The Barker, Eddington and Sub-National Reviews: Implications for London

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The Barker, Eddington and Sub-National Reviews
Implications for London

• Henry G. Overman
• LSE

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Overview

• What are the reviews about?
• How do they fit together
• The relevant recommendations
• The potential for conflict with the sub-national
  review
• The impact on our successful cities
• What to do about our disadvantaged communities

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The Barker Review

• To consider how planning policy / procedures can
  better deliver economic growth alongside other
  sustainable development goals. To assess
• Efficiency and speed
• Flexibility, transparency and predictability
• Productivity and sustainability
• the relationship between economic and other
  sustainable development goals in the delivery of
  sustainable communities

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Eddington Study

• Examine the long-term links between transport
  and the UK's economic productivity, growth and
  stability, within the context of the Government's
  broader commitment to sustainable development.

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Barker recommendations

• More role for the market and (slightly) less
  constraints
• Updating national policy to ensure that the
  benefits of development are fully taken into
  account with a more explicit role for market
  and price signals
• Ensuring that new development beyond towns
  cities occurs in the most sustainable way, by
  encouraging planning bodies to review green belt
  boundaries
• Supporting the town-centre first policy, but
  removing the requirement to demonstrate the need
  for development

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Eddington recommendations

• focus on improving the performance of
  existing transport networks, in those places that
  are important to the UKs economic success
• the three strategic economic priorities for
  transport policy should be
• congested and growing urban areas and their
  catchments
• the key inter-urban corridors
• the key international gateways
• ... Policy should get the prices right
  (especially congestion pricing on the roads and
  environmental pricing across all modes) and make
  best use of existing networks

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Congestion Impact of road pricing 2025
Without
With
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The Sub-national review

• How to further improve (sic) existing
  sub-national structures in England to make sure
  achieve PSAs
• PSA2 Make sustainable improvements in the
  economic performance of all English regions by
  2008, and over the long term reduce the
  persistent gap in growth rates between the
  regions, demonstrating progress by 2006 ,
  including by establishing Elected Regional
  Assemblies in regions which vote in a referendum
  to have one.
• PSA1 Tackle social exclusion and deliver
  neighbourhood renewal, , in particular
  narrowing the gap in health, education, crime,
  worklessness, housing and liveability outcomes
  between the most deprived areas and the rest of
  England, with measurable improvement by 2010.

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Implications of EB?

• Depends on how you think about causes and
  consequences of spatial disparities
• Two clear justifications for dealing with
  spatial disparities
• Its just not fair
• Everyones a winner

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Equity and efficiency

• At the heart of debates over economic
  justification for LED policy
• Equity
• Efficiency
• Its just not fair ? equity role
• Everyones a winner ? efficiency role
• PSA 2 claims both

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Neoclassical growth models

• Output per worker a function of supply of factors
  of production
• Physical capital (private or public)
• Human capital (skills)
• Technology

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Predictions

• Decreasing returns ? Convergence
• Long run differences driven by
• Technology
• Factor mobility reinforces convergence
• Capital flows to capital scarce regions
• Labour flow to labour scarce regions
• With factor mobility long run differences driven
  by technology

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Adjustment Leave to markets but.

• The persistence of these differentials over
  large parts of the last century, points to
  significant market failures in under-performing
  regions and localities. If the economic processes
  driving growth were working effectively, we would
  expect these differences to disappear over time.
  HMT Productivity 3
• Market failures
• Capital mobility
• Indigenous investment

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EB in a neo-classical world

• Barker argues for focus on externalities (i.e.
  market failure) but then pay more attention to
  market signals
• Eddington suggests pricing congestion (i.e.
  market failure) and using market as signal for
  need for investment
• Leave to markets but
• No direct conflict with PSA 2

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Economic geography

• Evidence of increasing (not decreasing) returns
  to geographical concentration
• Location outcomes are a balance between
• Agglomeration forces (benefits of proximity)
• Dispersion forces (costs of proximity)
• What are the implications for PSA 2 and PSA 1?

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Simple diagrammatic framework

• Can demonstrate forces in simple diagram
• Wage curve
• How wages change with city size
• Cost curve
• How costs change with city size

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The wage curve

• Wage increases with city size
• Aggregate increasing returns consistent with lots
  of micro-economic foundations
• Shape depends on exact model

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Cost of living curve

• Components
• Commuting (increasing with N)
• Housing (increasing with N)
• Other (tradable) goods (ignore for the moment)
• Second order effects?
• Wage to cost of commuting
• Wage to demand for housing

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Labour supply and equilibrium

• Labour supply
• Perfect versus imperfect mobility
• Amenities can shift up or down
• Equilibrium
• A unstable
• C stable

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Does a large London matter?

• It may be efficient and equitable to have a large
  London.
• People care about real not nominal wages
• Extreme assumption that people perfectly mobile ?
  real wages equalised
• Strength of agglomeration externality determines
  city size
• Places are different sizes with different nominal
  wages

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Market failures

• Potential inefficiencies
• People may not be mobile
• Propensities versus flows in a world with lots of
  land constraints
• Places are too big relative to the optimum
• ? Coordinating role?
• There are externalities
• ? Fix externalities

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A more realistic labour supply curve
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Mobility and land use

• Encouraging mobility makes London bigger, but
  narrows real wage disparities
• Getting land use constraints wrong can be very
  costly
• Before considering whether we have them wrong,
  need to consider externalities

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Externalities

• There are externalities so optimal net wage curve
  may be higher or lower
• Eddington ? price congestion
• Traditionally, focus has been on what this does
  to the cost curve
• But also affects wage curve
• Overall effect ambiguous

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Fixing externalities
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EB and a larger London

• Price in congestion
• Allow market signals to influence land use
• ? Market signals so extreme (2751 SE 400-8001
  Reading) that congestion (and other
  externalities) need to be massive for a smaller
  London to be efficient
• What about compositional effects?

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Composition effects

• Differences in outcome for skilled and unskilled
  workers reflects equilibrium sorting not market
  failures
• Costs of mixed communities
• Segregated communities preferred by both skilled
  and unskilled.
• Implication for PSAs 1 2
• All regions/neighbourhoods to look alike in terms
  of skill composition
• Big efficiency costs
• Role of sorting also overlooked in discussions of
  implications of infrastructure for regeneration

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People versus places

• Difference between people and places
• The mobile gain from spatial concentration
• No market failure here so you are making a
  straight redistributive choice
• Once allow for traded goods, may not even be an
  equity basis for spatial policy
• It is even possible that policy should encourage
  more uneven development not less!

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Conclusions

• Need to understand the economic mechanisms that
  are leading to uneven development
• Price effects and income effects important (many
  people ignore former)
• Need to be explicit about our welfare criteria
• Changes that enhance inequality but also increase
  the income of people in the poorest region?
• People versus places

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Conclusions

• More thought / evidence needed
• Nature of increasing returns
• Composition effects
• Mobility
• Land use constraints
• Externalities

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Conclusions

• Strength of agglomeration externality determines
  city size
• Places are different sizes with different nominal
  wages
• Imperfect labour mobility leads to differences in
  real wages
• Targeting certain market failures may be win-win
  but others may increase efficiency and bring more
  uneven spatial development

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Linkages between places NEG

• NEG
• Increasing returns to scale
• Transport costs between regions
• Some workers/consumers dispersed and tied to
  particular places

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Intuition

• With IRS, prefer to build one plant
• Benefits of locating in large market
• Cost linkages
• Demand linkages
• Costs of locating in large market
• Product market competition
• Factor market competition

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The role of transaction costs

• Changing transport costs changes balance of
  agglomeration and dispersion forces
• Key - product market competition from the other
  market increases as transport costs fall
• High transport costs, firms in small markets
  protected from competition in large markets more
  competition
• As transport costs fall, firms everywhere face
  more competition ? dispersion force less strong
• Agglomeration as transport costs fall

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