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Micro economists look at firms and macro economists look at countries. Places are important as well.
The FT ran an article on Monday asking why cities and urbanism rarely feature in business courses such as MBAs. This may feel like a bit of an odd question, but the reasons for it are very relevant for cities and urban policy in the UK.
The key part of the article references Paul Romer, of Charter City fame:
“Economist Paul Romer, director of Stern NYU’s urbanisation project…believes the fundamental issue is whether the unit of academic study should be the business unit, as it is today, or the city.”
The teaching of mainstream economics – which has been called into question in light of the financial crisis – gives very little acknowledgement to the role that cities play in the economy. Micro economists concern themselves with firms, and macro economists concern themselves with countries. Both seem to believe that businesses evenly spread themselves out across countries and don’t give location a second thought. Clearly this isn’t the case.
Why is this a problem for UK cities? Because the majority of economists in the Treasury have formed their view of the world through the economics courses they took at university. This means that at a time when the world is becoming increasingly ‘spiky’, with cities around the world playing an ever larger role, UK economic policy continues to largely ignore cities.
Economics isn’t the only discipline guilty of ignoring urban economics. Planning degrees teach very little of this to their students too. Given the role of town planners is to regulate urban economies, I continue to be amazed that planners are given very little formal education in the thing they are tasked with regulating.
This generally means that as cities are absent from national policy discussions, economics also tends to be absent from local policy discussions. As Cheshire, Nathan and Overman point out in their new book Urban Economics and Urban Policy (the first chapter of which can be downloaded for free), many well-known urban policies have not been driven by urban economists. Abercrombie, the overseer of the reconstruction of post-war London, was an architect. Montague-Barlow, author of the Barlow Report, was a lawyer. And Ebenezer Howard, a founder of the garden cities movement, was a farmer, journalist and proofreader for Hansard.
Urban economics should be at the centre of mainstream economics, but instead the work of people like Ed Glaeser continues to be seen as somehow niche and separate. Its absence is a big failing of the teaching of economics in the UK and beyond. And its implications are far reaching. The inability of policy to properly understand and address issues in cities hurts not only the cities themselves, but it has a huge impact on the size of the UK economy.
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