The Barker, Eddington and
Sub-National Reviews:
Implications for London
Henry G. Overman
LSE
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
The Barker Review
• To consider how planning policy /
procedures can better deliver economic
growth alongside other sustainable
development goals. To assess:
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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”
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.”
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;
Eddington recommendations
• […] focus on improving the performance of existing
transport networks, in those places that are important
to the UK’s 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
Congestion: Impact of road pricing 2025
Without
With
The Sub-national review
• How to further improve (sic) existing sub-national
structures in England to make sure achieve PSA’s:
– 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.
Implications of E&B?
• Depends on how you think about causes and
consequences of spatial disparities
• Two “clear” justifications for dealing with
spatial disparities
– “It’s just not fair”
– “Everyone’s a winner”
Equity and efficiency
• At the heart of debates over economic
justification for LED policy
– Equity
– Efficiency
• “It’s just not fair”  equity role
• “Everyone’s a winner”  efficiency role
• PSA 2 claims both
Neoclassical growth models
• Output per worker a function of supply of
factors of production
– Physical capital (private or public)
– Human capital (“skills”)
– Technology
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
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
E&B 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
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?
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
The wage curve
• Wage increases with city size
• Aggregate increasing returns consistent
with lots of micro-economic foundations
• Shape depends on exact model
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
Labour supply and equilibrium
• Labour supply
– Perfect versus imperfect mobility
– Amenities can shift up or down
• Equilibrium
– A unstable
– C stable
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
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
A more realistic labour supply curve
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
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
Fixing externalities
E&B and a larger London
• Price in congestion
• Allow market signals to influence land use
 Market signals so extreme (275:1 SE:
400-800:1 Reading) that congestion (and
other externalities) need to be massive for a
smaller London to be efficient
• What about compositional effects?
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 PSA’s 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
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!
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
Conclusions
• More thought / evidence needed
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Nature of increasing returns
Composition effects
Mobility
Land use constraints
Externalities
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
Linkages between places: NEG
• NEG:
• Increasing returns to scale
• Transport costs between regions
• Some workers/consumers dispersed and tied to
particular places
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
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