Sustaining and
Enhancing London’s
Leadership Position
Venkie Shantaram
Partner
McKINSEY GLOBAL INSTITUTE
Presentation to the LSE
March 2012
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company is strictly prohibited
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Productivity
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MGI’s report ‘Urban World’ highlighted the importance of 600 cities in
driving future global growth
Today
▪
▪
▪
▪
1.5 billion people live in the top 600 cities – 22 percent of
global population
$30 trillion of GDP in 2007 – more than half of global GDP
485 million households, with average per capita GDP of
$20,000
$21 trillion of GDP in 2007 generated by the top 100 cities
Tomorrow
▪
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▪
▪
2.0 billion people will live in these 600 cities in 2025 – 25
percent of the global population
$64 trillion of GDP in 2025, nearly 60 percent of global GDP
735 million households will live in these cities, with average per
capita GDP of $32,000
235 million households in developing world cities will have
income above $20,000 per annum
1 The 600 are the top cities by contribution to global GDP growth from 2007 to 2025.
SOURCE: Urban world: Mapping the economic power of cities, McKinsey Global Institute; McKinsey Global Institute
Cityscope 1.0
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| 3
Successful cities will be the key to future economic growth in the UK
78% share of English GDP growth from urban areas in last 10 years
73% share of English population living in urban areas
26% local government share of public sector expenditure
81% of central government targets are on local spending
SOURCE: ONS, DEFRA, CLG Local Government Financial Statistics England 2010, Barker Review,
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| 4
Key messages
London is one of the world’s great cities –
An economic and cultural powerhouse
It has the potential to remain so, and generate
significant economic growth over the next 20 years
However, there are potential threats to London’s
pre-eminence
A clear strategy for London would increase the
chances of it achieving its full potential
McKinsey & Company
| 5
London is the third largest city in the world by GDP
Grey italic text Developing regions
Normal text Developed regions1
2007 city rankings
GDP2
Total population
Children3
Total households
Households with annual
income over $20,0004
1
2
Tokyo
Tokyo
Mexico City
Tokyo
Tokyo
New York
Mumbai
Mumbai
Osaka
Osaka
3
London
Mexico City
Karachi
New York
New York
4
Paris
Sao Paulo
Kolkata
Shanghai
London
5
Los Angeles
Osaka
Tokyo
London
Rhein-Ruhr
6
Osaka
New York
Sao Paulo
Beijing
Paris
7
Chicago
Shanghai
Dhaka
Sao Paulo
Los Angeles
8
Rhein-Ruhr
Nagoya
Kolkata
Beijing
Delhi
New York
Rhein-Ruhr
Chongqing
Moscow
Chicago
Randstad
Milan
Washington, D.C.
Houston
Dallas
Philadelphia
Belgian central metro
San Francisco
Boston
Moscow
Sao Paulo
Madrid
Mexico City
Atlanta
Miami
Rhein-Main
Delhi
Chongqing
Kinshasa
Manila
Lagos
Buenos Aires
Cairo
Chongqing
Los Angeles
Istanbul
Paris
Mumbai
Mexico City
Los Angeles
Moscow
Seoul
Buenos Aires
Delhi
Kolkata
Rio de Janeiro
Chicago
Nagoya
Milan
Tianjin
Istanbul
Randstad
Nagoya
Mexico City
Seoul
Milan
Randstad
Istanbul
Fukuoka
Philadelphia
Taipei
Sao Paulo
Hong Kong
Miami
Dallas
Washington, D.C.
Madrid
Belgian central metro
Rank
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
London
Dhaka
Buenos Aires
Los Angeles
Karachi
Paris
Manila
Rio de Janeiro
Rhein-Ruhr
Istanbul
Cairo
Moscow
Seoul
Bangkok
London
Osaka
Lahore
Rio de Janeiro
Paris
Baghdad
Jakarta
Lima
1 Developed regions comprise the United States and Canada, Western Europe, Australasia, Japan, and South Korea
2 GDP 2007 in predicted real exchange rate
3 Population below age 15
4 Households with annual incomes greater than $20,000 in purchasing power parity (PPP) terms
5 Mexico City Metropolitan Region
NOTE: For metropolitan regions, we use the first name of the region: e.g., New York for New York-Newark
SOURCE: McKinsey Global Institute Cityscope 1.3
McKinsey & Company
| 6
… and the largest in Europe
Grey italic text Eastern Europe
Normal text Western Europe
2007 city rankings
GDP
Total population
Share of retirees1
Children
Households with annual
income over $70,000
1
London
London
Trieste
London
London
2
Paris
Paris
Genoa
Paris
Paris
3
Rhein-Ruhr
Rhein-Ruhr
Chemnitz
Rhein-Ruhr
Rhein-Ruhr
4
Randstad
Milan
Ravenna
Randstad
Milan
5
Milan
Randstad
Livorno
Milan
Randstad
6
Belgian central metro
Madrid
Parma
Madrid
Madrid
7
Madrid
Rhein-Main
Munich
Barcelona (ESP)
Rome
Vienna
Hamburg
Stuttgart
Lille
Athens
Stockholm
Birmingham
Oresund
Oslo
Dublin
Rhein-Neckar
Berlin
Noord
Venice
Barcelona (ESP)
Belgian central metro
Upper Silesian metro
Lille
Rhein-Main
Athens
Rome
Naples
Berlin
Vienna
Munich
Warsaw
Stuttgart
Hamburg
Birmingham
Budapest
Lisbon
Rhein-Neckar
Venice
Salamanca
Florence
Perugia
Lubeck
Nice
Turin
Leipzig
Rostock
Oviedo
Hannover
Toulon
Dresden
Braunschweig
Modena
Burgos
Limoges
Bremen
Kassel
Corunna
Lille
Belgian central metro
Barcelona (ESP)
Naples
Upper Silesian metro
Rhein-Main
Birmingham
Rome
Athens
Vienna
Munich
Stuttgart
Manchester
Budapest
Warsaw
Hamburg
Lisbon
Noord
Liverpool
Barcelona (ESP)
Rhein-Main
Athens
Munich
Rome
Lille
Vienna
Stuttgart
Birmingham
Belgian central metro
Rhein-Neckar
Luxembourg
Venice
Gelderland
Manchester
Hamburg
Noord
Stockholm
West Yorkshire
Rank
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1 Share of population aged 65 and above.
2 Households with annual incomes greater than €70,000 in PPP terms.
SOURCE: McKinsey Global Institute Cityscope 1.3
McKinsey & Company
| 7
The 3 largest economies in Europe have different profiles –
UK is unusually dependent on London
Small cities & Rural areas
Middleweights
Top city
Number of cities
Share of GDP
%
Share of population
%
24
40
37
Per capita GDP gap to country
Indexed, country = 100
79
82
94
96
86
30
49
43
43
112
46
31
49
33
44
138
157
106
33
29
15
United
France
Kingdom
Germany
24
18
United
France
Kingdom
14
Germany
United France
Kingdom
33
SOURCE: McKinsey Global Institute Cityscope 1.2
26
Germany
29
McKinsey & Company
| 8
In terms of growth, while London outpaced the UK comfortably,
Paris and Rhein-Ruhr were unable to outpace middleweights
Share of country GDP growth 2000-07 by city type
%
United Kingdom
France
2.5
22
Middleweights
1.6
2.3
Middleweights
(examples):
Birmingham
Manchester
2.2
33
1.7
Middleweights
(examples):
Lyon
Lille
40
46
2.0
Middleweights
(examples):
Munich
Stuttgart
Paris
3.0
29
1.9
Rhein-Ruhr
14
SOURCE: McKinsey Global Institute Cityscope 1.2
1.7
1.5
London
39
Megacities
Germany
1.8
38
39
Small cities & Rural areas
CAGR, 2000-07, %
1.5
McKinsey & Company
| 9
Key messages
London is one of the world’s great cities –
An economic and cultural powerhouse
It has the potential to remain so, and generate
significant economic growth over the next 20 years
However, there are potential threats to London’s
pre-eminence
A clear strategy for London would increase the
chances of it achieving its full potential
McKinsey & Company
| 10
Top 25 hot spots in 2025 from MGI Cityscope
Grey italic text Developing regions
Normal text Developed regions1
2025 city rankings
GDP2
GDP growth
2007-25
Total
population
Children3
Total
households
Households with annual
income over $20,0004
1
2
Tokyo
Shanghai
Tokyo
Kinshasa
Tokyo
Tokyo
New York
Beijing
Mumbai
Karachi
Shanghai
Osaka
3
London
Shenzhen
Shanghai
Lagos
Beijing
New York
4
Guangzhou
Tianjin
Chongqing
Los Angeles
New York
Beijing
Delhi
Calcutta
Mexico City5
São Paulo
Mumbai
Dhaka
Calcutta
Mexico City5
Delhi
Chongqing
Osaka
New York
Mumbai
London
5
6
7
8
Los Angeles
Shanghai
Paris
Beijing
Osaka
London
Beijing
Shanghai
Paris
Rhein-Ruhr
9
10
11
12
Rhein-Ruhr
Chicago
São Paulo
Shenzhen
São Paulo
Wuhan
Moscow
Shenyang
Dhaka
Chongqing
New York
Karachi
Manila
Tokyo
New York
Los Angeles
São Paulo
Delhi
Paris
Lagos
Los Angeles
São Paulo
Moscow
Mexico City5
13
Moscow
London
Osaka
São Paulo
Rhein-Ruhr
Seoul
14
Houston
Hangzhou
London
Cairo
Mexico City5
Nagoya
15
16
Dallas
Guangzhou
Chengdu
Singapore
Lagos
Manila
Lahore
Buenos Aires
Calcutta
Tianjin
Chicago
Milan
17
18
19
20
21
22
23
24
25
Washington, D.C.
Dallas
Kinshasa
London
Shenzhen
Mumbai
Tianjin
Randstad
Mexico City5
Seoul
Nagoya
Singapore
Hong Kong
Atlanta
Nanjing
Tokyo
Foshan
Bangkok
Istanbul
Paris
Houston
Seoul
Los Angeles
Shenzhen
Buenos Aires
Cairo
Istanbul
Paris
Tianjin
Bangkok
Baghdad
Kabul
Luanda
Istanbul
Khartoum
Paris
Nairobi
Dar es Salaam
Hangzhou
Chengdu
Los Angeles
Moscow
Wuhan
Dhaka
Buenos Aires
Seoul
Istanbul
Hong Kong
Dallas
Randstad
Bangkok
Shenzhen
Taipei
Houston
Rank
1 Developed regions comprise the United States and Canada, Western Europe, Australasia, Japan, and South Korea.
2 GDP 2007 to 2025 in predicted real exchange rate.
3 Population below age 15.
4 Households with annual incomes greater than $20,000 in purchasing power parity (PPP) terms.
5 Mexico City Metropolitan Region.
NOTE: For metropolitan regions, we use the first name of the region: e.g., New York for New York-Newark.
SOURCE: McKinsey Global Institute Cityscope 1.3
McKinsey & Company
| 11
London is expected to both grow substantially
in absolute size and increase it’s GDP/Capita
above the European median …
Small middleweights (<2 mn inhabitants)
Mid-sized middleweights (2-5 mn inhabitants
Large middleweights (5-10 mn inhabitants)
Megacities (>10 mn inhabitants)
Bubble size indicative of GDP/Cap, 2007
GDP/Capita growth 2007-25
USD ‘000
40
Oslo
30
Munich
20
Rhein-Ruhr
Randstad
London
10
Paris
Median=9.5
Milan
Madrid
Barcelona
0
-10
100
1,000
10,000
100,000
1,000,000
GDP growth 2007-25
USD million
NOTE 1: Only European Cities shown
NOTE 2: All figures relate to real exchange rate calculations
SOURCE: McKinsey Global Institute Cityscope 1.3
McKinsey & Company
| 12
… the growth rate figures are in the mid tier of even the largest cities due
to London’s high initial size
GDP 2007
USD billion
Warsaw
GDP growth rate, 2007-25
Percent CAGR
112
Budapest
5.2%
66
Upper Silesian metro
3.9%
52
3.7%
Munich
115
Hamburg
87
Rhein-Neckar
59
Rhein-Ruhr
215
Stuttgart
68
Rhein-Main
96
Berlin
Vienna
233
Manchester
25
Stuttgart
2.4%
Rhein-Ruhr
2.2%
Rhein-Main
2.1%
Rhein-Neckar
2.0%
Munich
1.8%
Randstad
1.7%
Vienna
1.6%
Lille
1.6%
Belgian central metro
1.5%
300
Paris
2.5%
Berlin
91
London
Budapest
Hamburg
128
Belgian central metro
Upper Silesian metro
1.9%
65
Randstad
Warsaw
2.0%
47
GDP/Cap growth
rate, 2007-25
Percent CAGR
GDP/Cap 2007
USD ‘000
5.1%
23
4.0%
12
3.5%
23
2.2%
49
2.2%
43
2.0%
53
1.9%
46
1.8%
62
1.7%
51
1.6%
35
1.3%
54
1.2%
51
1.2%
34
1.0%
53
Paris
64
0.9%
1.2%
London
64
0.9%
Lille
37
1.2%
Manchester
42
0.7%
Barcelona (ESP)
42
1.1%
Birmingham
42
0.6%
1.0%
Lisbon
0.9%
Athens
0.9%
Venice
Birmingham
27
Madrid
Lisbon
44
14
Milan
Venice
43
12
0.6%
Naples
0.6%
Rome
Rome
17
0.5%
Milan
Athens
12
0.5%
Barcelona (ESP)
Naples
4
0.2%
Madrid
0.5%
30
0.2%
33
42
0.2%
0.2%
22
46
47
38
42
0.2%
0.2%
0.1%
0.1%
NOTE 1: Only European Megacities, large- and midsized middleweights shown
NOTE 2: All figures relate to real exchange rate calculations
SOURCE: McKinsey Global Institute Cityscope 1.3
McKinsey & Company
| 13
Key messages
London is one of the world’s great cities –
An economic and cultural powerhouse
It has the potential to remain so, and generate
significant economic growth over the next 20 years
However, there are potential threats to
London’s pre-eminence
A clear strategy for London would increase the
chances of it achieving its full potential
McKinsey & Company
| 14
Potential threats to London’s pre-eminence
Reduced open-ness to skilled immigrants and international students
Loss of competitiveness in global financial services due to ‘super-equivalent’
regulation
Restrictions on London’s physical expansion
Reduced attractiveness as a HQ location due to poor infrastructure,
uncompetitive tax regimes and restrictions on skilled immigration
Under-investment in London’s cultural and artistic heritage – a major driver of
quality of life and essential to under-pin its attractiveness to global talent
Under-investment in primary, secondary and tertiary education in London
McKinsey & Company
| 15
Despite the crisis, London remains the leading international financial
centre
2006
Financial services contribute 3-6X more to the overall balance of payments in the UK than they do in other countries
EUR billions
2007
2008
51
40
30
9
11 13
9
11 12
3
4
3
3
5
5
2
3
3
0
4
0
-1
UK
Luxembourg
Switzerland
Financial services net
exports
EUR billions
Ireland
US
Germany
Banks
Securities dealers
Fund Managers
Baltic Exchange
Insurance
Other financial services
50,557
41,849
40,426
29,893
24,914 26,692
24,283
22,195
15,784 19,307
15,881
Japan
01
02
03
04
1 Compounded Annual Growth Rate
05
06
-1
-1
France
-5
Hong Kong
-5
-6
Mexico
Spread earnings
FISIM
Contribution of Banks to
financial services net exports
EUR billions
2
08
-5
-6
China
Fee income
Other exports
CAGR1 %
00-05
05-09
00-05
05-09
9
15
16
14
16
14
24
8
28
16
18
19
31,049
25,336
24,431
18,265
07
-5
CAGR1 %
-10
52
-7
-11
20
38
4
12
6
3
12
-15
6,841 6,958
1999 2000
-1
5
2009
1999 2000
13,148 14,929
12,150
8,754 9,559
01
02
03
04
05
06
07
08
2009
2 FISIM stands for Financial Intermediation Services Indirectly Measured
SOURCE: ONS Balance of Payments – Pink Book, IMF, The CityUK research
McKinsey & Company
| 16
Multiple factors drive London’s competitive success
Stable
legal
framework
Culture of
innovation
Magnet for
global talent
Strong arts
and culture
Historically
predictable
tax regime
Low crime
rate
People
and culture
Cost of
living
Benign
corporate
tax rates
Open
migration
Overall
context
English
speaking
Noninvasive
approach of
tax authorities
Openness
to foreign
ownership
Deep local
talent pool
Distinctive
professiona
l services
Primary
international
transport
hub
Leading, but
unsupportive
financial
media
System
and
services
Robust
technology
infrastructure/
future
capacity
Favourable
personal
tax rates
Commercially
minded
employment
laws
Regulatory
system and
reputation
Must visit
road-show
destination
Proximity to
eurozone
Extensive
transport
network
Cutting edge
sophisticated
complex
client needs
Global centre
for research
Welcome
to foreigners
Customer
cluster
Time
zone
bridging
US and Asia
Strong ties
to US
Global client
base
London retains top position in the Global Financial Center Index for 2010
Source: Clusters and the New Economics of Competition (Michael Porter)
McKinsey & Company
| 17
However, the outlook is worrying on several factors
Competitiveness increasing
Competitiveness flat
Stable
legal
framework
Culture of
innovation
Magnet for
global talent
Strong arts
and culture
Competitiveness decreasing
Historically
predictable
tax regime
Low crime
rate
People
and culture
Cost of
living
Benign
corporate
tax rates
Open
migration
Overall
context
English
speaking
Non-invasive
approach of
tax authorities
Openness
to foreign
ownership
Deep local
talent pool
Distinctive
professiona
l services
Primary
international
transport
hub
Leading, but
unsupportive
financial
media
System
and
services
Robust
technology
infrastructure/
future
capacity
Favourable
personal
tax rates
Commercially
minded
employment
laws
Regulatory
system and
reputation
Must visit
road-show
destination
Proximity to
eurozone
Extensive
transport
network
Cutting edge
sophisticated
complex
client needs
Global centre
for research
Welcome
to foreigners
Customer
cluster
Time
zone
bridging
US and Asia
Strong ties
to US
Global client
base
London retains top position in the Global Financial Center Index for 2010
Source: Clusters and the New Economics of Competition (Michael Porter)
McKinsey & Company
| 18
Key messages
London is one of the world’s great cities –
An economic and cultural powerhouse
It has the potential to remain so, and generate
significant economic growth over the next 20 years
However, there are potential threats to London’s
pre-eminence
A clear strategy for London would increase
the chances of it achieving its full potential
McKinsey & Company
| 19
5 levers provide a common architecture to identify opportunities
for economic growth
Concentrations of
industries, functions,
and occupations
4 Physical
and virtual
infrastructure
Enablers
5 Public
and civic
institutions
Talent production,
attraction, retention,
and matching to jobs
1
Economic
sectors/
clusters
2
Human
capital
3
Innovation
and entrepreneurship
Linkages and
movement of goods,
people, and information
▪ Government efficiency
▪
▪
and efficacy
Business environment
Tax value proposition
▪ Innovation performance
▪ Entrepreneurial ecosystem
Source: Team economic development plans; Brookings Metropolitan Policy Program, Chicago Plan for Growth
McKinsey & Company
| 20
Priorities for London’s economic development
▪
▪
▪
▪
▪ Remaining open to skilled immigration
▪ Building on London’s great universities –
Preserving London’s role as the leading
international financial centre
Expanding leadership in professional and
business services
Maintaining leadership in creative industries
Building on early success in High Tech and
bio science
▪
▪
as knowledge factories and magnet for
international talent
Expanding affordable housing
Providing more rented accommodation
for young citizens
1
4 Physical
and virtual
infrastructure
2
Economic
sectors and
clusters
Human
capital
Continued
leadershi
p
3
5 Public
and civic
institutions
▪
▪
▪
▪
Allowing London to expand –
rethink ‘green belt’ policy
Building more airport capacity
Investing in public transport
infrastructure
Eliminating road bottlenecks
through road-pricing and usage
taxes
Innovation
and entrepreneurship
▪
▪
Openness to global talent
Priorities
– Creative industries
– Tourism
– Bioscience
– High tech
– Prof & Business Services
– Financial services
▪
▪
▪
Stronger decision rights for London,
as part of de-centralisation of
power in the UK to cities
Investment in arts and culture, and
public spaces
Equitable distribution of planning
gains to encourage development
and reduce local taxes
McKinsey & Company
| 21
Sustaining and
Enhancing London’s
Leadership Position
Venkie Shantaram
Partner
McKINSEY GLOBAL INSTITUTE
Presentation to the LSE
March 2012
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company is strictly prohibited