Published on 6 November 2023
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Unlocking Cambridge’s potential: the route to Europe’s Silicon Valley and a thriving UK economy

We recently published a post by Ron Martin and Mia Gray about the potential expansion of Cambridge - a proposal that has sparked some controversy locally and nationally, and involves some complex issues. In this post, Ben Ramanauskas contributes another perspective on this important debate, arguing the case for further agglomeration in and around the city.

Earlier this year the Secretary of State for Levelling Up, Michael Gove, announced plans to transform Cambridge into the ‘Silicon Valley of Europe’. Many people have raised objections over its potential impact on Cambridge and the wider economy. However, as long as impacts on the environment, infrastructure, and the surrounding area are given serious consideration, then turning Cambridge into Europe’s Silicon Valley is a necessity for the city and will not happen at the expense of the rest of the UK.

Bigger really is better

There is ample evidence which shows that size matters when it comes to the productivity of places. There are numerous economic benefits that stem from agglomeration – most importantly, it increases the productivity of cities. For example, a paper from Imperial College London which examines the impact of agglomeration on productivity concludes that, on average, larger places tend to be more productive. 

This is because agglomeration has greater impact on activities which are centred around knowledge creation. This matters to Cambridge, which is a research-intensive city both in academia and industry. Therefore, increasing the number of skilled people in Cambridge sharing ideas with each other could have a substantial impact on productivity in the city and the surrounding region – as long as there is adequate broadband and transport connectivity between homes and jobs.

This is important as productivity is the key driver of economic growth. As the Nobel Laureate in Economics, Paul Krugman, once stated: ‘Productivity isn’t everything, but, in the long run, it is almost everything’.

How investing in Cambridge will benefit the entire country

It could be argued that much of Cambridge is already affluent with an abundance of high skilled and well-paid jobs and that the focus for growth should instead be on investing in the UK towns and cities that are lagging behind.  As someone who grew up on a council estate in West Yorkshire, I too share the concern that many areas around the country are in desperate need of ‘levelling up’ and that these areas and the people who live in them need investment and more opportunities.

However, objecting to the Cambridge plans on this basis is misguided. Growth anywhere is welcome, and it is not a zero sum game. Allowing Cambridge to grow will help to spread prosperity around the country.

The most immediate beneficiaries of this will be the towns and villages surrounding the city. This is because cities have spillover effects. Highly productive cities spread wealth to surrounding towns and villages, whereas towns and villages close to less productive cities tend to struggle.

However, these benefits will spread far across Cambridgeshire and the neighbouring counties. Productivity gains resulting from development in Cambridge will boost wages for workers and profits for businesses in the city and surrounding areas. This will increase revenue for the Treasury which can go towards investing in transport infrastructure and other projects around the country.

Of course, this does not mean that the government should simply ignore other places. Far from it. Cities in every region of the UK should also be allowed to develop and grow so that they can boost growth in their neighbouring towns and villages.

We need to get building

Of course, people in Cambridge need places to work and live. Currently the city’s world class researchers and businesses are struggling to expand due to a shortage of office and lab space. This prevents them from expanding and they are missing out on crucial investment. The planning system needs to be liberalised so restrictive rules about building ‘what’ and ‘where’ can be relaxed. For example, building height restrictions should be lifted so that taller structures can be built. A review of the green belt should also be undertaken so that any land which is of limited environmental or agricultural benefit can be built on.

The recent planning reforms in Houston, United States (US), for example, show how a city can build more, and in an environmentally friendly way, while also taking the views of current residents into consideration. Houston was, for decades, seen as an example of how not to do planning. Urban sprawl was a real issue with many residents being completely reliant upon cars. The city reformed its planning system to one which meant that developers used the land in a more efficient manner by utilising ‘gentle density’ with new homes, parks, public transport infrastructure, and other amenities all being built. A similar approach would allow for the land in Cambridge to be used more effectively.

Crucially, Cambridge needs more homes. Not only to house new employees and their families but current residents. The UK’s restrictive planning system has meant that Cambridge has failed to build enough new homes over the past few decades and is too expensive for even highly qualified workers, still less for people doing all the other kinds of jobs a thriving city needs. As supply has not kept up with demand, house and rental prices have made the city’s housing unaffordable for most. The evidence is clear: it is supply constraints stemming from the restrictive planning system which are driving high housing costs across the country, not just in Cambridge.

Moreover, a restrictive planning system is also hampering productivity and economic growth. For example, evidence from high productivity cities in the US demonstrates that stringent planning restrictions have a significant negative impact on productivity and economic growth. Therefore building more homes in and around Cambridge will not only make housing more affordable – as it has done in New Zealand – but will also boost productivity.

Learning lessons from Silicon Valley

The obvious concern about more building and growing a relatively small city like Cambridge is the impact on congestion, the environment, and the quality of life. San Francisco serves as a warning about how a thriving tech cluster in Silicon Valley has made the city unaffordable, unequal, and less healthy. What lessons could be taken from the issues facing Silicon Valley such as poverty, the environment, and expensive housing?

Michael Gove’s plan could avert some of these issues. Take the high cost of housing; as the main driver of this is the failure to build enough homes, the lesson is to ensure supply keeps up with demand.

When it comes to the environment it’s again important that any development helps the UK to meet its Net Zero goals. This means taking the natural habitats of wildlife into account, for instance, and ensuring that renewable energy infrastructure such as solar panels and wind turbines are constructed. Silicon Valley is far too car dependent so any new plan for Cambridge must invest upfront in public transport to make it safe and easy for commuting on foot or bicycle.

Building more homes and sustainable energy and transport infrastructure will also help people on low incomes. Housing costs are the biggest expense for most people, especially those on the lowest incomes. A recent study revealed that housing costs are effectively cancelling out the benefits of living in high productivity areas when it comes to wages. It’s also possible to see the devastating impact of high energy prices for households. Increasing the supply of both housing and energy would relieve the pressure on household budgets.

If done properly, coordinating across different policy areas and national and local government, and ensuring residents enjoy early benefits – for example from public transport investment – then transforming Cambridge into the UK’s Silicon Valley has the potential to boost productivity and bring about sustainable economic growth.

Image: Cmglee, CC BY-SA 3.0, via Wikimedia Commons

The views and opinions expressed in this post are those of the author(s) and not necessarily those of the Bennett Institute for Public Policy.


Ben Ramanauskas

Ben Ramanauskas is a research fellow in economics at the University of Oxford, and a former adviser to the UK government.

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