Century city

At the weekend, fossicking along the bookshelf in our front room, I picked up , the catalogue of a 2001 Tate exhibition.

[amazon_image id=”1854373447″ link=”true” target=”_blank” size=”medium” ]Century City: Art and Culture in the Modern Metropolis (Art Catalogue)[/amazon_image]

It was a terrific exhibition, covering art from 9 global cities during their most creative periods – Vienna in the early 1900s, Lagos in the 50s and 60s etc. The catalogue has a few additional essays including one by Sharon Zukin, ‘How to Create a Culture Capital: reflections on urban markets and places’, which is a concise statement of an point made since by many other people including about the importance of creative ‘industries’ for the urban economy. Zukin refers to it as the ‘Artistic Mode of Production’; echoing my thoughts in The Weightless World, she writes here: “Design adds more ‘value’ to products than their material components do,” linking in also globalisation, the great emphasis on innovation, and the relaxation of traditional ways of working. The essay also cites the very interesting 1994 book, by Scott Lash and John Urry. It doesn’t cite – but could have done – 1999’s by Walter LaFeber. I might need to look at those two again.

[amazon_image id=”B00NPOATHC” link=”true” target=”_blank” size=”medium” ]Economies of Signs & Space (Published in association with Theory, Culture & Society) by Lash, Scott, Urry, John (2000) Paperback[/amazon_image] [amazon_image id=”0393320375″ link=”true” target=”_blank” size=”medium” ]Michael Jordan and the New Global Capitalism[/amazon_image]

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People and property prices

Rowan Moore’s is a sort of lament for London, which the book praises for its vibrant, cosmopolitan, energetic, creative dynamism – and portrays as destroying the foundations of this success. The reason for this is obvious: the fact that successive governments have allowed global capital to turn the city into a safe deposit box of property, making it too expensive for most Londoners to buy or even rent a home in, and steadily emptying out the city.

[amazon_image id=”1447270185″ link=”true” target=”_blank” size=”medium” ]Slow Burn City: London in the Twenty-First Century[/amazon_image]

The early chapters give examples of the kind of home building that took place in London in previous generations, the mix of private speculation and public policy that created millions of homes. This was clearly a mixed record but the book argues that little of that was to do with the architecture and planning of the now-notorious post-war to 1960s council estates, and much with social and economic policies. One testament to that is the way those much-criticised flats have joined the market for desirable properties, even in the now-hipste East End. What’s more, as Moore writes: “When riots took place in the Victorian streets of Brixton, nobody blamed the architecture.”

Some of the argument is familiar but I learned new things – for example that until 1951 housing was the responsibility of the Ministry of Health; and that John Stuart Mill had been one of the leading campaigners for keeping London’s parks open and public. The book is a good read and is packed with pictures well selected to illustrate the arguments.

When it comes to the present day, the book sees government welfare policy – keenly implemented by the recently-departed Iain Duncan Smith – as wholly topsy turvy. The government asks why taxpayers should subsidise benefit claimants to live in London. “This is the wrong question – what should be challenged is why living in London has become a luxiry item, even for modest homes in unglamorous areas, and for people who have spent their lives in the city.” He correctly points out that the private market will not fix the housing crisis because private developers will never build more than they can sell quickly, and will never increase supply enough to bring prices down. In a very apt term, he says London is suffering from the ‘necrotizing fasciitis of residential value.’

The fortunes of cities rise and fall. London’s fortunes will decline now unless it fixes the housing crisis. Only the rich can afford to buy homes in the city now – even young professionals cannot get on the housing ladder, never mind teachers and cleaners and baristas; and too many of the purchasers are overseas investors with no interest in the life of the city. Moore ends the book with a manifesto which  sits alongside others including Bridget Rosewell’s and Kate Barker’s . The ideas are both sensible and depressingly idealistic in the sense that one cannot see this government – or any realistic alternative – agreeing on the need for the social building of new homes, including on some green belt, on a scale that will lead to a decline in prices. But without people, a mixture of people from the entire social scale, a city is a museum, not an economic dynamo.

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Let cities borrow to build new infrastructure

The blurb introducing by Dag Detter and Stefan Folster begins: “We have spent the last three decades engaged in a pointless and irrelevant debate about the relative merits of privatization or nationalization.” Yup. And that futile framing of the issues could intensify now that Labour Party members have elected Jeremy Corbyn, a cheerleader for old-style nationalization, as their leader. Which is a shame, because this book makes a persuasive argument that it is not the ownership of assets that determines how well they perform, but instead how they are managed.

[amazon_image id=”1137519843″ link=”true” target=”_blank” size=”medium” ]The Public Wealth of Nations: How Management of Public Assets Can Boost or Bust Economic Growth[/amazon_image]

Specifically, the authors argue for the creation of sovereign wealth funds or holding corporations, with independent, non-partisan governance structures, to manage public assets. As Dag Detter used to run the Swedish government’s holding company, he has some direct experience of how such structures might operate and there is plenty of practical advice in the book. It focuses on publicly-held commercial assets, and argues for the state holding them (as opposed to privatizating them) but with independent management protected from short-term politics, and delivering a reasonable commercial return to the government. The role of politicians is to act as advocates for the public interest.

A short final chapter turns to infrastructure, and argues for state entities investing in infrastructure projects, but it does still presume that these should all be expected to deliver a commercial rate of return. So the book omits altogether the public good case for non-commercially viable state activity, which seems an odd – and large – gap.

It’s hard to argue with the general thrust of the argument for professionalising the management of sovereign wealth funds or state corporations, and shielding them from political short-termism; but the privatization/nationalization debate is not merely about commercial efficiency but also about the purpose of the entities involved and how they serve the broader public interest. The authors write: “Public wealth should aim to yield financial returns similar to comparable assets in the private sector.” Well, sometimes, perhaps even often, but not always – especially when the reason they are in the public sector is that there are not comparable market assets. Nor does the book tackle any political economy questions about how to move toward such a different kind of governance structure for public assets.

Lots of economists would like to see more infrastructure investment, with the real interest rate the government would have to pay to borrow the money so low. (Few think paying for it by ‘printing money’ or so-called ‘people’s QE’ makes any sense; if not financed by borrowing, then raise taxes.) However, it seems unlikely to happen unless either the Conservative government has a change of heart, and separates out capital spending from its deficit targets; or the borrowing and investment decisions for some infrastructure investment are devolved to the newly empowered city regions.

I can’t see any problem at all with experimenting on a modest scale with municipal bonds, and surely Manchester would leap at the chance to pilot this to go ahead with the upgrade of the trans-Pennine rail route, and much more. Clearly national politics has become a circus, but perhaps city politics will be relatively unaffected by the national Punch and Judy show. Let’s hope so. But the new political context means transparency, accountability and professionalism in investing in and managing public assets will be all the more vital. For all its narrow market efficiency pespective, the point the book makes about the sound management and independent governance of any new or existing public investments is an important one.

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Economics of empire – then and now

I’ve enjoyed reading Tristram Hunt’s T, out now in paperback. It’s a clever prism on British imperialism, taking a tour of major colonial cities and using a period in their history to explore the wider politics and economics of colonialism, and the cultural relations between the “mother country” and her colonies as expressed in architecture and urban design in particular.

[amazon_image id=”014104778X” link=”true” target=”_blank” size=”medium” ]Ten Cities that Made an Empire[/amazon_image]

The geographic and historical tour starts in Boston in the late 18th century (the Revolutionary War), then Bridgetown, Barbados (looking at slavery and the triangular Atlantic trade), Dublin (and the painful relationship between the two countries), Cape Town (as the base for the extension of Empire), Calcutta (early Indian adventurism by the East India Company), Hong Kong (the opium wars), Bombay (the apogee of Victorian Empire), Melbourne (and the distinctive characteristics of an Anglo-Saxon colony), New Delhi (and the independence movement) and Liverpool (where Empire ended on 22 April 1981 when Tate & Lyle closed its refinery and the docks stood empty, Tate & Lyle blaming EU membership and the change in trading patterns that involved).

The wide perspective makes very clear the commercial interests driving the politics of imperialism, from the slave trade to the exploitation of Indian cotton supplies and the market it provided for cheap Lancashire textiles, and the eastern triangular trade of Indian opium to China, Chinese luxuries to Britain and British manufactures to India. I can’t read anough about the Lancashire cotton industry for obvious reasons & have on my wish-list.

[amazon_image id=”B00PYY1AQU” link=”true” target=”_blank” size=”medium” ]Empire of Cotton: A New History of Global Capitalism[/amazon_image]

There was also a *fabulous* In Our Time recently about the Lancashire weavers standing (at great cost to themselves) with the Union and the slaves during the American Civil War – Abraham Lincoln presented a statue to Manchester afterwards, in recognition of the support.

Lincoln in Manchester

Lincoln in Manchester

Modern globalization is driven just as much by drugs, arms and slavery, or people trafficking as we now call it; but these are veiled and never discussed in policy conversations, although of course the financial and professional support these trades require is big business. Nor do economists analyse it much; after all, you can’t download the data from the internet and run it through Stata. I often think we should take this illicit global economy far more seriously.

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Cities, infrastructure and growth

By way of a follow up to yesterday’s post on the new book , I read recently a very interesting paper by David Starkie (Investment and Growth: The Impact of Britain’s Post-War Trunk Roads Programme, In Economic Affairs, Feb 2015) in which he argues that the construction of the British motorways in the 1960s and 70s had no discernible effect on productivity and growth. One reason was that pre-existing commercial traffic was intra-regional whereas the motorways radiated out from London. Contrast yesterday’s map of how the motorways were planned:

Motorway planning

Motorway planning

with this map from the article showing road freight patterns in the 1950s, before the construction of the motorways.

1950s road freight

1950s road freight

A second reason was that the productivity advantage from time saving was eaten by higher real wages and lower labour productivity. Although it is always hard to discern the effect of specific investments or technologies in GDP growth figures (as the cliometrics literature dating back to Vogel has found over and over – see Nick Crafts on why one should not read too much into the small numbers), I wholly agree with David’s conclusions:

“First, economic relationships are complex and changes can lead to unexpected consequences….Second, the time taken for institutions and commercial structures to
adapt to change can extend over decades, which suggests that the impact on output and growth will be long-term… [Third], as the structure of the economy adapts to transport improvements, there is not necessarily a (sizable) net gain but a partial shift in activity into new economic sectors and geographical areas.”

I’ve argued on the FT’s blog The Exchange that standard cost-benefit analysis does not do a good job when it comes to big infrastructure projects (like a motorway or HS2) because it is a tool for assessing marginal changes, not ones which might involve large non-linearities – behaviour changes or network effects.There is some work being done on non-marginal CBA (eg Cameron Hepburn’s paper for example) but it is not (yet?) standard practice.

Like many/most economists, I think we need much more infrastructure investment now – see for example the report of the LSE Growth Commission, . My reading of the trunk roads article is that David Starkie would be more sceptical than I am but we certainly share the point about complex, long and uncertain responses; it isn’t about saving 20 minutes on your journey time to increase the amount of time you can spend in a meeting at the other end.

[amazon_image id=”1909890022″ link=”true” target=”_blank” size=”medium” ]Investing for Prosperity: A Manifesto for Growth[/amazon_image]

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