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Last modified: 04 August 2014

Is London too big and is it holding the rest of the UK back?

I recently went to a public meeting in Liverpool where those questions were debated. I will post my write-up of that event soon. First I will answer the questions myself.

Is London too big?

No.

People working together create more wealth. As more people work together in larger and larger cities agglomeration effects — more meetings, both organised and by chance — increase their productivity still more. Above a certain size though, the congestion and internal segregation of a city can start to reduce the benefit of greater size. If the stifling effect of size is stronger than the positive effect of agglomeration then a city could be said to be too big.

That's the idea anyway.

I've read about this, and heard people talk about it, so I looked for the figures that backed up the theory. I found them so hard to find that I suspect I'm missing something. This is the best I could come up with.

The scientist in me finds that trend line ridiculous. There is no justification for it at all and I am surprised that the OECD published it. The data does not convince me that agglomeration effects are curtailed at large city sizes, so I'm sticking to the null hypothesis that they don't.

You might be thinking that the data also doesn't show that agglomeration effects exist but the minimum city size is well above the level at which those effects start to occur so we can't say that.

I'm much more convinced by Barney Stringer's argument that London is in fact too small!

Of course there are others ways of looking at the question. Is London's influence on the nation too big? Yes, I absolutely think it is. I took that to be the subject of the second question.

Is London holding us back?

Yes.

I was stunned at the debate in Liverpool to hear Henry Overman state that he could think of no way to answer this question, so let me suggest one. The North of England has a similar population to a number of nearby Northern European countries with similar cultures and economic histories. Denmark, Finland, Norway, Austria, Sweden, and Ireland all exist without London and my scientific mind sees seem as good subjects for a controlled study.

If London were a boost to the North of England's economy we would expect the North to be richer than these countries.

If London were of no effect to the North of England's economy we would expect the North to be as rich as these countries.

If London were holding us back, we would expect the North to be poorer than these countries.

Let's look at the data.*

The answer is clear; London is holding the rest of the UK back!

I have explored, and will continue to explore, how this happens but in answering the question here the mechanism is of little importance.

But, But, But, But...

"Ireland's a tax haven", "Northern culture is not like in the Nordic countries", "Austria is uniquely well placed in Europe", "Iceland's GDP figures are a sham", "Ireland's only rich because of the EU bailout", "Norway's only wealthy because of Oil", "Sweden's too big to compare to the North of England".

I've heard lots of reasons why I'm wrong and why the North of England, unlike every one of our Northern European neighbours, is uniquely deficient and in desperate need of London. I don't believe them. If instead of anecdotes, my critics produced facts I would be willing to change my mind.

 

* The GDP per capita of the North of England (North-East + Yorkshire + North West) and South-East (East + South-East + London) is calculated according to the contributions of those regions to the UK's total GVA per capita.

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