It’s The Benefits Of Agglomeration That Covid Will Cost Us

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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.

OK, so:

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.

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Spike
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Spike

The political class has defined the goal as acquiring bragging rights for “overcoming” and “eradicating” the virus. No longer deaths but detectable pieces of dead viruses (after PCR amplification by one trillion) becoming ZERO is to be the highest and only value.

Not just the (exponential) economic growth lost by eliminating these personal contacts, but the lives lost through suicide and substance abuse in a world scared of the human touch – these are simply not values at all. This is what the zero-risk sector brings to everything it touches.

Arthur the Cat
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Arthur the Cat

Back in the early 80s, when I was working in academia, the prof who was head of my research group went on sabbatical at Xerox Parc. He got invited to monthly wine tasting parties run by an old friend, and was amazed when he went to the first one because he found it was full of the senior technical people from all the computer companies in Silicon Valley and they were often discussing problems they were having with developing new products, with others making suggestions based on their experience. All this information was supposedly company secret IP and a corporate… Read more »

James
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James

I think that the biggest cost in the long term will be due to the lack training of young people. The middle class sabbatical that is working from home means that middle managers can be more productive by ignoring junior staff.

Quentin Vole
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Quentin Vole

Will the loss of these benefits outweigh the savings in time and money from not commuting, or reduced office rental costs? But, of course, such savings are also a reduction in GDP, fatuous statistic that it is.

Bloke on M4
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Bloke on M4

But we’re gradually replacing some of that with this sort of stuff, aren’t we? Posting things on Facebook, Twitter or Scandium Oligopoly Inc pages.

Spike
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Spike

Some of it. But I’d ask a friend for advice on my trade-secret project over beer at the pub. Not on the Forever Internet.

Michael van der Riet
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Michael van der Riet

Wasn’t there a French economist who wrote about what is seen and what is not seen? Lockdown and isolation may indeed have saved a few lives. This is very visible thanks to the daily listing of corona statistics. Obviously none of those saved lives were British. In fact bottling up the little virus may even have made it more virulent. Meanwhile quality of life indices world wide have dropped stone-wise in lockdown countries with spousal abuse featuring strongly. Perhaps in the UK, sixty-five thousand had a year added to their lives while the other sixty-five million face decades of life… Read more »