Sean Garman: Cities are key for economic growth

Sean Garman works in corporate finance in the City of London and is a member of the Conservative Party’s Business Relations grouping. He is a also a committee member of City Future – the under 35s organisation for Conservative supporters in the City of London.

The change in planning laws to simplify development may be a nice concept to spur economic development but it runs against the latest empirical research which shows that city development rather than rural development is critical to economic growth. If we are serious about growth then our reform focus must shift to the areas that have the greatest potential to drive that growth: British cities and towns.

Many people have an idyllic or utopian view about living in the countryside. That is understandable given the numerous benefits it can confer. However, anthropological research has shown that human beings are hardwired for higher density living. We can conclude that our idyllic desire to live in the countryside does not stack up with how we act. Human psychology is important when designing policies and it seems that we have already forgotten the “nudge” concept that once was our intellectual underpinning. The new planning laws may lead to unsustainable development in rural Britain rather than be based off what is proven to work and fits in with human psychology – higher density urban living as a population grows.

If we take it that humans are hardwired for higher density living as a population grows then we need to look at the impact cities have on productivity, creativity and innovation. Studies have indicated that a doubling of population can increase productivity anywhere from 6 to 28 percent. Cities also provide ‘hubs’ (areas of specialisation), for instance London is a global financial hub and is developing its creative industries while Silicon Valley maintains its predominance in information technology.

Cities dominate the intellectual capital stakes with Paris, New York, Tokyo and London commanding the league table for the highest number of universities in the top 500 worldwide as they have developed the education infrastructure with multiple universities and colleges. Research and ICT clusters have developed in the wake of university clusters and create a positive reinforcing cycle of research, investment and jobs.

Global GDP is dominated by Cities – McKinsey suggests the top 380 developed region cities account for 50% of world-wide GDP. 23 megacities (metropolitan area with greater than 10 million people) generated 14% of global GDP. The statistics (and history) confirm the economic power of Cities.

Given the potential of metropolitan life to turbo-charge economic growth, it is disappointing that we are not developing our cities more effectively. London is a great example of a City with a solid leadership and vision for being a truly international hub. However, London is not the United Kingdom. There are many Cities that should be allowed to develop themselves as centres of excellence and to attract the best talent from within Britain and around the world.

In order to achieve this, British Cities need the type of governance seen in other metropolitan centres like London, New York or Los Angeles. A single Mayor with tax, spending and borrowing powers (within reasonable limits) will be required in order to create an appropriate governance structure and responsibility. A city-wide political office with appropriate powers provides the right economies-of-scale to drive City-centric development and growth.

Reforms such as greater tax and borrowing powers will need to be vested in Mayors. Planning laws will need to be similarly devolved so that Cities can put together appropriate housing, education, health, transport and utility policies to match their needs rather than a blanket ‘one-size-fits-all’ approach. Vesting more powers in City governance will mean talented civil servants may decide to work in local government rather than in Westminster. Such reforms are a genuine devolution of power away from Westminster and towards people who are responsible to their local communities but who have the appropriate power to affect real change.

People will rightly point out the problems with these reforms. Firstly, there is the overcrowding issue if urban sprawl is not allowed to continue or rural Britain not developed. Secondly, people enjoy the natural environment and have a tendency to look for larger dwellings when they have families. Finally, people will argue that the new planning laws will provide local communities in Cities the chance to develop in line with community expectations.

The broad reforms I have suggest to empower City-wide political offices can address many of these issues.

Firstly, planning laws without appropriate powers over public services, utilities and transport will do nothing other than create unsustainable housing projects with poor connectivity to business centres and amenities. By providing a Mayor will appropriate powers, planning decisions can be placed within the appropriate context of transport, housing, utility and job infrastructure.

Secondly, greater density living does not necessarily mean that dwelling size will shrink as instead of building out we ‘Manhattanise’ by building up. Larger apartments, close to current amenities will allow inner city areas to keep existing green spaces whilst benefiting from greater footfall in local shops boosting local businesses.

City communities can develop at their own pace however a patchwork network of development within cities and in rural Britain is not economically efficient and does not appropriately place demographic changes in line with public services to support development. Finally, a patchwork development increases the risk that local authorities can be unduly influenced by developers and construction firms.

I doubt that we will develop the type of metropolitan living that we see in New York, Singapore or Hong Kong. Arguably most people do not want it and will vote out politicians who try to impose it. However, if we want to have economic growth that is driven beyond London, then we need to develop our other Cities to give them a fighting chance to attract the intellectual, financial and social capital that is required to be truly successful.