Recently moved from London to Bristol, a friend of mine asked me last month: “How is life in Megacity 1?”. While she moved to be closer to her work as a retail manager, she finds herself frequently coming back to London to buy clothes for her small chain of shops in the South West.
The problem is not that London is getting too big, it’s that other UK cities are too small. This is how the adversarial relationship set up in the two-part TV series Mind the Gap: London v The Rest was resolved last night. As Evan Davis wrote “Britain does not have a second city. Instead, it has a first city and a couple of thirds…it is as though Britain has a great world city but lacks a great national one.”
As a recent report suggested, London’s ‘primacy’ – its size relative to the national economy – is not particularly unusual by international standards.
It’s not just population size where UK ‘second-tier’ cities underperform. Along with other factors, their smaller size means they are less productive, in terms of economic value produced per resident. As Lewis Dijkstra notes “a range of cities allows each firm to find its optimal city”. Illustrating this point with bar graphs, and noting that costs to firms (wages, rent) and workers (housing, commuting) also increase in larger cities, he likens the ideal city distribution to a staircase. If the steps between cities are well-spaced, as in Germany and the Netherlands, firms and workers are less likely to make a compromise. In short, we can imagine that there are firms and workers who want to “downshift” out of London, but can’t stomach the loss in the benefits of locating in the capital; and firms and workers who want to move to London – but are unsure they can afford the costs relative to the likely benefits. Both scenarios lead to inefficiencies: the gaps in our city staircase are too big.
The solution proposed Monday night was that “the real second city of the UK is a northern, trans-Pennine strip that extends the relatively short distance across northern England, joining the built-up areas that lie second, fourth and sixth in the UK ranking”. This idea has been suggested before. As we highlighted in our Metro Growth report last month, 22,000 people cross the Pennines every day to commute. Other research shows connections and relationships between Leeds and Manchester are less strong than we would expect for these cities given the complementary nature of their economic activities. The Pennines are both a physical and psychological barrier. City boundaries don’t correspond to their economic footprint.
So, should we use national investment in infrastructure which better connects a ‘northern necklace’ of cities? The Northern Hub scheme now underway will improve the speed and frequency of trains, but over a distributed pattern of urban settlements car travel is likely to be much more convenient for the majority of trips. Without investment, the northern trunk road network is forecast to become more congested in the next decade. Which government – local or national – has the conviction to resurrect the motorways once planned? The M64 (Stoke to Derby), the M67 (Manchester to Sheffield), or the M650 (northwest of Bradford) to slice through the Peak District National Park? Furthermore, at our seminar last week, Henry Overman was sceptical that creating a network of northern cities was sufficient; we may be better off with one city of “over 3.5 million” for ‘agglomeration’ effects to kick in.
— Jim (@geographyjim) March 11, 2014
Evan posed the difficult question as being how to fund public transport infrastructure in both London and other parts of the UK, when the needs of London are so evident. It’s easy to get upset when you consider that, on a per person basis, London gets many times more infrastructure investment than other regions. But much of London’s investment is private, not public; and London’s scale means authorities are able to borrow more affordably against future fare returns. London’s public transport network carries half of all the journeys on public transport across the country every day. On a net basis, each day, London also imbibes over a million workers from beyond its borders and a million visitors from the UK and abroad (tourists and those on business trips). But beyond transport, if government is to guide development of Megacity 2, how will specific policies and priorities change? What sacrifices will be made?
The first question is whether we are confident we can make the right kind of spatial plan. As referenced in the programme, Birmingham’s economic success in the post-war era was stunted by the Distribution of Industry Act 1945 and later the Control of Office Employment Act 1965. By 1957 the council had explicitly accepted that it was obliged “to restrain the growth of population and employment potential within the city.” Seeking the opportunity to rebuild bombed-out British cities at higher housing standards, many planners at the time sought to reduce urban densities, protect the newly created Green Belt around cities, and rely on motor vehicle transport supporting new suburban settlements such as Peterlee and Harlow. This was anti-agglomeration, perhaps even contributing to subsequent inner city decline. Only Milton Keynes – the largest of all new towns – has the scale and location today viable enough to have its own economic dynamism as an employment centre.
We have a poor record of predicting the future dynamics of economic geography, and many of the key forces shaping the UK at the moment are little understood. Despite being important long-term trends, the spatial implications of household dynamics and the changing nature of work remain largely unexplored. As more women enter the workforce, more households are made up of two earners. Larger cities offer the additional benefit of having a higher likelihood that both partners will be able to pursue careers in different sectors, occupations or industries. Some argue London has benefited from a ‘trailing spouse’ effect. For example, with schools benefiting from (otherwise mobile) teachers attracted to London by the work of their partners working in less mobile professions tied to London. And new technologies of production are accompanying different career structures, growing rates of self-employment and different types of workplaces.
This #mindthegap programme on BBC2 is beyond awful. How about interviewing some critical urbanists instead of “growth is great” economists?!
— Tom Slater (@tomslater42) March 10, 2014
Mind the Gap barely engaged with the dynamics of the housing market, where growing anxiety is deepening the British obsession. Cambridge featured in the show as a success story, hungry for growth. Like Oxford, it’s a historic city endowed with a Green Belt and now bursting at the seams and increasingly unaffordable. London housing pressure needs a release valve, and London seems unable to provide it for itself.
The Green Belt in fact covers more land than the entirety of England’s urban areas which it was designed to constrain. It’s the jewel of strategic planning policy, but stifles other strategic thinking. For example, HS2 takes fast long-distance trains off the existing line. New commuter services will therefore offer drastically more capacity: from Willesden and Watford up towards Milton Keynes. Who is talking seriously about Green Belt release for new significant new housing development in Hertfordshire and Buckinghamshire? Welcome to a property-owning democracy.
Perhaps, therefore, we need a change in the geography of democracy itself. City growth needs local champions. Central government consented to London’s Congestion Charge in part with the comfort that Ken Livingstone – rather than national politicians – would be held to account if it failed. Lord Adonis noted last week that more people in Newcastle could name the mayor of London than their own council leader.
According to the boldest propositions, perhaps we should consider moving our capital. This question was asked at the launch of the City Growth Commission, and continues to be posed. Moving the political machinery could bring with it not just lobbyists and central government departments, but much of the private sector too – as the links between the two become more complex.
@JSchifferes should the seat of government be moved from London? Would make government cheaper and decrease focus on London
— Nick Humfrey (@nickhumf) October 28, 2013
The north needs a Boris/Salmond-style figure to champion its interests. Mistake to reject elected mayors/assemblies. #mindthegap
— George Eaton (@georgeeaton) March 10, 2014
According to Professor Alan Harding “we have slowly redesigned our institutions of government and our major policy frameworks so that they respond to the pressures of growth in southern England and rarely see what happens beyond. We have a national policy regime that not only does not mind the gap, it extends it.” Last week we saw northern Lib Dem MPs calling for a High Speed 3 rail line across the North. The broad debate is gaining momentum and Mind the Gap was a substantial contribution. While cleverly pitched to stir debate, we need to move beyond ‘London or’ to ‘London and’. To be successful, the City Growth Commission will need to build the most important links: those between the political rationale and economic rationale for reforms which will produce a better system of cities. London and other cities will each, inevitably, evolve in their role nationally and globally.
Evan Davis brought the economic geography textbook to life on the nation’s TV screens Monday night, with Mind the Gap (available on iPlayer until March 17th), in which he “asks what the rest of the country can learn from London’s success”. Alex Salmond has recently referenced London as the “dark star of the economy, inexorably sucking in resources, people and energy”, echoing criticisms made by Liberal Democrat Business Secretary Vince Cable, who described the city as “a great suction machine”. Mind the Gap featured sweeping shots of London’s skyline and plenty of insight into the property and infrastructure developments underway, alongside snazzy data visualisation of how London’s exceptional economic productivity and worker density, in a UK context. Oh, and some nice archive footage.
Here are five insights and five oversights from the narrative Evan presented.
At the City Growth Commission, hosted at the RSA, we’re funded by the Mayor of London, London Councils, and the Core Cities. Our role is to influence policies which will ensure that all cities (and the wider metro areas) are able to maximise their growth potential.
Cities depends on agglomeration economics: the productive benefits that come when people work closely alongside each other between organisations and between industries and sectors. Firms want to be close to other firms to collaborate and compete, stealing staff and ideas and customers and suppliers. It was great to hear about the importance of networks – social as well as digital. As Evan says, “We were told technology meant location doesn’t matter; but it matters more than ever”. The great irony, highlighted by Manuel Castells 20 years ago, is that the more ubiquitous electronic communication becomes, the greater value we recognise and ascribe to in face-to-face interaction.
Few people have been able to define if and when there are downsides of ever-greater concentration and densification start to outweigh the benefits. London is building up, more than out, due to the Green Belt, but is still only half the density of New York City. While I’m not as sure as Ed Cox that of IPPR North “all the evidence shows” that London will overheat and topple over, we didn’t hear enough about the co-dependent relationship between London and other towns and villages across the South. Another aspect of London’s economic geography was conspicuous in their absence: the relationship between migration, diversity and urban growth. As well as economic opportunities, do migrants feel especially inclined to settle in London, because of its size and capacity to host multiple communities? And what about evidence that there is an economic benefit from diversity?
Agglomeration plays a role in the economics of urban development, for example leading to infrastructure projects to expand transport capacity. Economic success feeds itself: it’s a self-fulfilling positive feedback loop. “You can’t design an ecosystem, it evolves”, said one tech investor in Shoreditch. The best government can do is shine a spotlight in order to “nudge on” these successes. This means, essentially, “there is no formula to copy” – except perhaps bigger is better?
It wasn’t clear whether these dynamics are particularly strong in London, now or historically, or common to all large cities. Urban development depends on other factors including political power (such as compulsory purchase – used very differently in China and India), and factors such as the international economic climate and currency exchange rates which make London property a particularly attractive place for those with financial wealth to invest. Furthermore, I wonder if Evan has ever been to Silicon Valley? It’s the most exciting tech community in the world, it got a turbo-charge from federal investment, and one of the least exciting suburban landscapes to explore. Economic dynamism and great urbanism don’t always go hand-in-hand.
London’s leaders want growth, and have won the national argument to invest in growth. “London is the flywheel that drives it” said Mayor Boris Johnson; “the gateway”, which “exports tax and jobs…the better London does the better the UK does”. As Transport for London added: “there are certain sectors which choose locations at an international level; if we don’t get it in London we don’t get it in the UK.”
Part of London’s success has been a projection, nationally and globally, as a place where exciting things happen;it’s a city which can represent itself well visually – with plenty of new skyscrapers crammed upona medieval street pattern. But the programme fell into the trap of assuming “London” speaks with one voice At one point Evan Davis claimed that “Londoners have an insatiable appetite to expand”. Do they? As we highlighted in our recent Metro Growth report, parts of Outer London have fallen behind the rate of recent national economic growth, and there is greater variation in economic activity within each UK region, than between them.
We’re in the middle of the greatest industrial restructuring since industrial revolution, fuelled in part by the ‘Big Bang’ of financial deregulation in 1986. London now has the greatest concentration of “producer services” in the world, and millions of workers are also millions of consumers. Their consumption in turn fuels millions of jobs, locally, in other service industries.
That restructuring was in part a political project. Heseltine’s leadership on redeveloping Docklands created space for a second office district and financial services hub in London.
Before the 1980s, things weren’t looking so bright. Evan said “London lucked out by having the right industries at the right time”. But, as the Telegraph noted, financial deregulation was a conscious effort to drive employment growth and economic activity. There was no mention of how the financial value that is captured by different types of activities is negotiated between managers, staff, shareholders and those who regulate the economy. In short, London has always been a financial hub; but finance has not always been the economic nexus of the economy, nor such an extremely lucrative profession.
There are winners and losers in the process of economic growth. Evan suggested “It’s a much more brutal process than most of us would like”, focusing on the displacement of homeowners on the Heygate Estate. If we want to save national icons like Battersea Power Station from the wrecking ball, we need global investment. But affordability is a concern: “[London] has to watch it, and make sure it is a place open to the nation. It will be tragic if someone from Staffordshire thinks they can’t get a job there because they can’t afford to live there.”
Did Evan find the right gap? According to Evan, “everywhere I go in London, I see signs that the city’s success is becoming entrenched”. But Mind the Gap did not consider the gaps between people in London: walk a mile in any direction from the Shard and you’ll see success is not distributed. Like other places, average wages have not kept up with rising prices.
Having coffee with Boris at the top of the Shard makes for great TV, but we’d learn something different if Evan had coffee with staff at one of London’s 1500 coffee shops. We saw the gold plated plates of a £39.5m Mayfair house, and Evan remarked at how rising prices for such “prime housing” had endured the recession. It would be equally eye-opening to consider the sacrifices many people are making. Those on low wages in London jobs have economised by converting living rooms in shared housing to bedrooms. The number of overcrowded homes in outer East London grew 41% in the last decade.
From pubs to think tanks – people struggling with London’s housing affordability wonder whether these two trends are related, and London’s leading academics have denounced London’s latest housing strategy as woefully inadequate. Meanwhile the deputy director of research at the IMF, writing in the pages of the FT, concludes that “measures that governments have typically taken to reduce inequality do not seem to have stunted growth.”
I am sure we could make compelling TV which considered the relative merits of important policy options for mending the gap: how to use taxes, public spending, regulations like the minimum wage, and public services like education to improve the fortunes of a broader constituency: those in London and across the country. We heard from a recent Core Cities meeting that central government policy has a long way to go be more sensitive to the differences between different places. By contrast, Evan’s cinematic homage to a booming place was perhaps insensitive to the policies which have enabled that growth. Filming the differences between places is a visually seductive way of talking about differences between people.
Before the programme heads North, next week, spend two minutes and give the last word to a Londoner: George the Poet
Last week in Greater Manchester, the City Growth Commission welcomed a dozen individuals from academia, businesses and local authorities to publicly share their thoughts on the role of cities in stimulating economic growth. On the heels of the Commission’s first report, Metro Growth: The UK’s Economic Opportunity, the Commission is seeking to identify the main factors limiting cities’ growth and the policy levers needed to maximise growth potential.
Those providing evidence were incredibly forthcoming in their analysis of what was holding cities back, but also optimistic about the ability of cities to overcome these barriers in future. The consensus in the room was that while there may be specific issues with skills, connectivity, and housing for example, problems in these areas continue to persist because ‘one-size-fits-all’ policies are rolled out across the nation to address differing needs locally. Autonomy at a local level is denied because, as Lewis Atter (who leads on Infrastructure Strategy at KPMG) explained, “Central government doesn’t have a view at all on local growth. There is only a cost side, scorecard and resource capture. There is no sense of how interventions contribute incrementally to national growth.” For instance, cities would be better equipped to raise qualification levels and tackle worklessness if they could oversee skills provision, which is a prospect the Commission will be exploring in our next report.
Where efforts have been made to decentralise power, government should still be cautious about claiming success. Eammon Boylan, Chief Executive of Stockport Council, warned that there is danger in seeing combined authorities and elected mayors as a panacea. What may work for one city is not necessarily right for another, a point which also clearly emerged from a retrospective of the past 30 years of attempts to devolve power to the UK. The Institute of Government categorised the success of combined authorities and elected mayors as ‘mixed’, concluding that the limited adoption of such evolutionary or ‘opt-in’ models of reform signals that the shift in power has yet to be embedded.
It’s not that Whitehall is oblivious to calls for decentralisation. When Lord Heseltine proposed devolution of funding from central government to Local Enterprise Partnerships (LEPs) in 2012, heads in government were quick to nod along in harmony, although hands unfortunately didn’t loosen up on the purse strings of the Treasury – fiscal devolution creates anxiety at the centre. Drawing on her experience from local government, Lorna Fitzsimons of The Alliance Project and former MP of Rochdale, explained to the Commission that while central and local government may agree on the outcomes they want to achieve and roles they each play, but the centre often has difficulty letting go. The Treasury in particular needs to feel that the risk of relinquishing control is minimal, which is why phases or pilots should be seriously considered as devolution is pursued.
The feeling in the room was that in spite of previous setbacks, devolution of political power to the local level is inevitable. Sir Richard Leese, leader of Manchester City Council, highlighted the recent lecture given by Ed Miliband, committing to a reimagining of public services which aims to put power back in the hands of people and their local government. Leese felt that Miliband made it clear that politicians had not only been listening to arguments in favour of devolution, but are now ready to respond in a meaningful way. If the next election hinges on who can be the most radical on this front devolution will certainly be back on the table. The most pressing question is how powers should be best distributed at different scales. In making the rhetoric a reality, the economic outlook for cities will improve as cities are allowed new freedoms to pursue their growth agendas.
Today marks the launch of the first output of the City Growth Commission, featured on www.citygrowthcommission.com. Building on feedback from our launch event at the RSA in October 2013, the report takes on a striking infographic-led template to deliver the message.
We argue that the UK’s opportunity for strong economic growth – which addresses wider long-term challenges – requires strengthening our urban system. Our scale of analysis starts with looking to the 15 areas with the largest population, which we term ‘metros’. The Commission will consider the potential of UK cities large and small.
In Metro Growth: the UK’s economic opportunity, we argue that a new global picture of growth is taking shape. This is not about a transfer of economic power from North to South, or West to East. It is about the rise of cities.
The UK is home to one of the world’s truly global cities. But too many of our urban areas outside London are failing to achieve their growth potential. We will explore what political powers and governance arrangements are needed to deliver this; and how public service reform can improve fiscally sustainability in all UK cities. The report highlights that public spending Greater Manchester exceeds tax take by £4–5bn – equal to roughly £2,000 per person per year, yet metros have little power to change this: over 90% of all tax is collected by central government.
Led by renowned economist Jim O’Neill, the City Growth Commission will argue that UK cities have the potential to foster higher, more sustainable productivity, growth and living standards. Metro Growth sets the scene for the Commission’s work. It explains why ‘metros’ not only drive most of our economic activity, but shape how nearly all of us live and work. Cities, and their economic success, matter to us all.
The data tells us that we need a sophisticated understanding of the dynamics of population. For example, while both Manchester and Liverpool grew over the last decade, Manchester added 11,000 young people (under 15) while Liverpool lost 9,000 young people.
Focussing on skills, infrastructure and devolution of fiscal and policy-making powers, Metro Growth makes an early exploration into some of the factors currently limiting UK cities’ growth. The report found that:
Skills are consistently identified by businesses as a big barrier to growth. Whilst universities play an important role in developing skills and clustering talented people, graduate retention and attraction strategies are relatively unexplored aspect of economic development.
Although many UK cities are close in distance, weak infrastructure links between regions mean that potential economic relationships are under-developed. Despite the 22,000 commuters that cross the Pennines every day between the largest metros of Yorkshire and the North West, the economic relationships between Manchester and Leeds are less strong than might be expected for cities of their size.
There remain large differences between metros in qualifications. South Sussex Metro (Brighton, Hove, Worthing, Littlehampton and Shoreham – combined population of half a million residents) was found to have 23 residents who are university graduates for every 10 who have no qualifications. By contrast, the Potteries Metro is home to 22 residents with no qualifications for every 10 university graduates.
Metro Growth concludes by looking at the wider conditions in which people are able to contribute economically. The social context matters – for example health and well-being varies greatly between and within metros. Having people will low mental well-being, and poor physical health, limits the opportunities for productive participation in the economy.
As we develop more in-depth research over the next eight months, important areas of investigation remain for the City Growth Commission. Most fundamentally, how can we ensure that the case for metro growth is connected to salient issues for citizens – how to improve living standards – and for government – how to reform public services in light of long-term challenges.
The City Growth Commission runs for 12 months and will seek to influence all political parties in the run up to the next General Election, and make the case for cities to take a new role in our political economy. Following an open call for evidence which ran from October 2013 to January 2014, the Commission will host its first evidence hearing on Tuesday 11 February in Manchester Town Hall.
The economic geography of the 21st Century is different from the last. We are at the dawn of an age of unprecedented global connectivity driven by technology. The channels of economic growth and participation this century provide a virtually bypass to the world’s traditional hubs, entrepots and gateways. Bangalore – a sleepy university town 20 years ago – is now India’s booming IT capital. German factories hum in Poznan and in Puebla, and as Bruce Katz highlights, the US is experiencing a metropolitan revolution, as small and medium post-industrial cities capitalise on their rich inheritance.
Globally, “small middleweight” cities – those with 200,000 to 2 million residents – are home to 7% of the world’s population, but McKinsey estimates they will generate 19% of global GDP growth to 2025. The UK, as the seventh largest global economy, must act now to realise the potential of its cities: the ONS defines 32 urban areas in England with populations over 200,000. Despite decades of urban regeneration initiatives from civic and business leaders, only London currently makes a net contribution to the Treasury. In the last 15 years, no cities outside London have grown their proportion of national Gross Value Added.
The neglect in developing a national urban growth strategy by national government must be in part due to the complacency that Westminster feels, comfortably astride the prosperity flowing up the Thames. This wealth doesn’t provide sufficient irrigation for business and industry nationwide. Our river of capital streams into non-productive investment in housing and consumption, led by southerners borrowing to fund both. Will Hutton made this plain in 1995: Britain needs to invest more in its future. Since then the ONS has warned that investment, as a proportion of the economy, has fallen to its lowest level since the 1950s, and 30% lower than the G7 average.
As Mariana Mazzucato has recently highlighted, the wider supporting environment for growth is influenced heavily by government. No entrepreneur is an island. Cities need autonomy in regulating and taxing business, and in supporting a skilled and fluid labour market. This reform is needed at a time when local authorities are hugely challenged. They must redefine public services in an era of constrained spending and increasing demand for health and social care. Public services must be fundamentally transformed to support people to thrive in 21st Century cities, matching contemporary social geography. This isn’t a competing agenda to the challenges of stimulating productive economic activity – it is fundamental, complementary and necessary.
Over 15 million people live in England’s 15 largest metropolitan city-regions outside London. If they are to lead socially productive and fulfilling lives, investment must be attracted and enterprise must flourish, providing jobs that pay sufficiently to raise living standards. Growth needs to deliver for all who propel it, and adapt to the increasingly apparent environmental limits.
The potential for people to work, to learn, to find funders and collaborators, will only be realised at scale in cities. Cities offer critical mass: providing enterprises the breadth of markets – labour markets and consumer markets – to grow. Currently, getting people back to work is not delivering growth because worker productivity is stagnant; we have returned to pre-2008 levels of numbers of people employed and number of hours worked, but not of GDP. If we are to address labour market challenges, this must mindful of the scale at which these markets operate.
A London growth strategy for the UK will not suffice. We must develop a network of cities to serve as centres of productivity, home to businesses which power the UK on the world stage. We face a delicate balance between capitalising on agglomeration effects and concentrating economic power, and providing assistance to people and areas currently less competitive – potentially undermining that power.
Last week, the RSA launched the City Growth Commission – chaired by Jim O’Neill, outgoing chair of Goldman Sachs Asset Management – to develop a comprehensive roadmap to deliver a programme of change. Recently the Heseltine Review, the City Deals, and the London Finance Commission have suggested an array of levers that could alter the relationship between our national government and our cities, and the current RSA Journal brings together several innovating voices on the power of cities. There is a growing consensus that cities represent the best scale at which prioritise investments and redesign the political economy, thus unleashing the potential of the innovators, social entrepreneurs and active citizens to pull the UK through its current challenges.
A century ago, municipal government in the UK was among the most progressive and ambitious in the world, pro-actively investing in the transport infrastructure and human capital to fuel an industrial economy. The next national government of this country must empower urban authorities and urban residents to join the global momentum of city-led growth for economic, social and environmental benefit.
Sharing is popular again. It’s been 25 years since Harry Enfield mocked 1980s greed and individualism as his Loadsamoney character – a cockney plasterer. Now, a quick and exciting route to riches is promised by the sharing economy. Airbnb, its posterchild, is worth $2.5bn (£1.5bn) and Silicon Valley is buzzing again. Does sharing represent a scalable opportunity for a socially productive economy? This blog grounds the sharing economy in some context, and is followed by Part 2, analysing of who profits from sharing.
Since 2008, our dominant economic and financial structures have come under increased scrutiny, from many directions. Many argue that existing systems have delivered material wealth at great environmental cost, contributing to (or even relying upon) growing inequality at many scales, and that as we get wealthier, wealth is increasingly an ineffective means of delivering well-being. As the public sector started talking about “doing more with less’ and “sweating the assets” politicians and business consistently urged the public back on to the treadmill of buying more stuff a generation of social entrepreneurs said “let’s use what we have better”, and were spurred to develop their own peer-to-peer circuits for production, distribution and consumption. They were driven by objectives which ranged from getting rich themselves to meeting their neighbours to minimising overall consumption, and we now have a carnival of applications which connect individuals to one another to exchange in new ways.
The sharing economy in a tweet: “#whyishare is making MORE, for LESS and with NEW people”.
The sharing economy is how we describe this system which widens access to goods, services, assets and talents, through arrangements of collaborative consumption, a term first applied in 1978 to car-sharing. The sharing economy is a bunch of new ways to connect things that aren’t being used with people who could use them. It often does this through internet-based applications, and therefore does this radically better than previous systems in achieving higher utilisation of the economy’s ‘idling capacity’. According to Professor Clay Shirky, “the world has over a trillion hours a year of free time to commit to shared projects”.
In 2011, the RSA hosted Rachel Botsman and Time magazine said collaborative consumption was one of ten ideas to change the world. Now sharing economy initiatives are squaring up to entrenched businesses, and regulators and tax collectors are becoming interested.
Rachel Botsman defines three types of collaborative consumption: product service systems (like Barclays bikeshare in London and Netflix, where you rent for short periods rather than owning), redistribution markets (like eBay, Freecycle, Gumtree, where you sell or give away unwanted stuff) and collaborative lifestyles (like Landshare, Streetbank, and Couchsurfing), where people swap skills, time and other assets.
Like efforts to build a circular economy the sharing economy often promises environmental efficiency. Reducing waste appeals to our moral sentiment (waste is a feature in two of the seven deadly sins) while sharing means we get access to more, and perhaps put individualistic materialism (the envy and jealousy associated with coveting thy neighbour’s goods) in the back seat. To paraphrase Neal Gorenflo, the idea is that instead of keeping up with the Joneses, we are inspired and enabled to collaborate with the Khan’s, rent our under-used assets to the Cheng’s and get tips from strangers on how to hack, fix and rejuvenate objects at a makerspace with shared tools. We meet new people (online and offline) and make a living in new ways, while using money less, hoping to reverse declining social capital.
Sharing can get really creative: through Waze (which Google just bought for $1bn), drivers share their live data on traffic to help others travel more efficiently. GoGenie shares information about disabled access. Carrotmob organises campaigns for people to vote with their money, giving businesses positive incentives to make sustainable investments. On TaskRabbit, people bid to perform chores and…tasks, while Instacart specialises in matching your shopping list with someone to do your shopping and deliver it to you.
Of course, sharing goes way back. We’ve always been sharing, bartering, lending, gifting, and swapping. Collaboration has been our primary competitive advantage as a species. Before we had money, we had a gift economy – “you owe me one” – rather than a barter economy. Within modern capitalism there have emerged a range of redistributive institutions such as co-operatives (800 million members globally) and credit unions. Good 360 has taken $7bn in corporate donations over the last 30 years and distributed them to charities. We often lose sight of the fact that efficient resource allocation is what the (old) economy is fundamentally driven to do, but often fails. The sharing economy might be best conceived as a system to address market failures in personal consumption; to share market information, lower transaction costs and lower barriers to entry, therefore expanding the market of buyers, sellers, donors and recipients.
In contemporary society, what some have dubbed the core economy – the unpaid care, support and nurturing we provide for one another – structures our lives as much as the monetary economy. Sharing mechanisms have long supported the core economy, through informal networks and more formal institutions: 28,000 people have collectively pooled their skills and support at 300 local Timebanks across the UK, on the basis that an hour of my time is worth an hour of yours, and there is potential for institutions and business to do the same – e.g. Hackney Shares.
We are at a moment of hyperbole, so there is a risk that new tech applications divert our attention from the breadth and heritage of sharing structures in society, and the risks of failure. Many sharing platforms struggle to reaching critical mass in activities which represent a natural monopoly based on a network effect, so efforts are now being made to build infrastructure to consolidate the sharing economy – comparison websites and sector-wide initiatives (…is this meta-sharing?). But the growing consensus is the sharing economy could be as transformative as the industrial revolution; and Natalie Foster says sharing “will be the defining economic story of the 21st century.”
The sharing economy is beginning to look like a panacea: an all-conquering system of innovations which can drive can drive economic growth and social outcomes. It’s more complicated than that, and Part 2 on this blog discusses profiting from a sharing economy.
As the sharing economy is booming (Part 1 – Sharing our way to prosperity), its millions of participants now face a choice. There are ways of swapping and collaborating for free, and there are also ways of commercialising idling capacity.
In reality, many of the most successful sharing economy platforms are simply commercial platforms with a personal touch. eBay works because buyers and sellers leave feedback for one another; enough to grease the wheels on $175bn of transactions in 2012. In an era of self-checkout supermarkets, it’s ironic that it is through internet applications we’ve reawakened to the fact that business can be personable and customised. Airbnb now call themselves a “community marketplace”. Etsy is an online shop for $1bn of products sold direct by artists and craft-workers who make them. Every sharing platform seems to have spawned a commercial sharing platform: eatwithalocal might be devoured by eatwith and Google Hangouts (video chats) looks set to expand to Google Helpouts where people buy and sell services via video link.
Should we commercialise sharing? In working with Benoit Passot investigating the logic of impact investments, I became convinced that we all place values on achieving financial returns and social outcomes, but those values vary. What we need are opportunities to discover what our values are. Technology makes it easier for us to join timebanks, and easier for us to make a living selling our skills. When money is involved, obviously, these values are made explicit. There are platforms which will enshrine free sharing as principle and policy, and there will, simultaneously, be ever more sophisticated commercial platforms – with a social dimension – making up an ever greater proportion of economic activity. In other words there is sharing, and there is the economy. We will vote with our feet and vote with our money.
Commercial sharing platforms can’t be fully inclusive if some potential participants are excluded by a lack of money, but commercialising traditionally non-monetary assets such as spare bedrooms could support someone to pursue other socially productive activities in a volunteering or caring capacity. We know sharing gives us a feeling of solidarity and identification, more than selling and buying, and can (re)build social capital in a way that traditional market transactions can’t.
Does this mean money contaminates exchange relationships? Not always. People form meaningful relationships with their bosses, and the people they manage. Shopkeepers befriend their customers, consultants get chummy with clients. In each case, physical interaction and proximity usually matter. Money-free sharing platforms are probably best realised at the local scale. There is stronger potential for ongoing reciprocity in dense urban areas. Money, as it has always has been, becomes a unit of trust which can reduce the friction of distance. Whether free or commercial, the promise of the sharing economy is about the alignment of self-interest and common good; at distance, the ability we have for realising common good together diminishes, and money is more helpful as a proxy for trust.
However, there is a fundamental challenge to achieving collective and inclusive “common good” if the sharing economy continues to grow: non-monetary activity doesn’t register as GDP.
The more we try to gain economic and environmental efficiency through generating activity outside of – or reclaiming activity from – the market, the more we stifle the monetary economy. While we already know GDP is an insufficient measure of progress – as Rachel Botsman says we need to measure the number of holes drilled not the number of drills sold – our primary system for realising life opportunities is built on it. One of the buzzwords of tech recently has been disruption. In this regard, the sharing economy is highly disruptive.
As a society, we tax consumption, employment, income and profit. More money on the books and circulating in the economy – i.e. rising GDP – generates more tax revenue. Tax then gets spent on government services, further contributing to GDP. Government, therefore, has an implicit incentive to both formalise the informal economy, support recorded and taxable economic activity, and bring online commercial platforms, and their users, into the tax regime. Government in fact represents the ultimate level of sharing: we are practicing collaborative consumption through societal organisation of public services.
As Caron Suchecki says, “paying tax is participating in a sharing economy, dodging it is not.”
Public services in 2020 need to look a lot different – in their structure, relationships, delivery and funding – and they have a long way to go. There is a lot to learn from the sharing economy in unleashing idling capacity. But collaborative consumption doesn’t work in every context: a recent report found that it is difficult to reconcile the need for personalised care and support packages with the economic advantages of collective purchasing power: “service providers and commissioners can’t impose collective approaches or assign people to groups that don’t matter to them”.
We therefore face competing quandaries. On the one hand, the more we rely on each other in non-monetary ways through systems of mutual aid and support, turbo-charged by new innovations, the more we withdraw from the circulating flow of money which ultimately funds public services: our democratically-controlled, societal support network. (The prevalence of the informal and undeclared peer-to-peer economy may already be undermining public institution-building in the developing world.)
On the other hand our GDP treadmill is increasingly frustrating: its failing to improve well-being in rich countries. The cost of our basic requirements – for example housing, food and childcare – are increasing faster than wages for most people. Many work all day to make enough money to pay someone else to work all day looking after children, elderly parents, or others needing care, and the primary destination for our tax money is to subsidise low wages and provide health, education and social care.
In conclusion, the expansion of economic activity in its current form is eroding our time, quality of life and environment. The sharing economy has some promise to challenge this by making better use of existing assets – through monetary and non-monetary sharing. But unless GDP is uncoupled from the funding and delivery of the public services, and environmental resrouces are valued properly, simultaneous efforts to personalise public services, stimulate economic growth and expand the non-monetary sharing economy risk undermining one another and stifling the realisation of our collective aspirations.
Moby famously sang that we are all made of stars. And yesterday evening at the Institution of Engineering and Technology (IET), Professor John Wormersley, Chief Executive of the Science and Technology Facilities Council, echoed Moby’s mantra (okay, maybe that’s a bit of stretch). Professor Wormersley spoke about how the search for black holes and the higgs boson impacts society and the economy.
Professor Wormersley’s talk was engrossing for a number of reasons, not the least of which was the fact that he emphasised the link between ‘big science’ (think of the discovery of the Higgs boson at CERN last year) and the implications for our daily lives, society and the economy.
While for many people (me included), our knowledge of theoretical physics may come mostly from reruns of The Big Bang Theory on E4, Professor Wormersley noted that we rely on the numerous outcomes and chain reaction results from ‘big science’ in our daily lives: the internet (originally Tim Berners-Lee’s method for information management for scientists at CERN), wifi (which was enabled through Hawking radiation), and MRI scanning (which comes from knowledge of superconductors). In short, we need theoretical physics to help develop and improve our economy, our health, and the environment.
Yet ‘big science’ is often viewed as a risk because it is in an investment in the unknown, the unexpected and can often fail. But, as Professor Wormersley pointed out, we must be willing to take that risk.
So, Professor Wormersley’s thesis got me thinking about design. Just as Wormersley emphasised the need for and the link between theoretical and applied science, I think we need both theoretical and applied design.
But how can we teach and understand and then reap the benefits of theoretical design?
We can interrogate the design brief. Instead of just applying our knowledge of design and the design process (observing, analysing, prototyping, etc. ), we should use design to question our motives and why things are the way they are, without necessarily expecting a certain outcome.
This is where projects like The Great Recovery come in. The RSA’s Great Recovery project is about how we can promote and foster a circular economy and for now, we’re focusing on making connections between science, design, manufacturing and policy. But, we don’t necessarily know what the end result will be – though there actually is some ‘small, medium and big science’ going on in our workshops related to the project) as we don’t know necessarily what the end result will be.
You might even call it ‘big design.’
Morning all, and welcome to your first ever networks round-up.
Hot networks news this week includes this rather attractive networks visualisation from the New York Times, which breaks down various elements of the ‘Euro crisis’.*
A first slide shows how everything is connected: in this case the way that debt straddles country borders.
The graphs the goes on to show the debts that borrowers from one country have with banks in other countries. It then charts the possible ways a crisis could spread.
The immediate risk is, of course, posed by Greece. Greece has massive debts in 9 other economies, including the ‘shaky’ Portugal, Italy, Ireland and Spain.
This could possible lead to a scenario of ‘debt contagion’ where, given the single currency, we might have a run on the banks scenario as people shift their money from more risky to less risky countries.
A collapse in Greece would then lead to less confidence in the four shakier counties, possibly leading to an increased debt burden if interest rates are raised. If a country such as Italy were not able to cope, this could massively impact France whose banks own $366 billion of Italian debt.
Crises impacting in France and Italy could then massively impact the USA, which has a very large exposure in both these countries. When it’s all connected, crises can go global.
Wondering how the banks and global corporations all link up beyond country borders? If you haven’t read up on ‘the network of corporate countrol’, you really should now.
The research,based on 2007 data , shows an unstable global structure. The the network is scale-free, meaning that a few companies have the vast of majority of all connections, suggesting that if one company goes down, it will have (as 2008 showed) massive repercussions on rest of the system.
*What follows is a description of other people’s research. Here I am just the networks messenger.
The fascinating thing about today’s growth data is what it tells us about the rather painful birth of a new type of UK economy. Before the Crash of 2008, growth in the UK was largely driven by public spending, construction and business and financial services. New Labour Governments lived with this quite happily by skimming off the tax revenues from the buoyant economic activity in these sectors and directing it into public services and tax credits.
While in opposition, George Osborne made a great deal of how this economic approach was now defunct and it was time to create a new “British Economic Model” based on a wider base of high growth sectors, an active but more constrained finance sector and much less public spending.
While the Treasury is making much of how buoyant manufacturing is and suggesting that this shows the UK is beginning to rebalance in the way Osborne wants, the data suggests something far more complex and less certain is happening.
The story of the first quarter of 2011 is, in fact, one of a reasonable contribution to growth from manufacturing (0.1%) but a much more significant contribution from public spending (0.2%) and business and financial services (0.2%). Over the last year, public spending and business and finance have contributed 0.3% each, while manufacturing has contributed 0.4%.
The other big driver of the New Labour era was construction. This is still the case currently with the building sector contributing 0.4% to growth in 2010. But what is striking is the extraordinary volatility in this sector. Construction has gone from boom in the second and third quarters of 2010 to recession with major shrinkage in the fourth quarter of last year and the first quarter of this.
So we cannot yet say that there is any sign of a really significant break from the New Labour approach yet. What growth there is in the UK economy is still coming from business and finance, public spending and construction. What is new is that manufacturing is making more of a contribution than it has historically but will probably need to do much more to suggest a real shift to Osborne’s vision. And construction is highly volatile and, as such, deeply unpredictable.
The truth is the economic jigsaw pieces were jumbled up massively by 2008. The data suggests we may have to wait quite a lot longer to see how they fall but for the moment signs of a completely new picture emerging are limited.