Tough at the top? Can London maintain competitive

advantage?Mark Beatson

Chief Economist, CIPDPresentation to CIPD London conference*

16 March 2015* This is an expanded version of the presentation delivered which includes some additional material and full references. Think of it as the director’s cut.

London is a global business centre – one of the elite• Global Power City Index 2014• Cities in Motion Index 2015• PwC Cities of Opportunity Index 2014• EIU Hotspots competitiveness rankings 2012 (behind New York)• AC Kearney Global Cities Index 2014 (behind New York)• fDi Global Cities of the Future Awards 2014/15 (behind New

York)• Innovation Cities Index 2014(behind San Francisco-San Jose

and New York)

Can it stay there?

London has world class capabilities and assets well suited for the innovation economy• Finance and business services• Legal and IP services• Professional services• Creative industries (including media and advertising)• Global Fashion Capital 2014 (behind New York)• Tertiary education sector (5 universities in Times Higher

top 100 – more than any other city)• Diverse population• Cultural assets• Vibrant technology sector (3,200+ digital SMEs in Inner

East London in 2010 – Nathan, Vandore and Whitehead, 2012)

• No. 7 (behind Silicon Valley, various US and Israel) but in Europe – Global Startup Ecosystems Index 2012

“London is a special place, fertile with creative influences. Tech City is a success and will grow, not because of the Tech, but because of the City – the humanity, the rubbing together of cultures, the tensions and beauties therein”.Ben Hammersley, PM’s Ambassador to Tech City in Nathan, Vandore and Whitehead (2012)

London and the UK remain an attractive location for mobile people, businesses and money• English language• UK still seen as good place to do business• UK an even better place to do litigation –

especially divorce and libel• Mastercard Global Destination Cities 2014• Importance to Ultra High Net Worth

Individuals in 2015 – people with $30+ million to spare (though expected to drop behind New York by 2025) – Knight Frank Research

“I’ve always believed that talent attracts capital more consistently and effectively than capital attracts talent”Michael Bloomberg quoted in EIU Hotspots report

Which ought to mean London 2050 is bigger (more people, although older) and better (richer)• Population growth of 37% (3.1 million) 2011-2050. Population

should this year exceed its 1939 peak and is projected to be over 11 million by 2050 (GLA, central population scenario)

• 4 times as many 90 year olds by 2050 (TfL)• If growth is 2.5% p.a., employment increases from 4.9m to 6.3m

by 2050 (GLA, central scenario) – 69% of these in inner London boroughs

But will it still be London? What will it be like to live in and work in?• London 40th in 2015 Mercer Quality of Living Survey (Vienna No. 1)

– designed for expatriate compensation, London edged out on cost, infrastructure, safety

• London 91st in 2015 Numbeo Quality of Life Index (Canberra No. 1) – London beaten by Winnipeg, Jeddah and Ahmedabad! Result driven by expensive consumer prices, high property-price-to-income ratio and middling safety, healthcare, traffic commute and pollution ratings. Yet …

• Arcadis Sustainable Cities Index 2015 (behind Frankfurt) – great businesses and social capital but creaking infrastructure

• 38.4% public green spaces (behind Sydney and Singapore) – World Cities Culture Report 2013

What could possibly go wrong?

London needs massive investment

• New runway capacity – by 2030 London runway capacity used up, hence need for one new runway (Airports Commission interim report)

• 35% more trips within London by 2050 – need to expand public transport capacity by 70% (Infrastructure Plan)

• Water pipes, replacement of Victorian sewerage system, improvement of Victorian-speed broadband

• 48% more dwellings needed by 2050 (GLA)• Population growth means more demand for schools,

hospitals etc.• These require money – how will it be financed?• Plus a lot of political capital - highly controversial political

decisions at national, London and local level (airport capacity, railway lines, road capacity, new housing)

What about HS2? It might not feel like an investment designed with London’s interests at heart, but:a) Assumptions it will trigger a

renaissance in the Midlands and the North – or a ‘rebalancing’ – may be wide of the mark. Quicker trains make it easier to serve a national market from London!

b) The cost (current estimate is £43 billion) is money that cannot be spent on other investments.

What if London, the rest of the UK and Europe drift apart?’• Growth likely to be higher if London and other UK

cities work as a ‘system’– but what if competition trumps co-operation?

• London has a diversified economy but it relies on open markets, trade and freedom of movement (goods, capital, people) – which exposes it to financial crises? If so, expect ‘rebalancing’ to make a comeback

• Decentralisation/devolution/disintegration of UK power structures introduces instability?

• What if values diverge?• Likelihood of prolonged difficulties in Eurozone – a

brake on UK and London growth, but also prevents competition emerging from Frankfurt and Paris?

• What if the single market fragments? What if the UK left the EU?

‘London is the UK’s only world city. It is relatively small compared to some other world cities and can continue to grow. Furthermore, the UK would not be well served if it does not continue to grow. We do not accept the argument sometimes made (especially in a business cycle downturn when the north-south divide increases) that London’s growth occurs at the expense of other UK cities. Economic growth is not a zero sum game, and this is just as true in thinking about the geographical location of activity within one national economy as in the context of international trade and growth’.Coyle and Rosewell (2014)

What about inequality?

• UK city with greatest wage inequality in 2010 (Gini coefficient and 90/10 percentile ratio) – (Lee, Sissons and Jones, 2013)

• London has lots of high earners, a relatively high median wage and the National Minimum Wage has less impact than in many other parts of the country. Living costs (especially housing costs) may also be higher for the low waged in big cities.

• London’s employment structure is ‘hourglass-shaped’/’wasp-waisted’:• UK city (behind Reading & Bracknell) for skills bias (job distribution

skewed to highly skilled)• UK city (behind Guildford & Aldershot and Reading & Bracknell) for job

polarisation (high and low paid jobs with few in the middle)• Contrasting fortunes of inner and outer boroughs – Outer London has had

less job growth, lower business start-up rates.• Contrasting fortunes within boroughs

And climate change?No sea level rise by 2050 20cm sea level rise and

20cm subsidence by 2050 – no adaptation

Annual loss to flood damage ($m)

% of city GDP Annual loss to flood damage ($m)

1st Ghuangzhou-Guangdong 11,928 1.32 254,721

2nd New Orleans 1,583 1.21 161,141

3rd Mumbai 6,109 0.47 107,285

Dubai 286 0.11 4,180

New York-Newark 1,960 0.08 7,914

Hong Kong 140 0.00 1,269

Tokyo 58 0.00 61,737

London 13 0.00 65

Singapore 2 0.00 27

Source: OECD, http://www.oecd.org/greengrowth/greening-cities-regions/citiesclimatechangeandgreengrowth.htm#flood ‘optimistic’ scenario

Yes, it’s tough at the top … but a relegation dog-fight is even tougher (and less rewarding)• London is well placed to stay ahead of the competition• This means playing to its strengths – diversity, creativity and

knowledge-based industries drawing on talented people from all over the globe

• Managing London’s expansion will be expensive, involve some tough decisions and require finesse and generosity – both in its relationships with the wider UK and in creating opportunities for all Londoners new and old

• That’s how we keep London special!

ReferencesAT Kearney (2014), Global Cities, Present and Future.Airports Commission (2013), Airports Commission: Interim Report.Arcadis (2015), Sustainable Cities Index.Coyle, D and Rosewell, B (2014), Investing in City Regions: How does London interact with the UK system of cities and what are the implications of this relationship? Government Office for Science Foresight report.Economist Intelligence Unit (2012), Hotspots: Benchmarking Global City Competitiveness.fDi (December 2014/January 2015), Global Cities of the Future 2014/15 Winners. www.fDiIntelligence.comGLA Intelligence (2013), Population and Employment Projections to support the London Infrastructure Plan 2050 .Hedrick-Wong, Y and Choong, D (2014), Mastercard 2014 Global Cities Destination Index.Innovation Cities Index 2014. Source: 2thinknow Innovation Cities™ Program: www.innovation-cities.comIESE University of Navarra (2015), Cities in Motion Index.Institute for Urban Strategies (2014), Global Power Cities Index.Lee, N, Sissons, P and Jones, K (2013), Wage inequality and employment polarisation in British cities, Work Foundation/Joseph Rowntree Foundation.Mercer Quality of Living Survey http://www.imercer.com/content/quality-of-living.aspxNathan, M, Vandore, E and Whitehead, R (2012), A tale of Tech City: the future of Inner East London’s Digital Economy , Centre for London.Numbeo quality of life rankings http://www.numbeo.com/quality-of-life/rankings.jspPwC (2014), Cities of Opportunity 6.Startup Genome (2012), Startup Ecosystem Report 2012.World Cities Culture Forum/Mayor of London (2013), World Cities Culture Report 2013.

Thank youTo find out more:Visit our Megatrends web page http://www.cipd.co.uk/cipd-hr-profession/whats-new/megatrends.aspxRead the blogs http://www.cipd.co.uk/blogs/members/m.beatson/default.aspx@MarkBeatson1m.beatson@cipd.co.uk