• Thu. Sep 21st, 2023

News Eyeo

All Important News

How can policy support the flourishing of the clustered new economy?


Sep 12, 2023

Clustering, or the co-location of firms, has been a topic of interest for policymakers for a long time. Many places claim to have neighborhoods that attract innovative firms. This interest continues today, with influential figures like Gordon Brown and the Chancellor highlighting the importance of clustering in specific sectors.

A recent report using data on ‘new economy’ businesses has identified 344 hotspots of innovative activity in the UK. These hotspots, despite being only 0.6% of all businesses and 0.1% of land, have a significant impact on the economy. They contribute around 1% of national output and provide 200,000 jobs. Additionally, cities with hotspots have experienced faster economic growth since the financial crisis.

Hotspots are predominantly found in urban areas, with almost 90% of clustered firms located in cities. City centers, in particular, have a high concentration of hotspots due to the advantages they offer in terms of access to workers and other knowledge-based businesses. However, not all cities perform equally well in terms of clustering. Cities like Bradford and Huddersfield have no hotspots, while larger cities like Birmingham, Liverpool, and Sheffield have fewer and smaller hotspots compared to what would be expected.

The Greater South East, especially London, has a significant number of innovation hotspots. London’s array of benefits makes it an attractive location for businesses at the forefront of the economy. On the other hand, the lack of clustering in other large cities explains why many hotspots are concentrated in the Greater South East.

Contrary to popular belief, hotspots of clustering are rarely specialized in one industry. Only 24 of the identified hotspots in the report specialize in a particular industry. Instead, hotspots are often mixtures of various innovative activities. This challenges the government’s Investment Zones policy, which focuses heavily on specific sectors, suggesting that a broader approach considering the benefits of a place for businesses would be more effective.

To encourage clustering among innovative companies, policy should focus on three main areas. Firstly, land use policy should allow for the expansion of office space near existing hotspots and well-connected locations. Secondly, the performance of large cities, especially their connectivity in city centers, needs improvement to support clustered new economy businesses. Lastly, rather than creating new hotspots, policy should prioritize supporting and growing existing ones.

In cases where hotspots are not operating under specific constraints, interventions such as transport investment and regeneration schemes should be targeted towards these areas. Additionally, national interventions to promote equality across regions should consider hotspots as potential destinations for new investment within cities, towns, or regions.

By Editor

Leave a Reply