One of those things that is definitely true but the interesting – and unknown – part is going to be how much it is true. Covid is going to cost us the economic benefits of agglomeration. This might be more colloquially known as learning by being at the water cooler, or ‘fings I learnt at the pub.
One of the grand truisms is that workers in cities are more productive than workers outside them. Yes, sure, perhaps not at growing wheat but in general. The thinking being that simply being a part of a large group of people that continually interact leads to more ideas, more contacts that spark ideas, greater availability of the resources to put ideas into practice and so on. Cities are founts of innovation that is and it’s innovation that raises productivity.
The last orders facing pubs across swathes of the country as they head into the UK’s toughest Covid-19 restrictions are a tragedy for the tens of thousands of staff affected, and businesses which may never reopen. Protests yesterday in Parliament Square underlined the depth of feeling in a hospitality industry compared by one restaurateur to Saint Sebastian: tied to a tree and shot full of arrows by ministers.
But devastating though they are for those in the firing line, the direct impact on the economy of such measures is small. On the official reckoning, accommodation and food services account for just 2.9pc of overall GDP across the entire UK. Regional data is far less developed, but Tier 3 restrictions are unlikely to knock more than a sliver of a percentage point from output.
The key word here is “direct”, though. What is much harder to measure – and would be much more useful to know – is the indirect effects of such closures. The exchange of ideas, the buzz of creation and the benefits of proximity are anathema to controlling a pandemic. While the UK has seen record plunges in output this year thanks to lockdowns, arguably the intangible recession will take longer to show up and could do a greater amount of lasting damage, even after the economy has in theory fully reopened.
Take an example from Prohibition-era America. Before the alcohol ban went nationwide, states and counties were allowed to choose whether to keep serving booze. The economist Michael Andrews’ fascinating examination of patent filings showed a fall of up to 18pc in “wet” areas after the US-wide restrictions came into force. Andrews concludes that the “observed effects were driven by the decline in social interactions”, and adds that “networks are important for innovation because they facilitate the exposure to new ideas”.
Locking down Manchester doesn’t matter of course because no one’s had an idea there for a century. But we do indeed know that killing off the office, the urban mixing of people, is going to leave us poorer than if we didn’t. In and of itself that is, the net effect might be to keep us alive and thus rather richer.
How much this is going to be true we can also have a stab at. It cannot be larger than the benefits we gain through innovation in agglomerations. The problem there being that the usual economic literature thinks that’s rather a lot of the ongoing advance of the society. We’ll not lose much – that few percent – of what we’ve got but we’ll miss out on a lot of what could have been developed.