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In amongst the excitement of George Osborne’s recent announcements on devolution, it was easy to miss that he also announced that he will increase the number of enterprise zones across the country. If the next wave of zones is to be more successful than the previous two, then they should be placed where they were originally intended to go – into city centres.
Supporting city centre economies should be the central focus of economic development policy across urban Britain. High-skilled, high-paid services jobs are increasingly clustering in our most successful city centres because of the benefits of face-to-face interaction. Despite past claims about the death of distance as a result of ever more sophisticated communications technologies, the opposite is true. This is why 28 percent of all high skilled private sector jobs in England and Wales –which in theory could locate anywhere – are actually located in the 0.2 percent of land taken up by our city centres.
But not all city centre economies perform well. While the centres of London and Manchester have been very successful in recent years, a number of cities have seen the number of private sector jobs in their centres contract, even when they have seen an increase in job numbers at a city wide level. The result is that much of the jobs growth seen in these places has been in low-skilled, low-paid occupations, often on edge of town locations.
Given that the UK is likely to continue to specialise in knowledge-based service activities, and given the increasing preference of these jobs for a central location, the lagging performance of many UK city centres poses a big challenge to the future growth not only of those places, but of the national economy too. And so if the aim of policy is to improve the economic performance of these places, then it needs to focus on improving the performance of their urban cores.
This brings us back to the potential benefits of enterprise zones.
The policy to date has not been a roaring success for two main reasons. The first is that it has been poorly targeted. The vast majority of enterprise zones to date have focussed on creating new office space on edge of town sites. But there is no clear rationale for the public purse to be subsidising businesses to locate next to one another in out of town locations – the increases in productivity that result from businesses locating next to one another tend to occur in dense city centres. The second is that they have struggled to create new jobs, instead simply encouraging businesses to move from one part of a city to another.
The implication is that not only have enterprise zones ignored the problems faced by struggling city centres, they have actually risked compounding these problems. By subsidising office space out of town, they have actively encouraged businesses not to locate in a city centre. And they have also pulled down rental yields in city centres, making private sector investment in these areas even less likely. Meadowhall in Sheffield and Doxford International in Sunderland bear testament to this.
Now, not all city centres are likely to become centres of the knowledge economy. But given the changing geography of jobs seen in recent years, and the likely continuation of this in the future, policy should at least work with the grain of change to encourage the growth of knowledge-based jobs, rather than against it.
So if the Chancellor is determined to have a third wave of enterprise zones, they should be placed in city centres. They won’t turn struggling city centres around on their own. But in conjunction with skills and transport policies they will at least attempt to encourage the concentration of economic activity, and the benefits this brings for both cities and the national economy, rather than undermining it.
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