Please note that this is BBC copyright and may not be reproduced or copied for any other purpose. RADIO 4 CURRENT AFFAIRS ANALYSIS WHERE IT’S AT TRANSCRIPT OF A RECORDED DOCUMENTARY Presenter: Diane Coyle Producer: Michael Blastland Editor: Nicola Meyrick BBC White City 201 Wood Lane London W12 7TS 020 8752 6252 Broadcast Date: 07.12.00 Repeat Date: 10.12.00 Tape Number: TLN046/00VT1049 Duration: 27’37” Taking part in order of appearance: Ed Glaeser Professor of Economics, Harvard University Jane Oddy Human resources manager, Intrinsic Peter Dawe Entrepreneur, founder of Pipex Nick Crafts Professor of Economic History, London School of Economics Ed Balls Chief Economic Advisor to the Treasury COYLE Here’s a familiar idea. So familiar, in fact, that it’s earned the status of received wisdom -- which is a hint that it’s asking to be knocked off its pedestal. But before we topple it, it goes like this: Everything is becoming footloose, or globalised to use the vogue phrase. Thanks to new communications technologies, each of us can be anywhere at all, while money, ideas, a day’s work can be piped down a phone line and a modem. In sum, so the argument runs, place is irrelevant in the new economy. And the days of big concentrations of economic activity, especially the congested, filthy, arthritic old cities - are numbered. GLAESER Cities can be thought of as coming about because of the desire to eliminate transport costs for goods, for people and for ideas. Cities exists because we want to move things more cheaply. COYLE Ed Glaeser, Professor of Economics at Harvard University and an expert on urban concentration. GLAESER But, over the past century or, you know, over the past two centuries, the role of cities for eliminating transportation costs for goods has really rapidly disappeared. Two hundred years ago, cities were ports, cities were railway hubs, cities were centres for the movement of physical goods but no longer are transportation costs for goods that important. As these costs have rapidly decreased, the ability to move production centres either into the suburbs, into the hinterland or out of the country altogether had meant that this function of cities has really disappeared. And, I think, people have reasoned by analogy from this that as transportation costs for other things had declined as well, cities will lose their value to society and particular urban centres will no longer be relevant. COYLE The reasoning sounds plausible, perhaps even appealing. There’s plentiful anecdotal evidence to fuel an idyllic vision of the jobs of the future being spread far from traditional locations. Evidence like the number of new recruits drawn to Intrinsic, a software consultancy business which appeals to those looking to escape from the hassles of working in a city centre. Jane Oddy is human resources manager for Intrinsic’s 150 staff, nearly all of whom telework. ODDY They didn’t enjoy sitting nose to tail and breathing in somebody else’s exhaust fumes, they didn’t enjoy sitting on a train for hours on end wasting time and they didn’t enjoy, often, the bureaucracy that comes with a large organisation. What we’re doing is .. is we’re blurring the boundaries between work and home so that work becomes a pleasure. COYLE So distance is dead. The great cities are decaying corpses of the industrial past. The green and democratic dream for the future is for many of us to work as suburban or rural online artisans. But is it true? Or are we getting carried away with a technological illusion which hasn’t been put much into practise and might not even work in theory. Peter Dawe is a new technology entrepreneur based in Cambridge. He founded Pipex, one of Britain’s first internet companies. You’d expect him to be an evangelist for the liberating geographical possibilities of a wired workforce. In fact, he says, we need to change the way we think about work. DAWE I actually think that now we’ve got to re-write the economics books. The economics books say that capital’s immobile, meaning factories, mines and things like that and that labour is mobile, you know, ‘get on your bike’ sort of thing. Whereas, in fact, the case is now that the capital is actually very mobile because it’s computer equipment, lightweight and the like and intellectual property, which is also very mobile. The thing that’s least mobile now are the people. So I actually think we’ve got to start thinking now about changing the emphasis towards worrying about mobility of capital rather than the mobility of labour COYLE That’s surprising. After all, it used to be that machines tied us to particular places, usually in cities. The story of the industrial revolution is one of workers forced to migrate from the countryside to become factory fodder in urban conglomerations. So how can it be possible that people, not machines, are the least variable ingredient in the economic stew? Ed Glaeser, having set out the conventional wisdom so eloquently, argues that it actually needs standing on its head. GLAESER While it is certainly true that the internet makes it possible to access ideas from remote places, it may be possible that increasing information technology may, in fact, increase the demand for cities and the argument runs like this. Basically, what happens as information technology gets more usable is that we move, in general, towards a more interactive society. So, when we are phrasing this, is the broad question of whether or not information technology will hurt or help cities - it’s whether or not electronic interactions and face to face interactions are complements or substitutes. as economists say. Do they go together or do they substitute for one another. And, I believe, the available evidence is at least as friendly to the idea that they’re complements than that they’re substitutes and that means, if they’re complements, that improvements and information technology will actually increase the demand for face to face interactions and increase the demand for cities. And just to run down a bit of what that evidence is: We know that people who make telephone calls towards each other are much more likely to live close together, and much more likely to come into face to face contact with each other. Telephone calls are not made from people who are physically far apart - they’re made from people who are physically close, presumably, in some sense, to co-ordinate face to face interactions. The rise of the telephone itself was thought to be a harbinger of doom to urban areas a century ago. Needless to say, that has not happened and, in general, there’s been sort of a positive relationship between telephone development and urbanisation. COYLE So, the better the communications technology the more people will want to see each other face to face. It won’t necessarily be in the same places as in the past, but it still means concentration somewhere. And they will have more contact with each other and more ideas to exchange as those ideas grow more complicated. GLAESER If we look across industries, I don’t think it’s a surprise that, in fact, the most famous centre of agglomeration in industry, today, which is Silicon Valley is also the place where you have the most access to information technology. We also have evidence on business travel - remember twenty years ago, people thought that the rise of the fax and email and, later, the internet would eliminate business travel - we’ve seen, sort of, an unceasing rise in business travel since 1985 even controlling for the decline in transport costs, at least, within the US. So, it certainly appears that this measure of face to face interactions has actually risen as a result of improvements in telecommunications. COYLE That is a revolutionary challenge to conventional wisdom. But is it right? Take the example of research and development, or R&D, which consists precisely of the production of new ideas. Nick Crafts is Professor of Economic History at the London School of Economics. As he sees it, personal contact could prove especially valuable in high-tech industries because ideas are so important. CRAFTS We’re talking about a world in which tacit knowledge is quite important. Know-how as opposed to ‘know exactly why’ is quite important. Codified knowledge is essentially things that can definitely can be written down in a text book and communicated in mass production style to everyone who wants to know. Tacit knowledge is more experience, it’s more knowing how you think a technology has worked, what strains it can bear - often thought of as the difference between engineering and physics. Engineering has a lot of tacit knowledge about it. I think R&D engineering does too. So, I think, part of what’s important is that and there’s another aspect which is, perhaps, to do with other forms of closeness than just R&D which is about the importance of feeling that you understand someone, that you can trust them, that you like their reputation - and that’s closer to things that we would recognise as body language which is quite hard, I think, to understand at long distance. DAWE When you’re close, it’s often not the conversation - the core of the conversation that imparts the important information, it’s the aside. COYLE Peter Dawe, the internet entrepreneur from Cambridge. DAWE You’re much more likely to do an aside, you know, when you’re face to face than if you’re typing through email. COYLE So you mean there’s a sort of, serendipitous aspect to the conversation if you go out to the pub afterwards? DAWE It’s not just serendipitous. It’s a case of asking questions that you wouldn’t like to put down on paper, you know, the damn fool question which you can say because it’s ephemeral whereas if you’ve done it over a medium, you have a sense that, well it … there’s more importance to it so you don’t do it. So, there’s lots of things that you can do off the record and what have you and you can trust it face to face. COYLE In other words, no technology can fully replace personal contact. Besides, says Peter Dawe, there are other reasons for deciding not to live the telework dream. The fatal lure of one more cup of coffee, walking the dog, nipping to the shops or any other excuse to put off getting started. The number of teleworkers has increased this past decade, but while some people can work at home part of the time, it is hard to see many doing so often enough to change our economic geography. Work discipline doesn’t fit well into the living room. According to Nick Crafts, one of the consequences of the success of industries that depend on tacit knowledge and on reputation, high-tech activities like scientific research, software or finance, is the growing importance of personal relationships, and of social rather than legal sanctions. CRAFTS I think we can argue that the commodity which was made was clearly very viable in terms of it’s quality. You know, we know it’s a Friday afternoon special made by a British motor car company which has fortunately gone out of business. We can see that it doesn’t perform correctly and we can see that it hasn’t been made and we can try and, as it were, exercise our warranty or whatever else it is that is our comeback against the manufacturer. When we are trying to commission things like new ideas, then the verifiability issue becomes much larger. So, an important issue is whether or not the interaction can be controlled in alternative ways - and repeated interaction is quite important. It’s called, if you like, living with the neighbours. I think I’m suggesting this is likely to be a bit more important in a knowledge intensive economy than one which is trying to produce relatively homogeneous commodities. COYLE It was easy with standard products like cars, but today’s economic success stories are rather clubby. That means the people building the success of industries where ideas really matter need to know each other, and stake a lot on their reputation rather than the long arm of the law courts. But what does the telework pioneer Jane Oddy think? Are her employees content at home in front of the computer, the cat purring peacefully at their side? ODDY We found that, in fact, people do need eyeball to eyeball contact with people. You need to be able to meet people to influence them, to be able to make decisions and although we’ve go the technology available to us, that doesn’t necessarily give you the key influences that you need to motivate people to act, to make decisions. COYLE So how do you deal with it? How do you set up the face to face contact? ODDY Well, what we’ve done we’ve evolved the remote working practice so that we have resource centres where people can come and work from so the people aren’t working entirely from their own home or from another environment. COYLE So, in other words, you have set up offices in the end? ODDY We’ve set up … when I say offices, they’re places where people can work and places where people can meet. There are also a number of other things we’ve done. We have, for instance, every six weeks, the whole company gets together, again, for information sharing and I think that’s quite and important … COYLE … all 150 staff come …. ODDY Yes. Again, so that everybody’s getting the same message at the same time. Also to help with team building, to organise activities where we can work together so that where we can understand more about how people work, how people tick because some of this you can do remotely but some of it you need eyeball to eyeball contact and relationship building times where you can actually spend time with people. COYLE The get-togethers at Intrinsic start with speeches from the top management and might end with an evening at the bowling alley. Jane Oddy still believes there are big benefits from teleworking, but the company just found itself spending a fortune hiring meeting rooms in hotels. So being in the right place, face to face with other people, matters more than ever. Does that mean the fate of our cities is safe in the knowledge that urbanisation is good for success? Unfortunately not. The case for being together in one place may be stronger then ever. But that just raises new, intriguing questions. For there’s nothing here that tells us which places will be the right places. More worrying, which will be wrong? By warning us that there are right and wrong sides of the tracks, we’re faced with renewed doubts about the fate of cities, even whole regions. It’s regrettable, even alarming, but this is an economy of winners and losers, of growing inequalities between different places. People and companies are likely to cluster wherever there are plenty of other people and other companies. Will success continue to breed even more success? Ed Glaeser. GLAESER Yes absolutely. Across urban areas it is remarkable, the diversity of outcomes, where some areas have done phenomenally well and some areas have done phenomenally poorly and, I think, unquestionably we should expect this in the future. Places that don’t have, you know, lots of local entrepreneurship, don’t have strong skill bases, follow local policies which particularly attract the poor and repel the rich, have bad endowments in terms of the weather - this is, actually, the number one factor that explains urban growth in the US over the past 50 years, is the weather. Those factors, those cities have done phenomenally badly relative to the other .. to the other ones and I think there’s no reason to doubt that that will continue and no reason to doubt that, at least, within the US I think it’s clear that there are going to be a half dozen cities, I mean dense cities, that will continue to be winners over the next half century or the next century. On the other hand, a lot of the urban areas in the US are, I think, just, you know, collapsing as their housing stock depreciates and will continue declining at roughly 1% a year, which is approximately the rate of depreciation of housing stock in the US. COYLE You’re suggesting they will literally crumble out of existence? GLAESER That’s right but it takes a long time. COYLE In this country the weather will hardly be a deciding factor; it’s terrible everywhere. But here too it is probably now possible to single out the economic winners, some old, like London, and some new. So why did Peter Dawe’s string of internet successes happen to be in Cambridge. What is it that made this place, for him, a winner? DAWE From my perspective, I just happened to live there - I didn’t even go to University there, I moved there to marry my wife who did live there. The interesting thing is I haven’t moved and the reason for that is that all the human interaction that goes on in Cambridge and that interaction is actually a very strong network. You know, you meet people from all over and talk with them - your competitors, your suppliers and people who, sort of, don’t matter today but might matter in the future. And, in Cambridge, that network has actually pervaded into a air of optimism and of innovation. You walk down the street and, you know, even the street cleaner is thinking about doing a management buyout - it’s a, you know, it’s an amazing atmosphere in Cambridge. COYLE And do you think that’s hard to replicate anywhere else? DAWE It must be hard to replicate because a lot of people are trying it. One of the great aspects of Cambridge is, you know, all the real work is done around the lecture or the conference, you know, in the coffee bars and I think we will eventually invent the conference where there are no speakers - just coffee breaks. COYLE I like that idea a lot. DAWE It’s interesting, you know, so you’re saying you like it a lot - why don’t people do it, you know, it’s so obvious. COYLE Why indeed? There’s an interesting element of pure chance in his decision, and that crops up again and again in economic geography. Silicon Valley, the most famously successful place on the planet, happens to be there because Dave Hewlett and Bill Packard, the founders of computer company Hewlett Packard, were graduate students nearby at Stanford University. It’s a typical piece of historical happenstance. But whatever the reason, some places, Cambridge amongst them, are really buzzing. If the unequal tendencies run their course, others will turn out to be in terminal decline. Rusting industrial centres in the North, or former mining villages whose mines have closed, don’t buzz very busily at all. Ed Glaeser is currently in the middle of research that suggests another reason for sorting the sheep from the goats, geographically speaking. And that is simply whether or not you’d want to live there. GLAESER The future of many cities would be focused on their ability to be, what we call, consumer cities or places that are pleasant for consumption. And, when we think about the cities that will do well and the cities that will do poorly, the places that will do well are places that can attract workers whereas, you know, at least, in the US, the cold places, the dark places, the places with bad, you know, environmental amenities - these places have really lost citizens. So, to the extent of which, you know, we want to tell cities in strategy to do well or to the extent on which we want to predict which cities are going to do well - think about places that are sort of pleasant consumer cities. COYLE This might be as straightforward as having a nice park or two or as challenging as building Tate Modern. The new importance of being in the right place, and the unfairness this implies for people in the wrong sorts of place, might help explain why the government has been focussed on the geography of economics to an unprecedented degree. In last year’s competitiveness White Paper it emphasised the importance of new high-tech industrial clusters in places like Cambridge or Oxford. And in last month’s pre-Budget report, Gordon Brown announced new measures intended specifically to boost the economies of geographical pockets of deprivation. Does this mean the government does accept there will inevitably be growing geographic inequality? Ed Balls is chief economic adviser to the Treasury, and he has never before given an interview since starting work in government. As the most influential of Gordon Browns advisers, he’s one of the most powerful figures in economic policy-making. BALLS There’s no doubt that the new economy and the new technologies which are affecting everybody’s lives and changing the way in which business operates, are providing many new opportunities but they’re also producing many new opportunities which people can only take advantage of if they can actually change the way in which business is done. And I think that what we will see is, in order to take advantage of those technologies, is more and more businesses clustering together. If you look around the world, the successful economy is taking advantage of the new economy have actually seen big outbursts of clustering activity: the Washington corridor between Dallas airport and the city, what’s happening in Massachusetts, we’ve seen it in North Italy as well and in the UK, whether we’re looking at Oxford and Cambridge, corridors outside of London. But, also, in particular areas within Leeds and new opportunities being created in Sheffield, firms are coming together to use technology but also to use that to deepen their interaction and to get value added out of that. COYLE Yet no matter where you find the examples of success stories, in practice it seems hard to escape the conclusion that there might be places that are simply redundant. Ed Glaeser certainly thinks so. GLAESER It’s by no means obvious that, you know, cities need to exist forever. Nor is it clear, I mean, you know, as far as the policy response, nor is it clear that the government should be about preserving cities. I mean, I’ve always believed the government should be about helping people and it may very well want to undertake policies that specifically help the residents of those cities because they are, in fact, often in a great deal of pain but that doesn’t mean you need to preserve the place. It doesn’t necessarily mean that, you know, every single cities needs, you know, major government handouts to make sure that it continues to exist in perpetuity. COYLE After all, entire industries have been allowed to vanish; why not towns and cities, especially since particular places have so often been the offspring of specific industries? Those Tuscan hill towns we love to visit on holiday are preserved so perfectly precisely because they lost their earlier economic raison d’etre at a rather picturesque point in history. Coal mining villages, their slag heaps landscaped over but still scarred by poverty and unemployment, stand as an evocative symbol of the human costs of economic decline. Being irrelevant turns out to be much worse than being exploited. Nick Crafts reminds us of the scale of the dislocation that could be involved in geographic redundancy. CRAFTS The biggest single failure is not quite a city but it would be Wales in the inter-war period. That was an economy which was hugely dependent on coal exported into the world market. Those markets largely became closed in the inter-war period and, in the whole of the inter-war period, it never really got it’s coal market back again and that was a massive traumatic outcome at a time, when in the later 1930’s, areas like London and the South East would perfectly, reasonably strike you as prosperous. COYLE In fact, economists during the inter-war years of the 20th century used to speak of "inner" and "outer" Britain, a division which more or less corresponded to the Home Counties and the rest. Nearly a hundred years on, the regional divide is as raw as ever. Of course, it would be neither good economic policy nor good politics to close down Wales or the North. Ed Balls. BALLS We all have to accept that places change and that the tradition may have been to work within one town, in one industry, to walk to work for the children of families to go into the same industry and that is changing. On the other hand, in the towns where that kind of experience was real life, there’s an enormous degree of community spirit and civic pride. The challenge for government is to tap into that strength and dynamism of civic pride which underpin great industries in the past, and use to build great industries in the future. COYLE He would hope, then, that many places carry the seeds of their own regeneration. The government’s job is to nourish the seedlings of enterprise, no matter how barren the ground. But hope may not be enough. Nor is it clear, if we accept the logic of helping people not places, that places should have an automatic right to exist. There are real questions about how much the government can actually do to influence the geographic development of the economy. Indeed, when it comes to nurturing successful industrial clusters, some of the most helpful government policies might seem, on the face of it, pretty tangential, not to say controversial. Professor Nick Crafts has one surprising example: a liberal immigration policy. CRAFTS I do think we could argue that’s one of Britain’s advantages in the run up to the industrial revolution: that it is a society which absorbs immigrants. Immigrants or disadvantaged groups even, probably contribute than proportionately to entrepreneurship. And, I think, it’s also the case that if we investigate where innovation’s and inventions were made in the 18th Century, they’re much more likely to be found in urban than in rural environments. So, the combination of cities which are quite large and in which there are also immigrant groups and interchange of ideas and so on, the opportunity for social mobility eventually to occur, if not for the original immigrants, at least for their descendants, I think was a contribution to a more innovative economy than otherwise would have been the case. COYLE The policy response by cities could be even more provocative. When you’re vying for economic survival, entrepreneurship is definitely not an easy option but rather a wild frontier. How should another place try to repeat the success of Peter Dawe’s home town, Cambridge? DAWE Get a management team and go in there and steal parts of businesses. Don’t expect Cambridge to shift parts of their business out and don’t expect the management within those businesses to shift their business out. The thing you won’t get is the manager in Cambridge volunteering to shift his department away from Head Office. So, what you need is a team from Norwich coming in and rustling the support away from the manager who has an interest in keeping it in Cambridge. I spent 3 years of my business trying to open a second office away from Cambridge and failed. COYLE But his very practical answer raises an alarming spectre. Surely we don’t want the new economy equivalent of the wild west, where some places enjoy a gold rush and the others become ghost towns? For Ed Balls, the ideal is to exploit the forces behind geographic clusters without letting the least successful communities get left behind. BALLS I think we have to have two different dimensions to our policy for enterprise and employment creation across the regions. We have to have one strand which is saying in every region of Britain there are centres of excellence and they can be the centres of dynamism and entrepreneurship and new investment. At the same time, we also have to admit that within every city including London and including Leeds and Manchester and Newcastle, there are going to be particular areas where, in the past, there haven’t been businesses been created at all and where there is persistent unemployment and inequality. And, for those areas, it’s not expecting them to be the new clusters for the new economy, in those areas it’s more basic than that - it’s whether you can get businesses to be created at all, whether you can get people actually getting skills at all, whether you can get people getting into jobs at all and I think we can have a localised effort to get enterprise and opportunity everywhere and, at the same time, have a regional policy which is about building centres of excellence in clusters based around the new economy in every region. COYLE It’s easy to understand why the government is looking for a middle way, something in between the unattainable even geographical spread of economic activity and the undesirable winner-takes-all trends in the new economy. But it does sound contradictory, to strive for clusters of success which don’t imply areas of failure, hot- spots with nothing chilly in between. None of us would press the government to start passing sentence on the losers, of course. It would be politically suicidal and besides, nobody can be sure in advance about where exactly success and failure will lie in the economy of the 21st century. The chance to thrive must be left open. Still, while we know it’s easy for governments, like inept fairy godmothers, to transform successes into failures, making the spell work the other way round will be even harder for lame-duck places than it was for dying industries. 23 1