00Executive Summary

Over the last 100 years all cities have been buffeted by the winds of economic change. Globalisation and technological and transport developments have meant that they have had to continually adapt to these changes, both to continue to provide jobs and contribute to national economic growth.
These global changes have altered the role that our cities play in the national economy, meaning it is now proximity to knowledge rather than proximity to resources that is the primary driver of city growth.

Those cities that have adapted to this change have reinvented their economies, creating jobs in new, more knowledge-focused industries to offset losses in more traditional industries. These cities, such as Reading and Brighton, have thrived as a result, creating many thousands of jobs in higher-skilled, higher paying occupations.

Those cities that have struggled over the last 100 years have merely replicated their economies. They have replaced jobs in declining industries with lower-skilled, more routinised jobs, swapping cotton mills for call centres and dock yards for distribution sheds. Some cities have struggled even to do this – Burnley has half the total number of jobs in 2013 that it did in 1911.

The developing geography of knowledge has had long-lasting implications for the performance of cities across the country, giving rise to the ‘North-South divide’. Many have diagnosed the cause of this to the decline of the traditional industries that city economies of the North and Midlands were based around. But our weakest performing cities have struggled not because of the inevitable decline of manufacturing employment, but because of their inability to support jobs growth in new, more knowledge-focused industries.

The result is that the ‘South’ has been pulling away from the ‘North’ for a century. Since 1911, for every job created in the North, Midlands and Wales, 2.3 have been created in the South.

History matters in explaining these patterns. Firstly, those cities that have historically had a greater share of jobs in more knowledge-focused industries tend to have a greater share of knowledge jobs today. Secondly, the scale of more traditional industries in 1911 has cast a long shadow over some cities – Manchester lost around 400,000 jobs in manufacturing over the last century – creating a vast job-creating challenge.

But policy also matters. The post-war new town initiative has seen the huge growth of cities in the South. Crawley has seven times the number of jobs today than it did a century ago, while Milton Keynes didn’t even exist until the 1960s, but now has over 150,000 jobs within its boundaries. Public sector jobs, particularly through health and education, have also made big contributions – the public sector accounts for an estimated 900,000 of the 1.8 million extra jobs in London today compared to a century ago.

Policy that has more explicitly attempted to reduce the North-South divide, which can be traced back to the 1930s, has been much less effective. We’ve had 80 years of policy attempting to boost growth in the regions, but the gap in performance has widened over this time. This is because the majority of interventions have tended to re-enforce the existing industrial structure, replicating their economies with policies designed to support low-knowledge, more routinised activities only, as opposed to supporting reinvention by increasing their attractiveness to more knowledge-focused services jobs. These sentiments continue to echo in policy today, illustrated by George Osborne’s call for a ‘march of the makers’¹ and the overt focus of the Regional Growth Fund on manufacturers in the North and Midlands.

If policy wants to improve the performance of cities that have struggled in recent decades it needs to stop obsessing about returning to the past and look to the future by focusing on improving the attractiveness of these cities to knowledge-focused businesses. Successful cities of the future will be those that adapt to the constant change that the 21st century will bring, in the way London and latterly Manchester have done in recent decades.

To support the ability of cities to adapt, the long-term strategic objective of economic development policy should be to improve the stock of knowledge in cities and address the implications of industrial decline. This should centre on:

1. Improving the skills of the workforce. Knowledge businesses require high-skilled workers. The ease with which they can recruit these workers is a key determinant of where they locate.
2. Supporting innovation. High-skilled workers don’t just work anywhere – they cluster in successful cities. This is because a worker isn’t more productive just because of the qualifications that he or she holds, but also because of the workers he or she works with and the institutions that he or she works in. The ‘knowledge networks’ that workers are part of are place specific, and cities need to be able to facilitate innovation and the creation of new ideas via their knowledge networks to increase long-run productivity.
3. Dealing with the scars of industrial legacy. The 21st century economy requires less employment space – an office has a smaller footprint than a factory. And this employment space tends to be in a different part of the city – jobs in our most successful cities have been concentrating in their city centres. This shift has left large swathes of empty land and buildings in some cities, so encouraging density of employment should be done alongside dealing with land remediation.