The Bigger Picture

As part of our advocacy role encouraging a climate of opinion in which sustainable development can become a reality, promoting wider public debate and shared learning, the London Sustainable Development Commission have invited commissioners to write a series of blogs dedicated to the big sustainability issues of the moment and invite experts within the fields covered to respond. 
Whilst the LSDC advises the Mayor on his duty to deliver sustainable development in London these blogs fall outside of this element of our work. They are not intended as a call to action for the GLA or the Mayor nor are they intended in any way to highlight a gap in policy or delivery from the GLA itself. They are instead designed to stimulate debate from across London’s sustainability sector, move thinking forward on a range of issues and share learning. We would love to hear your views so each blog will be followed by a webinar where we explore the topic in more depth and where you will have a chance to contribute. 

London's diverse assets drive the city's prosperity - they need to be valued

Dimitri Zenghelis

By Dimitri Zenghelis, Project Leader on the Wealth Economy Project, Cambridge University and commissioner on the London Sustainable Development Commission 

January 2020


London is defined by its wealth. Its assets are its people, its built infrastructure, the ideas and creativity the city generates. The green spaces and natural habitats we enjoy and which help regulate our air and water supplies, as well as the trust in society and institutions that keep a complex city going, also form part of London's wealth. Taken together, these assets not only make London an exciting and creative place to live and work, they also act as the dynamo generating future prosperity.
Prosperity depends on access to the range of assets people need to fulfil their economic potential and lead a meaningful life. Physical assets include the buildings (homes, offices, factories, warehouses, schools and hospitals), transport, energy, water and communications infrastructure we rely on every day. 
London also relies on its natural capital. This generates flows of environmental goods and services over time. Like all assets, natural capital requires targeted investment and maintenance such as the planting of trees, setting aside green spaces, environmental restoration and conservation investments. London’s green spaces and parks make the city more attractive and livable. They reduce pollution, help retain water and prevent floods. They also provide a wide range of benefits from contact with nature for health and mental well-being. London's landmark natural capital accounts showed how learning and relaxing alongside nature promotes children’s healthy development and nurtures positive environmental attitudes and values. Disadvantaged areas have the least access to green landscapes. Better green spaces starting with social housing estates, would have a positive impact on health and well-being as well as social inclusion and economic opportunity.
Even more important to London are its human assets. The Mayor is right to highlight London’s diversity as a driver of the knowledge economy. London’s vibrant cultural life and its ability to attract talent and investment from across the world helps it to share ideas and experience, drive innovation and improve productivity. Innovation generates knowledge capital. This matters, because in advanced economies economic growth is driven by learning and innovation and the accumulation of ideas, skills and ‘knowledge capital’.
Also important is London’s social capital. Civic engagement and effective institutions go hand-in-hand with economic wellbeing and growth. Social capital reduces transactions and monitoring costs and enables social and economic cooperation and exchange. Higher levels of trust among people fosters cooperation and productivity growth. A recent study from Cambridge University suggests that for every 10 percent increase in the interpersonal trust indicator, productivity increases by 0.56 percent. The quality of governance and institutions explains a significant part of the variation in rates of growth and investment across countries.
Intangible capital, of which social capital is a part is a commodity London harbours in abundance. The World Bank estimates that intangible capital (consisting primarily of knowledge, social and institutional capital) may make up between 60% and 80% of total wealth in most developed countries. These assets are not currently measured, yet we can only live equitably and sustainably if we genuinely value our wealth including our society and natural wealth.

Low carbon, resource-efficient cities have more productive assets

Cities are social knowledge networks with associated infrastructure. They exist to bring people together and generate static efficiency by sharing infrastructure and promoting matching. But cities like London contain a concentrated mix of specialisation and diversity, rich physical and human networks and access to finance which allows them to thrive by creating knowledge.
Knowledge and innovation allow us to get more out of the resources we have. Unlike other resources, knowledge capital is weightless and does not deplete The Global Commission on the Economy and Climate found that compact, connected and coordinated cities are more productive, socially inclusive, resilient, cleaner and safer as well as producing lower GHG emissions. It identified a recognisable reinforcing urban relationship between innovation, productivity and resource/carbon efficiency.
Encouraging urbanisation and connectivity through investing in assets such as the provision of efficient and affordable housing, infrastructure and transport reduces the need for material and fuel resources. It also allows businesses to connect with workers and customers, kick-starting innovation and correspondingly driving productivity and wage growth. Connectivity boosts resource efficiency and the social and economic returns on capital.
London needs to take full advantage of the efficiency gains associated with the ICT revolution to help expand and connect the city’s knowledge capital. Cities that think, adapt and evolve will learn to make good use of their resources, food, energy, health, communications and climate through the use of smart grids and buildings with responsive energy management.
Investing in one form of sustainable capital changes the returns to investing in others. For example, providing cycle infrastructure will encourage people to invest in cycling and pressure politicians to provide better cycle infrastructure: a virtuous behavioural spiral that encourages better physical and mental health and boosts social and human capital. Sustainable cities, involving communities enabled and committed to self-improvement, have been shown to be the most cost-effective way to provide basic services, opportunities and a high quality of life.

Diverse resilient assets reinforce each other

These assets are complementary and mutually support each other. Undermine one, and you reduce the returns on all. For example, investment in skills (from jobs training programs to secondary education) help raise wages, attract talent and promote urban growth. An economy with skilled workers and a large stock of fixed capital raises the returns to getting trained and educated which induces further investment in human capital. Educated and healthy people improve the flow of information vital to civic inclusion, democracy and effective governance thereby reinforcing social capital.
The intellectual economy is reliant on investment in physical and human capital. For example, investing in computers induces bright ideas on how to use them. This in turn raises the returns to investing in computers. Investing in integrated public transport and cycle infrastructure changes people’s modal behaviour and enables new apps to monitor and report real time departures and arrivals and cycle dock availability.

Investment in assets drives sustainable growth

According to studies from the OECD and the New Climate Economy, there is now a recognised link between cities’ environmental performance, urban form and economic prosperity. Retaining global competitiveness requires continued innovation, not just in technologies, but also institutions, and behaviours. London can set a global precedent and build on its expertise in one of the fastest-growing markets: resource- and carbon-efficient urbanisation.
Now is a good time to invest in sustainable urban assets which generates wealth. Real interest rates at which public authorities can borrow are negative, and futures markets anticipate they will remain so for many years to come. This means that essentially interest-free public borrowing can fund investment in key assets. 
Whilst GDP is an important measure, which must continue to evolve, its growth is not the only way to improve the quality of life. In a study in Cambridge, we are proposing to supplement GDP with a dashboard of metrics based on the ‘wealth economy’. Adopting such measures would allow us to assess London’s long-term capacity to deliver sustained growth and improving living standards.
Successful cities invest in key assets which complement each other. The choices made in London today on people, transport, infrastructure, buildings as well as green spaces and institutions, will determine the technology, institutions and behaviours the city locks in to. This will not only determine whether London meets its 2050 net zero climate targets, but whether it captures the benefits of resource-efficient growth to boost prosperity, drive innovation and preserve the city’s international competitiveness.

Another view

Michele Pittini

By Michele Pittini, Senior Economist, GLA Economics

January 2020

Dimitri is right to emphasise the importance of all components of London’s wealth - human, social and natural capital as well as physical assets.  The notion of sustainability – in economics terms - can ultimately be connected to preserving the integrity of an aggregate stock of capital to underpin future growth in prosperity and wellbeing. As Dimitri and the Cambridge Initiative “Beyond GDP” argue, the realisation of the importance of these assets calls for better ways to measure and value them, so that they can be managed better through more informed policy decisions.
Various initiatives by international organisations in recent years (from UNEP to the World Bank and the OECD) have made this case while trying to improve the way in which economies account for all aspects of their wealth.  Domestically the Office for National Statistics has published, for several years, estimates of the UK’s human capital (currently under review) and has developed indicators of social capital.  Furthermore, it is working in partnership with Defra to develop natural capital accounts for the UK, with encouragement and support from the Natural Capital Committee.
Within its role and capacity, the Greater London Authority (GLA) has also made significant contributions to the way in which we measure different forms of capital and think about them in policy development.
The Natural Capital Account for London was a ground breaking study published in November 2017 that showed for the first time the economic value of health benefits that Londoners get from the capital's public parks and green spaces. This found that London’s public parks have a gross asset value in excess of £91 billion when considering general amenity, benefit to health and opportunity for exercise, and the value of recreation.
The Survey of Londoners, which was published in 2019, explored aspects of social integration (such as participation and relationship) which are often identified as key dimensions of social capital. Survey results showed that Londoners who interact with their neighbours (i.e. building local social capital) are more likely to feel they belong to London and to agree that London is a fair city, controlling for demographic and other factors. And building social capital has measurable wellbeing effects - Londoners who borrow things and exchange favours with their neighbours are 11 percentage points more likely to have high wellbeing than those who don’t, while Londoners who participate in formal cultural events are 13 percentage points less likely to be socially isolated.
And the Preliminary Resilience Assessment for the London Resilience Strategy has highlighted how by improving all the infrastructure that Londoners rely upon (“from green spaces, biodiversity and clean air to connectivity, transport, buildings and institutions around them; from water and pipelines in the ground to air transport above”) we can make the whole city more resilient.
The task quantifying the valuable but hitherto under-quantified aspects of our economy of society and environment is happening in arenas beyond economics and national accounting.  A wide variety of fields under the umbrella term ‘urban analytics’ has been applied to try to model asset values and interactions dynamically – for instance, what would be the economic, societal and financial implications if we either choose to invest or disregard them? These potential applications of urban analytics were discussed (among others) at a recent conference promoted by the GLA’s City Intelligence Unit.
But the need for new, complementary indicators of social progress does not end there. There are more socio-economic statistics that matter to an administration whose stated aims include ensuring London’s continued economic success alongside the ability of all Londoners to benefit from it.  Therefore at the Mayor’s request the GLA has developed Economic Fairness measures for London  – a dataset that allows us to measure how fair and inclusive London’s economy is through a number of indicators grouped under three themes: a labour market that works for everyone, equal opportunities and raising living standards. These include data on ethnicity as well as disability and gender pay gaps and highlight many dimensions of inequality of outcomes and opportunity in London, including stark inequality in the income distribution (the richest ten per cent have at least 9.7 times the income of the lowest income households).  While the economic fairness measures are not performance indicators for Mayoral policies (as they are driven by government policies as well as broader economic trends), policies such as the London Living Wage and the Good Work Standards aim to contribute to address some of the issues that the measures highlight.
Speaking for the economic intelligence and advisory team at City Hall I feel however that I need to add an important caveat to this discussion. From our perspective these innovative measurement efforts should aim to complement rather than replace more conventional metrics of economic performance. Despite their limitations and potential for improvement, income metrics such as GDP/GVA remain key indicators of the health of any national and local economy, being strongly correlated with employment (a key enabler of prosperity and wellbeing). As summary indicators they have useful property (not least the fact that they avoid double counting). And as part of the structured system of national accounts and economics statistics, they also enable the analysis and monitoring of a large number of economic phenomena, from productivity (GVA per hour worked) to the pace of decoupling between economic growth and emissions or material consumption.
So at the same time as the ONS seeks to push the boundaries of experimental statistics it is also essential for us that the ONS continues its valuable efforts to improve and expand their regional economic statistics (e.g. through the first ever quarterly estimates of regional GDP).


The ideas, views and opinions in these blogs are those of the individuals concerned, belong solely to the authors and do not reflect in any way the views, opinions or actions of the Greater London Authority or its associated delivery bodies. 

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