The Competitive Economic Performance of English Cities

The Competitive Economic Performance of English CitiesProductivity3.4.4 We argue that the overall economic output performance of urban economies ismainly driven by the competitive performance of the firms located in them. Forthis reason we now turn to the analysis of the factors driving and determiningthe relative competitiveness of the best and worst performing urban economiesamong our sample of 56 English cities. We have argued in Chapter 2 that thethree critical indicators that reveal the competitive performance of urbaneconomies are labour productivity, employment rates, wages and profits. Thesefactors are interrelated. Truly competitive economies will be characterised by acombination of rising productivity, full employment and rising wages. The levelof output in an economy, for example, is a function of both the efficiency orproductivity of labour and the amount of labour being used. Porter and Ketels(2003) have shown that during the 1980s and for most of the 1990s the levels ofproductivity achieved in the UK were largely the result of reductions in theamount of labour rather than improvements in the efficiency with which thatlabour was used. In many places this led to jobless economic growth. This is thecase even with historically high employment rates because the real rates ofunemployment especially in some northern cities, are often hidden in thesickness and incapacity data. They also argue that the UK is coming to the limitsof that strategy and now needs to concentrate on using the available labourmore efficiently by focusing on innovation and knowledge intensive activities.3.4.5 Figure 3.9 shows the rate of change in productivity in our sample of high andlow performing cities. Not surprisingly it may be seen that most of the topperforming economies in terms of GVA per capita also exceed the Englishaverage change between 1996 and 2001 of 13.7 per cent. Portsmouth is theexception to this rule. Productivity actually appears to have declined over theperiod in Blackpool, Blackburn and Hastings. Among our case study cities,productivity improved by more than the English average in Derby, Cambridgeand London. Sheffield came close to achieving the national averageimprovement in productivity.3.4.6 Figure 3.10 confirms that there is a strong positive correlation (R 2 = 0.7563)between change in GVA per capita and productivity among our sample of highand low performing TTWAs. Although not as strong, this is also reflected in apositive correlation (R 2 = 0.5365) among the 56 cities analysed in this study.3.4.7 The efficiency with which productive resources are used in an urban economyis critical to the overall competitiveness of that economy. This applies not just tothe traded sectors but to all sectors. Much of the improvement in productivityin the economy of the USA, for example, was due to productivity gains in theretail sector exemplified by companies like Wal-Mart. The phrase that is used tocapture the essence of this wider approach is total factor productivity. Thisembraces the combined impacts of innovation, enterprise and the efficiency ofall sectors in an economy and also the way in which the relationships betweenthe economy and governance structures are organised. There are no measuresavailable for total factor productivity at the level of urban economies. Wetherefore use labour productivity defined as GVA per employee as our measureof the productivity of the TTWAs analysed here.78