1. Governance
August 15, 2014

“It’s striking how London is the only major conurbation that features on a global scale of any relevance.”

By Jonn Elledge

Jim O’Neill – economist, Goldman Sachs alumnus, inventor of the term “BRIC” – has just been scooped. On 16 July, the City Growth Commission that he chairs published a report on how to revive the post-industrial economies of England’s northern cities; its key recommendation was a call for new high speed rail links, to turn them into a single economic unit. This, O’Neill had intended, would be pretty radical stuff.

The only problem was that, on 23 June, George Osborne had made a speech proposing, well, the exact same thing. “We we didn’t quite envisage that when we published this report the Chancellor would have essentially proposed our idea,” O’Neill says.

If Britain’s finance minister has stolen his idea, though, it’s merely a sign that its cities are, finally, winning the argument that they need to take on greater political power. “I don’t know whether it’s the Scottish referendum or other things,” O’Neill tells me, “but it feels to me that there’s now widespread agreement across all major parties that some kind of devolution is justifiable.” Now, he says, it’s up to the cities themselves to show they’re up to the job taking greater control over their own destinies.

All this is quite a turnaround. Britain is, infamously, one of the most highly centralised governments in the world. Distrustful of councils’ abilities, and openly resentful of the fact that some of them are run by opposition parties, successive British governments have stripped them of responsibilities wherever possible. Power has drained towards the national government in Westminster; services have been forcibly outsourced. Between 1986 and 2000, indeed, even London didn’t have a government of its own.

“The Treasury has the right to be sceptical of people saying give us some money to do whatever we want”

There’s a growing sense that this has not been a good thing: that it’s led to economic imbalances and, let’s be honest, a country run in the interests of its capital. For much of the last decade, politicians have been talking warmly of devolving power back to cities once again. So far, though, the talk has stayed talk.

“When I took this job,” he says, “I was very cognisant of the fact that there have been so many past initiatives for regional growth – Keynesian subsidy efforts, I call them – all of which have basically failed to half this long term trend.” He credits this to good, old fashioned timidity. “People haven’t wanted to be bold about these things, so by default Whitehall has taken over more and more.”

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This may have been administratively convenient – but it’s also kind of weird. Most major world economies have several cities that contribute to their growth: there’s New York and Shanghai, sure; but also LA, Chicago, Beijing and Guangzhou. “When you start to look at the UK in this context, it’s quite striking how London is the only major conurbation that features on a global scale of any relevance.”

O’Neill has more than just a professional interest in changing this. Besides being an economist, he’s a Mancunian. (Perhaps unusually for those who find themselves in the top rank of international finance, he hasn’t lost his accent.) He spent 16 years at Goldman Sachs, including a stint as the bank’s chief economist; at one point, he was in ultimate charge of more than $800m of assets which, for those keeping count, is bigger than the GDP of about 120 countries.

His most high profile achievement, however, was to coin the term BRIC, for the emerging economies (Brazil, Russia, India and China) which he expects to dominate the 21st century. Earlier this year he followed this with another acronym to represent the second tier economies of Mexico, Indonesia, Nigeria and Turkey. (Luckily for acronym lovers, no Z or Q countries have yet ascended to the top rank of global economics.)

It’s notable that every one of these emerging powers has at least one megacity, with a population of 10m or more. “If you look back over centuries of economic development going back to the industrial revolution, most of the growth is driven by large clusters of people in urban areas,” O’Neill points out. “It’s no coincidence that I travelled around each MINT [country] for a week, but spent most of that time in large urban areas.”

O’Neill gives several reasons why cities are the key to growth. The big one is “keeping up with the Joneses,” he says. “I can pull up the blinds, look into the windows of our neighbour’s kitchen and think, oh, I quite like that.” Jealousy drives aspiration; aspiration drives growth.

But there are other, more technical factors at work, too. Proximity enables us to copy and learn from each other; large labour markets make it easier for businesses to find the staff that they need to grow.

It’s these factors that lie at the root of the City Growth Commission’s big idea: creating better links between the northern cities, to turn them into a single economic unit. Not another London exactly, but another Ruhr or Pearl River Delta region. That means better transport links, led by a new TransPennine railway; but it means better digital infrastructure, too. O’Neill has been busily promoting this idea, writing a string of comment pieces with link-bait-y titles like, “We need a tube system for the north”.

Making this happen will require some kind of devolution, to give cities more power over how best to meet local infrastructure needs. (For all their undoubted talents, civil servants in Whitehall do generally find it easier to see the point of transport links in London than in Liverpool.) In the time before the Commission publishes its final report in October, much of its time will be spent coming with proposals for what that might look like, O’Neill says.

The flavour of the moment is the “combined authority”, coalitions of councils that make up an entire city region. But O’Neill thinks we may need to go further. “Do we need a mayor of Greater Manchester?” he asks. “Do we need someone personally responsible for linking these cities?”

Political devolution is only a part of the solution: attracting international capital to often forgotten regions of the country will be key too. (O’Neill talks warmly of the £1bn deal in which Abu Dhabi United Group is helping to fund new homes in eastern Manchester.)  And not all the regional cities are perhaps as ready to take the reins of power as O’Neill’s oft-praised hometown is. While Whitehall intransigence is often seen as a brake on devolution, the Treasury “has the right to be sceptical of people saying give us some money to do whatever we want,” O’Neill adds.

For all these barriers, though, he is clearly optimistic. Political consensus is building; Whitehall is beginning to let go. Best of all, there are signs that the regional rivalries that have long presented a barrier to partnership might finally be breaking down.

“I occasionally give a business speech in Manchester, and it’s striking that I’ve been hearing more and more Liverpool accents,” O’Neill concludes. “When I was young that would have been unheard of.” Northern powerhouse, here we come.

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