The future success of the Greater London Area will require a high concentration of complementary skills to be located inside our compact geographical area.
Special to The London Free Press
January 8, 2005
For the last 150 years, London has been on a very successful journey. As we look to the future, will London have its place in the sun in the next century? Will our children and their children make their home in London or will they have to go elsewhere?
Will we have a prosperous, high-quality way of life?
The answers to these questions will depend on our ability to pay our way in the world.
If we wish to be in control of our own fate, then we have to be economically prosperous. Economic prosperity earns us the right to choose how we wish to live. Otherwise, we sort of have to take what we are given by others.
Fortunately, we don't have to agree on just what we want our future to look like, but we probably can agree that we want to retain and augment our right to choose.
What actions do we take now to prepare ourselves for a prosperous economic future?
Many researchers and advisers have come to the conclusion that the city is the basic economic unit. One of these researchers is Jane Jacobs. She believes that the economic strength of the city determines the quality of life of its citizens. While Jacobs referred to the city, her writings show she meant what we would call the Greater London Area (let's call it the GLA).
So the context for our questions is that our future standard of living will be determined by the economic strength of the GLA. Or in other words, our right to choose our future will be determined by the economic strength of the GLA. In an economic sense, it's us against the world.
We could move to a place that's being managed better, but if we want to be in control of our own future and that of our children, it sounds like we ought to pay a lot of attention to the economic strength of our local area.
First of all, who is responsible for the task of making the GLA prosperous? The traditional way of looking at this was that we sort of assumed that large companies and senior governments were making sure that our future would turn out well. In actual fact, economic development agencies such as the UN and World Bank learned that the only real economic strength comes from the bottom up and not the top down.
This means that to be in control of our future, we will have to be more self-reliant in managing our own affairs. Like it or not, we are all part of the economic organism called London Inc. How could we take a hold of that task?
In order to realize that we are responsible for our own prosperity, we have to understand that we, as residents in our community, are the wealth creators in the system. We create wealth by competing profitably in free and open markets.
So if we do the Canadian thing and ask our governments for help, we are sort of getting the cart before the horse. There are legitimate roles for governments to be sure, but they live off the economic wealth that we create, and not vice versa.
We may appreciate whatever resources senior governments may provide, but they are basically giving us back part of what we already gave to them.
London will be a high-quality place to live as long as we can pay our own way in the world.
How will we measure our success in doing this?
There are really two economies to think about - the external economy and the internal economy. London buys a great deal of goods and services from the rest of the world. In order to pay for that, we have to sell a lot of goods and services to the rest of the world.
That is what I call the external economy. Prosperous communities are those that are able to run a trade surplus with the rest of the world. The higher their trade surplus per capita is, the more access they have to a world full of goods and services, and the higher their prosperity. The same will be true for us in the GLA.
The internal economy, on the other hand, is made up of the goods and services we exchange with each other.
In terms of prosperity, our success in the external economy is the main determinant of our quality of life.
It is clear that the world is changing quickly. One has only to watch CNN for an evening to see the level of concern in the U.S. about the exporting of jobs.
In 1992, Lester Thurow wrote a book called Head to Head, discussing the economic competition that he saw coming among North America, Europe and the Far East. One thought from that book has stuck in my mind ever since. Thurow said that, at one time, the quality of life we could expect was basically an accident of birth. If you were fortunate enough to be born in a rich country, the chances were that you were going to enjoy a relatively high quality of life. Now, however, the situation is that if you have Third World skills, you will have a Third World income. This is because people in the Third World are willing to provide those skills for a lower price.
We have become familiar with the idea that our standard of living will depend on our skills. But Michael Porter, a Harvard professor, has pushed that understanding to a new level. For a skill to earn its keep, it must be combined with a whole lot of other skills, which can make it into a product that others will buy. Porter called this combination of skills a "skill cluster."
An example of a skill cluster is Silicon Valley, which I will discuss later. It basically contains a whole plethora of skills making it into an economic powerhouse.
Both Jane Jacobs and Michael Porter have concluded that an area can be prosperous if the skills required to make a skill cluster are all packed together in a limited geographic area. A skill cluster requires a high degree of interaction among complementary skill bases, so the geographic area of a skill cluster is not very large. As a rule of thumb, the high degree of interaction needed means that the geographic area is small enough that you can easily get together with anyone for lunch.
In the case of the GLA, the skill cluster area certainly includes St. Thomas, Strathroy, Ingersoll, perhaps Woodstock, but not likely Brantford, Stratford or Sarnia.
Innovation is critically important for prosperity. If efficiency has created one inch of improvement in our standard of living in the past hundred years, then innovation has created a mile.
To appreciate the power of innovation versus efficiency, imagine the most efficient economy that would be possible before the harnessing of electricity and compare it to our life today.
Recent thinking about economic strength tends to revere size. The economy is a balance of forces and there are exceptions to every rule, but in general, the concentration of economic power seems to reduce the degree of creativity and innovation. Skills captured within a hierarchy eventually have only one brain making decisions. On the other hand, independent skill bases who choose to work together through a market place, allow for many brains to work creatively.
To the extent that London can choose it, we should opt for a structure that facilitates creativity and innovation. Enticing large branch plants to locate here is not sufficient. While branch plants can bring some important skills to the city and can use some of our existing skills in the process, they cannot guarantee us long-term prosperity. We have to do that for ourselves. And in the long run, innovation trumps all in producing economic prosperity. So we should do all we can to foster and support it.
In London, we have some skill bases of which we can be properly proud; in particular, medical and medical research skills and some superb educational capabilities at the University of Western Ontario and Fanshawe College.
But we should understand that these are institutional skill bases primarily financed by government. They are not market-oriented. Some find it strange to consider research capabilities as economic assets. However, some very prosperous communities have learned to complement such institutional skill bases with market-driven innovators, thereby producing strong skill clusters. In the process, both the institutional skill base and the community are strengthened. In nature, this is called a symbiotic relationship where partners strengthen each other through co-operation.
What sorts of skills are we short of?
In the skill cluster that was Silicon Valley, there were the obvious skills, such as making computer chips and the clean rooms in which to fabricate them. But in addition, there were the integrators who could put all the pieces together and get a product to market. Along with these entrepreneurs came the venture capitalists, who knew how to scramble together the capital required.
One of our critical needs in London is to attract and keep entrepreneurs who can build our skills into skill clusters and get our products to market.
By doing that, we end up with the very best asset that it is possible to have - talented people who want to live here and help make London prosperous.
I think that is already happening in the Kitchener-Waterloo area, when we see people such as the founders of Research in Motion (RIM) who have developed important new skill clusters, and who want to live there. They started there, they're staying there, and they're helping others to emulate them.
What can we do individually in London?
We can certainly apply effort to understanding the economic organism that is the GLA. One of the principles we can apply from successful businesses is that when we have a common understanding of where we're going, many people can start to see opportunities.
Can a community actually achieve a consensus on what it wants to become and thereby take hold of its economic future?
Las Vegas did it. They decided to become the convention capital of the world and by working together that is what they have achieved. And the players who have done that are, at the same time, very fierce competitors with each other.
Another thing we can do is to encourage our children to consider the career of an entre-preneur. We should encourage them to participate in the free market earlier, perhaps through such vehicles as Junior Achievement.
One of the lessons that we can take from our neighbours to the south is the title of Lester Thurow's latest book, Fortune Favors the Bold. For more than two centuries, the Americans certainly have been bold, and they became the richest and most successful country in the world because of it.
Being innovative will require us to be bolder.
We can encourage and nurture our entrepreneurs. We can encourage our teachers to make our children aware of the benefits brought to us by innovation and who brought those innovations into existence.
Lastly, we should be keenly aware that our own skills are part of the GLA skill cluster. Making continuous improvement of our skills a way of life enhances not only our own income but the power of the skill clusters we are a part of and the prosperity of our own community.
The future of London? Tag - you're it!
Peter C. Maurice is a former CEO of Canada Trust and is now a corporate director and consultant. He has been involved in urban economic development for the last 20 years
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