Is Manchester leaving Liverpool behind?

Last summer, I spent a few days in Manchester researching a piece about the city’s economic revival and its increasing prominence in national debates about the merits of dispersing power to Britain’s cities and regions. When I talked to significant political figures in the north-west, including the chief executive of Manchester City Council, Howard Bernstein, and Richard Leese, the Council leader, there was one question I kept asking: how has Manchester managed to handle its post-industrial transition so much better than its neighbour 30-odd miles down the M62, Liverpool?

Bernstein and Leese were too savvy to risk inflaming ancient rivalries by giving me a straight answer, though it was hard not to sniff an implied rebuke to Merseyside in Leese’s proud declaration that “what Manchester was first to do was to recognise the importance of scale… It’s now over a decade since we had the first Greater Manchester strategy [in which] the 10 local authorities joined up to agree a joint economic strategy…” Shortly before I met Leese, the newly created Liverpool City Region Combined Authority had got off to the worst possible start when the leader of Liverpool City Council, Joe Anderson, threatened to withdraw after a vote on the leadership of the new body was taken in his absence. The contrast with the two decades of stable leadership that had culminated in the formation of the Greater Manchester Combined Authority in 2011 was impossible to miss.

A new report written by Paul Swinney and Elli Thomas of the Centre for Cities emphasises the importance of long-term economic planning at city-region level of the sort Leese was describing, especially in former industrial cities like Liverpool or Manchester that are trying to “reinvent” their economies. “The economy is not static,” Swinney and Thomas write. “It constantly evolves, and cities have to evolve with it. This means that in order to be successful, cities need to constantly encourage growth in new areas as old areas activity inevitably decline, as Manchester is increasingly doing.” Swinney and Thomas’s data suggests that Liverpool is making a much less convincing fist of this.

Their report is entitled A Century of Cities: Urban economic change from 1911 to 2013, and it aims to show how the kinds of economic benefits that cities offer to workers and businesses have changed over the past hundred years. In 1911, businesses based in cites benefited from what are known, in the academic jargon, as “agglomeration” effects—access to large numbers of workers, suppliers and customers, proximity to rivers, ports and railways and so on. Cities also offered the benefits that come from what Swinney and Thomas call “knowledge spillovers”—the ability to share ideas, information and other forms of “tacit knowledge”.

In the industrial age, the benefits of agglomeration were more significant than those flowing from knowledge spillover. Today, Swinney and Thomas argue, the reverse is true, and it's cities with concentrations of jobs in “knowledge-intensive industries” (anything from financial services and web design to architecture and PR) that are flourishing. Globalisation and technological progress have transformed the kinds of benefits that cites can offer to the businesses that make their base there. The most obvious symptom of these changes is the decline of manufacturing: in 1911, mining and manufacturing accounted for 45 per cent of all jobs in England and Wales (the report’s figures don’t cover Scotland and Northern Ireland). Today that figure is 10 per cent. (One striking aspect of Swinney and Thomas’s report is their scepticism about the role that so-called “advanced manufacturing” plays in current debates about industrial policy and economic “rebalancing”. “Advanced manufacturing,” they say, is a “buzzword in economic development circles,” but most of the new jobs being created in the manufacturing sector tend not to be “particularly advanced”. In his 2011 budget statement, George Osborne envisaged a “Britain carried aloft by the march of the makers”—if Swinney and Thomas are right, then the Chancellor’s vision is unlikely to be realised any time soon.)

As manufacturing and other kinds of heavy industry have declined, cities have had to find new kinds of competitive advantage. And of course some cities have met this challenge more successfully than others. Swinney and Thomas arrange the successes and the failures at urban adaptation into two classes: “reinventors” and “replicators”. Replicators, in this schema, have replaced the low-skilled manufacturing jobs of the past with other kinds of low-skilled jobs—Swinney and Thomas call this the “coal miners to call centres” model. Reinventors, on the other hand, have “reinvented their economies, creating jobs in activities such as IT and digital media”.

Now, the distinction between replicators and reinventors maps fairly neatly onto the north-south divide. Of the 41 replicators, 30 are in the north, the midlands or Wales. (There’s also a significant concentration of replicators on the south and east coasts—declining seaside resorts and ports of the kind that Ukip has been targeting very successfully over the past year or so.) Thirteen of the 16 cities designated as reinventors are in the south.

But the north-south divide is not the whole story—there are significant intra-regional disparities too, and this is where Manchester and Liverpool come in. One of the tables in the report shows that north of Northampton, only Manchester, Warrington and Leeds have more than 12.8 per cent of jobs in “knowledge-intensive business services” or KIBS. In Liverpool, by contrast, the relevant figure is in the range 9.7-12.8 per cent.

What makes Manchester’s relative success—and I say “relative” because the labour market in Manchester today is still 2 per cent smaller than it was in 1911, although the number of jobs in the city grew by 24 per cent between 1991 and 2013—so remarkable is that it bucks some fairly implacable-looking historical trends. “History,” Swinney and Thomas write, “has a large influence” over the ability of cities to reinvent their economies. “The past [is] a predictor of the present.” This is what economists call “path dependence”, and it’s clearly important. But, if Swinney and Thomas’s analysis of Manchester’s economic trajectory over the past century is anything to go by, history is not destiny. As they point out, in 1911 Manchester had a “low knowledge base” (in other words, it had a small number of jobs in those “knowledge-intensive” services). In Liverpool in 1911, on the other hand, the proportion of such jobs was much higher. So what changed? In Swinney and Thomas’s terms, Manchester has managed to shift from the “low knowledge pathway” followed by most “replicators” to a “high knowledge pathway” in which a city makes itself attractive to “knowledge-focused industries”.

One moral to draw from this—and I think this was what Leese was getting at when I spoke to him in the summer—is that policy (and politics) matters. Cities needn’t be prisoners of their pasts provided those responsible for urban economic strategy recognise the imperative to, as Swinney and Thomas put it, “improve the stock of knowledge in cities and address the implications of industrial decline.” Manchester’s leaders began to do that 20 years ago. Liverpool’s have some catching up to do.