Introduction

The national economy is not spread evenly across the country – it is concentrated in cities. In Britain, cities account for 8.5 per cent of land, but 62 per cent of output.

Jobs cluster in specific places because of the benefits that density and proximity bring. These benefits increase the productivity of the jobs concerned – it is for this reason that British cities1 are 14 per cent more productive than non-city areas. This phenomenon is called agglomeration.

The benefits of agglomeration for businesses can be split into three main categories:2

  • Matching – the ability to recruit from a deep pool of workers with relevant skills, giving businesses greater choice. Although this is likely to vary depending on geography, previous research suggests that this effect extends up to a drive time of 80 minutes from a British city, with the effect becoming weaker as distance from a city increases.3
  • Learning – the ability to exchange ideas and information, known as ‘knowledge spillovers’. These benefits tend to operate over very small geographies. For example, for the advertising industry in Manhattan it has been estimated that these knowledge spillovers operate over a distance of just over 750 metres,4 while other research finds that these agglomeration effects are strongest over a distance of one mile.5
  • Sharing – the ability to share inputs, supply chains and infrastructure, such as roads, rail and street lights. The distance that this operates over is likely to be somewhere between the estimates for the first two benefits.

Figure 1: The benefits of agglomeration

Benefits of Agglomeration

Source: Centre for Cities

And these benefits increase with scale – the more businesses there are to interact with, and the greater the choice of workers, the bigger the uplift on productivity that agglomeration has. While this principally has a positive impact on more ‘knowledge-based’ businesses,6 such as media and software development, growth in these industries creates jobs in other areas of the economy too, such as the retail and leisure industries.7

It is the principle of benefiting from scale that has driven the creation of the ‘Northern Powerhouse’ policy agenda. But even in the short time since the Chancellor announced the Northern Powerhouse idea, the focus of the initiative has been fluid. What started as an idea to link together the belt of cities from Liverpool to Hull has since broadened out to attempting to harness the scale of the whole of Northern England. The idea is that better connecting the North will increase its scale, creating one single economy across the North of England to rival other global cities. Policymakers have pointed to the Randstad in the Netherlands and the Rhine-Ruhr area of Germany as examples of where this already occurs (see Box 1).

Box 1: The Randstad and Rhine-Ruhr as inspiration

A world class transport system must better link up the individual cities and towns in the North, to allow them to function as a single economy and be stronger than the sum of their parts.

Patrick McLoughlin and Sir Richard Leese, Foreword, The Northern Powerhouse: One Agenda, One Economy, One North, March 2015

We can see how an efficient and effective transport system in the Northern European urban areas of the Randstad and the Rhine-Ruhr unite smaller cities into one economic area and increase overall performance.

The Northern Powerhouse: One Agenda, One Economy, One North, March 2015

Improved connectivity in the North will support growth in the North’s Key Growth sectors and their high value jobs by bringing towns and cities across the North closer together – creating the agglomeration benefits of a much larger, single economy.

The Northern Transport Strategy: Spring 2016 Report

The purpose of this report is to see what the Northern Powerhouse can learn from the Randstad and Rhine-Ruhr areas. It presents five findings from our research on the Randstad and Rhine-Ruhr economies that set out how they perform, looking at the geography of jobs, commuting patterns by skill level, modes of commuting, the provision of transport and governance in the areas. These facts test the hypothesis that the Randstad and Rhine-Ruhr operate as one single economy.

Definitions of the Northern Powerhouse, Randstad and Rhine-Ruhr

In this report, the Northern Powerhouse, Randstad and Rhine-Ruhr areas are broken into three geographies – the region as a whole, and below this regional level, city regions and cities. They are defined as the following:

Northern Powerhouse

Northern Powerhouse geographies

Total region: The regions of the North East, North West and Yorkshire and Humber, in line with the definition used by Transport for the North in last year’s initial report on a Northern Transport Strategy.8

City regions: The combined authorities that have been formed (Greater Manchester, Liverpool City Region, North East, Sheffield City Region, Tees Valley and West Yorkshire), with the exception of Hull, where the Humber local enterprise partnership is used.

Cities: Primary Urban Areas, as used as standard in Centre for Cities’ work.

Randstad

Randstad geographies

 

Total region: The NUTS3 areas of Utrecht, Flevoland, IJmond, Haarlem Agglomeration, Zaanstreek, Groot-Amsterdam, Het Gooi en Vechtstreek, The Hague Agglomeration, Delft en Westland, Leiden en Bollenstreek Agglomeration, Oost-Zuid-Holland, Groot-Rijnmond and Zuidoost-Zuid-Holland. This definition matches the one used in ESPON analysis,9 but also includes the two NUTS3 areas that cover the ‘green heart’ of the Randstad in line with other research on the area.10

City regions: The city regions are defined according to the definitions for ‘Metropolitan Region’ in the Netherlands, except for Utrecht, where the NUTS3 area is used. For the purposes of this paper this is named Greater Utrecht.

Cities: Eurostat’s Urban Audit, with a night-time population threshold of 125,000 used to make them comparable to the Primary Urban Area definition used for UK cities.

Rhine-Ruhr

Rhine-Ruhr geographies

Total region: The NUTS3 areas of Duisburg, Oberhausen, Bottrop, Mülheim an der Ruhr, Essen, Gelsenkirchen, Bochum, Dortmund, Hagen, Hamm, Herne, Wesel, Recklinghausen, Unna, Ennepe-Ruhr-Kreis, Köln, Bonn, Leverkusen, Rheinisch-Bergischer Kreis, Oberbergischer Kreis, Rhein-Erft-Kreis, Rhein-Sieg-Kreis, Düsseldorf, Rhein-Kreis Neuss, Mönchengladbach, Wuppertal, Mettmann, Remscheid, Solingen and Krefeld.

City regions: The Ruhr and Cologne-Bonn Metropolitan Regions are defined in line with the political groupings of the Ruhr Metropolis11 and Cologne/Bonn region.12 The Düsseldorf Metropolitan Region is defined as the authorities that aren’t included in the other two regions.

Cities: Eurostat’s Urban Audit, with a night-time population threshold of 125,000 used to make them comparable to the Primary Urban Area definition used for UK cities.

Figure 2: Size of the Northern Powerhouse, Randstad and Rhine-Ruhr

Size of the Northern Powerhouse, Randstad and Rhine-Ruhr

Source: Eurostat; ONS, Business Register of Employment Survey. Note: GVA figures are in purchasing power standard (PPS) converted into £ to account for differences in the cost of living across the countries.

Footnotes

  • 1 Defined as Primary Urban Areas. Click here for more on our definition.
  • 2 Duranton G and Puga D (2004), Micro-foundations of urban agglomeration economies, National Bureau of Economic Research working paper 9931
  • 3 Rice P, Venables AJ and Patacchini E (2006), Spatial Determinants of Productivity: Analysis for the Regions of Great Britain, Regional Science and Urban Economics 36 (6), 727-752. A recent study on the largest US cities suggests that agglomeration has an effect over a 60 minute drive time, with the majority of the gains concentrated in the first 20 minutes. See Melo P, Graham D, Levinson D and Aarabi S (2015) Agglomeration, accessibility and productivity: Evidence for large metropolitan areas in the US, Urban Studies (forthcoming)
  • 4 Arzaghi M & Henderson J (2008) Networking Off Madison Avenue, Review of Economic Studies (October 2008), pp. 1011-1038
  • 5 Rosenthal S & Strange W (2003) Geography, Industrial Organization, and Agglomeration, Review of Economics and Statistics (May 2003), pp. 377-393
  • 6 Graham D (2007) Agglomeration Economies and Transport Investment, Journal of Transport Economics and Policy 41 (3)
  • 7 Moretti E (2012), The New Geography of Jobs, Boston: Houghton Mifflin Harcourt
  • 8 Transport for the North (2015), The Northern Powerhouse: One Agenda, One Economy, One North, London: the Stationery Office
  • 9 ESPON (2013), SGPTD Second Tier Cities and Territorial Development in Europe: Performance, Policies and Prospects, Luxembourg: Luxembourg
  • 10 OCED (2007) OECD Territorial Reviews Randstad Holland, Netherlands, Paris: OECD
  • 11 See http://www.metropoleruhr.de/
  • 12 See http://www.region-koeln-bonn.de