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Part 7 - Agglomeration economics

  • Writer: Sam Knight
    Sam Knight
  • Jun 1, 2019
  • 7 min read

The narrative of agglomeration economic has shaped where decision makers allocate rail infrastructure investment, as proposals that are deemed desirable are those that maximise the benefits of agglomeration that are seen in big cities, such as London. This narrative has interacted with the fact that London has the highest Gross Value Added per capita in the UK (Office for National Statistics, 2018), so that decision makers believe that London’s increased productivity is the result of its agglomeration, and that to maximise this advantage London needs to receive continuous investment to avoid congestion that cause diseconomies of agglomeration (O’Brien, 2018, pp.4). This means that the rest of the country receives less rail infrastructure investment because it lacks the agglomeration effects that London has.


According to Luke Raikes, from the thinktank IPPR North, the Northern Powerhouse rhetoric sought to co-opt this narrative to gain some additional investment, but this has meant only the large cities have gained investment. This is because smaller cities and towns - who have grown faster than the larger cities (Haughton et al, 2016, pp.356) - are side-lined by the narrative of agglomeration economics. This has resulted in them feeling left behind both economically and politically, with the lack of rail infrastructure a visible symbol of this.

The accuracy of agglomeration economics is disputed but it remains embedded in Government thinking, forming a key part of how the Department for Transport (2016, pp.9) appraises transport schemes. This is because it reflects the experiences of decision makers based in London, who believe agglomeration works, because according to Luke Raikes ‘London is the only city in the UK where agglomeration appears to work’. Therefore, the imbalance in rail infrastructure between London and the rest of the country continues, because the narrative of agglomeration economics means decision makers believe they need to invest in London’s railway infrastructure to maximise national growth.

Agglomeration economics is a narrative that has interacted with the material fact that London’s productivity rate is higher than the rest of the country (Office for National Statistics, 2018), so that policymakers believe that investing in London’s rail infrastructure is the most desirable strategy for Government. The narrative of agglomeration economics argues that spatial agglomeration results in increased productivity and therefore increases national growth. By geographically concentrating people and businesses, productivity advantages emerge due to the concentration of specialised skills, knowledge and interactions between firms (Martin and Gardiner, 2018, pp.46). These advantages then encourage more people and firms to move there to take advantage, further increasing productivity and growth.


The then Chancellor, George Osborne (2014a) argued, ‘modern knowledge economy businesses and entrepreneurial types want to flock together’. The implication of this is that if the Government wishes to maximise national growth it must focus rail infrastructure investment on areas that are already growing, rather than seeking to rebalance the economy, as this would hurt economic growth (Martin, 2015, pp.247). This means policymakers have focused on helping London take advantage of its agglomeration advantage, rather than giving a greater share of rail infrastructure investment to the rest of the growth, as this is seen as hurting economic growth.


Rail infrastructure investment plays a crucial role in the Government’s strategy to encourage agglomeration, as the side-effect of agglomeration is that it leads to congestion. As people and businesses seek to move to the centre, it causes prices to increase, leading to more and more people having to commute in. This can lead to diseconomies of agglomeration; therefore, to maximise growth the Government must invest in transport infrastructure to alleviate congestion (O’Brien, 2018, pp.4). This can be seen by key infrastructure projects such as Crossrail, the Thameslink programme and Crossrail 2 which are all designed to tackle congestion into London (Department for Transport, 2017b, pp.7).



It also explains why the current appraisal system focuses on current demands and saving journey times, as this results in investment being focused on tackling congestion into London (28 June 2018, HC 582, Q97). This means that London continues to receive more rail infrastructure investment than the rest of the country, and this situation will only worsen. The result, according to the academic, Craig Berry, is that it ‘is more expensive to build infrastructure in London, in part due to past investment decisions’. This means London needs more and more investment, explaining why Raikes and Corrigan (2018) found London’s share of rail infrastructure has increased since 2014. As the London Assembly Transport Committee (2018, pp.10) themselves accept, ‘in many ways, London’s rail network is a victim of its own success’. This means that London’s demand for investment is increasing, explaining why the imbalance between London and the rest of the country continues.


To try and gain additional rail infrastructure investment the North has had to adopt the narrative of agglomeration economics, although this has helped them, it has meant that the imbalance between London and the rest of the country in rail infrastructure investment has continued. The Northern Powerhouse aims to replicate the agglomeration effects seen in London by connecting the Northern cities together via improved transport links (Osborne, 2014a). Luke Raikes said that ‘it did help in getting the argument over the line, but it’s a double-edged sword. By saying that density is good to get investment in the North, you are also saying London should receive investment’. This has meant that although the North has received additional investment, it has meant that the imbalance in rail infrastructure investment has continued.


The focus has been on the North's major cities, with smaller towns and cities being ignored

The narrative of agglomeration economics shapes what the Government perceives to be appropriate action (Fierke, 2016, pp.164), but the narrative of agglomeration has flaws, leading to them adopting the wrong strategies to maximise growth. Luke Raikes says that the evidence so far fails to show if it is applicable to the UK context. In the UK, smaller towns and cities have been growing faster than the core cities (Haughton et al, 2016, pp.356), but as Cox (2018) says ‘our urban imagination is captured too easily by policy makers and commentators living in London – where agglomeration effects are part of their everyday working life’. Lisa Nandy MP (2017b) agrees saying that the ‘political system is blind to the values and experiences of people who live in our towns’, this has resulted in them not receiving investment in their rail links (Nandy, 2017a). This can be seen by where rail investment has currently been focused in the North. Investment has been focused on improving links across the Pennines between Manchester, Leeds and York. As well as modernising the suburban railway lines in Manchester and improving Liverpool and Birmingham’s stations. When towns have received investment, it is to link them to the nearest city (Department for Transport, 2017a, pp.19-20). As Lisa Nandy MP (2017b) says ‘cities [are seen] as engines of growth, which at best drag surrounding towns in their wake’. The result is that big cities, especially London, receive the greatest share of rail infrastructure funding, rather than smaller cities and towns.


The narrative of agglomeration economics has shaped what the government sees as being legitimate proposals for transport infrastructure investment. The result is that decision makers have seen proposals in London as being more desirable than those across the rest of the country, as they wish to maximise national growth by encouraging the productivity gains that come from agglomeration. Although this narrative does remain embedded in Government thinking, Luke Raikes’s account of the Northern Powerhouse offers hope that it is possible for some regions to use this to their advantage. While this does involve compromises, it is an important first step to challenging the London-centric narratives, that only see investing in London as the way to encourage economic growth. Currently though the narrative of agglomeration economics remains embedded, resulting in the imbalance in rail infrastructure between London and the rest of the country continuing.


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