Economic Shocks A City Horizons Lecture, The Shard. London 12 - PowerPoint PPT Presentation

The Resilience of Cities to Economic Shocks A City Horizons Lecture, The Shard. London 12 December 2017 Ron Martin University of Cambridge (rlm1@cam.ac.uk) With: Ben Gardiner, Peter Sunley, Emil Evenhuis, Peter Tyler, David Bailey and Andy Pike ‘Structural Transformation, Adaptability and City Economic Evolution’ An ESRC-Funded Project (ES/N0006135/1) (www.cityevolutions.org.uk)

The Rise of ‘Resilience Thinking’ • Rapidly increasing interest in notion of resilience across physical, natural, social and organisational sciences • Succession of major natural, environmental and economic disruptions has focused attention on how local communities, cities, regions, nations, recover from shocks • General belief that we live in more shock-prone world (economic change and instability, global economic crises, disruptive technologies, climate change, terrorism, etc) – is instability the ‘new norm’? • Resilience has become key notion for how we respond to and cope with such disruptions 2

The Rise of ‘Resilience Thinking’ • The Growth of the Concept Published Items Web of Science 1400 Subject fields: 1200 Geography Published items As at 1 November Urban Studies, 1000 Economics, 800 Environmental 600 Studies, 400 Business, Planning 200 0 Accessed 1 November 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2017 3

The Rise of ‘Resilience Thinking’ 4

Rockefeller Foundation/ARUP City Resilience Index 52 Indicators (Critical factors that contribute to resilience) 12 Goals (that cities should strive towards to achieve resilience) 4 Dimensions (Health/ wellbeing; Economy/ society; Infrastructure/ environment; 5 Leadership/strategy)

On the Nature of Economic Shocks • What constitutes an economic shock? • Do shocks have merely transient or more permanent effects (‘remanence’, ‘hysteresis’)? • How is a city’s (region’s) resilience to shocks influenced by its developmental pathway? • How do shocks in turn influence a city’s (region’s) developmental pathway? • What about ‘ slow-burn ’ processes? Are these ‘ shocks ’ ? Or do they become shocks when they reach a ‘ tipping point’ or threshold? • In what sense are shocks opportunities? • Who gains and who loses from shocks? 6

What is a Shock? SPEED Sudden Slow Local Local firm closure Gradual loss of local Local natural disaster industrial competitiveness SCALE Contractionary policy change Persistent adverse national National Recession policy Technological disruption Global financial crisis Global climate change Global l Threshold Effects? Shock events Slow-burn processes

Type of Resilience Definition Self-restorative ‘Bounce Speed of recovery (return) to back’ pre-shock (equilibrium) state (or path) Absorptive Capacity Stability of structure and functionality (‘robustness’) when subjected to shocks Adaptive Resilience or Capacity for positive ‘Bounce forward’ adaptation to restore certain ‘core’ functionalities/ performances Transformative Resilience Capacity for major system transition in order to achieve stability/sustainability 8

The Interdependence of Shocks and Development? How does a city’s previous system and pattern of economic development and growth path shape its reactions to shocks? City’s City’s economic resilience to development shocks and path disruptions How does a city’s reaction and response to shocks shape its subsequent development and growth path? 9

City Economic Resilience as Process (The Four Rs) RISK RESISTANCE REORIENTATION RECOVERABILITY Scale, Nature and Duration of Shock Depth of City’s Post-Shock City’s Pre-Shock Vulnerability Nature and Reaction to Growth and Growth and and Exposure Extent of to Shocks Shock Development Development Adjustment to Path Path Shock City’s Economic Structures, Resources, Capabilities, Competences Business Cultures, Confidences and Expectations Local (and National) Institutions Nature and Extent of Supportive Policies and Measures 10

What Sort of Regional/Urban Theory for Resilience? Theoretical Role of Shock/Implied Interpretation of Resilience ¡ Framework New Economic Resilience as stability of an equilibrium regional/urban Geography (NEG) ¡ pattern of economic activity. Shock above critical threshold induces shift to new equilibrium pattern. ¡ Urban Economics ¡ Resilience as self-restoring equilibration through (geographical) mobility of labour and capital, and real wage adjustment. ¡ Evolutionary Shocks as ‘gales’ of creative destruction and Schumpeterian competitive selection. Resilience as economic ‘fitness’ and Theory ¡ adaptive capacity. ¡ Path Dependence Resilience as self-reinforcing development; sufficiently severe Theory ¡ shocks serve to ‘delock’ established development paths. ¡ Geographical Shocks as (over-accumulation) crises. Political Economy ¡ Resilience depends on nature of technological and spatial ‘fix’ by capital. Capital-labour conflict likely. ¡ Institutionalist Institutions and governance as buffers against shocks. Theory ¡ Stickiness of outmoded institutions reduces resilience; supportive and proactive institutions promote resilience. ¡

Measuring Resilience Focus ¡ Method Case Study ¡ Mainly narrative based, may use simple descriptive data, interviews with key actors, interrogation of policies, etc. May be comparative. Focus on ‘story telling’. Resilience Indices ¡ Singular or composite measures and ‘dashboards’, comparative across cities or regions, using key system variables of interest. May involve ‘resilience rankings’ of cities (regions). Statistical Time Impulse response models, error correction models. Focus on time taken for initial impact of shock to Series Models ¡ dissipate (how much of shock eliminated per unit time period). ¡ Causal Using urban (and regional) economic models to generate counterfactual positions of where system Structural Models ¡ would have been in absence of shock. Results dependent on model specification. ¡ 12

Friedman’s (1988) ’Plucking’ Model of Economic Shocks Focus is on time taken to return to long-run B growth path (A-B) and (a)symmetry Output/Employment of downturn (C-D) and recovery (D-E) Assumed that growth path A-B is unaltered by shocks t E Shocks as downward C 'plucks' from long-run A growth path D Time 13

Stylised Possible Reactions of an Economy to a Shock Positive Hysteretic Response: Bounce Forward to Raised Growth j Path and Raised Growth Rate Positive Hysteretic Response: Employment or Output Bounce Forward to Raised h Growth Path and Resumption of Pre-Shock Growth Rate e i Bounce Back to Pre-Shock Growth Path and Growth Rate Shock f Negative Hysteretic Response: Lowered Growth Path and d Resumption of Pre-Shock Growth Rate g b Negative Hysteretic Response: Lowered Growth Path a c and Slower Growth 1 2 3 4 5 6 7 8 9 1011121314151617181920212223242526272829303132333435363738394041 1 2 3 4 Time 14

Measuring City Economic Resilience • Simple Indices of City Resistance and Recoverability CONTRACTION − ( Δ Y / Y ) c EXPECTED RESIS c = ( Δ Y / Y ) c EXPECTED ( Δ Y / Y ) c RECOVERY − ( Δ Y / Y ) c EXPECTED RECOV c = ( Δ Y / Y ) c EXPECTED ( Δ Y / Y ) c • Need to define the ‘ expected ’ (counterfactual) position • Egs. what a city’s employment or output would be if pre- shock trends had continued; or what a city’s response would be if it had behaved the same as 15 national economy

Measuring City Economic Resilience >0.0 MOST RESILIENT Weak resistance but Good resistance and Recoverability good recoverability good recoverability 0.0 Weak resistance and Good resistance but weak recoverability weak recoverability LEAST RESILIENT <0.0 <0.0 0.0 >0.0 Resistance 16

Major Recessionary Shocks to the British Economy Major Post-War Recessionary Shocks, 12 (With Great Depression of 1930-1934 for Comparison) Percentage Change in GDP since 10 1990-1993 Beginning of Recession 8 1973-1976 6 1930-1934 4 1979-1983 2 2008-2013 0 -2 -4 -6 -8 1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 Months From Beginning of Recession 17

City (Employment) Resilience to 1973-76 Recessionary Shock 1973-1976 Recession, 1976-1979 Recovery 6 Northern Cities 5 Milton Keynes Southern Cities 4 Basingstoke Aberdeen Recoverability 3 2 Northampton Reading 1 Blackburn 0 London -1 Liverpool Glasgow R=0.632 -2 Sunderland -3 -15 -10 -5 0 5 10 15 18 Resistance

City Employment Resilience to the 1979-82 Recessionary Shock 1979$82'Recession,'1982$1990'Recovery'' 6# Milton#Keynes# 5# Northern#Ci;es# Southern#Ci;es# 4# Northampton# Crawley# Recoverability# 3# Peterborough# 2# Swindon# 1# 0# London# !1# Newcastle# !2# Middlesbrough# Merthyr#Tydfil# !3# R=0.560# Liverpool# !4# !3# !2# !1# 0# 1# 2# 3# 19 Resistance##

City (Employment) Resilience to the 1990-1992 Recessionary Shock 1990$1992&Recession,&1992$2008&Recovery& 2# Northern#CiIes# 1.5# Milton#Keynes# Southern#CiIes# 1# Telford# Recoverability# 0.5# Durham# Swindon# 0# London# !0.5# !1# Aberdeen# !1.5# Stoke#on#Trent# Eastbourne# R=!0.157# !2# !20# !10# 0# 10# 20# 20 Resistance#