A tale of twelve cities. The perplexing underperformance of Britain’s second tier

February 2nd, 2020

Output Growth Paths (1971-2015)
Source: Core Cities UK, CE Calculations
From Cambridge Econometrics’ Report: “The Economic Performance and Resilience of the UK’s Core Cities”

The red deer’s mating habits are an exemplar of Darwinian selection.  Every autumn virile stags, their veins coursing with testosterone, compete to claim the right to the herd’s females.  The battles can be fearsome, sometimes even deadly. The victor, the alpha male, then claims the right to father the next generation, thus perpetuating his genes.

However, there is only one stag with only one pair of eyes, and many hinds.  As Benny Hill so wisely observed, a woman’s needs are manifold. So hope remains for the defeated beta males.  If the alpha male is distracted, a beta male with guile and speed may yet get his way with one of the females. (Such a beta male is technically known as a sneaky fucker.)

As of 2020, London is Britain’s – indeed Europe’s – unchallengeable alpha city.  Its economy dominates Britain’s (London’s economy is comparable in size to that of Switzerland’s).  It has its problems and they are the problems of success. Any city in Britain that tries to take it head-on is likely to find itself suffering an ignominious defeat.

If all of Britain were doing as well as London, it would be basking in a new golden age.  It isn’t. On a GDP purchasing power parity per capita basis, the north east and Wales are poorer than parts of Turkey.  Britain’s economy resembles a pig holding the string of a big helium balloon in its mouth. It may be lifted up onto its hind legs, but there is no real hope that pigs might fly.

What of the next tier of British cities?  Are they contributing what you would expect to Britain’s prosperity?  

There are those who subscribe to the idea of beta cities, just like beta deer, drawing up lists of cities minutely graded in an urban pecking order.  It’s not a perfect analogy – smaller cities like Cambridge are quite capable of competing in clearly defined areas at the very highest level. Unlike stags, cities can choose their methods of competing.  For large cities with broadly based economies, however, it is a convenient shorthand.

So let’s look at Britain’s sneaky fuckers.  Eleven of them have banded together under the banner of “core cities”: Birmingham, Manchester, Glasgow, Leeds, Liverpool, Belfast, Cardiff, Bristol, Newcastle, Sheffield, and Nottingham.  Edinburgh is conspicuously absent.

To answer the question I posed above, no, these cities are not contributing what you would expect to Britain’s prosperity.  Never mind London, the core cities’ growth underperformed by something like 30% relative to the country as a whole between 1971 and 2015.  

Interestingly, London’s performed as badly as the core cities (given its relative starting point) until the mid-1990s and only decisively outpaced the nation as a whole from the time of the great financial crisis of 2008.  London’s success over the last generation was not preordained.

Its example seems to show that cities can move from laggards to pacesetters in the right conditions.  So why did London perform in lockstep with the other large cities for many years and, even more importantly, why did it suddenly motor away from the mid-1990s onwards?  Is London uniquely placed or is it that London is the only large city in Britain to have followed the right policies?

We can rule out one well-worn explanation.  First, you hear that London has in some way crowded out other big cities in the UK.  Given that London languished in the same way as Britain’s other larger cities for decades, we can infer that London, just as much as other larger cities in Britain, suffered from structural disadvantages that were absent from the country as a whole.  At least initially, crowding out by London was not the problem.

Just now, infrastructure is being touted as a panacea.  Obviously infrastructure improvements would help, but their benefits should not be overstated.  Birmingham is well connected by road, rail and air. It has a lower GVA per head than Liverpool, which is remote and hard to get to.

As that Cambridge Econometrics report notes, Britain’s larger cities struggled with deindustrialisation as manufacturing declined relatively.  This was always going to be harder for the core cities than London, since they were more reliant on manufacturing, but they remain overweight in that sector compared with the rest of the country, which by way of contrast now makes up a negligible part of London’s output share.

The core cities have always had a larger share of the public sector than the rest of the country.  Fifty years ago, so did London but in the intervening period it has transferred many of the national public sector functions elsewhere in the country.  By 2015, London’s public sector made up just 14% of its output share, compared with 22% for the country as a whole and 25% for the core cities.

Perhaps when the public sector included many productive industries in public sector corporations, it could help to power economic growth.  Nowadays, however, employment in such public sector corporations is about a sixth what it was 50 years ago, with an increase in the education and NHS workforce instead.  The reshaped public sector has not been a powerful engine of growth, and with their greater reliance on that and manufacturing, the core cities have suffered accordingly.

What London managed, and managed supremely effectively, was to build its financial and professional services sector into one with unbeatable critical mass.  This gave it the economic momentum to build out into other new sectors, overcoming the innate disadvantages of large cities that have a heavy economic heritage with a doubtful future.

Was this good luck or good judgement?  The good player is always lucky. It was not the only city in Britain to manage this trick. Edinburgh (which still stands aloof from the core cities) has similarly thrived and off the back also of the financial services and professional services sectors.  Just as London has grown faster than the rest of Britain, Edinburgh has grown faster than the rest of Scotland. You’d have thought the great financial crisis would have poleaxed Britain’s great financial centres. The opposite is true: both London and Edinburgh have widened the gap.

Conversely, perhaps because they did not have the civic structures in place to allow them to do so, the core cities have not to date shown the guile or speed required to let them profit from the opportunities that have presented themselves to them.  By relying too readily on the safe options of the public sector and the existing manufacturing base, they have implicitly elected for managed decline.

Liverpool and Bristol have had a directly elected mayor since 2012. The metropolitan mayors in the West Midlands, Manchester and Sheffield have now been in office for nearly three years.  The first office-holders have generally shown energy and given a voice and sense of purpose for their local areas. It is far too soon to judge whether they will transform their areas’ fortunes but the early signs are cautiously encouraging.  Let’s hope they succeed. The economic underperformance of the core cities is among Britain’s most intractable problems.

Alastair Meeks