the ability of the North as a whole to attract these types of jobs.
Finally, it needs to give greater prominence to improving transport links within city regions, such as the Metrolink. If business is to have the widest choice of workers, and workers the widest choice of jobs, then a transport system needs to be in place to link businesses to workers. While transport links between cities will also play a role, on their own they are unlikely to bring about the change that is needed to improve the job opportunities of people living in the North.
Crucially, powers over these policies should not be given to a pan-northern body, as a number of voices have called for, but to the new city-region mayors. Devolution from Whitehall to the North, an area that, if it was its own country, would be the ninth largest in Europe, is not really devolution at all. If we are to see further improvements to the performance of our city economies, then the policies need to match the geographies that people live and work over.
The Brexit vote has highlighted the divisions that have long been present in our country. The Northern Powerhouse initiative provides the opportunity to address these divisions. But for it to succeed, it needs to get the North’s cities firing again.
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