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What to do about spatial inequalities

26 January 2015

David Pendlebury

Last week, Centre for Cities published its annual Cities Outlook report, providing a snapshot of the main economic, social and demographic trends within the UK’s main towns and cities. The key findings of the report reinforced the now popular perception that there is a growing economic gulf between London and the South East, and the rest of the UK.

While the trend is clear, what is less clear the answer to the question of what, if anything, should be done about it? For some analysts, the relative success of certain cities or geographies over others simply alludes to market forces at work, and the efficient allocation of labour and capital based on the locational preferences of firms and individuals. From this perspective, it is a phenomenon that is at most, to be encouraged, and at least, to be left unhindered. This argument has been used in favour of support varied policies, ranging from the extreme – removing all green belt allocation in the South East of England in order to facilitate greater migration to these booming regions, to the very extreme – ‘closing down’ less economically successful, ‘lame duck’, cities that receive market distorting and inefficient ‘hand outs’.

There are of course, myriad economic and social arguments that undermine the philosophy of simply leaving it to the markets to determine the development of the UK’s built environment. Not least, as highlighted recently by Richard Florida at CityLab blog, neighbourhood upbringing has huge long term implications for life earnings and other key social indicators, meaning that there is a basic logic in active policies to invest in and improve places in order to improve underlying economic inputs relating to human capital and productivity.

Clearly, that the postcode lottery is still alive and well on our highly divided island home is indisputable, but many liberal economists would still suggest that the most appropriate solution is a market-based one. As proposed by Paul Cheshire and Henry Overman in Urban Economics and Urban Policy for example, a more liberal planning set of planning policies would enable greater, and therefore cheaper developments near successful places, fuelling greater in-migration to areas like London and the South East, and out-migration from much of the rest of the country.

Let’s be generous for a moment and leave aside a discussion about whether or not such liberalisation would actually lead to the assumed levels house building, given what we know about the speculation driven volatility of land markets and the oligopolistic structure of the house-building industry.

Instead, to analyse the issue from the RTPI’s natural vantage point, that is to say by looking at the elements of places which determine their relative success, there is a more fundamental point to be made, which is quite simply to refute the idea that places have become successful or unsuccessful purely through ‘natural’, market mechanisms. The buoyancy of a market economy at any one time is driven by the level of demand, and its growth over time is determined by its ability to expand its output capabilities. Without successful investments into the planned development of places, growth and expansion would be unsustainable.

Fundamentally, to argue that planning to improve struggling cities is an inefficient waste of resources, or a misguided social policy that distorts the market, is to ignore the planned investments that made great cities great in the first place.

For example, without the public, planned, interventions of transport infrastructure, cities would become too crowded to allow transactions to take place efficiently, and prime locations too expensive for innovative start up firms to survive. In the UK, and in London particularly, positive planning interventions have always been present to support the growth of places, such as with the completion of the world’s first underground railway 151 years ago. Today, such investments are still very evident with state-led projects like Crossrail – incidentally widely supported by liberal economists as a boon to productivity, with The Economist lambasting the amount of ‘Government vacillation’ that had perennially delayed such an important intervention in the first place – which is exactly the kind of intervention that allows cities like London to continue growing without becoming intolerably crowded, enabling business and firms to both stay connected whilst  making use of wider geographical boundaries.

Fundamentally, to argue that planning to improve struggling cities is an inefficient waste of resources, or a misguided social policy that distorts the market, is to ignore the planned investments that made great cities great in the first place. Moreover, there is no reason for those on the economic right to lament at such policies, because they have rarely been seen on any significant scale in a British city outside of London since the nineteenth century - the political and funding mechanisms simply do not exist. Conversely, it is London, supposedly spurred by the free market, which has the integrated, state run transport authority, which is able to utilise the political power of an elected mayor’s office, and which is able to implement taxation schemes to fund infrastructure spending, such as the Crossrail Business Rate Supplement.

So perhaps the question shouldn’t be about whether we should try to readdress spatial economic imbalances between cities, because this removes the conversation to ivory towers and ideological debates about the role of the state in improving people’s life chances. Instead, if we asked the question of whether we could readdress the imbalances, which the experience of economically successful cities shows us that we almost inevitably can, we might get a more sensible debate about the mechanisms - many of which are highlighted in the RTPI’s 2014 Planning Horizons paper Creating Economically Successful Places - which we can use to close the gaps.

About David Pendlebury

David Pendlebury is Economics Research Officer at the RTPI, working on the value of planing agenda. His other interests include transport planning, international affairs, and public sector finance. Before joining the RTPI, David worked in public affairs in Brussels and also as an analyst within the management consulting industry.